On January 14, the House Financial Services Subcommittee on National Security, Illicit Finance, and International Financial Institutions held a hearing on CFIUS. As detailed in this Debevoise alert, Treasury Assistant Secretary for Investment Security Chris Pilkerton shared his top-five 2026 goals for CFIUS during the hearing. The alert summarizes his testimony as follows:
– Maintaining national security as CFIUS’s core mission. Pilkerton emphasized that CFIUS’s primary objective remains identifying and mitigating national security concerns arising from covered transactions. He described the process as evaluating foreign actor threats and transaction vulnerabilities and identifying appropriate mitigation measures. Central considerations include foreign access to technology and data, proximity to sensitive sites and adversarial state ownership.
– Improving process efficiency. Pilkerton highlighted the Known Investor Program (the “KIP”), which was launched on a pilot basis last year. The KIP seeks to collect detailed information from repeat or trusted investors in advance of transactions. The Department of the Treasury (“Treasury”) intends this program to expedite reviews for lower-risk investors while preserving robust CFIUS reviews. A public request for information is expected soon to inform Treasury’s finalization and formal launch of the KIP.
– Prioritizing non-notified transaction review. Transactions not filed with CFIUS, known as non-notified transactions, continue to be a CFIUS priority for review. Recognizing that post-closing mitigation is often more difficult and disruptive, CFIUS plans to expand outreach and detection efforts to address transactions that close without a CFIUS filing. Although CFIUS filings are voluntary for many transactions, CFIUS plans to continue to address transactions that implicate, but do not comply with, the mandatory filing requirement.
– Expanding expertise in key risk areas. Pilkerton committed to doubling the size of CFIUS’s research team, with a focus on PhD-level experts in emerging technologies, artificial intelligence, semiconductors, biotechnology and sensitive data sectors.
– Continuing international and domestic engagement. Consistent with the Foreign Investment Risk Review Modernization Act of 2018, Treasury will continue to engage with foreign allies and partners on their own investment screening regimes. Pilkerton also stated that he intends to meet with state officials and legislators to increase awareness of CFIUS, its jurisdiction and its processes.
The alert also summarizes the concerns expressed by Subcommittee members, including scrutiny of China-related transactions and farmland and critical infrastructure.
On Friday, Corp Fin released a bunch of updated and new CDIs. Three amended CDIs address when offers and sales of securities may be registered on Form S-4 (or F-4) after “lock-up” agreements or agreements to tender are executed before the filing of a registration statement.
Two revised CDIs reflect a reversal of the Staff’s prior approach to voluntary Notices of Exempt Solicitation filed by soliciting persons who do not beneficially own more than $5 million of the class of subject securities.
A new CDI modernizes the broker search process, providing that the staff will not object if a registrant conducts a “broker search” less than 20 business days before the record date as long as it reasonably believes that proxy materials will be timely disseminated to beneficial owners and otherwise complies with Rule 14a-13.
A new CDI addresses when a registrant is unable to distribute an information statement in compliance with Rule 14c-2(b)’s 20-calendar-day requirement because the written consents were solicited by a dissident security holder without the registrant’s knowledge.
One new CDI addresses the availability of the Rule 14e-5(b)(10) exception for tender offers that qualify for the Tier I cross-border exemptions and one addresses whether Rule 14e-5(b)(12)(i) permits purchases outside a tender offer by the financial advisor’s affiliates on behalf of the offeror with the purpose of facilitating the tender offer.
Finally, Corp Fin Staff released updated Regulation S-K CDI 217.01. The update provides additional clarity on historical compensation information for a spun-off registrant. See my blog on CompensationStandards.com.
I really liked this recent LinkedIn post from Squire Patton Boggs’ Danielle Asaad with tips on how to quickly review a private company merger agreement in an auction process. I think everyone at one point or another has had one of these arrive in their inbox with an exceptionally short fuse for review. Danielle has a PowerPoint that offers some good tips on how to quickly make your way through that document without missing key points. Check it out if you get a chance.
