Monthly Archives: September 2022

September 30, 2022

Divestitures: Transition Services Agreements

Because a divested business’s infrastructure is often so intertwined with the seller’s other businesses, a divestiture buyer often needs the seller to continue to provide certain services to that business for a period of time after the closing.  A transition services agreement is typically the mechanism used to identify those services & lay out the terms and conditions under which they’ll be provided.

This Deloitte memo provides an overview of some of the key issues that need to be addressed in order to ensure the effectiveness of a TSA. Here’s an excerpt discussing the need to identify the services that will need to be provided even before identifying a buyer:

Even without an acquiring business in place, a divesting firm can do its disentanglement evaluation and probable TSA planning. This allows for early negotiations about what services and levels it is prepared to supply and what it would cost for the parent company to provide those services. The teams will need to leverage functional blueprints to agree on the scope of services or processes to be covered under TSAs.

After a buyer is identified, the aim of both the entities should be to fix the scope of various services during the initial negotiations to provide both the entities clarity on the details of the services being negotiated. The final list of TSAs may differ from the original list as the buyer may have a substitute service/process already in place either in-house or through a vendor providing similar services.

In addition to review other planning-stage considerations, the memo also provides insight into how to determine the cost of the services to be provided and potential areas of friction that may arise during the negotiation process.

John Jenkins


September 29, 2022

Antitrust: Regulators are Breathing Fire – Do Courts Think They’re Blowing Smoke?

Antitrust regulators have been breathing fire about M&A in the past few years, but when it comes to their attempt to enforce their views, it appears that some courts think they’re blowing smoke.  The FTC had its attempt to derail the Illumina/Grail transaction rejected by one of its own ALJs, and just a few weeks later, a D.C. federal judge denied the DOJ’s attempt to enjoin the UnitedHealth/Change deal. To cap off a very bad month for the regulators, last week, another federal judge rejected the DOJ’s efforts to enjoin U.S. Sugar’s proposed acquisition of Imperial Sugar.

The DOJ’s defeat in the UnitedHealth case – and the judge’s sympathetic views toward the defendant’s proposed divestitures and other conduct-based remedies – has some commenters wondering whether the DOJ might rethink its “no settlements” policy.  Here’s an excerpt from Williams Mullen’s memo on the decision:

Whether the Antitrust Division will appeal the ruling remains to be seen. Perhaps more importantly, it also remains to be seen whether this defeat will cause the Antitrust Division to rethink its announced disinclination to settle merger challenges with proposed divestitures and other conduct remedies, instead proceed to trial seeking to derail the mergers in their entirety. The answer to this question – will the result in the UnitedHealth/Change case change Antitrust Division policy on how it handles merger challenges – could have significant implications for any parties contemplating mergers going forward.

Of course, antitrust regulators have had some notable successes with their hard-line approach, including, among others, Nvidia’s decision to abandon its proposed $40 billion acquisition of Arm earlier this year. My guess is that they’re unlikely to be deterred by recent losses – the DOJ has already announced that it plans to appeal the U.S. Sugar decision & is considering an appeal of the UnitedHealth decision. Right now, it seems more likely that, to paraphrase General Grant, antitrust regulators “propose to fight it out on this line” if it takes the next several years.

John Jenkins

September 28, 2022

SPACs: SEC Enforcement Action Targets Conflicts of Interest

In a recent blog on, Liz briefly noted an SEC enforcement proceeding targeting private fund adviser Perceptive Advisors LLC for undisclosed conflicts of interest relating to SPAC sponsor-related compensation. The case highlights the agency’s concern about inadequate disclosure of SPAC-related conflicts, and this excerpt from the SEC’s press release announcing the proceeding summarizes the allegedly undisclosed conflicts at issue:

The Securities and Exchange Commission today charged New York-based investment adviser Perceptive Advisors LLC with failing to disclose conflicts of interest regarding its personnel’s ownership of sponsors of special purpose acquisition companies (SPACs) into which Perceptive advised its clients to invest.

According to the SEC’s order, in 2020, Perceptive formed multiple SPACs whose sponsors were owned both by Perceptive personnel and by a private fund that Perceptive advised. The Perceptive personnel were entitled to a portion of the compensation the SPAC sponsors received upon completion of the SPACs’ business combinations. The SEC’s order finds that Perceptive repeatedly invested assets of a private fund it advised in certain transactions that helped complete the SPACs’ business combinations and did not timely disclose these conflicts.

The SEC also alleged that Perceptive failed to file a Schedule 13D reflecting its ownership of more than 5% of a public company on a timely Perceptive, without admitting or denying the SEC’s allegations, agreed to a cease & desist order, a censure, and a $1.5 million penalty.

