Considerations for Dual-Class Companies Contemplating M&A Transactions

The rise of founder-led, venture capital-backed companies in recent years has coincided with a surge of companies implementing dual-class share structures in connection with their initial public offerings. A dual-class structure typically entitles the holders of one class of the company’s common stock (often designated as Class B common stock) to multiple votes per share and the class of common stock...

Despite Slowdown in SPAC Activity, Opportunities Remain

SPAC activity continued to slow in the first half of 2022, a sharp decline from the number of deals and IPOs in the same period in 2021. Redemption rates soared, and a record number of SPAC deals were terminated. Factors contributing to the slowdown include disappointing performance by newly de-SPACed companies, rising inflation, macroeconomic uncertainty and increased regulatory scrutiny from the...

The Single-Owner Standard and the Public-Private Choice

A fundamental question in corporate law is the nature of the stockholders’ ownership interest in the firm. Should a share of stock be viewed as a simple chattel, the value of which can be measured for all purposes by its trading price? Or should it be viewed as a partial claim on the firm as a whole, the value of which—for some purposes—cannot be determined without reference to the value of the...

Sale of Portfolio Company is Subjected to Entire Fairness Review

In Manti Holdings v. The Carlyle Group (June 3, 2022), the Delaware Court of Chancery held that entire fairness review would apply to the challenged sale of The Carlyle Group’s portfolio company, Authentix Acquisition Corp., due to the pressure Carlyle allegedly exerted to cause a quick sale so that it could close out its fund, Carlyle Holdings, that had invested in the company. The court...

Chancery Decision Expands the Court’s Approaches on Director Independence

The Goldstein v. Denner (May 26, 2022) litigation arose out of the $11.6 billion cash acquisition of Bioverative, Inc. (which had recently been spun off from Biogen, Inc.) by Sanofi, S.A. The Delaware Court of Chancery held, at the pleading stage of litigation, that certain directors and officers of Bioverative may have breached their fiduciary duties in connection with the sale process. The plaintiff...

Delaware and Caremark: An Update

Recent Delaware decisions have reminded boards of directors of the obligation to make a good faith effort to put in place a compliance system designed to help ensure that their companies operate within the bounds of the law and that their products, services, and operations do not cause harm to consumers, community members, or the environment. That duty—famously associated with the Delaware Court of...

Plaintiff’s Response to Defendant’s Counterclaim

Plaintiff Twitter, Inc. (“Twitter”), by and through its undersigned counsel, replies as follows to the Verified Counterclaims (the “Counterclaims”) of Elon R. Musk (“Musk”), X Holdings I, Inc., and X Holdings II, Inc. (each a “Defendant” and together, “Defendants” or the “Musk Parties”) as follows. Introduction Musk begins his answer to Twitter’s claims for breach of their...

Should Your Company Go Private?

Twenty-six public companies have gone private this year as of mid-May, totaling more than $121 billion in value. Compare that to 47 companies that did the same in all of 2021, the highest number of such deals in more than a decade, according to Dealogic. Dry powder is partially fueling these transactions as private equity firms compete to buy the best companies at the best prices, pushing them to...

The Corporate Law Reckoning for SPACs

The ascendance of SPACs in U.S. capital markets has attracted intense regulatory scrutiny from federal officials, especially the SEC. This federal attention on SPACs is natural, as at first glance the SPAC appears to be simply an alternative to the conventional IPO, itself regulated chiefly at the federal level. The SPAC, however, is critically different from the IPO. An IPO is a transaction: the...

A Critique of the American Law Institute’s Draft Restatement of the Corporate Objective

The American Law Institute (ALI) is currently working on a Restatement of the Law of Corporate Governance (“Restatement”). As with all Restatements, the purpose of the proposed Restatement is to clarify “the underlying principles of the common law” that have “become obscured by the ever-growing mass of decisions in the many different jurisdictions, state and federal, within the United...

The Economics of Corporate Governance

Dimensional’s recent paper The Economics of Corporate Governance provides a concise overview of the corporate governance literature. We focus on the governance of for-profit, publicly traded corporations and address two important questions. First, for whom should such corporations be run, shareholders or stakeholders? Second, what is the impact of governance provisions on shareholder value? We...

Dealing with Activist Hedge Funds and Other Activist Investors

Introduction The SEC rule requiring a universal proxy card in director election proxy fights becomes effective today. The resurgence of activism is already in progress, and the universal proxy card may significantly facilitate some proxy contests in which an activist is seeking to elect one or more directors to a company’s board to replace incumbent(s). It will also affect proxy contest strategies,...

Carve-Outs’ Popularity Soars as Businesses Pursue Growth

Carve-out deals, whether conducted through a trade sale, buyout, or IPO, have become a vital tool for businesses to boost balance sheets and deliver shareholder value. This trend has gathered momentum over recent years, with 9,155 carve-outs worth US$2.3 trillion in aggregate announced globally in 2021, according to Dealogic—up 67% in value compared to 2020. So far in 2022, carve-out activity has...