In Mitchell v. Taro Pharmaceuticals, the SDNY dismissed disclosure claims under Section 13(e) of the Exchange Act challenging a going private merger between Taro Pharmaceuticals and its 85% stockholder, Sun Pharmaceutical Industries. This excerpt from a Goodwin newsletter discussing the decision addresses the plaintiffs’ disclosure claims and the Court’s responses to them:
First, the plaintiff claimed the proxy failed to specify whether the financial adviser to Taro’s special committee “recommended” the merger consideration. The court rejected this argument because the proxy explicitly said that the deal price “was determined through negotiations between the Special Committee and Sun” and was not set by the financial adviser. While the plaintiff theorized that the adviser provided a “target” price that the special committee adopted, the court rejected this as speculative and lacking in the factual support required to plead misleading statements under the Private Securities Litigation Reform Act of 1995.
Second, the plaintiff alleged that the proxy statement provided a misleading explanation of the adviser’s financial analyses. The court agreed that, when viewed in isolation, the proxy’s description of one financial analysis could be misleading. But other passages in the proxy provided additional information that corrected any misleading impression. Moreover, as is typical in going-private deals governed by Section 13(e), the proxy attached the financial adviser’s final presentation to the board, which described the adviser’s financial analyses in further detail, as an exhibit. Given all these surrounding disclosures, it was “inconceivable” that any stockholder was misled.
Third, the plaintiff argued that the proxy failed to disclose that, in another pending securities lawsuit, Taro had received a settlement offer of $36 million. This allegedly rendered the proxy misleadingly incomplete because Taro had disclosed a loss contingency amount of $141 million in related antitrust litigation. But as the court observed, the securities litigation was distinct from the antitrust litigation. And the securities class action settlement became public more than a month before the stockholders voted, so stockholders could hardly claim to have been misled about the settlement.
Finally, the plaintiff claimed that the proxy misled investors by disclosing Glass Lewis’ and Institutional Shareholder Services’ recommendations in favor of the merger but not their full reports. The plaintiff relied on SEC rules requiring, in going-private transactions, detailed disclosure concerning reports and opinions that are received from outside advisers. The court reasoned that these rules apply to advisers engaged by the issuer (such as financial advisers) and not independent proxy advisers with no relationship to the company.
Despite the demanding disclosure requirements imposed on going private transactions by Exchange Act Rule 13e-3 thereunder, the SDNY noted that many courts have refused to imply a private right of action under Rule 13e-3, and that the issue remains unsettled. However, the Court also concluded that it did not need to address this issue to resolve the case.
The defendants in Moelis promptly appealed the Chancery Court’s decision to the Delaware Supreme Court, and yesterday, the Court issued its decision dismissing the case. While the Chancery Court’s decision raised several substantive issues about the board’s ability to contractually limit its statutory authority, the Supreme Court resolved the case on procedural grounds.
In light of the legislative changes addressing the substantive issues in the case – which the Court noted in its opinion – that’s probably not surprising. Still, it’s a little disappointing to those of us who were perhaps hoping for some additional insight into the merits of the case. Instead, the introductory paragraph of Justice Traynor’s opinion summarizes what we got:
In the Court of Chancery, a stockholder sought a declaratory judgment that certain provisions of a stockholders agreement were facially invalid and unenforceable because the provisions interfere with the corporate board’s management of the business and affairs of the corporation as required by 8 Del. C. § 141(a). In this opinion, we conclude that (i) to the extent that the challenged provisions are at odds with § 141(a), they are not void, but voidable, and (ii) the plaintiff’s challenge is barred by laches.
The Court’s 43-page opinion addresses the distinction between void and voidable contracts & analyzes the application of the laches doctrine to equitable claims, but it doesn’t do much more than that. So, if you were hoping for some more substantive insights into the issues presented by Moelis, I’m afraid you’re out of luck.
The Delaware Supreme Court focus on procedural issues doesn’t mean that its decision is free from controversy. At least one member of the plaintiffs’ bar has already expressed concern about the potential implications of the Court’s approach to the laches defense in this case.