This excerpt from Troutman Pepper’s memo on the proceeding says that it’s part & parcel of the SEC’s SPAC crackdown, and that there’s likely more enforcement activity to come:

The Perceptive order is an unequivocal sign of things to come. The SEC has made clear that it will not sit idly by in hopes that the SPAC environment will reign itself in. Rather, the SEC is taking affirmative steps to corral SPACs, whether it be by rule and amendment, the issuance of new guidance, or the direct prosecution of investment firms.

And high on their list of priorities is the potential for conflicts of interest. Diligent investors must ensure they are up to date on all new guidance and rule proposals by the SEC. Not only will these help to direct appropriate and compliant conduct, but they also will offer key insights into the SEC’s focus and the types of behavior being targeted.

John Jenkins

September 27, 2022

Do Revlon Duties Have an Expiration Date?

There’s been an almost non-stop flow of opinions from Chancellor McCormick relating to discovery disputes in Twitter v. Musk.  If you’re a litigator, I’m sure those will be right up your alley and I’d refer you to The Chancery Daily’s Twitter feed, which is doing an awesome job providing blow-by-blow coverage of the lawsuit. But as a transactional lawyer, my eyes kind of glaze over when it comes to this kind of thing. On the other hand, a few weeks ago, Prof. Rob Anderson raised a hypothetical question involving the Twitter deal that I thought was pretty interesting:

In the Musk-Twitter transaction, one of the “conditions” of specific performance is that Twitter must have “confirmed” as shown below. Assuming that is intended to be legally binding, it’s an unconditional promise to close, with no fiduciary outs, in a Revlon mode deal? Suppose that Twitter “confirms” this and a topping bid for $64.20 materializes the next day? What happens?

In response, I pointed out that the merger agreement would tie Twitter’s hands pretty tightly to Musk’s deal in this scenario.  Why? Because Twitter’s stockholders have already approved that deal, and under Section 6.5 of the merger agreement, Twitter would no longer have the ability to discuss a potential superior proposal or to terminate the deal & accept one if it emerged.  Specifically, Section 6.5(c) and (d) provide that Twitter’s ability to do either of those things ends upon “receipt of the Company Stockholder Approval.”

That may be what the merger agreement says, but is that consistent with a board’s obligations under Revlon, which requires the board to maximize immediate stockholder value in a sale transaction?  Wouldn’t the board be breaching that obligation if it couldn’t accept that $64.20 offer – even it emerged at the very last minute?

The answer to that question appears to be “no,” because Delaware precedent indicates that a target board doesn’t have to retain the ability to consider alternative transactions after the deal’s been approved by target stockholders in order to satisfy Revlon. In that regard, a 2009 ABA Deal Points article on Delaware’s “sign & consent” procedure notes that this procedure is premised on the conclusion that “it generally is acceptable for any “outs” in a merger agreement to expire upon obtaining the stockholder vote, such that the board’s fiduciary duties in respect of alternative transactions are discharged at such point.”

The article cites the Chancery Court’s 1991 decision in In re Mobile Communications Corp. of Am. Inc., (Del. Ch.; 1/91), which concluded that the target had no contractual obligation, following stockholder approval, to consider alternative transactions, as support for this proposition, although that conclusion is also implicit in the Optima and Openlane decisions upholding sign & consent.

John Jenkins

September 26, 2022

R&W Insurance: A Claims Primer

RWI policies are different from other insurance policies in a number of ways, some of which can be very important to the claims process. Woodruff Sawyer recently began a series of blogs intended to serve as a primer on claims under these policies. This excerpt from the initial blog discusses some of the implications of the use of aggregate retentions in RWI policies:

Most insurance policies have either deductibles or self-insured retentions (SIRs), which work similarly. R&W policies have an aggregate SIR. Once the SIR has been exhausted by the insured’s payment of a covered loss, the policy will begin to pay out. An aggregate SIR means that all losses covered by the policy will serve to erode the retention that will apply to any future claims. If a retention is not aggregate but is instead a per-claim retention, the retention would separately apply to each claim noticed under the policy during the policy period. With aggregate retentions, there is no downside to reporting even the smallest claims.

Because of the aggregate nature of the retention, it is important to keep track of how much has been eroded by prior claims to carry it forward to any future claims. This practice is also very different from that of most other products — not only do most policies not have aggregate retentions, but the year-long effective period for most policies tends to eliminate the need to keep track of retention erosion.

