On May 8, 2018, partners Benet O’Reilly and Adam Fleisher participated in a panel co-hosted by The Conference Board and Cleary Gottlieb to discuss Private Investment in Public Equity (PIPE) transactions, both for capital formation and strategic purposes.

Moderator Doug Chia, executive director of The Conference Board, Benet and Adam outlined the framework for a PIPE transaction, including the topics a company should consider when contemplating a PIPE. They covered the different structures and types of securities frequently used in the PIPE market, as well as typical types of PIPE investors.

The session also focused on related governance considerations and regulatory approvals. Additionally, they addressed how to manage the confidential nature of the PIPE and when disclosure may be necessary. They also explained what securities filings may be triggered for investors.

A replay of the webcast is available here (please note that your browser may require you to run an Adobe plugin to access this content).

The general policy of the Delaware Limited Liability Company Act (the “Act”) is “to give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements.”[1]  Specifically, with respect to duties, the Act provides that to the extent law or equity would impose a fiduciary or other duty on a member or manager of an LLC, that duty may be “restricted or eliminated by provisions in the limited liability company agreement.”[2]  This flexibility makes LLCs an especially attractive vehicle for private equity investors, in particular with respect to allowing management and other minority holders to participate in an investment.

An LLC agreement, however, cannot eliminate the implied covenant of good faith and fair dealing that inheres in all contracts under Delaware law.[3]  As a result, for private equity funds and other controlling investors, a lurking concern has been whether the implied covenant potentially provides a mechanism for a minority investor to undermine or change the terms of an LLC agreement, including through the imposition of otherwise waived fiduciary duty-like obligations. Continue Reading The Peril of the Implied Covenant of Good Faith in LLC Agreements

Disclosure of Ultimate Beneficial Ownership in German Companies

Key Takeaways

  • Germany recently introduced new rules on the disclosure of the ultimate beneficial owner(s) of German companies. The rules are based on the 4th EU-Money-Laundering Directive (EU) 2015/849).
  • The rules are not only relevant for German entities and German shareholders, but also for foreign groups or organizations (including private equity groups) that have or intend to acquire holdings in German entities.
  • Recent experience indicates that not all foreign players eying German M&A targets or holding significant interests in German targets are aware of these rules.
  • If your group or organization
    • has or intends to acquire a direct or indirect holding of more than 25% of the capital or the voting rights of a German entity or otherwise controls such entity, and
    • is beneficially owned or controlled by one or more natural persons,

disclosure obligations with respect to the ultimate beneficial owners may apply and should be assessed. Continue Reading The German Transparency Register

On December 2, 2017, the U.S. Senate passed the Tax Cuts & Jobs Act. Two weeks earlier, on November 16, the U.S. House of Representatives passed its version of the bill. The Senate and House bills, while broadly similar, also have many important differences.

The Senate and the House will need to agree on one consistent bill before it can become law. The Senate and the House will engage in significant negotiations over the coming days/weeks, which would require additional modifications to the bill before it is enacted.

Recent press reports have suggested that the House may seek to adopt a revised bill substantially similar to the bill passed by the Senate, but the situation remains fluid and unpredictable, and additional changes are anticipated for the Senate bill as well. This memorandum sets forth a few key observations about the proposed bills that may be relevant to M&A transactions.

Click here, to read the full memo.

On November 2, 2017, the much anticipated Tax Cuts & Jobs Act was introduced in the U.S. Congress. The bill has been amended twice, on November 3 and November 6.

This memorandum sets forth a few key observations about the proposed bill, as amended, that may be relevant to M&A transactions. It must be emphasized, however, that the bill is likely to go through many additional changes before it becomes law, if ever.

Click here, to continue reading.

Investors frequently negotiate for a redemption right to ensure at least some return on preferred stock investments in a “sideways situation”—where the target company is neither a huge success nor an abject failure.  Continuing a consistent theme in recent Delaware jurisprudence, the Delaware Court of Chancery declined to dismiss a complaint alleging directors breached their duty of loyalty in taking steps to satisfy an investor’s redemption request.

