A settlement on July 12, 2016 by the DOJ with ValueAct for violations of the HSR Act’s notification requirements and an interpretation of the Exchange Act’s beneficial ownership reporting rules posted by the SEC staff on July 14, 2016 combine to provide new guidance that will have an immediate impact on shareholder activism and engagement.
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What the ValueAct Complaint Means for Activism Tactics and the SEC’s Beneficial Ownership Reporting Regime
The filing by the DOJ of a complaint in federal court on April 4, 2016 against ValueAct — claiming that ValueAct’s purchase of shares of two public companies violated the HSR Act’s notification and waiting period requirements and seeking $19 million in civil penalties (based on the $16,000 per day penalty provisions of the HSR Act) – has the potential to have an immediate impact on the tactics used by brand name “activist hedge funds,” such as ValueAct, to accumulate shares without prior notice to either the issuers in question or the market generally.
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Delaware Supreme Court Enhances Defenses Available to Directors and Financial Advisors Where Well-Run Sale Processes and Adequate Disclosure
On May 6, the Delaware Supreme Court issued an Order that sets forth concisely the contours of the defendant-favorable standards for determining liability of directors and their advisors following the closing of sales of control of companies. These standards are available, however, only following an uncoerced and informed approval of the sale by the target stockholders, including a majority of the disinterested holders. Thus, while the Order clarifies a roadmap (set forth recently in Corwin v. KKR and discussed here) for obtaining easy dismissal of post-merger damages claims against directors and advisors, the need for directors and their advisors to avoid, or at least ferret out and disclose, any deficiencies in sales processes remains as strong as ever. Only if these deficiencies are avoided or uncovered and disclosed in advance of the shareholder approval will the lower courts be able to rely on these defendant-favorable standards to dismiss claims.
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How M&A Agreements Handle the Risks and Challenges of PRC Acquirors
Companies based in the People’s Republic of China have committed to over $100 billion of overseas acquisitions since January 1, 2016, including a number of high profile targets in the United States and Europe.[1] The ties of these buyers to governmental entities in the PRC, coupled with the unpredictability of the PRC government, and the challenges that a non-PRC counterparty faces when seeking to enforce contractual obligations and non-PRC judgments in PRC courts has led practitioners to implement an array of innovative provisions in M&A Agreements.
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What the 2016 Blackrock Letter Means for Shareholder Engagement and Disclosure Practices
In February 2016, Blackrock CEO Laurence Fink issued his annual letter to the CEOs of S&P 500 companies. In addition to repeating themes from prior years (the value of long-termism and the need for more thoughtfulness before allocating capital to buybacks and special dividends), this year’s letter had one notable omission and four of areas of specific emphasis that merit the attention of boards and managements.
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A special invitation for subscribers to Cleary M&A and Corporate Governance Watch
At the end of this month, we are teaming up again with Steven “Deal Professor” Davidoff-Solomon of Berkeley Law School for a series of roundtables on Antitrust, IP, Board Processes, and M&A. Confirmed participants include senior FTC, DOJ and PTO officials and judges from Delaware Court of Chancery, the Federal Circuit and Federal District Court,
What Do the Recent Delaware Opinions Mean for Corporate Board Processes and Relationships with Financial Advisors?
October featured significant M&A opinions from Delaware that are already having an impact on board processes and relationships between corporations and their financial advisors. While the most recent opinion dismisses claims against the financial advisor for aiding and abetting breaches of duties by the target board, a careful reading of the case reveals that the decision is unlikely to change the practical impact of the holdings from earlier in the month.
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Pendulum Swings the Other Way in New Conflicts Committee Decision, But Scrutiny and Criticism of Independent Directors Continues
In a recent Delaware Chancery Court decision, Vice Chancellor Laster considered yet another challenge to the approval by a “conflicts committee” of a master limited partnership (“MLP”) in the energy sector of a transaction with the MLP’s parent company. Although the Vice Chancellor noted criticism of the process undertaken by the conflicts committee as portrayed in the complaint by holders of the publicly-traded units of the MLP, the Court nonetheless dismissed the complaint due to the limited ability to challenge the transaction under the partnership agreement (which was typical for MLPs).
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Liability of Independent Directors and Insiders in Conflict Transactions: A Practical Perspective on Recent Delaware Case Law
The Delaware Supreme Court issued a welcome decision, In re Cornerstone Therapeutics Inc. Stockholder Litigation (Del. May 14, 2015), to remove an anomaly that had been inhibiting lower courts from dismissing monetary claims against independent directors based on their roles in the approval of related party transactions. Nevertheless, even as the Delaware Supreme Court adopts principles to distinguish the state’s courts as director-friendly venues, independent directors will continue to bear burdens of discovery in Delaware and consequent risks of actions that seek monetary damages and survive motions to dismiss. In addition, the considerations for the insider counterparties (e.g., the controlling stockholders) participating in related party transactions, as outlined in our prior memoranda, remain unchanged.
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Risks and Opportunities of Hedge Fund Activism
A well-prepared and well-advised board should be able to navigate the risks and opportunities presented by hedge fund activism. Here is an overview of why boards need to pay attention, what they are up against, and how to prepare and respond.
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