I recently blogged about the SEC’s changes to the rules governing financial information required for significant acquisitions & divestitures.  We’ve received a number of memos on the new rules, which we continue to post in our “Accounting” Practice Area.  This Sidley memo  points out some issues that companies need to keep in mind as they work with the new rules. Here’s an excerpt addressing some unique considerations applicable to S-4 registration statements:

It is important to note that if an issuer’s acquisition of the target company is subject to a shareholder vote, the requirements of Form S-4 or Form F-4 will control what historical financial statements must be included for the target company in the proxy statement or proxy statement/prospectus.

Consider, for example, an acquiring issuer that files a Form S-4 proxy statement/prospectus in order to obtain any required shareholder vote. Notwithstanding the maximum two-year period called for in the final amendments, Form S-4 could still require three years of historical financial statements for the target company in the transaction subject to the shareholder vote.

However, if Regulation S-X requires that issuer to include in its proxy statement/prospectus historical financial statements for a target in an unrelated acquisition, the modified time period requirements set forth in the final amendments would apply to that unrelated target company.

The memo provides an overview of the rule changes and their implications in other areas as well. It addresses, among other things, the changes to permissible pro forma adjustments, the use of pro forma financial information in the “significance” determination, and disclosure requirements for individually insignificant acquisitions.

– John Jenkins

Under current market conditions, it probably wouldn’t be a big surprise to see more than a few potential M&A transactions attempt to surmount potential antitrust concerns by asserting a “failing firm” defense. In a recent blog, the FTC’s Bureau of Competition let everyone know that they’ve heard this one before – and that if you decide to go down this path, you’d better be prepared to make a compelling case.

This excerpt says that if the agency thinks you’re “crying wolf” with a failing firm defense, it will do some significant damage to your credibility:

Finally, a cautionary note for those advising and representing merging parties: think twice before making apocalyptic predictions of imminent failure during a merger investigation. Candor before the agency remains paramount, and it has been striking to see firms that were condemned as failing rise like a phoenix from the ashes once the proposed transaction was abandoned in light of our competition concerns.

No doubt some of these recoveries are due to the tireless efforts of the firm’s leadership and employees to turn around a struggling business. But other examples have suggested to us that a serious effort to assess the standalone future of the company was not undertaken before representing that the failure of the merger would result in the imminent demise of that company. Counsel who make too many failing-firm arguments on behalf of businesses that go on to make miraculous recoveries may find that we apply particularly close scrutiny to similar claims in their future cases.

– John Jenkins