The recent changes to the HSR form create a new document custodian known as the “Supervisory Deal Team Lead” and this excerpt from the transcript of a recent Ropes & Gray podcast notes that the requirement to produce so-called “4C documents” extends to documents prepared by or for this new custodian:
The new rule requires production of all 4C documents, which HSR filers are used to. The current rule covers 4C documents prepared by or for officers or directors, and now, the new rule will expand to a newly minted document custodian called the “supervisory deal team lead,” or otherwise the “SDTL”—we’ll use that for purposes of not having to say “supervisory deal team lead” every time. The SDTL is an individual who functionally leads or coordinates the day-to-day process for the transaction who is not otherwise an officer or director. The purpose of this is reaching down lower into the organization to capture more real time documents that aren’t filtering up to management, so to say.
The SDTL has to be identified in the HSR filing, and will need to sign the form under penalty of perjury. Since this is the case, the podcast participants noted that identification of this person should be given quite a bit of thought. The SDTL ideally should be identified in advance and appreciate the scope of the their responsibilities as a document custodian. Fortunately, the podcast participants observed that as a practical matter, it’s often relatively clear who this person should be and that companies have been pretty quickly able to identify a single person who will serve as the SDTL for all of their transactions.
We’re going to our holiday blogging schedule next week and that means absent some earth-shattering developments, this blog won’t be back until after January 1, 2025. Merry Christmas and Happy Hannukah to those who celebrate, and best wishes to all of our readers for the new year!
The November-December issuer of the Deal Lawyers newsletter was just sent to the printer. It is also available now online to members of DealLawyers.com who subscribe to the electronic format. This issue includes the following articles:
– 2024 Survey of Trends and Key Components of CVRs in Life Sciences Public M&A Deals
– Comment Letter Trends: Contested Election Disclosures for the 2024 Proxy Season
The Deal Lawyers newsletter is always timely & topical – and something you can’t afford to be without to keep up with the rapid-fire developments in the world of M&A. If you don’t subscribe to Deal Lawyers, please email us at sales@ccrcorp.com or call us at 800-737-1271.
In Sunder Energy, LLC v. Tyler Jackson, (Del.; 12/24), the Delaware Supreme Court addressed a plaintiff’s argument that the Chancery Court erred in refusing to blue pencil a non-compete agreement that the Court found to be impermissibly overbroad. The Supreme Court upheld the Chancery Court’s decision, and in doing so shed some light on the circumstances under which Delaware courts will use their discretion to blue pencil unenforceable non-competes.
The case involved arose out of one the company’s founder’s decision to depart and work for a competing business. The company and the founder were parties to a non-compete agreement, which the company sought to enforce. The Chancery Court ruled that the non-compete was overbroad in scope and unreasonable in duration and, as has happened in several recent cases, also refused to “blue pencil” its terms to make the agreement enforceable.
The plaintiff argued that the Chancery Court should have blue penciled the agreement because the founder’s actions would have clearly breached even the narrowest restrictive covenant. The Supreme Court rejected that argument, and this excerpt from a Sheppard Mullin blog on the case summarizes the rationale underlying the Supreme Court’s decision:
On appeal, the Delaware Supreme Court affirmed, reasoning that Sunder’s argument “turns the analysis on its head and creates perverse incentives for employers drafting restrictive covenants,” who would “be less incentivized to craft reasonable restrictions from the outset.” The Court explained, whether a restriction should be blue-penciled “cannot turn on the egregiousness of the employee’s conduct,” but rather “should be based on the covenants themselves and the circumstances surrounding their adoption.”
The Court noted that Delaware courts have exercised their discretion to blue-pencil restrictive covenants under circumstances that indicate an equality of bargaining power between the parties, such as where the language of the covenants was specifically negotiated, valuable consideration was exchanged for the restriction, or in the context of the sale of a business.
The Court concluded that the facts and circumstances of this case indicated that these criteria had not been satisfied, and that to provide the plaintiff with the relief it sought would in effect require the Court to create an entirely new agreement between the parties which neither bargained for.
In our latest “Deal Lawyers Download” Podcast, Alliant’s Dan Schoenberg joined me to discuss tax and transactional risk insurance. We addressed the following topics in this 35-minute podcast:
– Overview of uses of tax insurance in transactional and non-transactional settings
– Pricing of tax insurance and key exclusions
– Additional coverages required
– Claims experience for tax insurance policies
– Overview of the RWI policy process and common exclusions and limitations
– RWI claims experience and trends
– Litigation risk insurance and overview of general market for transactional risk insurance
We’re always looking for new podcast content, so if you have something you’d like to talk about, please reach out to me at john@thecorporatecounsel.net or Meredith at mervine@ccrcorp.com. We’re 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.
