COUNTRY COMPARATIVE GUIDES 2021 The Legal 500 Country Comparative Guides United States MERGERS & ACQUISITIONS Contributing firm Cravath, Swaine Cravath, Swaine & Moore LLP & Moore LLP Richard Hall Corporate Partner | [email protected] This country-specific Q&A provides an overview of mergers & acquisitions laws and regulations applicable in United States. For a full list of jurisdictional Q&As visit legal500.com/guides Mergers & Acquisitions: United States UNITED STATES MERGERS & ACQUISITIONS 1. What are the key rules/laws relevant to as business combinations and the obligations of M&A and who are the key regulatory directors in connection with M&A activity). Because authorities? many major U.S. corporations are incorporated in Delaware, the Delaware General Corporation Law (DGCL) In the U.S., both the federal government and state and the common law embodied in decisions of the governments regulate matters relevant to M&A. Delaware courts are generally the most important and influential state corporation law. However, on key At the federal level, M&A activity is subject to the federal matters relevant to M&A activity, a number of states securities laws, principally the Securities Act of 1933 (the have diverged from Delaware and so it is necessary to Securities Act) and the Securities Exchange Act of 1934 consider the law of the state of incorporation of the (the Exchange Act). The Securities and Exchange relevant companies in connection with a transaction. Commission (SEC) is the federal agency charged with enforcing the federal securities laws and has Companies in certain industries such as banking, power promulgated extensive rules and regulations under both and utilities, insurance, airlines, media and the Securities Act and Exchange Act. The Securities Act telecommunications may also be covered by specific governs the offer and sale of securities, and so state and federal regulatory regimes. potentially applies to any transaction in which securities are being purchased, sold or exchanged, including M&A 2. What is the current state of the market? transactions. The Exchange Act deals with, among other things, ongoing reporting obligations for public The U.S. M&A market in 2020 was a tale of three parts. companies, tender offers, proxy statements and The first two months of the year was a fair start to the shareholder obligations to disclose ownership and year, with transaction numbers and volumes in line with transactions with respect to shares of public companies. prior years. The March though June months were All M&A transactions must also comply with the federal severely adversely affected by COVID-19. The second antitrust laws, which are enforced by the Antitrust half of 2020 reflected a significant recovery from Q2 Division of the U.S. Department of Justice (DOJ) and the 2020, with Q3 2020 showing a quarter-over-quarter Federal Trade Commission (FTC). Acquisitions by non- increase of over 400% in dollar volume terms. By the U.S. entities are also potentially subject to review by the time the books closed on 2020 U.S. M&A, overall 2020 Committee on Foreign Investment in the U.S. (CFIUS). U.S. M&A volumes were down approximately 16% by deal count and approximately 21% by dollar volume, In the U.S., corporations are incorporated under the laws although H2 2020 was one of the best six months for of a particular state (rather than federal law). As a result, almost 15 years. state law principally addresses matters such as the formation and dissolution of corporations, duties of The most significant new feature in the U.S. M&A market boards of directors, mergers and other forms of business in 2020 was the special purpose acquisition company (or combinations, shareholder voting requirements, “SPAC”) transactions. 2020 saw 248 SPAC IPOs in the shareholder meetings and amendments to U.S. in 2020, which will have a significant (and lagging) organizational documents. State law relevant to positive impact on SPAC M&A. corporations consists of both the state corporation statutes enacted by state governments as well as common law arising out of judicial decisions. Though 3. Which market sectors have been state laws relevant to corporations have many common particularly active recently? elements across states, there are significant differences among them (particularly with respect to matters such In Q4 2020 in the U.S., the leading sectors were PDF Generated: 7-04-2021 2/10 © 2021 Legalease Ltd Mergers & Acquisitions: United States technology, pharma, medical and biotechnology and company’s stock directly from its shareholders followed financial services, with approximately 26%, 15% and by a “back-end” merger through which the buyer 10% of Q4 dollar volume. acquires any remaining outstanding shares. A shareholder vote on the back-end merger may be required (depending on applicable state law}, but the 4. What do you believe will be the three buyer will be able to ensure that it passes since it will most significant factors influencing M&A own a majority of the outstanding stock as a result of the activity over the next 2 years? tender offer. Two-step transactions are most common in all-cash acquisitions. We expect M&A activity in the U.S. over the next two years to be heavily influenced by the SPAC IPOs and In addition, acquisitions of private companies can also be related demand for de-SPACing transactions. In addition, effected through stock purchases and asset purchases. we expect there will continue to be something of a rebound from the slowdown in Q2 2020, as well as 6. What information relating to a target expected recovery of the U.S. economy driven by unprecedented levels of fiscal stimulus and continued company will be publicly available and to monetary stimulus. Of course, any predictions about the what extent is a target company obliged to recovery of the U.S. economy are heavily dependent on disclose diligence related information to a improvements in overall COVID-19 situation. potential acquirer? Public companies in the U.S. are generally required to 5. What are the key means of effecting the file annual and quarterly reports with the SEC. acquisition of a publicly traded company? Among other things, these reports provide a description For public companies, there are two primary transaction of the company’s business, summaries of material structures-a single-step merger and a two-step events (including legal proceedings}, selected financial transaction consisting of a tender offer followed by a information and financial statements (which are fully merger. audited, in the case of annual reports) and management’s discussion and analysis of the company’s One-step mergers are effected under state law, and the financial condition and results of operations. Public consideration in a merger can be cash, securities companies are also required to file reports on Form 8-K (including stock of the buyer) or a combination of both. with the SEC to report certain events, including entry Once the parties reach an agreement which is approved into material definitive agreements, acquisitions or by the boards of directors of both companies, the target dispositions of businesses or significant amounts of company submits the deal to its shareholders for assets and changes of control. Public companies approval. A vote of the shareholders of the acquirer may generally must also file proxy statements providing also be required in a transaction involving stock information regarding the shareholder meeting to which consideration depending on the amount of acquirer they relate, the matters to be voted on by the stock to be issued and will be required if the acquirer is shareholders at such meeting and what the company’s itself merging (such as in a “merger of equals” recommendation is with respect thereto, and other transaction). In acquisitions, if shareholders approve the information relating to the company such as a merger, the target company typically merges with a description of the board of directors and its committees, wholly owned subsidiary of the buyer, with the target executive and director compensation and ownership of company as the surviving corporation. The result is that the company’s securities by directors, officers and large the target company becomes a wholly owned subsidiary shareholders. of the buyer. Merger transactions may use a similar structure or may involve each party merging with a When seeking shareholder approval of a transaction, merger subsidiary of a newly formed holding company targets must also make additional information available with the shareholders of each merger party receiving to their shareholders, such as the background and shares of the holding company. Single-step mergers are reasons for the transaction and summaries of the most common in deals in which the consideration financial analyses of its bankers. Targets typically also includes stock or there is expected to be a lengthy disclose to their shareholders projections made available regulatory delay. to the buyer in such situations. In a two-step transaction, the buyer makes a tender offer Beyond what companies are required to file with the to acquire not less than a majority of the target SEC, a great deal of information is publicly available on PDF Generated: 7-04-2021 3/10 © 2021 Legalease Ltd Mergers & Acquisitions: United States company websites and from industry and trade Moreover, in practice, hostile takeover attempts publications and news sources. Except in very limited generally turn into a battle over the board of the target circumstances, filings with the SEC are publicly available company, either by attempting to replace the directors through the SEC’s EDGAR website. with a friendly slate of directors that will negotiate with the hostile bidder, or by attempting to persuade the A target company has no general obligation to disclose directors to change their minds.