March 16, 2023

Special Considerations for Public Benefit Corporation Acquisitions

Public benefit corporations (PBCs) have been getting a lot of attention in recent years with the ongoing discourse on corporate purpose, and the number of publicly traded PBCs has been ticking up since 2020. Ropes & Gray recently advised the acquirer of a publicly traded PBC and shared some key insights following that transaction. Specifically, the memo highlights some unique challenges with PBCs as targets given that their boards must balance potentially divergent interests:

Director Duties – In a PBC, directors must balance stockholder interests, the interests of those materially affected by the company’s conduct, and the public benefit identified in its organizational documents. That balance applies to day-to-day operations as well as a change in control transaction, but uncertainty remains because there have not been any Delaware judicial decisions addressing PBC director duties in the M&A context.

Fiduciary Outs and Intervening Events – It’s also unclear whether that balance continues to apply after a target has signed a merger agreement, and this needs to be considered in drafting the fiduciary out and intervening event provisions.

Due Diligence – Due diligence complications exist for both sides: buyers need to consider the target’s compliance with DGCL requirements for PBCs, and, due to its balancing requirement, the target needs to consider the buyer’s purpose, culture and strategy, among other things, if there’s an element of stock consideration.

Meredith Ervine