Continue Reading Between Contractual and Fiduciary Duties: ODN Holding and the Rights of Preferred Stockholders

The Supreme Court’s unanimous decision this week in Salman v. United States, No. 15-268, 580 U.S. __ (Dec. 6, 2016), clarified what constitutes a “personal benefit” for purposes of insider trading liability.  In its first merits ruling in an insider trading case in two decades, the Court affirmed the Ninth Circuit’s holding that the personal benefit requirement may be met when an inside tipper simply gifts confidential information to a trading relative or friend.  In so holding, the Supreme Court significantly narrowed a key aspect of the Second Circuit’s landmark insider trading decision in United States v. Newman, which had required prosecutors to prove that the tipper received something “of a pecuniary or similarly valuable nature”—a more difficult standard to meet.

Before Newman was decided, the United States Attorney’s Office for the Southern District of New York had prioritized insider trading prosecutions, obtaining dozens of convictions and over a billion dollars in fines since 2009.  After Newman, however, prosecutors were forced to dismiss several indictments, and some commentators wondered what the future held for insider trading prosecutions.  The Supreme Court’s recent decision should reduce that uncertainty and may bring a renewed focus on insider trading investigations. Continue Reading Supreme Court Clarifies Insider Trading Liability for Confidential Tips

Several amendments were made to Section 251(h) of the Delaware General Corporation Law that became effective for merger agreements entered into on or after August 1, 2016.  Section 251(h) permits acquisitions of publicly listed Delaware corporations to be accomplished via a tender offer without the need to approve the second-step “squeeze-out” merger at a stockholder meeting if certain conditions are met, including that the acquiror of the tendered shares and its affiliates would be able to unilaterally approve the second-step merger if a meeting were to be held. Continue Reading Smoothing the Pathway to Use of Tender Offers in Private Equity Acquisitions

On March 28, 2016, on remand from the First Circuit, the United States District Court for the District of Massachusetts held that Sun Capital Fund III and Sun Capital Fund IV were jointly and severally liable for the multiemployer pension plan withdrawal liability of their bankrupt portfolio company, despite the fact that these funds were not parallel investment funds, generally had different investors and neither fund individually held an 80% or greater ownership interest in the portfolio company.  Under the Employee Retirement Income Security Act or “ERISA”, an entity such as a corporation or a partnership engaged in a trade or business may have liability for pension liabilities of other entities in the same “controlled group”.  Although the rules are complicated and technical, entities that are under 80% or more common control with each other will generally be considered to be in the same controlled group for these purposes.  In the Sun Capital case, the District Court concluded that the funds’ coordinated efforts in forming the limited liability corporation through which they held their respective investments resulted in the funds having formed an undocumented general partnership-in-fact that was engaged in a trade or business.   As the 100% owner of the LLC formed by the funds, such de facto partnership was found to be in the portfolio company’s controlled group and its partners, the two funds, were held to be joint and severally responsible for the withdrawal liability of the portfolio company under general partnership unlimited liability principles. Continue Reading Most Recent Sun Capital Decision Expands Reach of Controlled Group Liability Under ERISA

The EU has been on an accelerated transition towards a more climate-friendly energy sector since 2009.  EU Member States are committed to decrease CO2 emissions by 20% by 2020, and to increase generation from Renewable Energy Sources (“RES”) to mandatory targets.  After implementation of the Paris Agreement, these targets will likely be revised upwards, given the EU’s initial commitment for a 40% reduction of CO2 emissions by 2030.  Strong demand for clean energy, government support including subsidies and tax incentives, and governmental mandates create attractive opportunities for investment in RES generation and the transmission infrastructure needed to bring clean energy to users. Continue Reading Investing in Energy in the EU – Navigating the Ownership Unbundling Rules