Wachtell recently penned an HLS blog with their top ten trends for activism in 2027. Here are the two points that stood out most to me:
Activism is No Longer the Crisis It Once Was. The sheer volume of activism activity in the post-COVID era has reduced some of the novelty and reputational risk once associated with being targeted by an activist. Many activist campaigns also employ the same set of themes and templates, typically calling for some combination of board or management changes, M&A, capital return, and/or operational changes. New funds with no activist history call themselves activists to garner attention and raise capital. While media coverage may treat every activist engagement as a newsworthy event, it no longer necessarily generates the same sense of crisis inside the boardroom or among the shareholder base. Companies increasingly understand that an activist approach is not, by itself, evidence of any failure or a reflection of broader investor sentiment.
Summer is the New Fall. Activism for any given proxy season has tended to kick off in the fall, often centered around various activism conferences at which activist funds will announce their top targets. More recently, activists have been initiating private engagement with companies earlier in the calendar year, sometimes approaching companies over the summer in the first few months after an annual meeting, almost a year before they could win any seats in a contested election. Because many activists—especially the larger, more prolific ones—evaluate multiple potential activism targets at once, the nature of an initial contact can offer helpful clues about the seriousness and maturity of the activist’s thesis. Early engagement can be useful, both to understand the activist’s perspective and to demonstrate responsiveness. Still, an early approach needs to be managed in a way that allows the management team and board to focus on the business and does not create unreasonable expectations as to what level of access an activist will be afforded over the course of a year.
As readers who also follow our other blogs already know, our 2026 Proxy Disclosure & 23rd Annual Executive Compensation Conferences are less than 3 weeks away! One of the authors of this post, Wachtell’s Lina Tetelbaum, is speaking on our “Fireside Chat with Top Activism Defense Lawyers” alongside Latham’s Michele Anderson and Skadden’s Elizabeth Gonzalez-Sussman. Our Proxy Disclosure Conference also includes panels on “The Fate of Shareholder Proposals,” “Shareholder Engagement & Proxy Voting: Turning Tides” and “The SEC All-Stars: Proxy Season Insights.” Day 2, our Executive Compensation Conference, includes panels on “Your Compensation Disclosures: New & Improved (We Hope)!” and “Navigating ISS & Glass Lewis.” There’s still time to register online or contact us at info@CCRcorp.com or 1-800-737-1271.
In Winton v. North Highland Co. (Del. Ch.; 9/26), Vice Chancellor Will addressed procedural checks that the seller had negotiated to preserve some control over the earnout calculation process.
The North Highland Company LLC acquired a technology consulting firm, agreeing to an earnout based in part on gross profits from “Qualifying Projects.” The governing purchase agreement established a classification process under which the seller representative would notify North Highland of the potential Qualifying Projects, and the parties then would mutually agree on their classification before North Highland submitted a client proposal.
Post-closing, North Highland used its exclusive control over internal systems to withhold information the seller representative needed to identify Qualifying Projects, preventing him from participating in the bargained-for notification and classification process. North Highland also unilaterally excluded projects based on extra-contractual carve-outs. The seller representative now seeks to enforce the bargained-for protective mechanism.
In a memorandum opinion addressing four expedited issues presented at a two-day trial, VC Will applied the implied covenant of good faith and fair dealing to address a contractual gap — that the applicable provisions did not address “how the Seller Representative will obtain information to classify projects under the Qualifying Project definition.”
I conclude that the implied covenant of good faith and fair dealing prohibits North Highland from arbitrarily withholding the data necessary for the Seller Representative to participate in the contractual notification and classification process, but not as broadly as Winton contends. [. . .] The implied covenant can function as a “limited ‘gap-filler’” that “enforces the parties’ reasonable expectations in circumstances that they could not foresee and did not address in their written agreement, but it may not be used to rewrite or contradict express terms.” [. . .] The implied covenant also constrains the exercise of contractual discretion where necessary to preserve the parties’ reasonable expectations at signing.