Last week, the SEC announced settled enforcement proceedings against Cantor Fitzgerald for its alleged role in causing two SPACs that it controlled to make misleading statements to investors about the status of their discussions with potential acquisition targets ahead of their initial public offerings (IPOs). This excerpt from the agency’s press release summarizes the allegations:
The SEC’s order finds that Cantor Fitzgerald caused the SPACs in their SEC filings to deny having had contact or substantive discussions with potential business combination targets prior to their IPOs. However, the Order finds that at the time of each SPAC’s IPO, Cantor Fitzgerald personnel, acting on behalf of the SPACs, had already commenced negotiations with a small group of potential target companies for the SPACs, including with View and Satellogic, the companies with which the SPACs eventually merged.
Without admitting or denying the SEC’s allegations, Cantor Fitzgerald agreed to a cease & desist order and a civil money penalty of $6.75 million.
What makes this proceeding interesting isn’t really the allegations themselves, but a dissenting statement issued by Commissioner Uyeda covering several SPAC-related enforcement actions. In that statement, the Commissioner argues that SPACs are different than operating companies in ways that matter to deciding when preliminary merger negotiations should be regarded as “material”:
The U.S. Supreme Court in Basic v. Levinson adopted the probability/magnitude test for assessing the materiality of preliminary merger negotiations. The Second Circuit case cited by Basic for this test involved a small corporation that would be merged out of existence. For this corporation, the Second Circuit stated, and Basic agreed, that its merger was “the most important event that can occur in [its] life, to-wit, its death” and accordingly, information about the merger “can become material” before there is an agreement on the acquisition price and structure.
Unlike the corporation discussed in Basic, each SPAC respondent’s stated purpose was to acquire a target company. The SPAC’s “death” is planned for and sought after from the time the SPAC is formed. Given this distinction, the probability/magnitude test, as applied to information concerning a SPAC’s preliminary merger negotiations, should result in such information not becoming material until a time much closer to the SPAC and target company reaching a binding agreement on the acquisition price and structure. Any discussions prior to such time, even if they are “substantive,” are part of the day-to-day operations of a SPAC.
With the upcoming change in administrations, my guess is that Commissioner Uyeda’s views on this topic may be more influential – and that today’s dissenting statement could well become tomorrow’s policy.
Winston & Strawn recently released this survey of “Baby HSR” laws — legislation requiring parties to seek state-level clearance before closing certain transactions. The survey identifies which states have adopted premerger notification requirements and, for each state statute, describes key details, like:
– Covered transactions
– Who must file
– Any materiality threshold
– The recipient, timing and contents of the required notice
– The review timing
Back in August, I blogged about model legislation approved by the Uniform Law Commission but noted that states are free to enact their own versions of the legislation and identified some likely points of deviation. This guide can “help buyers and sellers quickly identify states with Baby HSR laws that may impact a transaction” — which is important since noncompliance may mean fines or enforcement actions — and understand the key details above. Check it out!
In November, John blogged about the Chancery Court’s recent decision inGB-SP Holdings LLC et al. v. Walker (Del. Ch.; 11/24). This Fried Frank M&A briefing on the case discusses the facts that caused Vice Chancellor Fioravanti to evaluate the adoption of the forbearance agreement under the entire fairness standard. He found that the directors were materially conflicted as a result of indemnification rights they secured for themselves — under unusual circumstances — in connection with approving a Foreclosure Agreement with the company’s creditor.
The scope of the indemnification rights in the Indemnity Agreement between Versa and the Company extended beyond claims arising out of the Foreclosure Agreement, to cover also any claims brought by the company’s controlling stockholder, GB-SP, Inc. (whether relating to the Foreclosure Agreement or not). When the directors sought the indemnification rights, they knew that they had breached GB-SP’s rights under a Shareholders Agreement, and knew that they could not obtain insurance that would cover liability for those breaches because the policy excluded claims from major shareholders.
The alert highlights this related key takeaway:
Under some circumstances, directors may be rendered self-interested when they secure indemnification rights in connection with approving a transaction. Normally, obtaining indemnification rights would not render directors self-interested—because indemnification is commonplace in corporate affairs and does not increase a director’s wealth. In this case, however, the court stressed “the troubling circumstances surrounding the receipt of indemnification.”
While a more lenient approach to antitrust enforcement is expected in some ways in a second Trump presidency, this Sheppard Mullin blog says it’s more complicated than that. The blog notes that, in Trump’s first term, antitrust enforcement blended traditional Republican preferences for deregulation with skepticism for market concentration generally and Big Tech in particular. It even notes that the current FTC Chair, Lina Khan, has some unexpected supporters. With that in mind, the blog outlines the following possibilities for antitrust reform under a second Trump term:
– Possible antitrust enforcement consolidation … The One Agency Act … which passed out of the House Judiciary Committee in April 2024, would consolidate antitrust enforcement authority by transferring all FTC antitrust functions, employees, assets, and funding to the DOJ. The FTC would maintain its consumer protection authority. Similar legislation proposed to end the overlap in FTC and DOJ merger review and civil investigation authority has been previously unsuccessful, but the Act’s prospects for passage seem higher now given the Republican majorities in both houses of Congress. The FTC and DOJ’s informal clearance process for civil antitrust matters has been derided for inefficiency and would seem an easy focus for the DOGE’s prioritization of government efficiency.
