Public companies would be well advised, on a lovely, clear day (in the Delaware sense), to update their advance notice bylaws. In the normal course these bylaws receive little attention, but in the event of an activist campaign they are critical to the board’s ability to discharge its fiduciary duties.
Since recent cases have addressed the enforceability of advance notice bylaws, Milbank prepared a model that the blog says is focused on gathering information on the activist’s plans and proposals, the degree of alignment between the activist and the company’s other stockholders and the qualifications and independence of the activist’s nominees, all of which are intended to ensure that the company’s other stockholders receive accurate and timely disclosure and the board has the necessary information to discharge its fiduciary duties in connection with settlement discussions and its recommendation for or against the activist’s nominee. The blog highlights a number of “key features” of the model, some of which are excerpted below:
Clarity. The Alignment ANB is drafted in a clear and direct manner, without setting up potential foot faults and boobytraps for activists seeking to nominate directors. The information sought, while comprehensive, is only what is necessary to provide boards and stockholders with a proper foundation for their decision-making. The bylaw heeds the Delaware Supreme Court warning in Kellner v. AIM Immunotech, Inc. that “[a]n unintelligible bylaw is invalid under ‘any circumstances.’”
Voting Borrowed Shares. While lending shares of the corporation to cover short sales may provide income for large fund complexes, it is unlikely that these fund complexes (or other long-term holders) wish to promote empty voting in a contested corporate election. Permitting the voting of borrowed shares by an activist – amplifying the activist’s voting power when there is no meaningful economic stake in the shares being voted – misaligns voting power with the economic consequences of the vote and does not promote good long-term decision making. The Alignment ANB accordingly requires the nominating stockholder and allied participants in the solicitation to waive their right to vote shares in excess of their collective net long position – in other words, to waive the right to vote shares that were borrowed or otherwise subject to an offsetting sale or delivery obligation.
Independence of Nominees. In some cases, activists will nominate their own employees as directors, in a clear bid to drive their platform (which platform, as noted above, should be made transparent to voting stockholders). In other situations, activists will nominate “independent” directors, with the apparent intention of bringing independent expertise to the problems faced by the corporation. At times, however, the term “independent” is applied rather liberally, making it less clear whether the nominee was put forth in order to drive the activist’s platform, or to serve as an independent technocrat. The Alignment ANB seeks to make the connections between nominees and the activist clearer, requiring disclosure of whether the nominee and activist have had discussions to align on a shared agenda for the corporation (and if so, the result of such discussions), on financial, social and family ties, and finally, on whether the nominee is expected to share confidential board information with the activist going forward. The degree of independence of any given nominee will matter acutely to voting stockholders, particularly if they are not fully on board with the activist’s platform or if their financial interests do not clearly align with the activist’s.
If you were among those hoping that the Trump administration’s antitrust regulators might revisit the controversial 2023 Merger Guidelines, this WilmerHale memo says you’re going to be disappointed. Here’s the intro:
Since their release, the federal antitrust agencies’ 2023 Merger Guidelines (2023 Guidelines) have faced significant criticism from many. There was speculation that the Federal Trade Commission (FTC) and Department of Justice (DOJ) under the new Trump Administration would revoke or significantly revise the 2023 Guidelines. On February 18, however, FTC and DOJ Antitrust Division leadership confirmed that the joint FTC/DOJ 2023 Merger Guidelines will remain in effect as the agencies’ framework for the merger review process.
The timing of these announcements was notable. They came just as the FTC was receiving a rush of Hart-Scott-Rodino (HSR) notifications, many of which seemingly were expedited to avoid the new HSR form that went into effect on February 10, 2025. The new HSR form is another major change during the Biden Administration that apparently will survive the turnover at the agencies.
However, the memo also notes that while the Guidelines remain in place, it remains to be seen how the FTC and DOJ will undertake merger enforcement and the extent to which their enforcement program will differ from that of those agencies during the Biden administration.
I’ve previously sung the praises of Rick Climan & Keith Flaum’s M&A training cartoons, and they’ve recently come out with a new program that’s definitely worth checking out. This time, Rick & Keith are joined by their Hogan Lovells colleague Jane Ross to address fraud-related provisions in acquisition agreements. Topics addressed in this 15-minute video include:
– The legal definition of “fraud”
– Intra-contractual fraud and whether the parties can eliminate their liability for deliberate intra-contractual fraud
– Extra-contractual fraud and non-reliance clauses
Rick, Keith and Jane do a terrific job distilling some pretty complex concepts and I think both new and more experienced lawyers will find their presentation to be entertaining and informative. The video ends with a promise that modifying the definition of fraud and negotiating fraud indemnities will be addressed in a subsequent session, so stay tuned!