Here, the implied constraint concerns North Highland’s control over implementation of the agreed-upon notification and classification process. The Earnout Addendum makes the Seller Representative’s notification a prerequisite to classification. That process requires information about a project’s anticipated services and revenue composition. North Highland cannot demand strict compliance with this condition precedent while wielding its exclusive control over its systems to arbitrarily withhold the sole means of effectuating it.
She ordered specific performance, requiring the buyer to provide information necessary to make the notification and classification process work, which was a narrower set of information than the seller’s representative asserted he was entitled to.
North Highland must provide reports every two weeks identifying projects entering or moving through Stage 3 for which an RFP has not yet been submitted. The information must include the Salesforce fields necessary to identify the project—such as Opportunity Name, Stage, Amount, Account, and comparable identifying information. It must also include the corresponding pricing-tool output showing the revenue allocation between technology or data analytics services and other services for projects entering or moving through Stage 3. If a project will reach the submission deadline before the next scheduled report, North Highland must provide a supplemental disclosure sufficiently in advance to afford the Seller Representative a meaningful opportunity to notify North Highland of the potential Qualifying Project and participate in the mutual-agreement process.
The FTC is continuing to enforce the prohibition on interlocking directors in Section 8 of the Clayton Act. This Debevoise alert discusses a recent consent order that provides some guidance on the FTC’s perspective on when Section 8 comes into play.
On September 16, 2026, the Federal Trade Commission (the “FTC”) announced a proposed consent order addressing Beretta Holding S.A.’s (“Beretta”) proposed acquisition of additional shares of Sturm, Ruger & Co., Inc. (“Ruger”). The FTC alleged that governance rights associated with the investment would have created an unlawful interlocking directorate in violation of Section 8 of the Clayton Act.
Under a stock purchase agreement, Beretta sought to both (i) increase its minority position in Ruger and (ii) appoint two directors to Ruger’s board. According to the FTC, Beretta and Ruger compete across multiple firearms product lines, and therefore Beretta’s anticipated role in Ruger’s Board of Directors could have opened an avenue for the exchange of competitively sensitive information between competitors [. . .] The FTC alleges that the Beretta-Ruger agreement created a company-level interlock because it could not guarantee that the Beretta-appointed directors would be independent of Beretta and its affiliates.
The consent order requires 15 day prior written notice to the FTC before any nominee can join Ruger’s Board and details the following independence requirements that any Beretta-nominated director must satisfy:
– Not a Relevant Person or Immediate Family Member: The nominee may not be an employee, officer, director, representative or agent of a “Relevant Person” (i.e., Beretta, its parent or any entity they control) or an immediate family member of a Relevant Person.
– Three-Year Lookback: In the preceding three years, the nominee may not have been (a) an employee, officer, director, representative or agent of a Relevant Person; (b) a recipient of direct or indirect compensation from a Relevant Person; or (c) a partner or employee of a firm that is a Relevant Person’s internal or external auditor.
– No Material Relationship: The nominee may not have a “Material Relationship” with a Relevant Person, anyone within a Relevant Person, or an immediate family member of such a person. A “Material Relationship” is any relationship that would reasonably be expected to impair the objectivity of the nominee’s judgment when serving as a director of Ruger.
In addition to confirming that interlocking directors remain an enforcement priority, the alert highlights other key takeaways — that minority investments and nominating corporations can create issues under Section 8 if the director nominees aren’t sufficiently independent.
Traditionally, sellers in private deals are responsible for losses that result from a proven breach of the reps & warranties contained in the purchase agreement. This Pillsbury blog says that aggressive buyers are now seeking to negotiate language in those agreements to cover defense costs incurred for post-closing claims involving mere allegations that a rep has been breached.
