Yesterday, the FTC voted to file an administrative complaint to block Microsoft’s proposed acquisition of video game titan Activision-Blizzard. According to the FTC’s press release, Microsoft “has already shown that it can and will withhold content from its gaming rivals,” and this excerpt says that was a big factor in the decision to oppose the deal:
Activision is one of only a very small number of top video game developers in the world that create and publish high-quality video games for multiple devices, including video game consoles, PCs, and mobile devices. It produces some of the most iconic and popular video game titles, including Call of Duty, World of Warcraft, Diablo, and Overwatch, and has millions of monthly active users around the world, according to the FTC’s complaint. Activision currently has a strategy of offering its games on many devices regardless of producer.
But that could change if the deal is allowed to proceed. With control over Activision’s blockbuster franchises, Microsoft would have both the means and motive to harm competition by manipulating Activision’s pricing, degrading Activision’s game quality or player experience on rival consoles and gaming services, changing the terms and timing of access to Activision’s content, or withholding content from competitors entirely, resulting in harm to consumers.
The FTC voted 3-1 to initiate this action, with Commissioner Wilson dissenting. As Axios pointed out, it’s worth noting that the FTC filed the case in its own administrative court and isn’t seeking a preliminary injunction, which means that the parties would still theoretically be able to close the deal, assuming that they’re willing to risk subsequently having it unwound – and assuming that no other regulator puts the kibosh on it.
If you’re interested in what obligations the parties have under the merger agreement when it comes to regulatory issues, check out this blog that I wrote at the time the deal was signed up.
Earlier this week, the Corp Fin Staff issued three new CDIs on universal proxy. Dave Lynn posted this blog about them on TheCorporateCounsel.net:
Yesterday, the Staff published three new Proxy Rules and Schedule 14A Compliance and Disclosure Interpretations addressing the new universal proxy rules. Two of the new CDIs deal with the company’s obligations when a dissident shareholder’s nominees are rejected based on advance notice bylaw requirements, and one of the CDIs makes the point that a dissident must provide its own proxy card as part of its meaningful solicitation efforts and not just rely on the company’s proxy card. The new CDIs are as follows:
Question 139.04
Question: A registrant receives director nominations from a dissident shareholder purporting to nominate candidates for election to the registrant’s board of directors at an upcoming annual meeting. The registrant, however, determines that the nominations are invalid due to the dissident shareholder’s failure to comply with its advance notice bylaw requirements. Must the registrant include the names of the dissident shareholder’s nominees on its proxy card pursuant to Rule 14a-19(e)(1) under these circumstances?
Answer: No. Only duly nominated candidates are required to be included on a universal proxy card. See Release No. 34-93596 (Nov. 17, 2021) (noting that universal proxy cards “must include the names of all duly nominated director candidates presented for election by any party…”, and explaining that “[a] duly nominated director candidate is a candidate whose nomination satisfies the requirements of any applicable state or foreign law provision and a registrant’s governing documents as they relate to director nominations”). If the registrant determines, in accordance with state or foreign law, that the dissident shareholder’s nominations do not comply with its advance notice bylaw requirements, then it can omit the dissident shareholder’s nominees from its proxy card. [December 6, 2022]
Question 139.05
Question: A registrant determines that a dissident shareholder’s director nominations do not comply with its advance notice bylaw requirements and excludes the dissident shareholder’s nominees from its proxy card. The dissident shareholder then initiates litigation challenging the registrant’s determination regarding the validity of the director nominations. Under these factual circumstances, what are the registrant’s obligations with respect to its proxy statement disclosures and solicitation efforts?
Answer: The registrant must disclose in its proxy statement its determination that the dissident shareholder’s director nominations are invalid, a brief description of the basis for that determination, the fact that the dissident shareholder initiated litigation challenging the determination, and the potential implications (including any risks to the registrant or its shareholders) if the dissident shareholder’s nominations are ultimately deemed to be valid.
