July 2, 2024

SPACs: “I’m Not Dead Yet”

The SEC’s new SPAC disclosure rules went into effect yesterday.  Although many people assumed that the rules would be the last nail in the coffin for SPAC deals, this Institutional Investor article says that the SPAC market is actually perking up a bit:

More than two years after they were first proposed, the Securities and Exchange Commission’s new rules governing special purpose acquisition companies, or SPACs, finally are set to go into effect on July 1. The expectation of tougher requirements, along with the disastrous stock market performance of most SPACS, has already led this market to sink — but it hasn’t killed it. In fact, 2024 is on pace to outdo 2023, which was the worst year for SPACs since 2016, in terms of dollars raised through the IPO market, according to SPAC Insider.

Halfway through this year, SPACs have already raised $2.5 billion, compared with $3.8 billion for the entirety of 2023, according to SPAC Insider. It calculates that are 34 SPACS that have either filed to go public, are searching for a merger partner or have completed a deal, compared with 42 for all of 2023, The average size of the SPAC IPO is slightly bigger, too, at $156.5 million compared with $124.1 million in 2023.

The article also highlights the significant headwinds that SPACs are facing, including the difficulties many SPACs have experienced in finding a merger partner and the shortened timeframe they have to complete a deSPAC under the SEC’s new rules.  Still, while SPACs are certainly ailing, it does appear that they would be right to claim, like the old man in Monty Python and the Holy Grail, that “I’m not dead yet!”

John Jenkins

July 1, 2024

New York Court Awards Seller Specific Performance

In James River Group Holdings v. Fleming Group Holdings, (NY Sup. 4/24), the New York Supreme Court’s Commercial Division recently addressed a seller’s claim for specific performance of the buyer’s obligation to close under the terms of a stock purchase agreement.  The Court rejected the buyer’s allegations that the seller had breached various provisions of a stock purchase agreement and granted the seller’s request for specific performance.

In reaching this conclusion, the Court pointed to provisions of the agreement entitling the seller to specific performance (Section 8.4) and providing a post-closing “true up” process to address the monetary issues raised by the buyer (Section 1.4):

In §8.4, the SPA provides for specific performance because the parties agree that there is irreparable harm if the contract is breached, and damages would be difficult to calculate. Courts enforce such provisions when negotiated by sophisticated counsel, as is true here. [Citations omitted]. The court is inclined to accept the parties’ agreement in the SPA where the parties crafted the SPA to prevent this precise situation with SPA §8.4 and §1.4.

The Court also agreed that the seller was suffering irreparable harm as a result of the buyer’s refusal to close the transaction. In particular, it pointed to the reputational harm that the seller, a public company which had announced the sale of this subsidiary as part of a long-term strategic plan to focus on core business, had suffered when the buyer’s refusal to close became public.

Specifically, the Court noted that the seller’s share price immediately dropped to an all-time low after the buyer balked, and that an analyst opined that the refusal to close potentially impacted the seller’s core value, interfered with its employees and operations, and distracted it from its strategic plan because of the need to maintain the subsidiary’s operations.

John Jenkins

June 28, 2024

Delaware Amendments: The Return of the Dead Hand Pill?

If you’ve been paying attention to the debate over the 2024 Delaware DGCL amendments, one thing that seems pretty clear is that a lot of stuff we all thought was settled long ago is once again up for grabs. Take “dead hand” poison pills, for example.  These pills contained provisions that only permitted them to be redeemed by “continuing directors” and the Chancery Court invalidated them in Carmody v. Toll Bros., 723 A.2d 1180 (Del. Ch. 1998), on the basis that the adoption of such a provision involved both a violation of Section 141 of the DGCL and a breach of the directors’ fiduciary duties.  In a recent M&A Law Prof Blog post, Prof. Brian Quinn says that the Delaware Legislature may have resurrected the dead hand pill:

In Toll Brothers, VC Jacobs – on a motion to dismiss – held that since the Rights that were the fulcrum for the dead hand pill could not be redeemed pursuant to the terms of the Rights Agreement by any board other than the directors who had initially adopted the pill (or at least by the directors who were continuing from the original board following a successful proxy contest) that the Rights Agreement ran afoul of § 141(a) and (d) was therefore invalid.

