Per this Freshfields blog, the Chamber — along with the Business Roundtable, American Investment Council, and the Longview Chamber of Commerce — filed a lawsuit in early January seeking to enjoin the enforcement of the recently finalized overhaul of the HSR filing regime on the basis that the changes violated the APA. The blog says:
– The court could enjoin enforcement of the entirety of the Final Rules, or the court could enjoin enforcement of only those changes that it finds to be out of bounds. The Final Rules do have a “savings clause,” meaning that if any part is held to be invalid, the remainder stays in effect. Further, the parts of the Final Rules relating to foreign subsidies are mandated by Congressional statute and likely will remain in place.
– The challenge to the HSR rules could provide relief to merging parties more quickly than a new Republican majority at the FTC if they decided to streamline the rules using APA rule-making procedures. President-Elect Trump has indicated that, upon taking office on January 20, he will designate sitting Republican FTC Commissioner Andrew Ferguson to serve as FTC chair. Both Commissioner Ferguson and fellow Republican Commissioner Melissa Holyoak voted with the Democratic majority to adopt the changes to the HSR rules, but view the final product as “not perfect.” Any attempt to streamline the rules would require a Republican majority, which will arise only upon Senate confirmation of President-Elect Trump’s additional FTC Commissioner selection, Mark Meador. Revising the HSR rules under the APA procedures, which would be required, could take 12 months or more (the APA process for the current rules changes took more than 15 months).
With the changes set to be effective next month, the blog reminds readers that parties with deals expected to sign after February 10 should assume and plan for the final rules to be effective at that time — until the court rules or Congress or the FTC acts.
Earlier this week, the Delaware Supreme Court issued its opinion in In re Oracle Corp. Derivative Litig. (Del. Sup.; 1/25) affirming the Delaware Chancery Court’s decision to apply the business judgment rule in the derivative matter by Oracle’s stockholders arguing that it overpaid for NetSuite because Larry Ellison, founder, director and officer of Oracle and significant stockholder of NetSuite, was a conflicted controller. As we shared in May 2023, in his seventh memorandum opinion in the litigation involving Oracle’s 2016 acquisition of NetSuite, VC Glasscock found that Ellison was not a controller of Oracle — distinguishing Ellison’s potential to control from actual control.
Here’s an excerpt from the Delaware Supreme Court’s opinion:
The test for actual control by a minority stockholder “is not an easy one to satisfy.” The minority stockholder must have “a combination of potent voting power and management control such that the stockholder could be deemed to have effective control of the board without actually owning a majority of stock.” To prove actual control over a specific transaction, a plaintiff must prove that the minority stockholder “exercised actual control over the board of directors during the course of a particular transaction.”
The Court declined to weigh evidence on appeal — noting that this appeal is not from an early-stage dismissal decision and facts and testimony favorable to plaintiffs’ arguments were fully vetted during a 10-day trial — and the plaintiffs were not arguing on appeal that the Vice Chancellor’s factual findings were clearly wrong. The Court nonetheless gives this helpful summary of unchallenged facts that VC Glasscock cited to conclude that Ellison did not exercise actual control:
– the Oracle board and management were not afraid to disagree with Ellison;
– Ellison neither controlled Oracle’s day-to-day functions nor dictated Oracle’s operations to the Oracle board;
– Ellison “scrupulously avoided” discussing the transaction with the Special Committee;
– Ellison neither proposed the transaction nor indirectly controlled the merger negotiations through his January 27, 2016, phone call with Goldberg; and
– although Ellison could have controlled the transaction, he did not interfere with or actually exercise control over the transaction.
The ongoing litigation between Elon Musk and Sam Altman is not the first place I’d think to turn to get updates on the FTC and DOJ’s latest positions on the application of Section 8 of the Clayton Act. But, since several of Musk’s claims turn on antitrust arguments relating to OpenAI and Microsoft, the DOJ and FTC filed a statement of interest in the case earlier this month. Here’s an excerpt from this Cadwalader memo:
In the joint DOJ and FTC “statement of interest” filed in Elon Musk v. Samuel Altman, the agencies argue that “section 8 bars relationships that create an interlock regardless of form.” The agencies argue:
“[A]n individual cannot evade liability by serving as an ‘observer’ on a competitor’s board. … [A] company or individual cannot use an indirect means to a prohibited end, such as by asking another person to serve as a board observer to obtain entry to a meeting that is otherwise off limits due to Section 8’s ban on interlocks. Such misdirection would undermine Section 8’s intent to impose a clear ban on direct involvement in the management of a competitor.”