If a registrant furnishes proxy cards that do not include the dissident shareholder’s director candidates and a court subsequently determines that the dissident shareholder’s candidates are duly nominated, then the registrant is obligated under Rule 14a-19 to furnish universal proxy cards with the dissident shareholder’s candidates. Accordingly, it should discard any previously-furnished proxy cards that it received. The registrant also should ensure that shareholders are provided with sufficient time to receive and cast their votes on the universal proxy cards prior to the shareholder meeting, including, if necessary, through the postponement or adjournment of the meeting. [December 6, 2022]
Question 139.06
Question: Can a dissident shareholder conducting a non-exempt solicitation in support of its own director nominees simply file a proxy statement on EDGAR, avoid providing its own proxy card, and instead rely exclusively on the registrant’s proxy card to seek to have its director nominees elected?
Answer: No. Rule 14a-19(e) requires each soliciting party in a director election contest to use a universal proxy card that includes the names of all director candidates, including those nominated by other soliciting parties and proxy access nominees. Rule 14a-19(a)(3) further requires a dissident shareholder to solicit holders of at least 67% of the voting power of shares entitled to vote on the director election contest and to include a representation to that effect in its proxy statement. This requirement is intended to prevent a dissident shareholder from capitalizing on the inclusion of its nominees on the registrant’s universal proxy card without undertaking meaningful solicitation efforts. See Release No. 34-93596 (Nov. 17, 2021). A dissident shareholder would fail to comply with these rules if it does not furnish its own universal proxy cards to holders of at least 67% of the voting power through permitted methods of delivering proxy materials (such as the Rule 14a-16 “notice and access” method). [December 6, 2022]
Our latest Deal Lawyers Download podcast features my interview with Georgeson Managing Director Ed Greene about how companies are preparing for the first proxy season under the universal proxy (UPC) rules. Topics addressed in this 10-minute podcast include:
– How implementation of UPC may influence activism and the upcoming proxy season
– Companies’ preparations for the new regime and additional actions they should be taking
– Activists’ responses to UPC and what we might expect as proxy season draws closer
– The influence that UPC might have had on recent years’ proxy contests
If you have something you’d like to talk about, please feel free to reach out to me via email at john@thecorporatecounsel.net. I’m wide open when it comes to topics – an interesting new judicial decision, other legal or market developments, best practices, war stories, tips on handling deal issues, interesting side gigs, or anything else you think might be of interest to the members of our community are all fair game.
I worked on a number of bank deals over the years, and due to the regulatory approval process, all of them took a lot longer to close than almost all of the other deals I was involved with. My experience was far from unique, but a recent S&P Global article says that bank deals don’t always move like glaciers. Here’s an excerpt with tips on how to close bank deals more quickly:
Conducting extensive due diligence on your merger partner to become familiar with their businesses and be aware of any potential issues that could arise is one way to help ensure a quick deal closing, banking attorneys said.
“Both the acquirer and the target should do their homework, and conduct diligence on each other to identify any potential hotspots,” John Geiringer, a partner in the Financial Institutions Group at Barack Ferrazzano Kirschbaum & Nagelberg LLP, wrote in an email. “Proactively addressing issues in advance with the regulators, such as asset concentrations, compliance weaknesses, and consumer complaints, can help smooth the path to approval.”
Another factor that plays into closing times is the purchase consideration, according to Matthew Veneri, head of investment banking and managing director of the Financial Institutions Group at Janney Montgomery Scott.
Cash transactions tend to close sooner because deals involving publicly traded stock require a review process with the U.S. Securities and Exchange Commission. Further, deals involving public banks buying other public banks require documentation that can lead to delays compared to private deals, Veneri added.
If a bank’s exam schedule coincides with a deal and there are unresolved topics from the exam, that might slow down approval, experts said. However, banks are unlikely to delay deals based on exam timing, said John Gorman, a partner at Luse Gorman PC whose focus areas include M&A.
The article says that during the period beginning January 1, 2021, the median time between signing and closing for bank deals involving targets with at least $500 million in assets has been 178 days, although much shorter periods are possible. In that regard, the article says that four U.S. bank deals completed since January 1, 2021, took less than half of the 178-day median to close, and six deals took under 100 days.
In our recent podcast, Hunton Andrews Kurth’s Steve Haas discussed bylaw changes that companies should consider in response to the implementation of the universal proxy rules. One possible change he suggested was including language in the bylaws reserving the use of the white proxy card to the board.