– The FTC likely will take a less aggressive stances regarding the use of competition rulemaking and the exercise of enforcement powers under Section 5 of the FTC Act (e.g., the non-compete rule), as well as mothballing Robinson-Patman Act enforcement.
– Merger review is harder to predict and will be a mixed bag. … The Biden administration’s DOJ and FTC effectuated three significant merger review policy changes, and it is possible that all three may be reversed in the Trump Administration. … Aside from policy, the merger enforcement records of the previous few administrations is fairly consistent, but also difficult to gauge as we discussed in a previous post. In addition to the tech industry, transactions in the healthcare industry have consistently been subject to scrutiny across administrations. That said, we do think that one industry – private equity – will not be the target it has been under the Biden administration.
After this blog came out, President-elect Trump announced his selection of Andrew Ferguson, one of two current GOP commissioners on the five-member FTC, to chair the agency. This WSJ article focuses on the FTC’s expected approach to Big Tech under Ferguson, who said on X that he would “end Big Tech’s vendetta against competition and free speech.”
We recently posted the latest “Understanding Activism with John & J.T.” podcast. This time, John and J.T. Ho were joined by Kai Liekefett, who co-chairs Sidley’s Shareholder Activism and Corporate Defense practice. Kai’s practice focuses exclusively on shareholder activism campaigns, proxy fights and hostile takeovers, and over the past five years, he’s defended over 150 proxy contests globally and approximately 25% of all U.S. late-stage proxy fights, more than any other defense attorney in the world.
Topics covered during this 26-minute podcast include:
– Why many activists supported Donald Trump over Kamala Harris
– What changes to the SEC’s approach to proxy advisor regulation, UPC, and Rule 14a-8 might mean for activism
– Implications of potential changes in the antitrust merger review and enforcement environment
– Impact of disruptions resulting from tariffs and other unconventional economic policies
– Potential changes in companies targeted for activism and activist tactics
Note that during the podcast, Kai comments on the implications of a new SEC chair on the agency’s approach to activism. They recorded this podcast on November 22, 2024, prior to President-Elect Trump’s appointment of Paul Atkins to serve in that capacity.
John and JT’s objective with this podcast series is to share perspectives on key issues and developments in shareholder activism from representatives of both public companies and activists. They’re continuing to record new podcasts, and they’re full of practical and engaging insights from true experts – so stay tuned!
Glenn West’s latest article for Business Law Today discusses BM Brazil I Fundo de Investimento em Participações Multistrategia v. Sibanye BM Brazil (Pty.) Ltd — the latest judicial pronouncement by a common-law court on the meaning and effect of an MAE clause. The decision is from the English High Court of Justice, but apparently English common law is lacking when it comes to decisions addressing MAEs, so the Justice turned to Delaware’s “substantial body” of MAE-related case law and “took a trip” through “Delaware authorities that have addressed MAE conditions since IBP,” including Akorn, Inc. v. Fresenius Kabi, AG, the one Delaware case where it was determined that an MAE had occurred.
Looking to Akorn’s reference to a 20% decline in equity value and commentary that the decision was not suggesting that a “reduction in the equity value of the target of anything less than 20% would necessarily not have been material,” Mr. Justice Butcher was “inclined to view 15 percent as the right number for this case.” He even considered expert testimony about the significance of the geotechnical event — the case involved a landslide at a mine owned by the target company between the signing and closing — that even a 10% hit might be sufficient. But, even at this lower level, he still concluded that no MAE had occurred. Glenn notes that credible expert testimony and establishing that the MAE clause was not invoked as a means to get out of a bad deal can be critical in these MAE cases.
But Glenn’s discussion of the decision’s analysis of what constitutes a “Change, Event or Effect” may be the most interesting aspect of the article.
One of the contentions made by the sellers was that the buyers were including in the material adverse effects of the geotechnical event not just the direct effects of the geotechnical event but also the alleged problems with the “underlying geology” that had been revealed by the geotechnical event. According to the sellers, any problems and costs associated with the underlying geology that had been revealed by the geotechnical event could not be included in any determination of whether an MAE had occurred—only the direct effects of the geotechnical event itself could be included. … Mr. Justice Butcher agreed with the sellers on this point. … In this case, the underlying geological condition “had existed for millennia.” And “[n]o ‘change, event or effect’ had occurred in [that underlying geological condition] by the happening of the [geotechnical event—i.e., the landslide].”
Glenn generalizes and summarizes by saying, “an MAE condition cannot save you from the failure to obtain a representation and warranty about any existing issue—MAEs focus on future occurrences, not existing facts.”