Although the DOJ has touted that the interlocks initiative has led to 15 interlocking director resignations from 11 boards, this Bryan Cave memo notes that the agencies are also saying in the statement of interest that resignation may not be sufficient:
Historically, the agencies allowed Section 8 cases to be resolved by resignation or withdrawal of the nomination of the alleged interlocking director. In this statement of interest, however, the agencies now argue that “ending an interlocking directorate, e.g., by having a person resign from a corporate board, is not sufficient, on its own, to moot a claim under Section 8 of the Clayton Act.”
The agencies continue that “if a plaintiff properly pleads a likelihood of recurrence or an ongoing harm through the wrongful retention of competitively sensitive information obtained through the alleged interlocks, Section 8 claims are not moot.” However, the agencies do not cite a single case supporting this conclusion.
It sounds like these positions — and the FTC’s focus on interlocks generally — are not likely to change, even as agency leadership shifts. Here’s more from the Cadwalader memo:
Firms and individuals should recognize this position was adopted by a unanimous commission, including President-elect Trump’s designee for FTC Chairman (and current Commissioner), Andrew Ferguson, and Republican-appointed Commissioner Melissa Holyoak.
The antitrust agencies’ efforts to identify and break interlocks, broadly defined, are not going to be shelved in the second Trump administration. Notably, the revised reporting rules for transactions subject to the Hart-Scott-Rodino Act include a requirement that filing parties identify certain officers and directors. One purpose of this reporting requirement is to identify interlocks that may impact competition, including interlocks that are not prohibited by Section 8.
We’ve recently posted another episode of our “Understanding Activism with John & J.T.” podcast. This time, John and J.T. Ho were joined by Jonas Kron, Chief Advocacy Officer for Trillium Asset Management. John and J.T. spoke with Jonas about how Trillium approaches the engagement process, trends in ESG activism, and how activist investors like Trillium are responding to the headwinds facing ESG activism.
Topics covered during this 33-minute podcast include:
– How Trillium decides which issues it intends to prioritize and which companies it is going to engage
– Trillium’s approach to engaging with the management of its portfolio companies
– Advice for companies when engaging with socially conscious investors like Trillium
– How Trillium works with other socially conscious investors
– Top issues for engagement by Trillium and other ESG-focused investors during the upcoming proxy season
– Investor responses to headwinds facing them on ESG and DEI initiatives
– Alternative investor approaches if Rule 14a-8 is pared back
This podcast series is intended to share perspectives on key issues and developments in shareholder activism from representatives of both public companies and activists. John and J.T. continue to record new podcasts, and they’re full of practical and engaging insights from true experts – so stay tuned!
Last month, the FTC and DOJ announced that they were withdrawing their Antitrust Guidelines for Collaborations Among Competitors. In announcing the reasons for their decision, the agencies said that the Guidelines, which were issued in 2000, did not reflect case law developments under the Sherman Act, relied upon withdrawn and outdated policy statements, and risked creating safe harbors with no basis in the antitrust statutes.
Whatever their reasons, this excerpt from a Winston & Strawn blog points out that the antitrust regulators’ decision to again rescind long-standing guidelines has increased the risk associated with joint ventures and other collaborations between competitors:
With this dismantling of yet another long-accepted safe harbor, businesses that are considering engaging in collaborations with competitors are simply “encouraged to review the relevant statutes and case law to assess whether a collaboration would violate the law.” It continues to be prudent for businesses—particularly those in industries that often involve collaborative efforts between competitors and sectors that are prime targets of antitrust enforcement and scrutiny (e.g., health care, technology)—to engage early and often with counsel who are antitrust specialists and can help navigate the murky waters of statutory and case law precedent and can advise businesses on how to steer clear of compliance violations and regulatory risk.
Companies should also consider working with experienced counsel to engage with the DOJ and/or FTC preemptively through the agencies’ business review processes, whereby companies can receive specific guidance on whether a particular collaboration among competitors would violate antitrust laws according to that agency.
The FTC’s decision to withdraw the Guidelines was approved by a 3-2 vote along partisan lines, and prompted sharp dissents from the two Republican commissioners, Melissa Holyoak and Andrew Ferguson, and given the upcoming change in administrations, it seems likely that new guidelines will eventually be issued. Until that happens, this Wilson Sonsini memo has some advice for companies looking to establish joint venture or other collaborations with competitors:
Although we expect the new administration to reintroduce the guidelines for competitor collaborations (or issue new ones), it could take time to do so. In the meantime, companies may mitigate the antitrust risks of competitor collaborations by clearly documenting the pro-competitive bases for any collaborations, limiting the scope of information exchanges to general, non-competitively sensitive information unless first consulting with counsel, and not entering into agreements regarding pricing or output without first consulting with counsel.
