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. Continue Reading New SEC Interpretation Helps Limit Reg G as an Enabler of Merger Litigation
Last year Cleary Gottlieb published a blog post and an alert memorandum highlighting the SEC staff’s renewed focus on whether the use of non-GAAP financial measures (NGFMs) by domestic registrants complies with the requirements of Regulation G. Recently, a number of plaintiff-stockholders of target companies in M&A transactions have brought purported class actions in federal court alleging that the “Forecasts” section in M&A disclosure documents violates Regulation G. In support of these M&A disclosure related claims, plaintiffs have been citing our post and memo about these SEC staff initiatives, which relate to earnings releases and periodic reports, even though our prior publications did not address the application of Regulation G to M&A disclosure documents. Continue Reading Setting the Record Straight: Regulation G Does Not Apply to Non-GAAP Financial Projections in M&A Transactions
Cleary Gottlieb’s “2017 Securities and M&A Litigation Mid-Year Review” discusses major developments so far this year and highlights significant decisions and trends ahead. In the first half of 2017, the U.S. Supreme Court decided securities cases concerning the application of statutes of repose and the five-year statute of limitations for penalties, and granted petitions for certiorari concerning liability under the Exchange Act and the appropriate forum for class actions asserting Securities Act claims. The circuit and district courts also decided significant securities law issues, including the impact of extraterritoriality at the class certification stage. In the context of M&A litigation, plaintiffs continued to file disclosure-only lawsuits in other fora, in response to the Delaware Court of Chancery’s In re Trulia, Inc. Stockholder Litigation decision. Recent decisions by the Delaware courts clarified the application of the business judgment rule to stockholder-approved transactions and the determination of fair value.
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On August 1, 2017, the Delaware Supreme Court issued its highly anticipated decision in the appraisal appeal, DFC Global Corp. v. Muirfield Value Partners, L.P. The Chancery Court’s decision below had garnered substantial attention for its determination that DFC Global’s fair value was approximately 7.5% higher than the deal price, even though the court found a robust and conflict-free sale process. On appeal from that decision, DFC Global argued that the Delaware Supreme Court should adopt a presumption in appraisal actions that the deal price in arm’s length and competitive mergers equals fair value. The appeal drew dueling amicus briefs from two groups of prominent professors, one in favor of this presumption, and one opposed to it. Continue Reading Delaware Supreme Court Declines To Establish A Presumption In Favor Of Deal Price In Appraisal Actions—Or Did It?
In a decision issued on Friday that will likely slow the recent spike in appraisal suits, the Delaware Court of Chancery held that the fair value of Clearwire Corp. was $2.13 per share—less than half the merger price of $5 per share. See ACP Master, Ltd. et al. v. Sprint Corp., et al., C.A. No. 8508-VCL (Del. Ch. July 21, 2017) (“Clearwire”). The decision by Vice Chancellor Laster also found that Sprint Nextel Corp. (“Sprint”), which owned slightly more than 50% of Clearwire’s voting stock at the time of the merger, did not breach its fiduciary duties in acquiring the Clearwire shares it did not already own because the merger was entirely fair to Clearwire’s minority stockholders. Continue Reading Chancery Finds Fair Value To Be Less Than Half Merger Price
The past four years of merger enforcement at the federal antitrust agencies saw more litigated challenges than we’ve seen in a long time. This came about because President Obama made a commitment to merger enforcement and appointed senior officials in the agencies who would carry out his vision. Our partner Dave Gelfand, who oversaw litigation at the DOJ Antitrust Division for three of those years, and our associate Grant Bermann, who focuses on antitrust law, discuss the cases from this period, and the context in which they were brought, in a piece just published in a leading international antitrust publication, Global Competition Review Magazine. The article can be found here.
Last month, in Vento v. Curry, the Delaware Chancery Court preliminarily enjoined the Consolidated Communication Holding (“Consolidated”) shareholder vote on the company’s all-stock acquisition of FairPoint Communications (“FairPoint”) due to Consolidated’s failure to adequately disclose the compensation its financial advisor would receive for participating in the acquisition financing. The court’s ruling ultimately had very little impact on the transaction – Consolidated subsequently disclosed that its financial advisor would receive $7 million in financing fees and the Consolidated shareholders overwhelmingly approved the transaction without any delay. Vento nonetheless provides important guidance for principals and financial advisors in evaluating whether disclosure of a financial advisor’s transaction-related compensation is required when seeking shareholder approval of an M&A transaction. Continue Reading Assessing Financial Advisor Compensation Disclosure Following Vento v. Curry
In 2015, Section 115 of the Delaware General Corporation Law (“DGCL”) was added to clarify that Delaware corporations may adopt bylaws requiring that any litigation regarding internal corporate claims be filed in Delaware (commonly referred to as “forum-selection bylaws”). At the same time, Section 109(b) of the DGCL was amended to make clear that Delaware corporations (other than non-stock corporations) may not adopt bylaws that would shift litigation expenses onto unsuccessful stockholder-plaintiffs in internal corporate litigation (commonly referred to as “fee-shifting bylaws”). These simultaneous amendments left open the question of whether a limited fee-shifting bylaw, which would only be triggered if the stockholder filed an internal corporate claim outside of Delaware in violation of the corporation’s forum-selection bylaw, would be valid under Delaware law. Continue Reading Chancery Court Invalidates Bylaw Purporting to Shift Litigation Expenses onto Stockholders Who Violate a Valid Forum-Selection Bylaw
In a recent decision, Vice Chancellor Laster of the Delaware Court of Chancery clarified certain issues related to the obligations of a controlling stockholder that often arise in connection with going private and similar transactions. The case involved a relatively conventional proposal by a controlling stockholder (the Anderson family) to acquire the remaining shares of Books-A-Million, Inc. (“BAM”) from BAM’s minority stockholders. The family structured the proposal with the goal of satisfying the conditions of the MFW decision so that any challenge to the transaction would benefit from the favorable “business judgment” level of judicial review. Continue Reading Delaware Chancery Applies MFW to Dismiss Challenge to Going Private Transaction and Clarifies Obligations of Controlling Stockholders
A recent opinion from the Delaware Court of Chancery reaffirmed the importance of bringing disclosure claims before closing (when steps can still be taken to achieve an informed stockholder vote), and the difficult hurdles faced by a plaintiff pursuing disclosure claims after closing. Continue Reading Delaware Court of Chancery Reaffirms That Disclosure Claims Should Be Brought Before Closing