OK, so fast forward to 2024. Now that § 122(18) has passed and § 141(a) no longer sits atop the statutory hill, one can imagine writing an amendment to the Shareholder Rights Agreement that designates a shareholder or shareholders (who happen to be current directors) as responsible for pulling the pill. The board covenants not to redeem the pill under the Rights Agreement unless the director/shareholder agrees. So, even if the director (or directors) are replaced in a proxy contest, their dead hands will still float around the boardroom preventing the new board from pulling the pill in a manner that the new board believes is consistent with its fiduciary duties.

I don’t know that this issue is quite as cut and dried as this blog suggests.  As noted above, Vice Chancellor Jacobs also held that in adopting the dead hand provisions, the directors breached their fiduciary duties, and fiduciary duty claims are something that the advocates of the amendments contend are unaffected by them. Still, if you’re defending a dead hand provision, you’d rather try to argue your way through Unocal than confront a statutory brick wall.

John Jenkins

June 27, 2024

The Rise of Minority Investments for PE & Strategics

A recent Womble Bond Dickinson memo says that private equity funds and strategic investors are increasingly interested in taking minority positions in target companies. This excerpt discusses private equity funds’ rationale for this move and its implications:

Financial investors, particularly private equity firms, regularly rely on debt to extend their reach and enhance their return on capital. However, with high interest rates showing little sign of receding soon, the cost of this debt has made debt-financed acquisitions less attractive. In addition, the uncertain market outlook has caused these firms to seek greater protection from downside risk. As a result, private equity firms are more frequently partnering with co-investors and asking sellers to retain more equity in the target company.

Firms that have traditionally targeted buy-out options are engaging in more majority recapitalization transactions instead of relying on earnouts to bridge any valuation gap, and majority recapitalization firms are expanding their focus on minority investments. The move into minority investments allows private equity firms to further diversify their investments and mitigate potentially larger downside scenarios with majority recapitalizations. This shift has brought new players into and focus on the venture capital market.

On the strategic side, the memo says that minority investments are frequently a key third prong of large operating companies’ innovation strategies, along with traditional M&A and internal R&D. Strategics often use minority investments to, among other things, obtain early access to breakthrough technologies and obtain preferential commercial rights.  The memo also highlights some of the key protections that minority investors should seek during the negotiation process.

John Jenkins

June 26, 2024

No, Delaware Judges Aren’t “Sending Companies Packing” for Texas

The Hill recently published an opinion piece by a Texas lawyer who breathlessly announced that Delaware’s “activist judges” were “sending companies packing for states like Texas. . .” As UCLA law professor Stephen Bainbridge points out in his blog, that’s just not the case:

In total, there are almost 400,000 companies incorporated in Delaware. Although Delaware accounts for less than one-third of one percent of the United States’ population, it is the legal home for two-thirds of the Fortune 500 companies. As for the broader set of all public corporations, Delaware is home to more than half of the corporations listed for trading on U.S. stock exchanges. As for newly formed corporations, while most business entities form under the law of the state in which they have their primary place of business, Delaware is the leading choice of businesses that opt to incorporate outside their home state.

Guess how many publicly held Delaware corporations reincorporated outside of Delaware between 2012 and 2024. My research assistants and I have scoured SEC filings and various databases to get the answer. The answer? A whopping total of 65, with seven pending. That’s a total of 72 over 12 years. Six per year.

That’s not flight. That’s rounding error.

The facts cited by Prof. Bainbridge in his rebuttal don’t surprise me – after all, this wouldn’t be the first time that Delaware has muddled through after prominent deal lawyers got their noses way out of joint about Chancery Court decisions. What’s more, the jurisdictions that folks are advocating that Delaware corporations migrate to have their own issues.

