This Perkins Coie memo highlights a potentially important shift in emphasis by the DOJ & FTC in antitrust merger challenges:
In a stark deviation from the traditional emphasis on consumer harm, as detailed in the Horizontal Merger Guidelines, both the FTC and the DOJ have pursued cases to block mergers based on potential competitive harm to large, national customers—the type of powerful, sophisticated customers that had previously been considered able to defend themselves against postmerger price increases by exerting their considerable buying power.
Increasingly, however, the federal agencies and some courts are adopting the argument that within certain narrowly drawn national markets, there are so few actual and potential competitors able to serve those large customers that the apparent countervailing power to restrain price increases is insufficient to prevent price increases.
If this trend continues, companies will need to assess the likely effects of their deal on all customer segments – and should be prepared to address the transaction’s implications for nationwide customers for whom local competitors don’t provide an alternative. However, the memo points out that depending on how the Trump Administration decides to approach antitrust merger review, this trend may prove to be short-lived.
This blog from Lowenstein’s Steve Hecht suggests that a buyer’s insistence on an appraisal condition – or a “blow provision” – might chill the exercise of appraisal rights. Here’s an excerpt discussing the potential impact of a 20% appraisal rights condition in a recent deal:
The very existence of a blow provision may cause some stockholders to hesitate in seeking appraisal, fearing that their dissenting vote might push the appraisal class over the 20% hurdle. Some casual observers find that only about 10% or less of the outstanding share population ultimately seeks appraisal.
Accordingly, a lower blow provision, on the order of 10% or 15%, could pose a very real challenge to appraisal and would test the resolve of stockholders who are unsatisfied with the deal price but concerned about blowing up the deal altogether. That may be true, for instance, where dissenters feel that the target is being sold at the right time but at the wrong price.
Buyers negotiate appraisal rights conditions to protect themselves against uncertainties associated with the appraisal rights process. If those provisions deter appraisal rights claims from being made in the first place – well, I guess they work. That’s a feature, not a bug.
Tune in tomorrow for the webcast – “Privilege Issues in M&A” – to hear Alston & Bird’s Lisa Bugni, Bass Berry’s Joe Crace & Akin Gump’s Trey Muldrow discuss how to deal with the attorney-client privilege in M&A transactions.
– While 100% of Merger Agreements called for the reps & warranties to be accurate at the closing, only 80% called for them to be accurate at signing.
– 98% of deals surveyed gauged the accuracy of reps & warranties by reference to whether their failure to be accurate would result in a Material Adverse Effect, up from 93% in the prior year.
– 95% of deals surveyed had a “double materiality” carve out, that called for disregarding materiality qualifiers in individual reps & warranties when assessing their accuracy at closing.
– Only 1% of deals surveyed had language that included an adverse change in the seller’s “prospects” within the definition of an MAE, but 69% included any event that would create a prohibition, material impediment, or material delay in the consummation by the seller of the merger within the definition.
– Only 23% of the deals surveyed had language conditioning the deal on the absence of litigation challenging the transaction by a governmental authority. Not a single deal was conditioned on the absence of private litigation challenging the transaction.
There’s lots more where this came from. As always, the Deal Points Study will give you something to talk about aside from politics & the NFL playoffs at your next practice group lunch.
Sorting out all of the nuances in Delaware’s approach to transactions involving controlling stockholders can be a challenge. The courts apply different standards of review depending on whether the controller is the buyer, is cutting its own deal as a seller, is participating pro rata with all other stockholders in a sale, or is acquiring an ownership stake in the surviving corporation.
This K&E memo reviews case law addressing each of these situations, and notes that identifying that a controlling stockholder is involved in the deal is merely the first part of the analysis:
A finding that there is a controlling stockholder of a target company is just the first part of the analysis in determining the applicable standard of review that the court will use in assessing an M&A transaction involving that target. As a number of recent cases have shown, the contours and terms of the M&A transaction are as important as the question of whether the stockholder is “controlling” to the court’s determination of whether — and to what extent — heightened scrutiny will be applied.
Understanding how a court will approach a particular transaction allows dealmakers to implement appropriate procedural safeguards when necessary, while avoiding excessive and unnecessary procedural protections.
This Morris James blog reviews Delaware case law on disclaimers of reliance in acquisition agreements & raises an important practice point. As this excerpt notes, a clause that specifically disclaims reliance on any extra-contractual statements is preferable to one that simply states what the buyer relied upon:
IAC Search found that a disclaimer or anti-reliance clause that states affirmatively what the buyer relied upon in entering into a purchase agreement, together with a standard integration clause, is sufficient to bar a fraud claim based on extra-contractual representations. The safer course of action to preclude a claim for fraud, however, is to include both an integration clause and an anti-reliance clause that expressly states that the buyer did not rely upon any extra-contractual statements or information outside of the purchase agreement in its decision to enter into the agreement.
This Sheppard Mullin blog suggests that the SEC’s recent amendments increasing the amount that can be raised under Rule 504 of Regulation D to $5 million may have made the little-used exemption a viable alternative for funding smaller M&A deals.
Rule 506’s disclosure requirements when securities are offered to non-accredited investors have limited its usefulness in M&A – but this excerpt points out that Rule 504 takes a different approach:
Rule 504, however, does not require the issuer to provide any particular information to investors to establish the exemption. Accordingly, it may be used in transactions involving the offer and sale of smaller amounts of securities to non-accredited investors where the burden of preparing disclosures meeting the requirements of Rule 502(b)(2) would otherwise be cost prohibitive or take too much time.
While Rule 504 doesn’t prescribe specific disclosures, Rule 504 offerings remain subject to Rule 10b-5 & are not entitled to the benefits of NSMIA’s preemption of state “blue sky” requirements.
– The Disclosure of Material Relationships by Financial Advisors
– Small Company M&A: “Boy, Could This Deal Use a Few More 000s!”
– Proxy Access a’ la Private Ordering? Not So Fast!
– Tips for a Successful Working Capital Adjustment
– Questions Abound: FTC Antitrust Actions Under the New Administration
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This Cooley M&A blog discusses Corp Fin’s recent CDIs on disclosure of investment banker fees in tender offers – & suggests that some changes in market practice may be required. Here’s an excerpt:
A review of recent banker fee disclosure for transactions initiated by an unsolicited bid show that it is not current practice for the financial advisor fee disclosure to include a description of alternative fees payable in other contexts, such as in the context of an activist-initiated sale transaction where the target may have agreed to pay the financial advisor one fee for remaining independent and a different fee if the company is ultimately sold.
The new C&DIs appear to require additional transparency in this scenario by requiring narrative disclosure of multiple fee types that would be sufficient to “provide the primary financial incentives for the financial advisors in connection with their analyses and advice.”
In addition to this type of disclosure, New Tender Offers & Schedules CDI 159.02 specifically calls for disclosure relating to the type of fees payable (advisory fees, success fees, etc.), contingencies, milestones & fee triggers, and any other information about compensatory arrangements that would be material to security holders’ assessment of the bankers’ analyses or conclusions, including any material incentives or conflicts.
Last week, the SEC announced an enforcement action that is based on two big NYC firms being hacked by some Chinese traders who used the stolen information for insider trading. The SEC’s complaint doesn’t identify the firms – maybe because there’s a parallel criminal proceeding & the law firms are victims of a crime – but this American Lawyer article and WSJ article seem to identify them…