Mergers & Acquisitions

On March 28, 2024, the Council of the Corporation Law Section of the Delaware State Bar Association (“DSBA”) issued proposed amendments to the Delaware General Corporation Law (“DGCL”), which, if signed into law, would become effective on August 1, 2024. One of the proposed amendment stems from Crispo v. Musk, C.A. No 2022-0666-KSJM, 2023 WL 7154477 (Del. Ch. Oct. 31, 2023), in which a Twitter stockholder alleged that Elon Musk and related entities breached fiduciaries duties as a controller and violated the Twitter/Musk merger agreement (until Elon Musk decided to close the merger anyway). In this case, the Delaware Court of Chancery addressed the enforceability of “lost-premium damages” provisions, which provides that stockholders can recover lost premium damages when buyer is in breach.Continue Reading Lost-Premium Damages under Merger Agreement – Proposed Amendment to the DGCL in Light of Crispo vs. Musk

In Ap-Fonden v. Activision Blizzard, Inc., C.A. No. 2022-1001-KSJM, 2024 WL 863290 (Del. Ch. Feb. 29, 2024), the Delaware Court of Chancery (McCormick, C.) declined to dismiss a claim alleging that the Board of Directors of defendant Activision Blizzard, Inc. (“Activision”) violated Section 251(b) of the Delaware General Corporation Law (the “DGCL”) by approving a draft merger agreement between Activision and Microsoft, Inc. (“Microsoft”) that was not sufficiently final. The Court held that to comply with Section 251(b), the version of a merger agreement the board must consider and approve need not be “execution ready” but must be “essentially complete.” Practitioners should pay close attention to the Court’s holdings here as it may vary from what some consider customary market practice.Continue Reading Delaware Court of Chancery Puts Practitioners on Notice Regarding Voting Formalities Around Merger Agreements

Hospital mergers have been an increasing trend in the healthcare markets over the past decade, with many proponents of these mergers believing that the overall consolidation of hospital services provides better outcomes for patients at large, and opponents arguing that these mergers only result in increased costs to patients. Over the last couple of years, there has been a slight decrease in the number of hospital mergers, in part due to the whirlwind of changes in society and the economy (i.e., the public health epidemic, increased interest rates and an unstable M&A market), but in large part as a result of drastic changes to the way we receive healthcare services (telehealth and telemedicine, outpatient treatment centers, ambulatory surgery centers, etc.). Although the number of hospital mergers has decreased, the deal size of these transactions has increased exponentially. So what can we expect to see in the future regarding hospital consolidations and what would increased hospital consolidation mean for patients?Continue Reading Hospital Mergers: The Value and Pitfalls

On October 4, 2023, the Department of Justice (DOJ) announced the advent of a new safe harbor for companies that discover wrongdoing by the acquired business in the course of an M&A transaction. Buyers hoping to take advantage of this avenue for leniency would be well-advised to conduct thorough diligence and act quickly to report any wrongdoing they uncover, as the potential upsides for those who do so may be considerable in light of the DOJ’s new policy.Continue Reading DOJ Announces Mergers & Acquisitions Safe Harbor Policy

On June 27, 2023, the FTC and DOJ (together the “Agencies”) announced a notice of proposed rulemaking (“NPRM”) proposing extensive revisions to both the rules that implement the Hart-Scott-Rodino Antitrust Improvements Act (the “Act” or “HSR Act”) and the Premerger Notification and Report Form (the “Form”) that merging parties must submit under the Act. Our previous analysis of the NPRM is covered here.Continue Reading Mergers & Acquisitions Update: A Closer Look at the Impact of the FTC and DOJ’s Proposed HSR Act Filing Reform on Private Equity Firms

Mergers and acquisitions activity is significantly influenced by economic conditions. Factors such as gross domestic product growth, interest rates and market volatility create an undeniable influence on deal volume. When economic circumstances are favorable, it can seem easy to close transactions. Conversely, when the economy faces headwinds, buyers are more cautious and often kick more tires before initiating closing wires.Continue Reading Pillars of Due Diligence