There was a lot of optimism among dealmakers heading into 2025, but according to reports from last week’s Tulane Corporate Law Institute the chaotic first six weeks of the Trump administration appear to have put a damper on things. Here’s an excerpt from a U.S. News article:
Attendees described a current chill on dealmaking, attributing it to a lack of predictability coming from Washington. M&A activity in the U.S. during the first two months of this year was the slowest in more than two decades, with only 1,172 deals worth $226.8 billion through Friday, according to data compiled by Dealogic. That was down by about a third from the same time last year by both volume and size and the slowest open by volume since 2003.
Jennifer Muller, managing director and co-head of investment bank Houlihan Lokey’s board advisory and opinions practice, said that a few months ago, consensus estimates pegged M&A deal volume in 2025 at $3.5 trillion versus $3 trillion last year.
“Given the rocky start, that may be harder to achieve. And in this case, when I say may, I actually mean will,” Muller said during a panel.
The article says that dealmakers remain optimistic about M&A activity for the rest of the year. As for me, well, the horse is loose in the hospital again, so I guess I’m inclined to temper my enthusiasm until I see how the DC “tariff-o-rama” and “Musk-a-thon” play out. But I can’t blame the Tulane crowd for wanting to sound positive. After all, as Arthur Miller put it in Death of a Salesman, “A salesman is got to dream boy, it comes with the territory.”
We’ve recently posted another episode of our “Understanding Activism with John & J.T.” podcast. This time, J.T. Ho and I were joined by Garrett Muzikowski, Managing Director, M&A, Activism & Governance Advisory at FTI Consulting. We spoke with Garrett about recent developments and trends in activism.
Topics covered during this 20-minute podcast include:
– The rise of new activists
– The potential for a rise in private equity “white knight” investors
– Trends in activist demands
– Trends in timing of activist approaches
This podcast series is intended to share perspectives on key issues and developments in shareholder activism from representatives of both public companies and activists. We continue to record new podcasts, and they’re full of practical and engaging insights from true experts – so stay tuned!
Last week, the Delaware Bar’s Corporation Law Council offered some proposed revisions to SB 21, the controversial proposed amendments to the DGCL that would, among other things, provide a safe harbor for certain transactions involving a corporation and its controlling stockholder. This excerpt from Ann Lipton’s recent post on The Business Law Prof Blog summarizes the CLC’s proposed changes:
Under the original version of the law, if the transaction did not involve a controlling shareholder, board level cleansing was achievable even if the board was majority-conflicted. As long as the disinterested directors voted in favor of the deal, it was cleansed – meaning, a board 4-1 conflicted could still cleanse the deal, so long as that single director voted in favor. If the transaction did involve a controlling shareholder, board-level cleansing required the creation of a majority-independent committee, but there was no specification as to how many committee members were necessary – one, in other words, would do.
The new statute says that board level cleansing, either for controller transactions or simply transactions where the board is majority-conflicted, requires the creation of a committee. The committee must have at least two people. All committee members must be disinterested.
Ann says that this is an improvement over the original bill but argues that problems remain. In particular, she contends that the statute would permit a conflicted board to decide which directors are disinterested and put them on the committee charged with passing on the transaction. In addition, she contends that in the event of a challenge to director independence, the statute doesn’t appear to permit a court to revisit whether the committee was in fact completely disinterested, but only to determine whether a majority of the actually disinterested members voted in favor of the transaction.
In other SB 21 developments:
– Harvard’s Lucian Bebchuk argues that SB 21 throws the Delaware courts under a bus by communicating the legislature’s judgment that “(a) the Delaware courts have gotten their work wrong and developed inferior doctrines with respect to important subjects, and (b) the courts nonetheless applied these doctrines for a substantial period of time.”
– UCLA’s Stephen Bainbridge responds by saying that the Delaware courts have it coming to them, because they’ve gotten the law of conflicted controller transactions “egregiously” wrong.
– Boston College’s Brian Quinn highlights the proposed legislation’s retroactivity language and says that it’s a not-so-subtle hint to the Delaware Supreme Court about how it should decide the Tornetta appeal.
– Columbia’s Eric Talley suggests an “opt in” alternative to the mandatory safe harbor contemplated by SB 21.