White is the color that’s traditionally been used by management in proxy contests, and with all parties jockeying for leverage in the new environment, it certainly seemed plausible that dissidents might try to grab the white card to increase the likelihood that investors would return their version of the universal proxy card. Over the past couple of months, many companies, including heavyweights like Exxon Mobil and Alphabet. Here’s the relevant language from Alphabet’s bylaws:
2.12 PROXIES.
Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A stockholder may authorize another person or persons to act for him, her or it as proxy in the manner(s) provided under Section 212(c) of the DGCL or as otherwise provided under Delaware law. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL.
Any stockholder directly or indirectly soliciting proxies from other stockholders must use a proxy card color other than white, which shall be reserved for the exclusive use by the Board.
Anyway, it turns out that the concerns about dissidents beating companies to the punch and claiming the white card for their own that have prompted these amendments aren’t just hypothetical. On Twitter, Andrew Droste pointed out that activist hedge fund Blackwells Capital has launched a proxy contest at Global Net Lease – and grabbed the white card before the company did. So, if any of you have clients that considering the possibility of this kind of amendment, you might want to share Andrew’s tweet with them & suggest that there’s no time like the present.
Gibson Dunn’s Ron Mueller points out that Engine No. 1 snagged the white card in its battle with Exxon Mobil, and that’s what first put this issue on the radar screen for public companies (and likely prompted Exxon Mobil’s bylaw amendment).
A recent blog from Weil’s Glenn West reviews a pair of Delaware decisions in which non-reliance, exclusive remedy & non-recourse clauses intended to sharply curtail a plaintiff’s ability to bring fraud claims in connection with an acquisition agreement were at issue. He concludes that despite rather clear guidance from the Delaware courts, these cases suggest that dealmakers still don’t appreciate the limits of these clauses:
Just as an exclusive remedy provision cannot eliminate claims for the seller’s extra-contractual fraud (only a non-reliance clause can do that), or for the seller’s deliberate and knowing intra-contractual fraud (it appears that nothing can do that), a non-recourse provision cannot eliminate a non-party’s liability for its own, or its participation in the seller’s, extra-contractual fraud (only a non-reliance clause can do that), or for its knowing participation in the seller’s deliberate and knowing intra-contractual fraud (it appears that nothing can do that).
Neither a non-recourse clause, nor an exclusive remedy provision, can eliminate extra-contractual fraud claims, or intra-contractual fraud claims premised upon the “conscious participation in the communication of lies” in the specific representations and warranties set forth in a written purchase. But what an exclusive remedy provision can do, according to ABRY Partners, and what a non-recourse provision should also be able to do, is eliminate the seller’s, and its non-party affiliates’, liability for the seller’s “reckless, grossly negligent, negligent, or innocent misrepresentations of fact” in a purchase agreement (all of which are potential states of mind supporting tort-based claims, including, potentially, common law or equitable fraud).
And this is accomplished by carefully defining fraud in any fraud carve-out in both the exclusive remedy and the non-recourse clauses so that the term “Fraud” is limited to “deliberate and knowing fraud respecting the representations and warranties set forth in the agreement,” which is the only type of fraud that cannot be eliminated by a combination of the non-reliance, exclusive remedy and non-recourse clauses.
The two decisions Glenn discusses in the blog are In re P3 Health Group Holdings, (Del. Ch.; 10/22), which I blogged about, and AmeriMark Interactive v. AmeriMark Holdings, (Del. Super.; 11/22), which I didn’t blog about in part because the permissions on the .pdf were restricted so I couldn’t cut & paste excerpts from it. I guess Judge Johnston doesn’t want to be “blog-famous.”
Our latest Deal Lawyers Download podcast features my interview with Apperio founder & CEO Nicholas d’Adhemar about his company’s recent survey of in-house counsel at PE and VC firms on issues in managing their legal spend. Topics addressed in this 23-minute podcast include:
– Key takeaways from the survey
– How organizational structure influences an investment firm’s ability to control legal spending
– Techniques firms are using to hold down legal costs
– Advice for law firms on approaches to fees and billing practices
If you have something you’d like to talk about, please feel free to reach out to me via email at john@thecorporatecounsel.net. I’m wide open when it comes to topics – an interesting new judicial decision, other legal or market developments, best practices, war stories, tips on handling deal issues, interesting side gigs, or anything else you think might be of interest to the members of our community are all fair game.