Financial advisors’ engagement letters often try to prevent their clients from settling a lawsuit that could give rise to indemnification without the financial advisor’s consent unless it includes a full release of claims against the advisor. In recent years, some financial advisors have also started pushing to make it more difficult for individual directors and officers to settle claims and get out of the litigation. These provisions may look something like this:
The Company shall not settle, compromise or consent to the entry of any judgment in or seek to terminate any pending or threatened proceeding or participate in or otherwise facilitate any settlement, compromise, consent or termination of any proceeding by or on behalf of any other person or the Board of Directors unless such settlement, compromise, consent or termination contains a release of the [financial advisor and its affiliates].
These provisions probably stem from some stockholder lawsuits years ago (including RuralMetro) where all of the defendants other than the financial advisor settled.
It’s not entirely clear what it means for a company not to “participate in” or “facilitate” a director’s settlement. For example, could that affect a company’s actions under a D&O insurance policy or indemnification agreement when a director seeks advancements or tries to settle (e.g., some indemnification agreements prohibit D&Os from settling without the company’s consent)?
From the investment banker’s perspective, I suppose misery loves company…. But M&A lawyers could have a very unhappy board if the investment banker raises this provision to stop individual directors from settling – especially if their financial advisor allegedly engaged in misconduct. This provision could be particularly relevant where the board members are not equally situated (e.g., in a conflict of interest transaction where individual defendants settle for a de minimis amount).
There is some Delaware authority suggesting that prohibitions like these may not bind directors and others who are not parties to the engagement agreement, but they may nevertheless create obligations that are enforceable against the company. As a result, in-house counsel and M&A lawyers may want to start paying closer attention to these provisions during the negotiation process.
On Wednesday, the FTC announced the updated HSR filing thresholds and filing fee schedule for 2026 and separately announced the new thresholds for director interlocks. The size-of-transaction threshold is increasing from $126.4 million to $133.9 million for 2026. The revised jurisdictional thresholds and filing fee schedule will apply to all transactions that close on or after the effective date (30 days after publication in the Federal Register). Check out this Sidley alert for a complete list of the revised thresholds.
This Venable alert says SPACs have been back, especially since the “inflection point” in the second half of 2024, in which 57 SPAC IPOs raised approximately $9.6 billion. It says, “the renewed activity reflects increased investor confidence and a more orderly market environment.” That means that “SPAC market 2.0” differs from its predecessor in that it’s a little less wild wild west, to the extent you felt that way about the prior SPAC boom.
The SPAC market’s revival reflects broader improvements in both market conditions and the regulatory framework. Equity valuations have stabilized, traditional IPO windows have reopened, and the SEC Rules have provided long-awaited clarity on disclosures, liability, and sponsor compensation.
These developments have made SPACs more transparent, predictable, and investor friendly. Sponsors with strong track records are once again launching new vehicles, and institutional investors are returning. Recent transactions feature improved alignment between sponsors and investors and more disciplined deal structures.
Investors are focusing on experienced sponsors with credible track records and clearly defined strategies, while target companies are increasingly mature private companies seeking efficient access to public capital.
With enhanced regulatory certainty and a more measured approach to dealmaking, SPACs have reestablished themselves as a viable alternative to traditional IPOs for private companies seeking efficient access to public capital.
The Delaware Supreme Court recently issued its opinion in J&J’s appeal of the Chancery Court’s decision in Fortis Advisors v. Johnson & Johnson. J&J made numerous arguments on appeal, including that the Chancery Court misapplied the implied covenant and rewrote the parties’ bargain, misconstrued the “commercially reasonable efforts” clause and eliminated discretion that J&J should have had per the contract, erred in finding fraud, and failed to give effect to the exclusive remedy provision.
In Johnson & Johnson v. Fortis Advisors (Del.; 1/26), the Supreme Court agreed only with respect to the implied covenant, noting that the implied covenant applies to “developments that could not be anticipated, not developments that the parties simply failed to consider.”
Other provisions within the Merger Agreement acknowledged differing possible regulatory scenarios . . . Yet Auris and J&J chose to explicitly tie every regulatory milestone—totaling hundreds of millions of dollars—to “510(k) premarket notification,” and only to that pathway . . . We also conclude that the FDA’s regulatory switch from 510(k) to De Novo, although believed to be unlikely, was not unforeseeable at the time of contracting . . . Therefore, the implied covenant has no role to play here . . .