On Monday, the DOJ announced that it had filed a civil action against KKR, alleging that the firm “evaded antitrust scrutiny for at least 16 separate transactions by failing to comply with the Hart-Scott-Rodino Antitrust Improvements Act of 1976.” Here’s a copy of the DOJ’s 43-page complaint. This excerpt from the DOJ’s press release summarizes its allegations:
The department’s complaint alleges that over the course of two years — 2021 and 2022 — KKR failed to make complete and accurate premerger filings for at least 16 transactions. Specifically, KKR violated the HSR Act by:
– Altering documents in HSR filings for at least eight transactions. For example, in April 2021, a KKR partner instructed a deal team member to edit a portion of an Investment Committee report in advance of the HSR review process by circling the “Competitive Behavior” section of a diligence chart and writing “[need to revise for HSR purposes]” in the document. The KKR deal team member did not merely revise the language but deleted it entirely before submitting the altered document to the Antitrust Division.
– Failing to make any HSR filing for at least two transactions. KKR did not submit an HSR filing prior to consummating an acquisition valued at $6.9 billion. It also did not submit a filing prior to consummating an acquisition worth between $376 million and $919 million.
– Systematically omitting required documents in HSR filings for at least 10 transactions. KKR repeatedly certified that it had complied with the HSR Act but did not include required documents in those filings. In many cases, KKR only identified such documents in response to an Antitrust Division investigation.
KKR isn’t taking the DOJ’s actions lying down. It filed its own lawsuit seeking, among other things, a declaratory judgment that it did not violate the HSR Act. Here’s a statement from KKR that the company included in its 8-K filing disclosing the DOJ’s action and its countersuit:
Earlier today, we filed a complaint challenging the abuse of power and unconstitutional application of the HSR Act by the Antitrust Division of the Department of Justice.
As background, we have been cooperating in good faith with the Antitrust Division for nearly three years regarding certain HSR filings made in 2021 and 2022. We are confident all our filings provided the government with the necessary information to fully assess each transaction. We reached an impasse due to our strong disagreement that some inadvertent, alleged paperwork errors were in any way an intentional attempt to circumvent antitrust review.
Over the course of our discussions, it became clear that the outgoing political leadership of the Antitrust Division was mischaracterizing our actions and overstepping its statutory authority. This is a classic case study of government agency overreach.
We took this action reluctantly. We and our founders have managed our firm for 50 years by choosing to do what is right over what is easy. It is our hope that an independent arbiter might facilitate a more fact-based—and less political—approach.
Between this action by the DOJ’s Antitrust Division and the SEC’s filing of a new lawsuit against Elon Musk, it’s pretty clear that the Biden administration’s regulators have resolved not to “go gentle into that good night.” Stay tuned to see how the gang from Trump 2.0 takes things from here.
We recently posted the latest “Understanding Activism with John & J.T.” podcast. This time, J.T. Ho and I were joined by Jun Frank, who serves as Global Head of Compensation & Governance Advisory for ISS-Corporate. We spoke with Jun about trends in shareholder proposals and activism.
Topics covered during this 20-minute podcast include:
– Understanding shareholder proposal trends
– Impact of Anti-ESG campaigns
– Withdrawal rates and engagement
– Corporate disclosure and governance improvements and impact on support of proposals
– Proxy advisor and investor approaches to evaluating contested elections
– Emerging activism trends and proxy advisor and investor responses
Our objective with this podcast series is to share perspectives on key issues and developments in shareholder activism from representatives of both public companies and activists. We’re continuing to record new podcasts, and they’re full of practical and engaging insights from true experts – so stay tuned!
On Friday, the FTC announced the new HSR filing thresholds for 2025. This excerpt from Davis Polk’s memo on the changes lays out the new numbers:
Under the new thresholds, a transaction is reportable if, after the transaction the size of person tests are met, and the acquiring person will hold voting securities, assets, or non-corporate interests valued over $126.4 million. The changes will become effective 30 days after publication in the Federal Register and will apply to transactions closing on or after the effective date, which is expected to be in mid- to late-February 2025.
In summary, the relevant HSR reporting thresholds are:
Thresholds
Original amount
2025 adjusted thresholds
Size of transaction
$50 million
$126.4 million
Size of person (if applicable)
$10 million and $100 million
$25.3 million and $252.9 million
Size of transaction above which size of person test does not apply
$200 million
$505.8 million
The memo also has the details on changes to HSR filing fees and jurisdictional thresholds for the Clayton Act’s prohibition on interlocking directorates. The changes to jurisdictional thresholds and filing fees will go into effect regardless of whether the changes to the HSR rules adopted in October go into effect.
We’ve blogged a few times about litigation surrounding insurers’ efforts to use “bump-up” exclusions in D&O policies to avoid coverage of amounts paid to settle merger claims. Last week, in Harman International Industries v. Illinois National Insurance, (Del. Supr. 1/25), the Delaware Superior Court rejected an insurer’s efforts to rely on such a policy provision to avoid coverage for a settlement of disclosure claims arising out of the sale of Harman to Samsung.
