What You Need to Know About Mergers and Acquisitions Involving Government Contractors and Their Suppliers

Volume 2 – Obtaining Consent to Assign a Government Contract

This posting is the second in a ten-part series on unique issues that arise in the acquisition and disposition of a company that performs government contracts or subcontracts.  Part 1 focused on the types of deal structures that are subject to the anti-assignment statutes, and therefore require Government consent.  We explained that consent is not required for stock purchases, is required for asset sales, and may be required for other types of transactions, including mergers.  This posting, Part 2, addresses the consent process, including the who, what, when, and how of obtaining a novation agreement.  It also includes practical tips, based on our experience, for navigating the novation process efficiently and successfully. Continue Reading

Second Circuit Narrowly Applies Supreme Court’s Decision in Omnicare

In In re Sanofi Securities Litigation, No. 15-588-cv, 2016 U.S. App. LEXIS 4107 (2d Cir. Mar. 4, 2016), the United States Court of Appeals for the Second Circuit affirmed the dismissal of class action complaints alleging that the defendants had made materially false or misleading statements or omissions in their registration statement.  The Court examined the impact of the United States Supreme Court’s intervening decision in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 135 S.Ct. 1318 (2015) (previously covered here), which held that a statement of opinion which omits material facts about the issuer’s knowledge may be misleading if the omitted facts conflict with what a reasonable investor would infer from reading the statement in context.  The Second Circuit in Sanofi held that statements of opinion were not misleading under Omnicare where they omitted a fact that did not conflict with what a reasonable investor would take from the statement.  The court further noted that statements of opinion are not misleading simply because they omit facts cutting the other way.  Continue Reading

Delaware Court of Chancery Increases Scrutiny on Disclosure-Only M&A Class Action Settlements

As recently as 2014, nearly 95% of all mergers of public companies valued at $100 million or more triggered stockholder class action litigation. Historically, a large number of merger-related stockholder litigation settled solely on the basis of supplemental proxy disclosures coupled with the payment of the plaintiff’s attorneys’ fees.  Such disclosure-based settlements have been criticized for providing little real benefit to stockholders and amounting to no more than a “deal tax” in favor of plaintiff’s lawyers, while at the same time threatening the loss of potentially valuable stockholder claims as a result of an overly broad release of defendants.  In In re Trulia Stockholder Litigation, 2016 Del. Ch. LEXIS 8 (Del. Ch. Jan. 22, 2016), the Delaware Court of Chancery (Bouchard C.) confirmed that the Court will be “increasingly vigilant in scrutinizing the ‘give’ and the ‘get’ of [disclosure based] settlements to ensure that they are genuinely fair and reasonable to the absent class members.” Continue Reading

REGULATORS, QUANT UP! New Rules from FINRA, SEC and CFTC Target Automated Algorithmic Trading

On February 11, 2016, FINRA filed a proposed rule with the SEC that would require individuals who “design, develop or significantly modify algorithmic trading strategies” (or “ATS”) as well as individuals responsible for the “day-to-day supervision or direction of the development process,” to pass a qualification exam and register with FINRA as securities traders. During the comment period, FINRA clarified that the rule would not apply to every person who touches or is otherwise involved in the design of a trading system, but that it would be up to each firm to determine who is primarily responsible for the design of the ATS system.  The rule defines ATS as “any program that generates and routes (or sends for routing) orders (and order-related messages, such as cancellations) in securities on an automated basis” and identified eight typical programs that it would consider an ATS.  (FINRA Reg. Notice 15-06.)  The rule was prompted by FINRA’s concern that programmers be properly educated in securities regulations in order to avoid inaccurate orders, inadequate risk management controls, and other problematic conduct.  Commentators criticized the proposal as having a “potential chilling effect” by “discouraging well-qualified developers from participating in the design, development or modification of algorithmic trading strategies, and even from affiliating with FINRA member firms.”   Continue Reading

Higher Filing Thresholds for HSR Act Premerger Notifications and Interlocking Directorates Announced

1. Higher Thresholds For HSR Filings

On January 21, 2016, the Federal Trade Commission announced revised, higher thresholds for premerger filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The filing thresholds are revised annually, based on the change in gross national product and will be effective thirty days after publication in the Federal Register. Publication is expected within one week, so the new thresholds will likely become effective in late February 2016. Acquisitions that have not closed by the effective date will be subject to the new thresholds. Continue Reading

What You Need to Know About Mergers and Acquisitions Involving Government Contractors and Their Suppliers

Volume 1 – The Structure of the Deal and Government Consent

With today’s posting, we begin a ten-part series on unique issues that arise in connection with the acquisition or disposition of a company that performs government contracts or subcontracts. These issues obviously come into play when the target company fits the bill as an established “government contractor,” replete with all of the infrastructure, systems, and processes that one normally associates with that term.  They also come into play, however, in connection with companies that sell standard commercial items to the Government under the auspices of the General Services Administration’s schedule contracts and companies that operate at all tiers within the Government’s supply chain.  They apply whether such companies are selling specialized products manufactured  to Government specifications or commercial items adopted or adapted for use, ultimately, by the Government. Continue Reading

FAST Act Speeds-Up Raising Capital

On December 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act, or FAST Act. Although primarily a transportation bill, the FAST Act also made changes to the federal securities laws as described below. Overall, the FAST Act’s changes to the securities laws will help facilitate raising capital. Continue Reading

IRS Announces Inflation-Adjusted Amounts for 2016

The IRS recently announced the inflation-adjusted items for 2016, including gift, estate, and generation-skipping transfer tax amounts. The following adjustments should be considered in your estate and gift planning:

  • The gift tax annual exclusion for 2016 remains $14,000 (and is increased to $148,000 for gifts to a non-U.S. citizen spouse).  Married couples who elect gift splitting may give $28,000 per donee in 2016.
  • The gift, estate and generation-skipping transfer tax exemption amount is increased to $5,450,000 in 2016.
  • Direct payments of qualified tuition and medical expenses remain gift-tax free in unlimited amounts.

A complete copy of the Revenue Procedure 2015-53 announcing the inflation-adjusted items for 2016 can be found here.

The European Commission’s New Pandora’s Box – Reopening Final Tax Rulings as a Form of “State Aid”

In Short

The European Commission (Commission) has adopted a decision on 21 October 2015 on the tax rulings – also referred to as “comfort letters” – granted by Luxembourg to Fiat Finance and Trade (FFT) and by The Netherlands to Starbucks. Rejecting the decisions of domestic authorities in Luxembourg and The Netherlands, the Commission concluded that these rulings artificially reduced the tax burdens for the two companies awarding them selective advantages, which constitute State aid. Continue Reading

Justice Friedman Allows Breach of Fiduciary Duty Claim to Proceed Against Corporate Directors Under Delaware Law

In AP Services, LLP v. Lobell et. al, No. 651613/2012, 2015 NY Slip Op 31115(U) (N.Y. Sup. Ct. June 19, 2015) (argued Feb. 21, 2014), Justice Friedman, applying Delaware Law, denied a motion to dismiss plaintiff AP Services, LLP’s first cause of action alleging breach of fiduciary duty against the defendants, former directors of Paramount Acquisition Corp., while granting dismissal of the second cause of action against them for allegedly aiding and abetting the breach of fiduciary duty. Continue Reading

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