– Former Chancellor William Chandler & Widener Law Professor Emeritus Lawrence Hamermesh penned an editorial supporting SB 21 as an effort “to reestablish long-accepted rules once familiar to the Delaware courts and are nothing less than a sincere effort by public officials to protect the interests of their constituents.”
– Evan Epstein provides a terrific compendium of commentary on SB 21 in his recent newsletter – and the Chancery Daily’s Lauren Pringle has pulled together one on an even grander scale.
– And in the “Who asked you anyway?” category, Texas Gov. Greg Abbott provided a reminder of why Delaware is hustling to enact these proposed changes by inviting businesses to head to The Lone Star State in a WSJ opinion piece called “Forget Delaware – Y’all Street is Open for Business.”
Speaking of hustling, Lauren Pringle has a LinkedIn post in which she suggests that this legislation isn’t just on a fast track, but on a rocket sled – and that it could be voted upon as soon as March 20th.
Yesterday, Corp Fin released an updated version of Securities Act Sections CDI 239.13 and Securities Act Forms CDI 225.10 governing the use of Form S-4/F-4 to register offers and sales of a buyer’s securities after it has obtained “lock-up” commitments from target insiders to vote in favor of the transaction. The CDI permitted registration in certain circumstances but noted that the Staff has objected to the subsequent registration of offers and sales to any of the target shareholders where the insiders also previously executed consents approving the deal – because it viewed the offer and sale as already completed privately.
Now, as you can see from the redline, the CDI provides that the Staff will not object to the subsequent registration on Form S-4/F-4 where the target company insiders also deliver written consents, as long as (1) those insiders will be offered and sold securities of the acquiring company only in an offering made pursuant to a valid Securities Act exemption and (2) the registered securities will be offered and sold only to target company shareholders who did not deliver written consents.
At the same time, Corp Fin also released five new Tender Offer Rules and Schedules CDIs (101.17 through 101.21), adding to the 34 CDIs released in March 2023. The five new CDIs address the “general rule” that an offer should remain open for at least five business days after a material change is first disclosed and clarify the Staff’s views regarding when a change related to financing and funding conditions constitutes a “material change.” For example, to paraphrase three of the CDIs:
– CDI 101.18 clarifies that the Staff views a subsequent securing of committed financing to be a material change where an offeror had commenced an all-cash tender offer without sufficient funds or committed financing. The CDI details steps the offeror must take in that situation.
– On the other hand, CDI 101.20 and 101.21 clarify that the Staff does not view either the substitution of a funding source or the actual receipt of the funds from the lender when the offeror had already obtained (and disclosed) a binding commitment letter to be a material change. The CDIs address disclosure considerations for these situations and where the lender does not fulfill its obligation to provide the funds.
We will post related memos in our “Tender Offers” Practice Area.
This recent Goodwin alert discusses two ongoing cases in the Bankruptcy Court in the District of Delaware, Ideanomics and First Mode, that address bid protections that the bidder traditionally receives when it makes a binding “stalking horse bid” for the assets of a Chapter 11 debtor in anticipation of a 363 sale. These usually include a breakup fee of 1-3% of the stalking horse bid’s purchase price and reimbursement of reasonable and documented expenses. The debtor gets bankruptcy court approval of the bid protections — usually when it seeks approval of the procedures for the 363 sale. Here’s background on both cases:
In Ideanomics, the stalking horse bidder served as the debtors’ pre- and post-bankruptcy secured lender and had ties to the board. Sales to insiders are subject to heightened scrutiny. As with many insider sales, the debtors sought court approval of reimbursement of the stalking horse bidder’s expenses (up to $500,000) but did not seek approval of a breakup fee. In First Mode, the stalking horse bidder is not an insider, and the debtors sought court approval of a 3% breakup fee and reimbursement of expenses (up to $550,000). In each case, the debtors sought superpriority status under the Bankruptcy Code for bid protection claims of the stalking horse. Superpriority status entitles claims to payment ahead of other costs of administering a debtor’s estate (i.e., administrative expense claims).
The US Trustee objected to the proposed bid protections in both cases.
In Ideanomics, the UST argued the expense reimbursement did not benefit the estates because, due to the stalking horse bidder’s status as the debtors’ pre- and post- bankruptcy secured lender, it needed a successful auction to monetize its collateral and consequently would make a bid even without bid protections . . . [T]he court rejected the UST’s argument that the expense reimbursement claims are not “actual and necessary costs to preserve the estate” but held that expense reimbursement claims would be entitled only to administrative priority instead of superpriority. In denying superpriority status, the court explained that the main trade-off of being a secured lender and a purchaser in a Section 363 sale is that the secured lender must provide for the payment of all costs to administer the debtor’s Chapter 11 estate.