John Jenkins

September 23, 2022

Antitrust: Sharing Competitively Sensitive Information in M&A

This Mintz blog provides some helpful insights on navigating the potential antitrust minefield associated with sharing competitively sensitive information with a potential merger partner.  The blog points out that antitrust regulators understand the need for due diligence & don’t view information sharing between competitors in this context as per se illegal. Instead, they take a holistic approach in which the scope of the information being exchanged, the purpose for its exchange, and the protections put in place to ensure that it is not misused prior to closing are all taken into account.  Here’s an excerpt from the blog’s discussion of how to mitigate antitrust risks when sharing information:

Be mindful of the stage of transaction negotiations. In the early stages, many firms may bid for the target. In these cases, sellers should consider sharing only general information on the target and reserving more detailed or competitively sensitive information for later in the process. Parties can wait until later-stage negotiations or an auction to assemble “clean teams” or utilize third-party consultants to undertake a “black box” analysis. Quite often, potential bidders/buyers have a very detailed information “wish list”; that list should be reviewed carefully with the seller’s antitrust counsel before responding or before anything is made available in a clean room.

Operational personnel may need to access information that is competitively sensitive to make important decisions on the transaction. As an example, if a substantial portion of the purchase price is allocable to the target’s innovative intellectual property, the buyer itself will want to get under the hood before it commits to the transaction. If so, access should be given as close as practical to signing, and thoughtful attention should be paid to the manner of disclosure. Presenters of this information should limit records and documentation as much as possible to insure that it is only the minimum information necessary to complete the objective. Again, the use of a third-party consultant is often appropriate here to stay on a solid antitrust footing.

The acquirer should consider where certain objectives can be met through personnel with no operations responsibility when seeking information to integrate customer information, pricing, and HR data into its IT systems — thereby avoiding problematic information exchange, such as in an IT integration. Aside from this, parties may be justified in adopting a pragmatic approach to the buyer’s access to the target’s competitively sensitive data on a need-to-know basis.

The blog notes that the parties can’t afford to relax restrictions on information exchanges as the closing draws near.  Instead, their businesses must be conducted as independent competitors until the deal actually closes.

John Jenkins

September 22, 2022

National Security: Executive Order Enhances CFIUS Review of Emerging Risks

Last week, President Biden signed an Executive Order intended to enhance CFIUS’s ability to address emerging national security risks in its review of transactions.  According to the Biden Administration’s fact sheet on the Order, it elaborates on existing statutory factors and adds several additional national security factors for CFIUS to consider during its review process. The Order directs CFIUS to consider five specific sets of factors in its review:

– A given transaction’s effect on the resilience of critical U.S. supply chains that may have national security implications, including those outside of the defense industrial base.

– A given transaction’s effect on U.S. technological leadership in areas affecting U.S. national security, including but not limited to microelectronics, artificial intelligence, biotechnology and biomanufacturing, quantum computing, advanced clean energy, and climate adaptation technologies.

– Industry investment trends that may have consequences for a given transaction’s impact on U.S. national security.

– Cybersecurity risks that threaten to impair national security.

– Risks to U.S. persons’ sensitive data.

The law firm memos on the Order are starting to roll in and we’re posting them in our “National Security Considerations” Practice Area. This excerpt from Sullivan & Cromwell’s memo on the Executive Order summarizes its implications:

The EO adds an emphasis, already a topic of focus for the Biden Administration, on climate adaptation technologies, critical materials, and food security, to the enumerated factors to be considered by CFIUS. Fundamentally, however, other than this renewed emphasis, the content of the EO does not break new ground, as CFIUS already considers most, if not all, of these factors in its review of transactions.

The timing of CFIUS review generally should not be impacted, although it is possible that certain transactions that touch on the areas of focus specified in the EO could take longer to clear than they might have prior to the issuance of the EO. Even though the EO does not necessarily break new ground, the EO approach is novel in its recognition of the need to stay ahead of evolving risks and in its express and public recognition of these factors.

John Jenkins

September 21, 2022

Voting Agreements: Watch Out for Dual-Class Transfer Restrictions

Voting agreements from major shareholders are often a critical component of a merger agreement requiring shareholder approval. But this Cooley blog says that companies with dual-class structures need to ensure that their charter documents contain appropriate language permitting the holders of high-vote stock to enter into those agreements without inadvertently converting into low-vote shares.  It even cites this cautionary tale:

In October 2021, stockholders of Inovalon brought suit in the Delaware Court of Chancery claiming that, by executing the voting agreement, the founder’s high-vote shares automatically converted to low-vote shares, an event that was not described in the company’s proxy statement. The plaintiffs sought a declaration that the shares had been converted and an injunction enjoining the stockholder vote until an accurate proxy statement could be issued. In order to avoid having to delay Inovalon’s special meeting to approve the transaction to litigate the plaintiffs’ claims, the parties agreed with the plaintiffs that, unless the transaction was approved by holders of Inovalon shares sufficient to approve the transaction – assuming that the auto-conversion had in fact occurred – Inovalon would not close the transaction until the Delaware Court of Chancery had ruled on the plaintiffs’ complaint.

