M & A

Davis Polk Discusses Revised Thresholds and Filing Fees under Hart-Scott-Rodino Act

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The Federal Trade Commission (FTC) has announced revised Hart-Scott-Rodino Act (HSR) reporting thresholds and filing fee amounts, up to a $2.25 million fee for the largest deals. Under the new thresholds, a transaction is reportable if, due to the transaction, the acquiring person will hold voting securities, assets, or non-corporate interests valued over $111.4 million. These changes will apply to all transactions that close on or after the effective date, which is expected to be February 23.

The exact effective date for these updated reporting thresholds and filing fee amounts will depend on when the changes are published in the … Read more

Perceptions of Regulatory Uncertainty in Antitrust Practices

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The U.S. is the largest market for merger and acquisition (“M&A”) activity, with nearly 7,900 transactions accounting for a record $2.6 trillion in value in 2021.[1]  The primary M&A enforcement agencies in the United States, the Federal Trade Commission (FTC) and the Department of Justice Antitrust Division (DOJ), evaluate the potential antitrust risk of reported mergers, monitor remedies, and challenge deals deemed to reduce competition applying jointly published guidelines. The Biden administration appointed leaders to the FTC and DOJ who promised that traditional approaches to antitrust would not be followed and suggested changes to both substance and process to antitrust … Read more

How Social Connections and Information Leaks Affect the Stock Prices of Takeover  Targets

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The stock prices of takeover targets typically increase substantially prior to merger announcements[1] This increase attracts considerable public attention because it is usually perceived to be associated with the leaking of inside information. Hence, the numerous  Securities and Exchange Commission (SEC) cases against individuals and entities accused of trading on inside information about upcoming mergers and acquisitions.

These cases typically involve suspected  leaks of confidential information through social connections. Senior executives or board members often initiate the leaks, which spread among the social networks that are either directly or indirectly linked to them. For example, in a case filed … Read more

Market Trends, Shareholder Activism, the SEC, and Litigation Get Lively Airing at Columbia Law School M&A and Corporate Governance Conference

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Top practitioners, judges, regulators, and scholars gathered at Columbia Law School on December 2 to offer their unique perspectives and cutting-edge insights on a variety of topics related to M&A and corporate governance. The topics included current M&A market trends, the role of institutional investors and shareholder activists in dealmaking, and the impact of the SEC and litigation developments on M&A.

The day-long event started with a panel exploring current trends and trajectories in the M&A market. The panel was moderated by Professor Jeffrey N. Gordon of Columbia Law School and included panelists Lauren Hirsch, a reporter for DealBook at … Read more

How Patent Thickets Distort the Acquisition Market

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Patent thickets are dense webs of overlapping intellectual property rights. They are common in industries ranging from semiconductors to smartphones to pharmaceuticals.  When many firms own the underlying patents, thickets complicate licensing negotiations and increase the risk of holdup and litigation. These costs can be enormous: In 2021, for example, Intel paid $2.1 billion to VLSI Technology after a jury ruled that it had infringed two of VLSI Technology’s semiconductor patents. Conversely, firms that build their own patent thickets can use them to defend against litigation or even to crowd out competitors. This strategy allowed pharmaceutical companies such as AbbVie, … Read more

Columbia Law School to Hold 2022 Conference on M&A and Corporate Governance

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On December 2, 2022, Columbia Law School will hold its 2022 Conference on Mergers & Acquisitions and Corporate Governance. The event is co-sponsored by the school’s Ira M. Millstein Center for Global Markets and Corporate Ownership, the Columbia Law School Center on Corporate Governance, and the law firm of Paul Hastings LLP.

The event brings together members of the federal and Delaware judiciaries, government regulators, academics, and prominent M&A and corporate governance practitioners. This year’s panelists are scheduled to include Delaware Chancellor Kathaleen St. J. McCormick, Delaware Vice Chancellor Lori W. Will, U.S. Senior District Judge Jed S. Rakoff, Chief … Read more

How Mandatory Disclosure Affects the Takeover Market for Private Banks

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Financial disclosure is critical for the efficient allocation and reallocation of capital. However, the debate on the costs and benefits of disclosure mandates is unresolved, and the empirical evidence is mixed. In a new paper, we contribute to this debate by investigating the role of disclosure mandates in the takeover market for banks.

