November 9, 2018

It’s Complicated: Issuing Public Stock in a Private Deal

This Bass Berry blog reviews some of the complexities associated with using public company stock as an acquisition currency in a private company acquisition. This excerpt deals with the maze that buyers have to navigate if they want to issue registered shares in the deal:

– A pubco issuer considering the possibility of filing a new registration statement in connection with an acquisition must consider not only the expense and timeline associated with filing a registration statement, but must also consider whether the filing of a new registration statement will trigger the requirement to file financial information regarding such pubco issuer which would not otherwise be required in the absence of such a filing.

– If a pubco issuer wishes to register the issuance of stock in connection with an acquisition, this issuance must be registered on a Form S-4 (or Form S-1). In this regard, a Form S-4 is not automatically effective on filing (unlike a Form S-3 for WKSIs). For a company that regularly issues stock in acquisition, an S-4 registration statement may, however, effectively function as an “acquisition shelf,” in that it can be used to register securities for future issuance in connection with acquisitions on a delayed basis.

– Companies may also register the resale of stock issued to targetco equity holders in an acquisition on Form S-3. For example, this may occur if the acquisition agreement requires the parties to enter into a registration rights agreement in favor of the targetco equity holders. In this scenario, the stock must be issued in a valid private placement; however, registering the resale of stock allows the stock to be resold by non-affiliates without being subject to the Rule 144 holding period noted above.

The blog also touches on a number of other legal issues, including disclosure considerations, factors that may make a private placement more or less viable, reverse due diligence issues, and the structure of the acquisition agreement.

John Jenkins