Tuesday, July 28, 2020
As I have been working on a few projects involving law firms and legal education in the pandemic, I have come across a number of fun business law items involving mergers and acquisitions. The news reports I have noted cover regulatory changes, case law, and planning/drafting. Both small and large transactions are receiving attention. I shared these with Business Law Section colleagues in the Tennessee Bar Association about a week ago. I got some positive response. So, I am sharing them here, too. Feel free to post what you are seeing in this regard in the comments.
In the small business arena, a recent American Bar Association (ABA) Business Law Today article focuses in on clawback provisions in equity sale agreements. These provisions, the article avers, “enable the former owner to participate in the consideration received in a subsequent sale of the business by the remaining owner or owners.” The article lists a number of key things to consider in drafting these kinds of provisions.
Another ABA Business Law Today piece notes the trend toward glorifying deal price in valuation determinations, as evidenced in recent Delaware court opinions on appraisal rights. The article cites to three leading cases, two in 2017 and one in 2019, that address fair value determinations under Delaware law. As to the most recent case, Verition Partners Master Fund Ltd. v. Aruba Networks, Inc., No. 368, 2018 (Apr. 16, 2019) (per curiam), the article importantly notes that “the Delaware Supreme Court sides with the Chancery Court’s position—and reinforces recent Delaware jurisprudence—by holding that the deal price should act as a ceiling for a valuation, a result that will likely reinforce the trend in place since 2016 toward decreasing numbers of appraisal petitions.”
Another noteworthy M&A news item is the recent release by the Federal Trade Commission (FTC) and Department of Justice (DoJ) of final Vertical Merger Guidelines. As multiple sources report (see, e.g., here and here), formal guidelines for non-horizontal mergers were last issued in 1984. The most recent articulation of the FTC and DoJ Horizontal Merger Guidelines occurred in 2010.
Finally, an article in the National Law Review reminds us that it may be a good time to review client charters and bylaws to ensure that anti-takeover protections are up-to-date and adequate. A helpful list of possible anti-takeover devices is included in the article. The article also covers general corporate governance upgrades that may be warranted at this time. Specifically, the article recommends “that boards evaluate potential revisions to their bylaws to allow for greater flexibility and clarity relating to shareholder meetings and board actions.” Suggestions for shareholder meeting enhancements include ideas relating to virtual meetings and meeting procedures. Advice on board action provisions relates to remote meetings and emergency bylaws.
Why should we care about these developments, observations, and recommendations? Changes in the economy and in specific client circumstances relating to the COVID-19 pandemic may make M&A a more significant part of corporate governance and transactional activity for the next year or two. As a result, it will be important for business lawyers to remain up-to-date on current M&A activity as well as related regulatory pronouncements and practice points. As academics, we, too, may be engaged in related activities for the same reason. Food for thought . . . .