Bumpitrage in UK bids being implemented by scheme of arrangement. So-called “bumpitrage” refers to the intervention of a shareholder activist in a public bid to attempt to force the bidder into improving the terms of the bid. Most public bids in the UK market are implemented by scheme of arrangement. When it becomes effective, a scheme of arrangement results in the transfer of all of the shares of the target to the bidder including the shares of target shareholders who decided not to vote on the scheme or to vote against the scheme.

Please click here to read the full alert memorandum.

In the past week, two further potential bids were announced in relation to FTSE 250 companies – KKR’s potential bid for John Laing and Blackstone’s potential bid for St Modwen. This follows a number of recent bids for UK listed companies, many of which were launched following the announcement in November 2020 by Pfizer and BioNTech which triggered the so-called ‘vaccine rally’.

Please click here to read the full alert memorandum.

In Snow Phipps v. KCAKE Acquisition, the Delaware Court of Chancery ordered the buyer (Kohlberg) to close on its $550 million agreement to purchase DecoPac, a cake decorations supplier.  In doing so, the court easily rejected the buyer’s claims that the COVID-19 pandemic resulted in a material adverse effect (“MAE”) and that the steps taken by the company to respond to the pandemic breached the ordinary course covenant.  More novel was the way in which the court sidestepped the near-universal construct in leveraged buyouts that the seller will be entitled to a specific performance remedy requiring the buyer to close only if the buyer’s debt financing is also available.  The court—pointing to the “prevention doctrine”—concluded that the buyer’s failure to use reasonable best efforts to obtain the debt financing was a breach of the agreement and, therefore, the buyer could not rely on the unavailability of debt financing to avoid being required to specifically perform its obligations under the contract.  While alternative financing for the DecoPac transaction proved to be available and Snow Phipps and Kohlberg have agreed to close later this week, financial sponsor buyers will need to continue to be vigilant in ensuring that the prevention doctrine does not erode the remedies architecture that has become ubiquitous in leveraged buyouts.

Please click here to read the full alert memorandum.

On April 29, 2021, the Securities and Exchange Commission (the “SEC”) announced settled charges against eight public companies that filed notifications of late filings on Form 12b-25 (more commonly known as “Form NT”) without disclosing in those filings a pending restatement or correction of financial statements.

These settlements are a reminder that filing a Form NT is not only a necessary procedural step when an issuer will be delayed in filing a 10-K, 10-Q, 20-F or other specified report; it is also a decision point for making potentially sensitive disclosure to the market, and should reflect input from both a company’s IR and legal departments.

Please click here to read the full alert memorandum.

Last week, the SEC Division of Examinations issued a risk alert describing observations from recent examinations of investment advisers that manage and offer ESG investment options.  The Risk Alert highlights observed deficiencies in several key areas that we expected the Staff to scrutinize using its traditional regulatory arsenal:  advisers’ practices inconsistent with ESG disclosures, unsubstantiated or potentially misleading ESG claims, proxy voting practices inconsistent with ESG disclosures, and inadequate compliance programs or policies in the ESG area.  Notably, the Risk Alert also identifies three observed “effective practices”:  disclosures that were clear, precise and tailored to advisers’ specific ESG approaches; detailed compliance policies addressing advisers’ ESG investing approaches and practices; and compliance personnel knowledgeable about advisers’ ESG practices.

The Risk Alert provides the clearest roadmap to date of the areas the staff will focus on when reviewing ESG investing and the ways the staff will use current regulatory tools and requirements to remind advisers of the SEC’s expectations and shape their behavior.  It also appears to raise the bar for advisers’ compliance personnel, whom the staff expects to be knowledgeable about advisers’ ESG investment analyses, practices, approaches and disclosures, as well as to be integrated and play an active role in overseeing advisers’ ESG-related processes.

Please click here to read the full alert memorandum.