This isn’t typically a huge issue in deals with RWI, since that insurance typically provides for the insurer to bear the buyer’s defense costs. However, as this excerpt explains, it’s a much bigger issues in the significant minority of private deals where reps & warranties aren’t backed by insurance:
But not every deal has R&W insurance. In many founder-led, strategic-buyer or smaller private company transactions, R&W insurance is not utilized. In those deals, some buyers are trying to recreate the same protection they would have received from an insurer, but at the seller’s expense and without paying for the insurance. According to the 2025 ABA Deal Points Study, provisions requiring sellers to cover claims alleging a breach of a R&W increased from 17% of deals in 2022–2023 to 27% of deals in 2024–2025.
In a non-insured deal, the economics are very different. If the purchase agreement requires the seller to cover defense costs based only on allegations, the seller may have to write checks before any breach has been established. That can reduce the value of the deal, erode escrowed funds, and force former owners to spend proceeds defending a business they no longer control.
Buyers may argue that, if the claim relates to pre-closing conduct, the seller is closer to the facts and should bear the risk. Claims are typically not fully meritless, and the seller’s past action or inaction led to the claim in some way. Sellers should be careful with that framing. Anyone can make allegations, and the parties have already negotiated the R&W framework that defines the seller’s post-closing liability. If defense costs are triggered by allegations alone, the seller’s negotiated risk profile expands unjustly, and the R&W framework is close to meaningless.
The blog says that sellers in non-insured deals should push to limit indemnity obligations to apply only when there’s an actual breach. If a buyer pushes for coverage beyond that, it recommends that the seller narrow its obligations by limiting the types of covered claims, requiring cost sharing for pending claims, ensuring that the seller has the right to control the defense of the claim, applying negotiated caps, baskets and escrows to the defense cost obligations, and requiring a true-up if no breach is found.
Private credit has become a dominant force in private equity-backed M&A, and this Herbert Smith Freehills Kramer memo (p. 4) discusses how documentation for private credit financings continues to evolve. Here’s what the memo has to say about the current state of financial covenants in private credit financings:
Financial covenant frameworks remain a key point of differentiation in U.S. private acquisition finance. In traditional middle-market unitranche deals, lenders rely on a quarterly-tested leverage-based maintenance covenant as an early-warning tool.
Competitive dynamics in prior years drove a shift toward “covenant-loose” structures (distinct from “covenant-lite” in the broadly syndicated loan market), where leverage covenants were set with wider headroom, limited to a single test, omitted entirely or replaced with a springing revolver-only covenant triggered when drawn above a specified threshold. However, 2026 has shown early signs of a correction, with new originations incorporating more robust covenant packages as lender discipline reasserts itself.
The memo notes that private credit documentation increasingly incorporates syndicated loan concepts, including EBITDA-based baskets and more permissive debt, investment, and restricted payment capacity as EBITDA grows. It also says that provisions allowing PIK payments in lieu of cash have moderated in 2026 as lenders’ negotiating leverage has increased. Finally, the memo says that as PE sponsors have increased their focus on liability management, lenders have refined credit documentation to address in greater detail “value movement within capital structures and conditions under which new money can be introduced.”
Fox Rothschild recently blogged about the Delaware Superior Court’s decision in Prosser v. PharmaLogic Holdings Corp, (Del. Super.; 7/26), which involved several common contract issues that arise in earnout disputes.
The case arose out of the sale of a nuclear pharmacy business by its founders under the terms of a securities purchase agreement. That agreement called for a $30 million upfront payment plus a potential earnout under which the sellers would receive a $6.6 million earnout payment if EBITDA during the earnout period reached at least $7 million. The agreement also imposed operational restrictions on the buyer, requiring it to act in good faith and prohibiting actions intended to impede or reduce EBITDA.
The buyer ultimately reported $6.8 million in EBITDA during the earnout period, narrowly missing the $7 million milestone. The sellers sued, alleging that the buyer intentionally depressed EBITDA through a variety of accounting, recordkeeping, compensation, and operational changes to the business. The sellers also alleged that the buyer failed to provide adequate support for its EBITDA calculation and impaired their ability to evaluate performance by changing certain financial reporting practices.