In other words, Inovalon and the acquirer were forced to agree to act as though the voting agreement had not been entered into. While Inovalon’s stockholders ultimately approved the transaction in sufficient numbers to satisfy this requirement, if they had not, the consummation of the transaction would have been subject to the resolution of the plaintiffs’ claims in the merits, which could have significantly delayed, or even prevented, closing. Ultimately, the plaintiffs’ firms were awarded $1.9 million in fees and expenses in connection with the disposition of the action, meaningfully in excess of the typical “mootness” fee for public M&A transactions, which one paper estimated as usually in the range of $50,000 to $300,000.

The blog says the best way to avoid this situation is to ensure that an appropriate carve-out is included in the restrictions on transfer of high-vote stock laid out in the certificate of incorporation.  It includes some suggested language and points out that although most modern dual-class charters contain carve-outs that address these concerns, the charters of dual-class companies that went public prior to 2017 may not.

If obtaining shareholder approval for a charter amendment isn’t a viable option, the blog suggests alternative strategies that the company may employ to provide some kind of commitment from a major shareholder that doesn’t run afoul of these restrictions.

John Jenkins

September 20, 2022

M&A Trends: 2022 Isn’t a Bad Year for Everyone

Most of the news about M&A trends during the current year has been kind of depressing, particularly when compared to recent years. But a recent analysis from Bloomberg Law’s Grace Maral Burnett says at least two sectors – Software & REITs – have a much more upbeat dealmaking story to tell. Grace says that the two sectors have both higher 2022 deal activity than other industries, and that they’ve already managed to surpass their own full year activity for 2021.  This excerpt summarizes activity in the REIT sector:

Year to date, over 4,700 controlling-stake deals involving REITs—which fall under the financial sector—with an aggregate value of $286.8 billion have been announced globally, and are currently pending or completed. The three largest of these deals announced this year have been the $12.8 billion acquisition of American Campus Communities Inc. by Blackstone Inc., announced in April, the $26.3 billion acquisition of Duke Realty Corp. by Prologis Inc., announced in June, and the $13.8 billion acquisition of STORE Capital Corp by a consortium led by GIC Pte. Ltd., which was announced today.

John Jenkins

September 19, 2022

M&A Agreements: “Hell or High-Water” Clauses

The efforts required to obtain antitrust or other regulatory approvals for a deal are often among the most heavily negotiated aspects of the merger agreement. In some situations where obtaining those approvals are a big concern, the seller may sometimes attempt to enhance deal certainty by negotiating for a so-called “hell or high-water” clause, obligating the buyer to take any and all actions necessary to obtain required approvals. This Quinn Emanuel memo takes a look at the issues associated with these clauses and how Delaware courts have looked at them in recent cases. Here’s an excerpt from the intro:

M&A “hell or high water” provisions mandate effort and require actions in furtherance of obtaining regulatory approvals, such as compliance with government demands for information, support for a particular strategy, or participation in litigation over regulatory challenges. But effort does not guarantee a desired outcome—either regulatory approval or a closing.

In disputes arising from the failure to obtain regulatory or other approvals, courts do not automatically conclude that a party failed to take “all necessary” steps. Rather, courts analogize to other “efforts” covenants that govern the parties’ pre-closing obligations. These disputes generally require a fact-intensive analysis, which means that they can be difficult to resolve without a trial.

As a result, disputes will continue to arise over antitrust and regulatory efforts clauses and affect the parties’ rights and remedies, including their ability to close or to seek damages for failed deals. As federal antitrust regulators engage in more stringent review, participants may see an uptick in lawsuits over these provisions.

The memo says that recent Delaware decisions suggest that a breach of a hell-or-high-water obligation won’t necessarily result in liability because that breach may be found to be either immaterial or not the “but for” cause of a merger’s failure. Furthermore, even if a court finds a breach, problems associated with establishing causation, contractual provisions limiting liability to “willful misconduct” or a court’s reluctance to sock a buyer with a huge damage judgment may limit a seller’s remedies for that breach.

John Jenkins