Last week, John Coates, the Acting Director of the SEC’s Division of Corporation Finance (“Corp Fin”), released a statement discussing liability risks in de-SPAC transactions.

The statement focused in particular on the concern that companies may be providing overly optimistic projections in their de-SPAC disclosures, in part based on the assumption that such disclosures are protected by a statutory safe harbor for forward-looking statements (which is not available for traditional IPOs).  Director Coates’s statement questions whether that assumption is correct, arguing that de-SPAC transactions may be considered IPOs for the purposes of the statute (and thus fall outside the protection offered by the statutory safe harbor).  He therefore encourages SPACs to exercise caution in disclosing projections, including by not withholding unfavorable projections while disclosing more favorable projections. Continue Reading Acting Director of SEC’s Corp Fin Issues Statement on Disclosure Risks Arising from De-SPAC Transactions

On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (the “ARPA”), the much-debated $1.9 trillion COVID-19 stimulus legislation. The ARPA includes a provision, added by Senate amendment on March 6, 2021, which will further limit the deductibility of amounts deemed to be “excessive employee remuneration” under Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”) for tax years starting after December 31, 2026. This change comes on the heels of other recent expansions of Section 162(m).

Section 162(m) generally limits the amount of compensation expense that a public company may deduct each tax year, disallowing deductions for compensation over $1 million with respect to each of the company’s “covered employees.” Under current law, the covered employees are generally the company’s CEO, CFO and its three other most highly compensated officers, along with individuals who have been previously deemed to be covered employees of the company. Under the ARPA, covered employees will expand to include the next five highest compensated employees of the company; however this new group of employees will not retain the perpetual covered employee status and will be determined annually.  This provision is projected to generate $7.8 billion in revenue by 2031.

This memorandum discusses the implications of this ARPA provision, particularly in light of other recent changes to Section 162(m).

On Wednesday, March 10, after engaging in conversations with stakeholders, the U.S. Department of Labor’s Employee Benefits Security Administration issued an enforcement policy statement in which it declined to enforce two DOL rules put in place by the Trump administration in 2020.

The first of these rules placed limitations on the ability of plans subject to ERISA to invest in environmental, social and governance (“ESG”) funds. In particular, it provided that a fiduciary’s duty of loyalty and prudence under ERISA would only be satisfied if investments were selected solely on the basis of pecuniary factors (defined as factors that have a material effect on the risk and return of an investment), and that ESG factors could only be considered to the extent they created economic risks or opportunities that qualified investment professionals would treat as material economic considerations under generally accepted investment theories. The ESG rule, which many regarded as making ERISA plan investments in ESG-oriented funds prohibitively difficult, received overwhelmingly negative comments from both financial institutions and the public at large. This latest development is not surprising, as the Biden administration had previously signaled that it would be reexamining this rule. Continue Reading DOL Declines to Enforce Trump Administration Rules on ERISA Plan Investments, Proxy Voting

On March 3, 2021, the U.S. Securities and Exchange Commission (“SEC”) Division of Examinations (the “Division”)—formerly the Office of Compliance Inspections and Examinations—released its 2021 Examination Priorities (“2021 Priorities”).  The 2021 Priorities generally retain perennial risk areas as the Division’s core focus, but do include several new and emerging risk areas reflecting broader policy shifts under new SEC leadership.

The 2021 Priorities include:  retail investors; information security and operational resilience; financial technology (“Fintech”), including digital assets; anti-money laundering; transition from the London Inter‑Bank Offered Rate (“LIBOR”); several areas covering registered investment advisers and investment companies; market infrastructure; and oversight of the Financial Industry Regulatory Authority and Municipal Securities Rulemaking Board programs and policies.  Although not formal priorities, the Division will also focus on climate-related risks and environmental, social and governance (“ESG”) matters in light of recent market developments and broader attention in these areas. Continue Reading Turning the Page: Highlights of the SEC’s Division of Examination’s 2021 Priorities