Mergers and acquisitions are essential means of capital reallocation, helping to direct assets towards their best use by reallocating control rights over companies. In 2021 alone, the announced global M&A transaction volume exceeded $5 trillion. Financial disclosures play a critical role in M&A, allowing acquirers to evaluate … Read more

Paul Weiss Discusses DOJ’s First Terrorism Material-Support Charge Against a Corporation

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On October 18, 2022, Deputy Attorney General (“DAG”) Lisa O. Monaco announced that Lafarge SA (“Lafarge”), a multi-national building materials manufacturer headquartered in Paris, France, and its Syrian subsidiary Lafarge Cement Syria (“LCS”) had pleaded guilty in the Eastern District of New York to conspiring to provide material support to foreign terrorist organizations, the Islamic State of Iraq and al-Sham (ISIS) and the al-Nusrah Front (ANF), in violation of 18 U.S.C. §2339B.[1]  This case represents the first time in which the DOJ has brought such a material support charge against a corporation.[2]

According to the DOJ and as … Read more

Proxy Tactics Are Changing: Can Advance Notice Bylaws Do What Poison Pills Cannot?

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Military strategy and takeover strategy share a few things in common. At some point, generals and M&A lawyers each must recognize that the old technology no longer works as it did in the past and can no longer dominate the battlefield. For example, in the Ukraine war, it has become obvious that battle tanks are vulnerable and do not reign supreme. Correspondingly, in the takeover war, the poison pill is no longer the absolute showstopper it once was and can be outflanked by activist hedge funds seeking to run a proxy contest — even if only for a minority of … Read more

Davis Polk Discusses Three Recent Court Losses Signaling Challenges for Antitrust Enforcement

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Under the Biden administration, the U.S. antitrust agencies are taking an aggressive approach to merger enforcement, and have outlined strategies that move away from historical merger review tools in favor of more enforcement-friendly standards. But recent court decisions have tested this new approach. Despite agency advocacy for novel theories, these decisions applied traditional legal analysis to find for the merging parties, questioning the agencies’ ability to change merger review standards.

Three agency losses in September 2022

The Federal Trade Commission (FTC) recently challenged a vertical merger in the biotechnology sector and the Department of Justice (DOJ) challenged two mergers in … Read more

Do Hostile Takeover Threats Matter?

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Much of the vast literature on corporate governance focuses on internal issues, such as board characteristics. Yet external governance –  the market for corporate control, often known as the takeover market – is  critical to determining how well a company is run. Managers are less likely to exploit shareholders when subject to the discipline of the takeover market, making it a governance instrument for reducing agency problems. In a new study, we demonstrate the impact of the takeover market on companies by investigating how it affects an important measure of their financial health: credit ratings.

Credit ratings provide information on … Read more

A New Twist in Twitter: Can Musk “Rely” on Zatko?

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As we get closer to the October 17th scheduled trial date for the Twitter lawsuit to compel Elon Musk to complete his proposed $44 billion acquisition of Twitter, the charges and allegations are getting wilder and woolier. Once, this was a case in which the party seeking to escape the merger agreement (i.e., Musk) asserted that the percentage of Twitter accounts that were “bots” (or fake) amounted to a “material adverse change” that permitted the buyer to back away. Given both Delaware’s strong commitment to deal certainty and Musk’s seemingly reckless indifference to due diligence, most law professors saw Musk … Read more

Paul Weiss Discusses DOJ Loss in Challenge to U.S. Sugar-Imperial Sugar Deal

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After determining that the DOJ failed to meet its burden of proof, a Delaware federal court denied the government’s request to enjoin the $315 million acquisition of Imperial Sugar by U.S. Sugar. The court found that the DOJ failed to prove a proper antitrust market and criticized the government’s expert for, among other things, failing to take account of the realities of the sugar industry in the United States. The public version of the court ‘s opinion was docketed on September 28. The DOJ has appealed, and the Third Circuit ordered expedited briefing but denied the DOJ’s motion for an … Read more

Skadden Discusses Boards, M&A, and Regulatory Risk

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Boards are regularly called upon to guide management teams in answering the age-old strategic question: build or buy? But the already complex business calculus has become increasingly complicated in the past several years because of stepped up scrutiny of mergers by regulators that has made outcomes less predictable.