Quarterly Activist Ownership Analysis

This post outlines the major trends occurring globally amongst activist investors’ portfolios. Using a proprietary model quantifying criteria such as reputation, number of campaigns/outcomes, tactics/focus, board seats won, and recency of engagements we have produced the Morrow Sodali Top 40 Activists (MS40) list narrowed down from the pool of global investors. The MS40 is compiled across two tiers...

What’s Next for US M&A

As predicted in our previous M&A report, 2022 has not lived up to the runaway performance of 2021. As activity—still at impressive levels considering everything that has been thrown at the deal market—takes a breather, we consider five fundamental trends that may play out over the coming months. 1. Rates and financing costs to increase The increasing interest rate environment has, and will...

The Activism Vulnerability Report | Q2 2022

With Labor Day marking the unofficial end of summer, FTI Consulting’s Activism and M&A Solutions team welcomes readers to our eleventh edition of the quarterly Activism Vulnerability Report, which reports the results of our Activism Vulnerability Screener following 2Q22, plus other notable trends and themes in the world of shareholder activism. During 2Q22, the U.S. stock markets experienced...

H1 2022 Review of Shareholder Activism

Mary Ann Deignan is Managing Director; Rich Thomas is Managing Director and Head of European Shareholder Advisory; and Christopher Couvelier is Managing Director at Lazard. This post is based on a Lazard memorandum by Ms. Deignan, Mr. Thomas, Mr. Couvelier, Emel Kayihan, Antonin Deslandes, and Leah Friedman. Related research from the Program on Corporate Governance includes The Long-Term Effects...

When an increased personal income tax does not apply to Russians who have left

If a person stays 183 days outside of Russia, he will lose the status of a tax resident of the country. In addition, the payroll tax rate may increase for him from 13-15% to 30%. According to the current provisions of the Tax Code, if the employment contract stipulates that the employee’s place of work is the Russian Federation, then if he loses the status of a tax resident, the personal income...

How to legally avoid VAT and save on payroll taxes

VAT 0% instead of 20% Article 145 of the Tax Code of the Russian Federation exempts companies and individual entrepreneurs from paying VAT on condition that the proceeds from the sale of goods (works, services) for the last 3 calendar months do not exceed 2 million roubles (excluding VAT). Excisable goods are an exception – there is no tax exemption for them. When calculating the revenue it...

There will be no more banking secrecy for tax authorities

In the next three years, Russian tax authorities may get more opportunities to study information about banks’ clients. Expansion of the rights of the Federal Tax Service is provided for in the “Main Directions of Budget and Tax Policy”, which the government submitted to the State Duma. What kind of information about clients and according to what scheme the tax authorities will be able to...

Liquidation of Companies

How will creditors be paid back? When all the debts of the creditors are paid, a final balance is created and sent to the creditors. The debtors with priority are paid first so that everyone gets something. After that, you must issue a final balance, where you will tell the creditors how much money they will receive.This must be approved again by the founders responsible for the liquidation...

How foreign economic activity will be supported in 2023

In 2023, the state adopted a set of measures to support those engaged in foreign economic activity in a crisis situation. Since January 1, 2023, amendments have been in effect that have amended the rules for granting subsidies for reimbursement of lost income on loans that were issued for the purchase of products that are priority for import (see Decree of the Government of the Russian Federation...

Draft law on the digital rouble

On December 29, 2022 two draft laws were submitted to the State Duma that envisage the issue of a “digital rouble”. Thus, three forms of rouble are possible in Russia in the near future: cash, non-cash, and digital. 1 digital rouble = 1 rouble in cash or non-cash form. The operator of the digital rouble settlement platform will be the Bank of Russia. One of the draft laws proposes to...

A new report on the traceability of goods for non-VAT payers will be introduced in 2021

A new section V3 “Traceability of goods” will be soon introduced to the Tax Code. The draft law with such amendments in the Tax Code was adopted today in the first reading. What is the essence of the system? The goods included in the special list will be tracked from the moment they are imported into the country until they are sold to the end user (or exported outside the country). The list...

3 Ways M&A Is Different When You’re Acquiring a Digital Company

Digital mergers and acquisitions are a different beast compared to traditional M&As — so much so that even experienced dealmakers may need to take a new approach. Specifically, digital M&As require refocusing around three key issues: financing, due diligence, and merger integration. Even for experienced deal makers, a first digital acquisition is bound to be an education. Companies...

The AT&T Ruling Shows That U.S. Regulators Don’t Understand Media’s Present

This week’s decision by U.S. District Judge Richard Leon to allow AT&T and Time Warner to complete their merger will bring to a close a deal that has been pending for almost two years. In his blistering, 172-page decision, Judge Leon did much more than simply reject the government’s claim that combining two companies that do not compete with each other would harm consumers. He also made...

The Success of Your M&A Deal Hinges on How You Announce It

The M&A process is complicated and often perilous. Many deals are doomed from the outset. After the initial deal announcement, investors react negatively and the acquirer’s stock drops. That’s why companies need to do a better job of managing Announcement Day. Rather than treating this crucial day as a simple comms exercise, acquirers need to tell investors and other stakeholders about the...

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