Deal Diary

Editor’s Note: Akin Gump is pleased to publish the first in a series of blog posts covering significant issues U.S. boards of directors may expect to face in 2022. In addition to ongoing pressures on the part of boards of directors of private and public companies to continue embracing environmental, social and governance (ESG) principles in connection with developing both short- and long-term growth strategies, directors in the U.S. (and, by extension, overseas) are facing any number of challenges that will need to be navigated in a thoughtful and transparent manner. We expect to publish this series of posts over the next few weeks, as well as updated materials and content as and when events warrant.  

On April 8, 2021, John Coates, the Acting Director of the Securities and Exchange Commission’s (SEC) Division of Corporation Finance, released a public statement expressing concern about claims of some practitioners and commentators regarding special purpose acquisition companies (SPACs). In particular, Mr. Coates questions the view that a private company faces less exposure to securities law liability when “going public” through a business combination with a SPAC (a “de-SPAC” transaction) than when employing a conventional IPO structure. After emphasizing the significant investor protections concerns this assertion raises, Mr. Coates refutes the claim by describing the manner in which the existing federal securities law regime protects SPAC investors. Mr. Coates also proposes an interpretation of the Private Securities Litigation Reform Act (PSLRA) that would limit the scope of its safe harbor when SPAC participants make forward-looking statements in connection with de-SPAC transactions. Despite the customary disclaimer cautioning readers that the public statement only expresses the views of Mr. Coates and not those of the SEC, the public statement may provide insight as to how the SEC Staff is thinking about de-SPAC transactions. We summarize each of Mr. Coates’s points below.

The world has changed a lot since our 2020 report. A global pandemic; a reckoning on race, inequality and social justice; a climate crisis; an economic shock; and increased political polarization have created challenging dynamics for companies and boards globally. The role of the board in managing risk and charting the course ahead is more critical today than ever before. This report delves into these wide-ranging and interlocking issues and offers insight on how directors and management must proactively embrace their stewardship roles in this brave new world.

In light of the health and safety concerns related to coronavirus disease 2019 (COVID-19), the U.S. Securities and Exchange Commission (SEC) has recently issued guidance to assist public companies with upcoming annual shareholder meetings.

In late 2019, COVID-19 (more commonly known as the coronavirus) began to spread throughout mainland China, and has since spread around the world, affecting numerous lives and businesses. As a result, companies spanning a wide range of industries have seen impacts on their businesses, and some anticipate drastic changes to their financial performance. Buyers engaged in acquisition transactions may therefore be looking to material adverse effect (MAE) clauses as a way to terminate merger agreements in light of projected downturns in financial performance of their targets. Historically, courts have been reluctant to allow a buyer to terminate a transaction on the basis of an MAE clause, putting the onus on buyers to show that the effect will have a long-term impact on the financial health of the target company. A key Delaware case on the issue, decided in October 2018, reiterated that high burden, stating, “[t]he important consideration…is whether there has been an adverse change in the target’s business that is consequential to the company’s long-term earnings power over a commercially reasonable period, which one would expect to be measured in years rather than months.” Akorn, Inc., v. Fresenius Kabi AG, et al., C.A. No. 2018-0300-JTL (Del. Ch. Oct. 1, 2018). This requires a fact-specific demonstration that the event “substantially threaten[s]” the earnings potential of the entire business “in a durationally significant manner.” Id.

The Federal Trade Commission (FTC) announced the latest annual revision to the thresholds governing premerger notification requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”).

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Election and Impeachment

The presidential race will garner much of the attention during the 2020 election cycle, but there is fierce competition elsewhere, too. Republicans and Democrats are fighting for both U.S. House of Representatives and U.S. Senate seats in the 116th U.S. Congress, with the Republican Party trying to regain House majority. Meanwhile, impeachment proceedings against President Donald Trump are shaping up to be a potential game changer for certain members of the Senate who are running for president. They’ll lose valuable time on the campaign trail while serving as jurors for the duration of the impeachment trial.