One need look no further than the front page to find news of transactions abandoned after governmental challenges. Meanwhile, leaders at the Department of Justice and Federal Trade Commission and other competition authorities have spoken of the need to reconceive antitrust law and have voiced support for aggressive new theories about protecting … Read more

Remedies for M&A Breach of Contract – The Cineplex Case

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A remorseful acquirer wants to get out of a merger or acquisition agreement. It concocts a thin justification, which a court wisely rejects, finding unlawful breach. What is the appropriate remedy for harm done to the target?

While attention has focused on the controversy surrounding Elon Musk’s proposed acquisition of Twitter, this question arose in the recent Canadian decision of Cineplex v. Cineworld.[1] The Cineplex court rejected specific performance and instead, in a case of first impression, awarded the target CAD $1.24 billion in expectation damages for loss of anticipated synergies.

Our forthcoming paper takes a close look … Read more

How Accounting Comparability Between Bidders and Targets Affects Deal Outcomes

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How comparable are the financial statements of M&A bidders and acquirers in the same industry? And does financial statement comparability affect the outcome of a deal? In a recent paper, available here, we investigate these questions, using a sample of deals between U.S.-listed firms over the 1987-2021 period.

An accounting system maps economic transactions onto financial statements (Yip and Young, 2012). Accounting comparability reflects the tendency of two firms that have comparable accounting systems to produce similar (or dissimilar) financial statements for a given set of similar (or dissimilar) economic events (De Franco et al., 2011; Barth et al., … Read more

Skadden Discusses Executive Order on CFIUS Authority to Identify National Security Risks

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On September 15, 2022, President Joe Biden issued an executive order (EO) “on ensuring robust consideration of evolving national security risks” by the Committee on Foreign Investment in the United States (CFIUS or the Committee). The EO does not change CFIUS jurisdiction or process, nor does it, as a practical matter, materially change the factors CFIUS regularly considers (or has considered over the past several years) when reviewing a CFIUS filing for national security risk. Despite the EO’s modest changes to policy, its articulation of some specific areas of concern may have a marginal effect on CFIUS agencies’ future reviews … Read more

Wachtell Lipton Discusses M&A and the Book Minimum Tax

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On August 16, President Biden signed the Inflation Reduction Act of 2022 (the “IRA”) (see our prior memo), which imposes a new 15% corporate book minimum tax (the “BMT”).  The BMT is imposed, effective for taxable years beginning after December 31, 2022, on the “adjusted financial statement income” (“AFSI”) of large U.S. corporations (other than S‑corporations, REITs and regulated investment companies) with average AFSI in excess of $1 billion over the preceding three-year period.  Adjusted financial statement income is net income in a corporation’s audited GAAP financial statements filed with the SEC (or certain other specified financial statements) subject … Read more

Davis Polk Discusses Biden’s Executive Order on Competition, One Year Later

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Since President Biden issued his July 2021 Executive Order on Competition, the antitrust agencies have made broad policy statements promising more aggressive enforcement and have initiated a number of high-profile enforcement actions.  Rather than establishing a record of success, the primary effect has been to create uncertainty, as the agencies struggle with institutional constraints and have yet to achieve groundbreaking victories in court.  Still, the FTC and DOJ do not appear deterred.

Background on President Biden’s Executive Order on Promoting Competition in the American Economy

On July 9, 2021, President Biden issued a sweeping proclamation on competition in the American … Read more

Why Cybersecurity Is a Growing Concern in M&A

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The Fortune 500 CEO survey in 2021 found that two-thirds of interviewed CEOs consider cybersecurity risk their greatest concern, far greater than the risks presented by political instability or climate change.[1] They are right to be concerned, particularly in the context of mergers and acquisitions (M&A), where the process of migrating and integrating data between merging firms can make them particularly vulnerable to sophisticated cyber terrorists. (IBM, 2019). IT breaches during that process could significantly reduce the gains expected from a deal.

Furthermore, threats to successful deal completion may arise from past cybersecurity weaknesses, as highlighted in two recent … Read more