The Court allowed most of the sellers’ breach-of-contract claims to proceed. It rejected the buyer’s argument that because the sellers were challenging its EBITDA calculations, the agreement required the dispute to be adjudicated by an independent auditor. The Court concluded that the sellers were not just challenging the EBITDA calculations, but were also alleging that the buyer deliberately manipulated operations and accounting practices to avoid paying the earnout.
Since these claims involved issues beyond simple accounting disputes, the Court concluded that they were outside the scope of the auditor’s authority under the agreement. The Court also rejected the buyer’s contention that the seller’s claims were time barred, concluding that further discovery was necessary to determine when the sellers were on notice of the buyer’s alleged wrongdoing.
This excerpt from the blog highlights some of the key takeaways from the case for parties considering including an earnout in their deals:
– Spell out who decides earnout disputes—and which issues go to that decision-maker. If the parties want an auditor to resolve disputes over document access, recordkeeping, operational decisions, or intent-based allegations, the agreement should say so expressly.
– Sellers should negotiate concrete protections for how the business will be run during the earnout period. A general good-faith obligation helps, but specific operating, accounting, and recordkeeping guardrails can reduce uncertainty and lower the odds of later litigation.
– Buyers should think carefully before making operational changes during the earnout period. Even ordinary business decisions can create litigation risk if their timing or effect suggests an effort to reduce an earnout payment.
This recent article from The Guardian presses the panic button on the private equity industry. It contends that recent failures of prominent PE-backed companies, the changing interest rate environment, rising prices for acquisitions & the inability of firms to dispose of their portfolio companies at attractive prices means that the PE business model is facing an “existential crisis.” This excerpt addresses some of the issues associated with longer holding periods & rising valuations:
Private equity firms promise investors higher returns than the stock market, in exchange for holding on to their money for a longer time period, generally 10 years, a business model that’s been the same for decades.
“What has changed is that the price of buying a target company has gone through the roof,” as the number of private equity funds increased, explains Rosemary Batt, a Cornell University management and labor professor who studies the industry’s impacts on workers and companies. Healthcare companies that once sold at 11 times EBITDA, a measure of enterprise value, are now priced at 18 times or more, for example.
That makes exiting the investment for a profit even more difficult on investors – and on customers and employees.
The higher prices for buyouts are “putting even more pressure on PE firms to squeeze the juice out of their portfolio companies”, Batt said, at a time when there’s almost no regulation governing how they do that.
“They can engage in financial engineering or just slash and burn on the operating side,” Batt said. “And it takes years for anyone to really see it.”
As they hold the company, these investors generally channel free cashflow to “creditors and equityholders, often constraining capital expenditures, worker training, and safety investments”, the University of Chicago’s Business Law Review warns. Tightening macroeconomic conditions can result in forced restructurings “that are costly and value‑destroying for the going concern”.
Not everyone thinks the sky is falling, however. The article quotes Will Dunham, the President & CEO of the American Investment Council, who contends that the PE industry’s pockets are deep enough to weather a crisis:
“Private equity-backed businesses face the same higher interest rates and economic pressures as other companies, but they also have committed investment partners that can provide additional capital and keep investing through difficult periods,”
Slaughter & May recently published a report on takeover trends in deals involving UK public companies. The firm says that “bear hugs” have returned in a big way in 2026. This excerpt provides the firm’s analysis of why bear hugs are on the rise:
Valuation gaps. Differences in valuation expectations between bidders and target boards remain pervasive in UK public M&A, with target boards focused on standalone value and the potential for future upside amidst persistent perceptions of undervaluation. As a result, where private engagement on terms fails to secure a recommendation, bidders are increasingly putting their proposals directly to shareholders. This enables a bidder to test shareholder appetite broadly and publicly (which could not be achieved by wall crossing a select few) and encourage them to influence the target board.
Target engagement. Bear hugs can be a helpful tactic for bidders struggling to gain traction with a target board, as any resulting shareholder pressure will create momentum and make it harder for a target board to resist engagement. It can also be useful where the bidder has already been identified publicly, and the clock is ticking on its 28-day “put up or shut up” (PUSU) deadline to announce either a firm intention to make an offer or that it does not intend to make an offer.