In Texas, for example, its much-touted business court is just getting off the ground and it’s hard for me to imagine that many large companies would be interested in beta testing it over the next several years. As for Nevada, while some of its high-profile judicial decisions have been decidedly friendly to boards and controlling stockholders, its judges have been criticized for often looking to Delaware precedent instead of their own statute, and it’s still apparently unclear whether even Nevada’s statute would sanction a governance agreement like the one involved in Moelis.

My guess is that we may see a bit of a bump in re-incorporations over the short term, because hey, there’s always somebody who wants a taste of the flavor of the month, but despite the recent unpleasantness, I’d bet that Delaware is going to remain Delaware, at least for now. Whether the controversies over the Chancery Court’s recent decisions and the legislative reaction to them will buttress or erode the state’s status over the longer term is a question for bigger brains than mine.

John Jenkins

June 25, 2024

National Security: Treasury Proposes Outbound Investment Screening Rule

Last year, President Biden issued an executive order directing the Treasury & Commerce Departments to adopt outbound investment screening regulations. As Meredith blogged at the time, Treasury responded by issuing an advance notice of proposed rulemaking. On Friday, the Treasury Department issued a proposed rule to implement the screening regime. Here’s the intro from this Fried Frank memo:

On June 21, 2024, the U.S. Treasury Department issued a Proposed Rule to implement President Biden October’s 2023 Executive Order (“EO”) establishing a regime to restrict certain types of outbound investment to China. The Proposed Rule builds upon and adopts the same structure as an earlier Advance Notice of Proposed Rulemaking (“ANPRM”) — the notification, and in some instances the outright prohibition, of certain investments by U.S. persons in Chinese companies (including Hong Kong and Macau) that are engaged in specific activities related to semiconductors and microelectronics, quantum computing, and artificial intelligence (“AI”).

Treasury seeks public comments on the Proposed Rule through August 4, 2024, including on several provisions for which Treasury provides alternative formulations or parameters. The investment restrictions will only apply prospectively and will not take effect until Treasury publishes a final rule.

The memo goes on to summarize the proposed rule and notes that the Treasury Department has posted a fact sheet on the proposed rules on its Outbound Investment Security Program website.

John Jenkins

June 24, 2024

Antitrust: The DOJ & FTC Invite the Public to “Drop a Dime” on Roll-Ups

The DOJ and FTC are extending a cordial invitation to the public to drop a dime on “serial acquirers” whose deals may have harmed competition.  This Morrison & Foerster memo explains the initiative:

On May 23, 2024, the Federal Trade Commission (“FTC”) and the Department of Justice (“DOJ”) Antitrust Division announced a Request for Information (“RFI”) seeking information from the public to “identify serial acquisitions and roll-up strategies throughout the economy that have led to consolidation that has harmed competition.”

This is the latest action by the Biden administration to enforce against corporate consolidation more aggressively. The FTC and DOJ claim that serial acquisitions are particularly troublesome because a company can become “larger” and “potentially dominant” through a series of smaller acquisitions that fall below the Hart-Scott-Rodino (“HSR”) thresholds and therefore are not subject to pre-closing agency review or oversight. According to the FTC, through these smaller deals, firms can “amass significant control over key products, key services, and/or labor.”

The memo notes that the agencies’ focus on serial acquisitions is not new, and that, among other things, the new Merger Guidelines and changes to the HSR filing process illustrate their concern with roll-up strategies. The memo discusses several recent enforcement actions targeting private equity roll-ups and notes that the results of this initiative could lead to a variety of new actions by the antitrust agencies.  It advises serial acquirers to keep tabs on the public responses to this RFI, which will be available on the website.

