This is the price paid for allowing our hopes, rather than established law, to guide public merger agreement drafting for the last 18 years. Con Edison v Northeast Utilities, a 2005 Second Circuit decision regarding a New York law governed merger agreement, found that, absent clear contractual language to the contrary, a target company could not collect lost shareholder premium as damages for the breach of a merger agreement. ConEd caused quite a stir in public M&A circles, with some asserting that it caused every public merger agreement to be converted into a mere option agreement, where, if the buyer did not wish to close, it had only to pay the target’s out-of-pocket costs. This may have been a bit extreme, but given how infrequently specific performance has been ordered to remedy a failure to close, it probably was not far off the mark.
On November 2, 2023, the New York Appellate Division, First Department held for the first time that New York state courts hearing claims under the Securities Act of 1933 are required to stay discovery pending resolution of a motion to dismiss under the Private Securities Litigation Reform Act of 1995 (“PSLRA”).
Alea iacta est
Boards often settle actual or threatened proxy fights by trading away board seats to activists. Delaware courts will analyze this trade as a defensive device, much like greenmail, where the board trades away something valuable to avoid a battle for corporate control. It follows that, like greenmail or a poison pill, this defensive device would be subject to scrutiny under the Unocal standard. Yet boards in general seem to be remarkably lax in analyzing whether they have fulfilled their fiduciary duties in making such a trade. Below are questions boards should be able to answer before awarding partial control of their company to an activist. Continue Reading Activist Settlements: Fiduciary Questions for Boards
On May 12, 2023, the Delaware Court of Chancery reaffirmed a key principle for transactions involving interested directors: process is everything. Vice Chancellor Sam Glasscock III, in his opinion in In re Oracle Corporation Derivative Litigation, provides reassurance that the Court will not rush to second-guess board decisions involving conflicted transactions as long as adequate safeguards are present.Continue Reading Delaware Chancery Court Finds for Defendant Director, CTO and Founder of Oracle, Larry Ellison, in Derivative Suit Involving Conflicted Transaction
On March 28, 2023, the U.S. Securities and Exchange Commission reached a $55.9 million settlement with Vale S.A., a NYSE-traded mining company, to resolve allegations that Vale committed securities fraud by presenting intentionally misleading information in its annual Sustainability Reports and investor presentations. The SEC’s enforcement action against Vale was brought by the agency’s Climate and ESG Task Force, which was created to “proactively identify ESG-related misconduct consistent with increased investor reliance on climate and ESG-related disclosure and investment.” For companies seeking to highlight ESG and sustainability goals and progress, this case serves as an important reminder of the need to ensure the accuracy of these public statements, lest they too end up in the crosshairs of government regulators.Continue Reading Misleading Public Company ESG Disclosure Results in SEC Enforcement Action – and $55.9 Million Settlement
UNIVERSAL PROXY AND “HORIZONTAL” CONFLICTS – FILLING IN THE (LARGE) DISCLOSURE GAPS
There is reason to believe the SEC’s new universal proxy Rule 14a-19 will result in more stockholder nominees being elected to the boards of public companies.Continue Reading MORE CHOICE REQUIRES MORE INFORMATION
On September 1, 2022, new universal proxy rules adopted by the Securities and Exchange Commission (“the SEC”) formally went into effect. These rules mandatorily apply to public company director elections held after August 31, 2022. This post summarizes the key provisions of Rule 14a-19 of the Securities Exchange Act of 1934, as amended (“Rule 14a-19”), and provides recommendations for potential corporate bylaw amendments.
On February 10, 2023, the Securities and Exchange Commission (the “SEC”) Staff issued a series of Compliance & Disclosure Interpretations (CD&Is) relating to the final “pay versus performance” disclosure rules. These CD&Is cover a range of topics, including use of peer groups, valuation, disclosure of financial performance measures, and presentation of footnotes to the pay versus performance table. As the 2023 proxy season is fast approaching, and calendar-year companies are preparing to finalize initial disclosures, it is important for issuers to review this guidance to ensure no changes need to be made to its draft disclosures.
For the past several years, boards of directors have increasingly faced claims that they have failed in their duty of oversight. These so-called Caremark claims can arise in a number of contexts involving allegations of systemic failures or intentional wrongdoing. Recently, the Delaware Court of Chancery held for the first time that officers owe the same duty of oversight as directors, an expansion of Caremark which had previously only been applied to directors.
In In re McDonald’s Corp. Stockholder Derivative Litigation, the Delaware Court of Chancery denied a motion to dismiss a breach of fiduciary duty claim against the former Executive Vice President and Global Chief People Officer of McDonald’s Corporation (“McDonald’s” or the “Company”) relating to alleged sexual misconduct and inadequate oversight.
Milbank LLP Environmental partner Matt Ahrens and associates Allison Sloto (Environmental) and Pinky Mehta (Global Risk & National Security) recently co-authored an article titled “An Overview of the SEC’s Proposed Climate-Related Risk Disclosure Rules” in the New York State Bar Association’s The New York Environmental Journal – Volume 42, No. 2.