The implied covenant was the necessary premise of the Court of Chancery’s damages award for Milestone 1. Once 510(k) became unavailable for iPlatform’s first clearance, Milestone 1’s express condition could not be satisfied as written, and the damages award for Milestone 1 cannot stand.
J&J argued that the implied covenant decision had a “domino effect” and reversing that portion of the decision should relieve its obligations as to the remaining milestones. De Novo review is so much more onerous, it argued, that “’all the milestones, timelines, and payments”’ would have changed had De Novo been required to unlock 510(k).” The Court disagreed and found that the reversal of the implied covenant conclusion did not disturb Chancery’s rulings as to remaining milestones.
The remaining milestones are different. Those milestones continue—by their plain terms—to require 510(k) notifications. The Court of Chancery found, and J&J does not challenge, that once iPlatform obtained De Novo approval for a first generation indication, it could serve as its own predicate device and proceed through the 510(k) pathway for additional indications.
Accordingly, although the implied covenant did not require J&J to pursue De Novo approval in order to achieve Milestone 1, J&J remained obligated to use commercially reasonable efforts to pursue 510(k) approval for the remaining milestones, including by seeking De Novo approval for an initial indication where necessary to facilitate 510(k) clearance for subsequent indications. The unavailability of 510(k) for a general surgery indication did not excuse J&J from the later milestones. Reversing the implied covenant rewrite of Milestone 1 therefore does not disturb J&J’s express obligations, or the damages awarded, for the remaining regulatory milestones.
That means that the Court affirmed Chancery’s interpretation of the efforts clause and upheld the decision that J&J breached its express obligation to use “commercially reasonable, ‘priority’ device efforts” to achieve the remaining regulatory milestones — maintaining Chancery’s damages methodology, which had resulted in damages with interest exceeding $1 billion — except for damages awarded for Milestone 1. The Court remanded the case so that damages calculation can be redone to exclude the Milestone 1 payment.
It was long enough ago that I can’t remember exactly when I started hearing about the machine learning tools being developed to improve contract due diligence. Now those tools are commonplace. But how else are M&A attorneys leveraging GenAI to improve M&A workflows? This Sullivan & Cromwell article discusses some of the ways:
Research
Market Research. AI tools can be used to research industry and market trends, as well as the target company’s business, challenges, and publicly reported events.
Legal Research. Standalone AI products or AI features built into existing online legal research tools can help expedite legal research. For example, GenAI-powered legal research tools allow lawyers to ask questions in a conversational style and receive summarized answers with citations to case law and secondary sources.
Due Diligence
Defensive Profiles. GenAI tools can be used to analyze a target company’s public filings and produce a corporate profile, including a description of the target’s capital structure, board and management teams, and takeover defense measures.
Contract Identification and Risk Analysis. GenAI technology can be leveraged to identify and extract specific terms (e.g., change-of-control provisions) from an agreement. Attorneys may query GenAI tools to identify specific agreements, or agreements presenting a particular risk, in a VDR.
Summarization of Diligence Materials. AI tools can also be used to generate summaries of documents, or to assist with drafting diligence deliverables.
Drafting & Negotiation
Drafting Assistance. GenAI tools can assist with preparing initial drafts of agreements and related transaction documents based on standard forms, precedents, and other data sources. They may also be directed to propose thematic changes (e.g., “make the purchase agreement more buyer-favorable”).
Issues List Generation. GenAI technology can be used to prepare initial drafts of issues lists based on drafts or markups received from the counterparty to guide attorney review and negotiation.
Market-Standard Benchmarking. AI can be used to support negotiation strategy by identifying market-standard positions and comparing the relevant transaction documents or provisions to the benchmark deal terms.
Execution
Deal-Process Optimization. AI tools can be used to summarize communications, flag open points, track action items, assist with inbox management, and other procedural tasks.
Signing and Closing Automation. AI tools can generate signing and closing checklists tailored to the deal structure and timing. They can also assist with execution logistics, including signature page management and closing binder preparation.
This all sounds great, but many risks remain. The alert describes some risks specific to M&A related AI applications, such as a bias in favor of publicly filed transactions.