Acquisition agreements in M&A transactions frequently include provision for payment to be made at closing based on estimates of certain financial metrics that are later subject to a purchase price adjustment based on a final determination (referred to as a “true-up”) within a few months following closing. These metrics may include a target’s cash, debt, unpaid transaction expenses and working capital (excluding cash), and sometimes others. The definitions that correspond to these items, and what particular items are included or excluded from each, are often the product of significant negotiation, as the final purchase price can move materially up or down based on their final determination. The process of finally determining the adjustment amount following the closing can also reveal differences in the buyer’s and seller’s interpretation of accounting principles applicable to the purchase price adjustment calculation, or how those principles apply to the target’s financial statements. These differences can become a source of post-closing conflict between buyer and seller, at a time when the parties are working through transitional issues, and when the sellers may have ongoing involvement in the business. Parties will want to resolve these disputes quickly and in a cost-effective manner. To accomplish these objectives, often the purchase agreement will require that the parties submit unresolved issues to an independent accountant for final resolution. A key consideration in such referral will be the role that the accountant will play in resolving the dispute. Will the accountant act as an arbitrator or as an expert? This is an important distinction that deserves careful consideration by both sides. By engaging an accountant to act as an expert and not an arbitrator, the parties limit the scope of the accountant’s review and avoid the formalities of an arbitration.Continue Reading Expert or Arbitrator? Resolving Purchase Price Adjustment Disputes

In Anderson v. Magellan Health, Inc., No. 2021-0202, — A.3d —-, 2023 WL 4364524 (Del. Ch. July 6, 2023) (McCormick, C.), the Delaware Court of Chancery addressed the circumstances under which the Court will award a shareholder plaintiff attorneys’ fees in disclosure-based deal litigation. In particular, Anderson analyzed the history of disclosure-based deal litigation in Delaware and the Court’s evolving standard for awarding fees where shareholder action has caused a company to issue additional pre-merger disclosures “mooting” pending deal litigation. Prior to the decision in Anderson, the state of the law was unsettled. The first line of cases would award fees as long as the shareholder plaintiff secured additional disclosures that were “helpful” such that they provided “some benefit” to shareholders. The second line of cases, however, adopted a stricter standard requiring that the supplemental disclosures be “plainly material.” In an effort to combat the so-called “deal tax” associated with disclosure-based merger litigation, Anderson comes out in favor of the stricter standard. Going forward, the Court will only award disclosure-based mootness fees when the complaining shareholder obtains additional disclosures that are “plainly material” to the shareholders. Companies, boards and advisors engaging in M&A transactions should pay attention to this decision as it will weigh on the proper strategy for approaching a shareholder challenge to an M&A transaction. Continue Reading Delaware Court of Chancery Clarifies Heightened Standard for Recovery of Attorneys’ Fees in Disclosure-Based Deal Litigation

The term “Acqui-hire” is commonly used to describe an M&A transaction where the buyer is predominantly interested in acquiring key employees of the target and not specifically the underlying business and/or assets. This type of transaction is particularly common in the technology and software industries, where key talent can often be more valuable than the underlying product or service, although it has become more prevalent in other industries as well. For the target employees and founders, such an acquisition may represent a “soft landing” in the event that they find that their organization won’t scale in the way that was previously imagined or if their funding sources have dried up.Continue Reading What You Need to Know about Acqui-Hires

The past few years have seen dramatic shifts for mergers and acquisitions involving automotive dealerships. It has been estimated that approximately 3% of dealerships undergo a change of ownership in an average year. In the early days of the COVID-19 pandemic, however, deal flow in this sector nearly came to a complete halt due to the nationwide lockdown and a lack of demand. By early 2021, the industry had effectively made a full recovery in spite of supply chain and inventory challenges and M&A activity in this space rebounded accordingly, with a record 383 transactions completed in 2021, and an estimated 374 transactions completed in 2022. Despite larger U.S. economy macroeconomic headwinds and leveling consumer demand, buy/sell activity in the auto dealer sector is expected to remain robust in 2023 and beyond as several prominent acquirors continue to deploy their capital and more sellers coming to market due to a variety of reasons, including estate planning and general uncertainties about the larger economy.Continue Reading The Art of the Dealership: A Legal Road Map for Buying and Selling Automotive Dealerships

Buying a small business government contractor may not be as simple as a standard acquisition. This is particularly true if the small business wants to continue to qualify for federal small business set-aside and sole-source awards during negotiations. The U.S. Small Business Administration (“SBA”) treats stock options, convertible securities, and agreements to merge (including agreements in principle), as having a “present effect” on the power to control a concern. So if a letter of intent is sufficiently firm to be considered an agreement in principle, the SBA’s regulations require such agreements be given “present effect” on the power to control a concern – deeming the two entities are immediately affiliated. In other words, the small business likely is no longer small (and, if it is a specialty small business concern, like woman-owned or service-disabled veteran-owned, it is likely ineligible for those programs as well) before the deal even is done. On the other hand, agreements to open or continue negotiations towards the “possibility of a merger or a sale of stock at some later date” are not considered agreements in principle, and are not given present effect. In practice what this means is that a letter of intent must be carefully drafted to ensure that it does not trigger the present effect rule before the parties are ready or willing to be considered affiliated.Continue Reading Buying or Selling a Small Business Government Contractor? Draft the Letter of Intent Carefully to Avoid Immediate Affiliation