In reaching that conclusion, the Court acknowledged that the transaction, which was structured as a reverse triangular merger, involved an “acquisition” within the meaning of the policy. But it rejected the insurer’s claim that the settlement of a shareholder class action lawsuit alleging false and misleading disclosures in the merger proxy (the “Baum action”) involved an increase in the purchase price. This excerpt from a Hunton Andrews Kurth memo on the decision summarizes the Court’s rationale:
Harman contended that the settlement could not constitute an increase in inadequate deal consideration because a Section 14(a) claim can’t be used to obtain damages for inadequate consideration. The insurers disagreed, contending that the settlement had to represent an increase in deal price because the Baum complaint expressly sought damages equal to the difference between Harman’s true value and the price paid to the shareholders when the transaction closed.
The court acknowledged that the Baum action alleged inadequate consideration, but the court emphasized that damages for an undervalued deal were not a viable remedy under Sections 14(a) and 20(a) of the Securities Exchange Act of 1934. Rather, the court said those claims focus on the accuracy of the proxy statement’s disclosures and did not raise any claims authorizing the court to remedy an inadequate deal price.
Lastly, the court examined the settlement and concluded it did not represent an increase in the deal price. The insurers contended that the settlement resulted in an increase in consideration because the settlement amount was based in part on the alleged fair value of Harman stock compared to what Harman shareholders actually received.
Harman argued that the settlement represented only the value of legal expenses that it avoided by not litigating. The court looked no further than the agreement itself, which denied liability and stated the sole purpose of the settlement was to avoid litigation. The $28 million settlement price closely resembled the estimated legal fees and was not in line with the potential increased deal consideration, which the court estimated would be over $279 million. Therefore, the court concluded that the Baum settlement did not constitute an adjustment of the consideration offered to Harman’s stockholders to complete the acquisition.
The memo notes that the decision is particularly significant for policyholders incorporated in Delaware. The Delaware Supreme Court has said that Delaware law should apply to disputes involving D&O policies sold to Delaware-chartered companies, and the decision may provide an incentive for companies facing potential bump-up exclusion challenges to litigate coverage claims in the Delaware courts.
I remember the first time I learned about CFIUS. It was right after the Foreign Investment and National Security Act of 2007 when CFIUS was codified. I thought the whole thing was so interesting . . . and intimidating. It’s not even an agency, but an interagency committee? Voluntary filings? The Committee can unilaterally initiate review any time – even years after closing — and unwind the transaction? Ah! Of course, it makes sense — this is national security we’re talking about!
At the time, it seemed like something many M&A practitioners rarely dealt with. Now, national security concerns are more expansive, and CFIUS risk seems to be top of mind pretty much all the time for anyone doing cross-border transactions.
The latest example of the more expansive application of national security concerns is the Biden Administration’s determination to block Nippon Steel from acquiring U.S. Steel largely on national security grounds citing the criticality of domestically-owned steel production to the country’s infrastructure, auto industry, and defense industrial base. (And, unlike many other topics, this trend may not change much with the incoming Trump Administration — President-Elect Trump has also publicly opposed the deal.) This Simpson Thacher alert says that the order was expected, given Biden Administration commentary, but followed reports that CFIUS was unable to reach a consensus in its consideration of the merger.
While the Biden Administration’s concerns may have been specific to the steel industry, the alert says there are a number of more general takeaways for dealmakers:
– First, the Order continues the recent trends within the U.S. government to treat economic security as a core component of the country’s national security. We can expect the U.S. government increasingly to rely on these authorities to protect certain sectors and supply chains considered critical to the domestic economy, even if not traditionally associated with national security.
– Second, the decision demonstrates the U.S. government’s willingness to block a well-known firm from Japan, a country traditionally considered a key ally and diplomatic partner. While each transaction requires an individualized assessment of the potential national security and CFIUS risks, Biden’s decision is the latest example of how even investors from lower-risk jurisdictions can sometimes face deal risk.
Subsequent legal challenges to the order may also provide some interesting takeaways:
Nippon Steel and U.S. Steel filed a petition on January 6, 2025 with the U.S. Court of Appeals for the District of Columbia Circuit challenging the legality of the Order. The petition alleges Constitutional violations, as well as unlawful political influence, and asks the Court to set aside the Order . . . Determinations by CFIUS and the President are rarely litigated—the Defense Production Act states that actions by the President to prohibit a transaction shall not be subject to judicial review. Efforts seeking judicial relief in the present case will provide courts with a rare opportunity to consider the contours and limits of the President’s national security authorities.