Last month, we published a blog post explaining the basis for our view that Regulation G does not require a GAAP reconciliation when M&A disclosure documents present the management projections used by financial advisors to opine on the financial fairness of merger consideration.  We argued that these projections are not the type of information that Regulation G was adopted to police and that, in view of the bases in Delaware case law and Regulation M-A for including disclosure of these projections, they should be considered exempt from the reconciliation requirements of Regulation G and Item 10(e) of Regulation S-K.  Accordingly, we urged the SEC staff to provide guidance confirming our view.  

We are pleased to report that yesterday the SEC staff provided that guidance in a new Compliance & Disclosure Interpretation (C&DI) on Non-GAAP Financial Measures (NGFMs).[1]

The new C&DI, dated October 17, 2017, confirms that financial measures included in forecasts provided to financial advisors and used in connection with business combination transactions are not NGFMs if:

  • the financial measures are included in forecasts provided to the financial advisor for the purpose of rendering an opinion that is materially related to the business combination transaction; and
  • the forecasts are being disclosed in order to comply with Item 1015 of Regulation M-A or requirements under state or foreign law, including case law, regarding disclosure of the financial advisor’s analyses or substantive work.

This confirmatory guidance is especially important in view of a spate of federal court complaints challenging M&A disclosure documents since the Delaware Chancery Court’s 2016 Trulia decision.[2] In Trulia, the Court made it clear that Delaware state courts would no longer approve previously commonplace disclosure-only settlements containing only immaterial disclosures, and courts of other states have increasingly cited Trulia with approval and followed it.[3]  Plaintiffs then turned to the federal courts, and in many of these purported class actions, plaintiff-stockholders of the target companies in the M&A transactions allege that the inclusion of the forecasts without a GAAP reconciliation violates Regulation G, and the target companies often provide the GAAP reconciliation and pay the plaintiffs’ lawyers a mootness fee in order to eliminate the risk of a delay in the transaction.  The SEC staff’s new guidance should put an end to the need to prepare unnecessary reconciliations and pay undeserved attorney’s fees to dispose of these meritless claims.

[1] Non-GAAP Financial Measures, Compliance and Disclosure Interpretations, Question 101.01 (Oct. 17, 2017), available at

[2] In re Trulia, Inc. S’holder Litig., 129 A.3d 884 (Del. Ch. 2016).

[3] Id. at 898.  See our previous blog posts on the impact of Trulia on M&A-related stockholder litigation here and here.