DealLawyers.com Blog

Depending on the circumstances, public companies may have make Form 8-K filings disclosing the terms of an acquisition or divestiture. That filing obligation may arise under Item 1.01 of Form 8-K, which requires an 8-K to be filed when a company enters into a material definitive agreement, and under Item 2.01, which requires a filing upon completion of an acquisition or disposition that exceeds certain bright line size tests.

This Bass Berry blog provides a good review of the circumstances under which public company buyers may need to file a Form 8-K with the SEC disclosing an acquisition. Here’s an excerpt addressing things to consider when assessing whether a purchase agreement for a deal that falls outside of the bright lines laid out in Item 2.01 of Form 8-K triggers an Item 1.01 filing obligation:

If an acquisition is significant to a registrant but Item 2.01 is not triggered, then the registrant may have a challenging judgment as to whether the acquisition agreement should trigger a filing under Item 1.01 of Form 8-K. In this regard, relevant factors may include:
– Key income statement metrics of the acquired business compared to the registrant (which may include revenue, operating income, net income and EBITDA)
– The book value of the assets of the acquired business compared to the registrant
– The purchase price paid by the registrant in comparison to the book value of the registrant’s assets
– The purchase price paid by the registrant in comparison to the enterprise value and/or market cap of the registrant
– Whether the acquisition would result in a significant increase in the debt leverage of the registrant and/or would require additional debt or equity financing sources
– Whether the acquired business would give rise to a new product or business line or reporting segment of the registrant or otherwise further any key strategic initiatives or goals of the registrant
– Whether the registrant is particularly acquisitive (if this is the case, this may somewhat move the needle against Item 1.01 being triggered in connection with any particular acquisition)
– Whether any members of the management team of the target company will become executive officers or directors of the registrant
– Whether there are other obligations or benefits (including under ancillary agreements) material to the registrant related to the acquisition
– The past practice of the registrant with respect to whether it has filed acquisition agreements under Item 1.01 (if a similar past acquisition of a registrant has triggered an Item 1.01 filing, this may support the decision to similarly file a subsequent similar acquisition)

The blog notes that in assessing the income statement, balance sheet & purchase price metrics referenced above, some practitioners use a “rule of thumb” that if one or more of these comparisons exceeds 5% or 10%, that may indicate materiality, although qualitative factors also need to be considered.

– John Jenkins