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Takeover Law and Practice Guide 2020

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Wachtell, Lipton, Rosen & Katz Takeover Law and Practice 2020 This outline describes certain aspects of the current legal and economic environment relating to takeovers, including mergers and acquisitions and tender offers. The outline topics include a discussion of directors’ fiduciary duties in managing a company’s affairs and considering major transactions, key aspects of the deal-making process, mechanisms for protecting a preferred transaction and increasing deal certainty, advance takeover preparedness and responding to hostile offers, structural alternatives and cross-border transactions. Particular focus is placed on recent case law and developments in takeovers. This edition reflects developments through September 2020. © October 2020 Wachtell, Lipton, Rosen & Katz All rights reserved. Takeover Law and Practice TABLE OF CONTENTS Page I. Current Developments ..............................................................................1 A. Overview ............................................................................. 1 B. M&A Trends and Developments ........................................ 2 1. Deal Activity ........................................................... 2 2. Unsolicited M&A.................................................... 4 3. Private Equity Trends ............................................. 5 4. SPAC Trends .......................................................... 6 5. Acquisition Financing ............................................. 8 6. Shareholder Litigation ............................................ 8 C. Activism and Engagement ................................................ 10 1. Hedge Fund Activism ........................................... 10 a. The Activism Landscape........................... 10 b. M&A Activism ......................................... 12 c. Tactics ....................................................... 13 2. Governance Landscape ......................................... 14 3. Debt Activism ....................................................... 20 D. Antitrust Trends ................................................................ 20 1. Enforcement Issues: Vertical Mergers and Innovation Competition ........................................ 21 2. Remedies Can Save the Day in Strategic Deals ..................................................................... 22 3. What to Expect Ahead .......................................... 22 II. Board Considerations in M&A .............................................................25 A. Directors’ Duties ............................................................... 25 1. Duty of Care .......................................................... 25 2. Duty of Loyalty ..................................................... 26 B. The Standards of Review .................................................. 27 1. Business Judgment Rule ....................................... 27 2. Enhanced or Intermediate Scrutiny ....................... 28 -i- a. Revlon ....................................................... 28 1. When Does Revlon Apply? ........... 29 2. What Constitutes Value Maximization? .............................. 31 3. What Sort of Sale Process Is Necessary? .................................... 31 b. Unocal ....................................................... 34 c. Blasius ....................................................... 36 3. Entire Fairness ...................................................... 37 C. Controlling Stockholders, Conflicts and Special Committees ....................................................................... 38 1. Controlling Stockholders ...................................... 38 2. Transactions Involving Conflicted Controllers or Differential Consideration ............. 41 3. Effective Special Committees ............................... 42 a. Disinterestedness and Independence of Committee Members ............................ 43 b. The Committee’s Role and Process .......... 45 c. Selection of the Committee’s Advisors .................................................... 47 D. Stockholder Approval and Shifting the Standard of Review .............................................................................. 48 1. Standard-Shifting in Non-Controller Transactions .......................................................... 48 2. Standard-Shifting in Controlling Stockholder Transactions ...................................... 51 III. Preliminary Considerations in the M&A Deal-Making Process ..........55 A. Preliminary Agreements: Confidentiality Agreements and Letters of Intent ...................................... 55 1. Confidentiality Agreements .................................. 55 2. Letters of Intent ..................................................... 58 B. Choice of Sale Process: Auctions and Market Checks ............................................................................... 59 1. Formal Auction ..................................................... 60 2. Market Check ........................................................ 60 a. Pre-Signing Market Check ........................ 61 -ii- b. Post-Signing Market Check ...................... 61 c. Go-Shops................................................... 63 C. Board Reliance on Financial Advisors as Experts ............ 63 D. Financial Advisor Conflicts of Interest ............................. 66 1. Identifying and Managing Financial Advisor Conflicts of Interest............................................... 66 2. Public Disclosure of Financial Advisor Conflicts of Interest............................................... 68 E. Use and Disclosure of Financial Projections .................... 69 IV. Structural Considerations .....................................................................73 A. Private Deal Structures ..................................................... 73 B. Public Deal Structures....................................................... 76 1. Considerations in Selecting a Merger vs. a Tender Offer Structure .......................................... 78 a. Speed ......................................................... 78 b. Dissident Shareholders.............................. 79 c. Standard of Review ................................... 79 2. Delaware Facilitates Use of Tender Offers: Section 251(h) ....................................................... 80 3. Methods of Dealing with Tender Offer Shortfalls ............................................................... 81 a. Top-Up Options ........................................ 81 b. Dual-Track Structures ............................... 81 c. Subsequent Offering Periods .................... 82 4. Mergers of Equals ................................................. 82 5. Rule 13e-3 “Going Private” Transactions ............. 84 C. Cash and Stock Consideration .......................................... 85 1. All-Cash Transactions ........................................... 86 2. All-Stock Transactions .......................................... 86 a. Pricing Formulas and Allocation of Market Risk ............................................... 86 1. Fixed Exchange Ratio ................... 86 2. Fixed Value with Floating Exchange Ratio; Collars ............... 87 -iii- 3. Fixed Exchange Ratio within Price Collar ................................... 88 b. Walk-Aways ............................................. 89 c. Finding the Appropriate Pricing Structure for All-Stock Transactions ........ 90 3. Hybrid Transactions: Cash and Stock .................. 90 a. Possible Cash-Stock Combinations .......... 90 b. Allocation and Oversubscription .............. 92 4. Valuing Stock Consideration in Acquisition Proposals ............................................................... 93 a. Short- and Long-Term Values .................. 94 b. Other Constituencies and Social Issues ......................................................... 95 c. Low-Vote or No-Vote Stock Consideration ............................................ 96 5. Contingent Value Rights ....................................... 96 a. Price-Protection CVRs .............................. 96 b. Event-Driven CVRs .................................. 97 6. Federal Income Tax Considerations ..................... 98 a. Direct Merger ............................................ 98 b. Forward Triangular Merger ...................... 99 c. Reverse Triangular Merger ....................... 99 d. Section 351 “Double-Dummy” Transaction ................................................ 99 e. Multi-Step Transaction ........................... 100 f. Spin-Offs Combined with M&A Transactions ............................................ 100 V. Deal Protection and Deal Certainty ....................................................103 A. Deal Protection Devices: The Acquiror’s Need for Certainty .......................................................................... 103 1. Break-Up Fees .................................................... 104 2. “No-Shops,” “No-Talks” and “Don’t Ask, Don’t Waive” Standstills .................................... 106 3. Board Recommendations, Fiduciary Outs and “Force-the-Vote” Provisions ........................ 108 4. Shareholder Commitments .................................. 109 -iv- 5. Information Rights and Matching Rights ........... 111 6. Other Deal Protection Devices ............................ 112 a. Issuance of Shares or Options ................. 112 b. Loans and Convertible Loans ................. 113 c. Crown Jewels .......................................... 113 B.
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