Public narrative. A bear hug allows a bidder to frame its proposed premium, strategic rationale and the deliverability of the transaction, and can shift the burden of rebuttal onto the target. This can be particularly effective where the bear hug reveals the bidder for the first time, allowing the bidder to set the tone – at least initially – before the target has publicly established its own narrative.
The report goes on to observe that a bidder that executes bear hug well can put itself into position to frame the valuation debate, demonstrate the credibility of its proposal, build momentum towards diligence access and, ultimately, persuade the target to recommend its offer. However, it also notes that the strategy has risks, which the report also outlines. The report also provides examples of recent UK transactions involving bear hugs and highlights some actions that targets may take in response.
Drawing from the circumstances of the closely followed bidding war between Novo Nordisk and Pfizer to acquire Metsera, this White & Case article discusses how boards should assess competing proposals that are alike in amount and composition, but differ in structure, timing and probability of consummation due to regulatory risk. The alert summarizes the facts of the Metsera saga as follows:
In the fourth quarter of 2025, Novo Nordisk A/S (“Novo”) intervened as an interloper in the acquisition of Metsera, Inc. (“Metsera”), a clinical-stage developer of obesity and metabolic therapies that had entered into a merger agreement to be acquired by Pfizer Inc. (“Pfizer”). Novo offered a higher headline price than Pfizer, together with a structure designed to neutralize the greater antitrust risk its offer carried. The structure was less novel than it first appeared. Novo ultimately abandoned the proposal after the staff of the Federal Trade Commission (the “FTC”) signaled that it was inclined to recommend a challenge and Pfizer commenced actions in two courts seeking to block the transaction. Pfizer raised its offer in successive steps until it matched Novo’s final proposal in both amount and composition. Once the headline figures converged, Metsera’s board concluded that Novo’s structure carried unacceptable legal and regulatory risk relative to the deal certainty Pfizer offered.
Here are a few key takeaways from the memo:
– Antitrust risk is a substantive component of deal value, and where competing bids converge on headline price, it tends to become the decisive variable. Nor is the resulting valuation discount confined to antitrust: the same arithmetic applies to any approval on which closing depends, whether the relevant regulator supervises insurance, banking, communications or energy.
– Although the final Pfizer and Novo prices were identical, the bids were not equal in value. The Novo proposal was worth what it promised only if the upfront structure survived legal challenge and the back-end merger cleared antitrust review, and the antitrust objections put both in doubt. A board weighing that uncertainty could reasonably conclude that Pfizer’s nearly certain package was worth more after adjusting for risk.
– Novo’s non-voting preferred structure allowed roughly three-quarters of the proposed consideration (valuing a contingent value right, or CVR, at its maximum), and half of Metsera’s equity, to change hands before any antitrust review. The HSR rules, which disregard any transaction or device employed to avoid a filing obligation and test reportability against the substance of the transaction as a whole, undermined the certainty the structure was designed to offer. A filing obligation may therefore exist notwithstanding the structure’s form.
– The regulatory-likelihood prong of the contractual “superior proposal” standard calls for a genuine probabilistic assessment, and for care in the sequencing and framing of the board’s findings rather than a nominal acknowledgment that clearance is uncertain.
The memo provides a detailed illustration of that probabilistic assessment. It also has a thorough discussion about how Delaware courts might have analyzed the agreement with Novo, had Metsera gone in that direction, and shares some practical tips for navigating competing bids that are primarily distinguished by regulatory risk. There’s a lot here, and it’s a practical read that’s worth your time.
When I blogged about the Chancery Court decision in Dodiya v. Franklin, et al. (Del. Ch., 8/26) – the first decision analyzing whether a transaction process met the new Section 144 safe harbors – I focused on the finding that Section 203 does not require that a stockholder vote be “informed,” rather than Vice Chancellor Will’s analysis of Section 144. That was because VC Will described the facts “as an extreme scenario where a board acted with reckless indifference to its own safeguards against a known leak.” But despite some unusual facts that go beyond the “ordinary imperfections of a sale process,” there are still some important Section 144-related takeaways from the decision, as this Goodwin alert details.