John Jenkins

June 21, 2024

Delaware Legislature Passes Moelis Fix

Last night, the Delaware Legislature passed the controversial 2024 amendments to the DGCL and sent the legislation to Gov. John Carney for signature. Whatever the legislation’s merits may be, it would make sweeping changes to Delaware’s statutory corporate governance structure and create a number of thorny issues for the Chancery Court to work through. One respected commenter warned that the legislation could also backfire on the state. Here’s an excerpt from a Delaware Business Times article on the Legislature’s action:

Charles Elson, who founded the University of Delaware’s Weinberg Center for Corporate Governance and has served on several board of directors and advised many others, testified a third time before legislators that he thought SB 313 would threaten Delaware’s dominance in corporate litigation matters.

“This kind of revision hasn’t taken place since the 1980s, and that took two years of back and forth and compromise. This has taken two months, and I don’t believe there’s significant enough debate or attempts to compromise,” he said. “Decisions on corporate law should not be a ballgame, because it’s our bread and butter … It constitutes 67% of our revenues, and it’s the reason we don’t have a sales tax.”

Supporters of the legislation include former Chancellor William Chandler, who expressed his faith in the Delaware Corporate Law Council, which drafted the legislation.  According to the Business Times article, he warned legislators that if the amendments didn’t pass, “[t]he headlines will read that two judges and a lot of law professors succeeded in convincing [legislators] to vote down changes to corporate law that would have preserved the continuity and stability that we have known.” 

Former Chancellor Chandler also called out Chancellor McCormick and Vice Chancellor Laster for their public participation in the debate over the legislation.  Here’s another excerpt from the Business Times article:

“As chancellor, I was taught that judges need to stay in their lane and need to be applying the law [legislators] give them,” Chandler said. “Judges don’t need to intrude upon the process of law, because if they do they become the makers as well as the appliers.”

As plaintiffs’ lawyer Joel Fleming pointed out on Twitter, that’s a lesson that the former Chancellor apparently neglected to pass on to his immediate successor. It’s also a message that many other members of the Delaware judiciary who, over the years, have written articles, given speeches and provided other extra-judicial commentary to influence the course of Delaware law, apparently never received.

John Jenkins

June 20, 2024

May-June Issue of Deal Lawyers Newsletter

The May-June Issue of the Deal Lawyers newsletter was just posted and sent to the printer. This issue includes the following articles:

– Delaware Supreme Court Expands MFW Requirements in Conflicted Controller Transactions
– Delaware Court of Chancery Opines on Meaning of “Commercially Reasonable Efforts” in Pharmaceutical Earn-Out Provision
– Bridging the Value Gap: Making Your Reverse Morris Trust Work
– In-Person Conferences Return This Fall – Don’t Miss the Early Bird Rate!

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 or call us at 800-737-1271.

John Jenkins

June 18, 2024

EU Foreign Subsidies Rule: EC Announces First In-Depth Investigation of Proposed Deal

Last year, Meredith blogged about the EU’s implementation of its Foreign Subsidies Regulation and its potential impact on M&A transactions.  That impact ceased being purely potential earlier this month, when the European Commission announced that it had commenced the first in-depth investigation of a proposed acquisition under the FSR. Here’s an excerpt from Reed Smith’s memo on the announcement:

On 10 June 2024, the EC opened its very first in-depth investigation of an M&A deal under the FSR concerning the proposed acquisition by the state-controlled Emirates Telecommunications Group Company PJSC (e&) of sole control of the non-Czech businesses of PPF Telecom Group.

The EC has “sufficient indications” that e& has received foreign subsidies distorting the internal market, namely in the form of an unlimited guarantee from the UAE and a loan from UAE-controlled banks directly facilitating the transactions. The EC is concerned that these subsidies may have improved e&’s capacity to perform the acquisition as well as the competitive position of the merged business in the EU going forward by improving its capacity to finance its EU activities at preferential terms.

The focus of the investigation will be for the EC to assess whether the alleged subsidies had actual or potential negative effects on the acquisition process – in particular, by allowing e& to deter or outbid other parties or to perform the acquisition in the first place – and the internal market more broadly going forward.

The memo says that the EC now has 90 working days to decide whether to issue a no-objection decision, prohibit the deal or accept commitments from the buyer to remedy any alleged distortion to the EU internal market.

John Jenkins