The Ideanomics lender/stalking horse’s requirement that its bid protection claims be paid before administrative claims suggested to the court that the lender/stalking horse might fear administrative insolvency, which would give credence to dismissing the bankruptcy cases and not proceeding with the Section 363 sale. The Ideanomics stalking horse accepted the court’s ruling, and the sale process with the stalking horse bidder is moving forward.
In First Mode, the UST argued that the breakup fee might not benefit the debtors’ estates because it could be earned in circumstances other than a sale to an alternative purchaser, such as withdrawal of the sale motion or conversion or dismissal of the Chapter 11 cases. The UST also argued in both cases that the court should not approve superpriority status for bid protection claims because superpriority status for a bid protection claim allegedly has no basis in the Bankruptcy Code . . . [T]he debtors, stalking horse bidder, and UST consensually resolved the UST’s objection, and the bankruptcy court approved the modified bid protections. As with the litigated outcome in Ideanomics, the parties in FirstMode agreed that bid protection claims would have administrative priority instead of superpriority.
The alert says that both cases show that bankruptcy courts value stalking horse bids and recognize the appropriateness of certain bid protections but that Ideanomics “leaves uncertain the ability of stalking horse bidders to obtain superpriority status for bid protection claims.”
In late February, the White House issued the America First Investment Policy Memorandum. It previews future policy changes intended to counter threats to national security while preserving an “open investment environment” intended to “ensure that artificial intelligence and other emerging technologies of the future are built, created, and grown right here in the United States.”
This Debevoise update identifies nine significant policy measures from the memo, including a fast-track review for investments from “yet-to-be-specified allied and partner sources,” new rules prohibiting PRC-affiliated investors from buying critical American assets and a possible expansion of CFIUS jurisdiction. It says these policy measures will have a number of potentially significant implications for investors and businesses. Those include:
Difficult choices for investors seeking “fast-track” access. Because eligibility for expedited investment reviews will be conditioned in part on investors’ distance from the PRC, firms may have to pare back their PRC-related investments to gain “fast track” access.
A restrained approach to CFIUS mitigation agreements. The administration may have heeded the concerns of investors from allied countries, many of whom have grown frustrated with lengthy CFIUS reviews and burdensome mitigation agreements. As a result, CFIUS may take a more targeted and less resource-intensive approach to mitigation. However, the impact of the memorandum’s mitigation provision may be limited as it relates to investments from foreign adversary countries; CFIUS can perhaps be expected to prohibit these outright, rather than entering mitigation agreements.
Increased scrutiny of PRC- and other foreign adversary-affiliated investments, including through private equity and complex acquisition structures. As the administration seeks to further restrict PRC and other “foreign adversary” investment in the United States, we may see increased CFIUS attention to investments from these jurisdictions, with limited availability of ongoing mitigation to address any identified national security risks. This may include heightened scrutiny of minority investments from these jurisdictions to assess whether such investments in private equity funds and other complex acquisition structures are sufficiently “passive” to overcome concerns regarding “affiliation.”
H/Advisors Abernathy recently released its 5th annual report of pre-announcement leaks in M&A transactions. The report reviewed 509 transactions announced from January 2024 through December 2024 with $1 billion or larger in enterprise value. Here are some key findings from this summary:
– 31% of announced transactions valued at $1 billion and greater in 2024 leaked prior to the official announcement.
– Deals valued at $10 billion or greater continued to leak at a significantly higher rate, at 64% in 2024, a substantial increase from 43% in 2023.
– Transaction leaks are occurring earlier in the deal process, on average, 52 days in advance of an announcement, with 19% of leaks occurring within two days of the deal’s official announcement.
– Entertainment, Leisure and Media remained the “leakiest sector”, increasing to 62% of deals leaking to media before the official announcement, up from 45% in 2023. Deals in the Tech sector also leaked at a substantially higher rate, up to 46% leaking from 26% in 2023.
– On average, leaks rank among the top five most visible news moments of the year for both buyer and target companies.
– Nearly three in four mentions of a leak start with an online news story and then travel to social media, led by X (16% of leak mentions) and LinkedIn (10% of leak mentions) where attention spreads rapidly.