The case arose from a take-private acquisition led by Sababa Holdings Free LLC (Sababa), an entity owned and managed by Martin Franklin. Martin Franklin’s son, Michael Franklin, had joined the Whole Earth board in August 2022 and became interim CEO [. . .] Michael Franklin secretly sent his father’s investment firm “a 54-page goodwill impairment test” report containing material nonpublic information [. . .] a draft Form 10-K, the status of credit agreement negotiations, and a draft earnings and guidance release. Sababa subsequently purchased millions of shares of Whole Earth stock and accumulated a 19.8% stake before proposing to acquire the company.
After Sababa submitted its initial proposal, the board recognized Michael Franklin’s conflict and asked him to “sign an undertaking” prohibiting him from participating in the sale process, accessing process-related confidential information, or sharing information with his father or Sababa affiliates. He refused and was placed on paid leave [. . .] “the full [b]oard [knew he] had previously provided non-public information to his father’s company.”
Michael Franklin remained a director after resigning as CEO. On October 24, 2023, he received materials from “meetings held during his suspension,” including “nonpublic financial results,” special committee materials, “and an update on the […] investigation into his own misconduct.” A week later, he attended a board meeting for updates on that investigation, company financial results, and the special committee’s consideration of Sababa’s proposal.
No mechanism was in place “to prevent or detect further” leaks. The proxy statement nevertheless told stockholders that Michael Franklin had not participated in process-related activities, meetings, or communications and had received no process information from Whole Earth.
Vice Chancellor found these facts to be problematic for Section 144(a)(1) and (a)(2).
The court explained that a majority vote by disinterested directors is “necessary” but “not sufficient” by itself for Section 144(a)(1)’s safe harbor. The statute also requires that the board or committee authorizes the transaction “in good faith and without gross negligence.” This requirement, however, includes not just the mere act of director voting but also “the collective conduct of the board or committee that authorized the transaction.” Specifically, this requirement applies to how the board “informed itself, deliberated, negotiated, and reached its decision.” The participation of an interested director “does not [automatically] defeat the safe harbor,” but it “may bear on whether” the authorizing body acted “in good faith and without gross negligence.”
Drawing on Delaware fiduciary law, the court explained that good faith and gross negligence are distinct conditions [. . .] Because Section 144(a)(1) uses the conjunctive “and,” both conditions must be satisfied for the safe harbor to apply. Thus, a board may be grossly negligent even if it believes it is serving the corporation, while a careful process may still be undertaken in bad faith if directors “consciously advanc[e] interests other than those of the corporation.”
The Section 144(a)(1) safe harbor was unavailable at the dismissal stage because the court found it was “reasonably conceivable that the board acted with reckless indifference ‘to the risk that confidential information would reach the buyer,’ thereby compromising ‘the integrity of the sale process.’ Section 144(a)(1)’s safe harbor was therefore unavailable at the dismissal stage.”
As to Section 144(a)(2):
The court separately held that Section 144(a)(2)’s stockholder-vote safe harbor was unavailable. Although the merger received overwhelming approval, the proxy’s assurance that Michael Franklin had been “walled off from the process” was inconsistent with the pleaded facts and incorporated board materials. Because a reasonable stockholder would consider his continued access important given the father-son conflict and the prior leak, the “vote was not informed for purposes of [the] motion to dismiss.”
Notably, failure to meet the safe harbor conditions did not mean that the board was liable for breach of fiduciary duty. Although it was reasonably conceivable that the board was grossly negligent, the company’s exculpation provision shielded them from liability for breaches of the duty of care. The court dismissed claims against all but two directors. Only plaintiff’s duty of loyalty claims against two directors — the former CEO who shared confidential information and a director who negotiated a secret $1.4 million consulting arrangement with the buyer — survived the motion to dismiss.