Tag: Schedule 13D


SEC Broadens Focus on and Requirements for 13D Amendment Disclosure

Philip Richter is co-head of the Mergers and Acquisitions Practice at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication authored by Mr. Richter, Steven Epstein, Abigail Pickering Bomba, and Gail Weinstein. Related research from the Program on Corporate Governance about blockholder disclosure includes The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here), and Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy by Lucian Bebchuk, Alon Brav, Robert J. Jackson Jr., and Wei Jiang.

Philip Richter is co-head of the Mergers and Acquisitions Practice at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication authored by Mr. Richter, Steven Epstein, Abigail Pickering Bomba, and Gail Weinstein. Related research from the Program on Corporate Governance about blockholder disclosure includes The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here), and Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy by Lucian Bebchuk, Alon Brav, Robert J. Jackson Jr., and Wei Jiang.

The SEC recently announced settlements of charges against insiders relating to three different going private transactions. The settlement orders (the “Orders”) reflect a general increased focus by the SEC on insiders’ compliance with Schedule 13D amendment requirements in connection with going private transactions (and possibly other extraordinary transactions), as well as possibly expanded requirements for disclosure of steps taken during the preliminary stage of consideration of a transaction. The charges were against eight directors, officers or major stockholders for their respective failures to file timely amendments to their Schedule 13D filings to disclose their plans to take the companies private. The charges were based on steps these parties had taken in furtherance of the going private transactions, but that had only been disclosed months (or in some cases years) afterward in the proxy statements or Schedule 13E-3 statements relating to the transactions. READ MORE »

SEC Enforcement Actions for Failure to Update 13D Disclosures

The following post comes to us from James Moloney, partner and co-chair of the Securities Regulation and Corporate Governance Practice Group at Gibson, Dunn & Crutcher LLP, and is based on a Gibson Dunn publication by Mr. Moloney and Andrew Fabens, with assistance from Lauren Traina.

The following post comes to us from James Moloney, partner and co-chair of the Securities Regulation and Corporate Governance Practice Group at Gibson, Dunn & Crutcher LLP, and is based on a Gibson Dunn publication by Mr. Moloney and Andrew Fabens, with assistance from Lauren Traina.

On Friday, March 13, 2015, the SEC announced that it had settled a string of 21C administrative proceedings brought against eight officers, directors, and shareholders of public companies for their failure to report plans and actions leading up to planned going private transactions. The SEC press release can be found here. In doing so, the SEC sent another strong reminder to those that beneficially own more than 5% of the equity securities of a public company to keep their 13D disclosures current.

The respondents included a lottery equipment holding company, the owners of a living trust, and the CEO of a Chinese technical services firm. According to the SEC, the respondents in each of these cases failed to report various plans and activities with respect to the anticipated going private transactions, including when the parties: (i) determined the form of the going private transaction; (ii) obtained waivers from preferred shareholders; (iii) assisted in arriving at shareholder vote projections; (iv) informed management of their plans to take the company private; and (v) recruited shareholders to execute on the proposals. In one case the respondents were charged for failure to report owning securities in the company that was going private. In another case, the respondents reported their transactions months or years later. The proceedings resulted in cease-and-desist orders as well as the imposition of civil monetary penalties ranging from $15,000 to $75,000 per respondent.

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Keeping It Private—Tough Disclosure Issues in Take-Private Transactions

Daniel Wolf is a partner at Kirkland & Ellis focusing on mergers and acquisitions. The following post is based on a Kirkland memorandum by Mr. Wolf and Norbert B. Knapke II.

Daniel Wolf is a partner at Kirkland & Ellis focusing on mergers and acquisitions. The following post is based on a Kirkland memorandum by Mr. Wolf and Norbert B. Knapke II.

One of the tougher issues buyers face when engaging in preliminary discussions regarding a potential going-private transaction is whether and when an amendment to required SEC stock ownership disclosures needs to be filed as steps are taken to advance the transaction. Recent settlements between the SEC and officers, directors and major shareholders for failure to update their stock ownership disclosures to reflect material changes—including steps to take a company private—illustrate the importance of careful consideration of these issues when pursuing a going-private transaction.

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SEC Charges Schedule 13D Filers for Untimely Disclosure

David A. Katz is a partner at Wachtell, Lipton, Rosen & Katz specializing in the areas of mergers and acquisitions, corporate governance, and complex securities transactions. This post is based on a Wachtell Lipton memorandum by Mr. Katz and Alison Z. Preiss.

David A. Katz is a partner at Wachtell, Lipton, Rosen & Katz specializing in the areas of mergers and acquisitions, corporate governance, and complex securities transactions. This post is based on a Wachtell Lipton memorandum by Mr. Katz and Alison Z. Preiss.

The Securities and Exchange Commission announced last week that it had charged eight directors, officers and major stockholders for failing to timely disclose steps taken to take their respective companies private in their beneficial ownership reports on Schedule 13D. The orders issued by the SEC indicate the SEC staff became aware of the violations in the course of their review of proxy and Schedule 13E-3 transaction statements, which described the steps taken in the required disclosures regarding the background of the transactions. The orders note that emails and other contemporaneous communications clearly indicate the steps taken that had not been properly disclosed. The orders issued by the SEC (to which the offending parties consented) resulted in cease-and-desist orders and payment of civil penalties.

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Heightened Activist Attacks on Boards of Directors

David A. Katz is a partner at Wachtell, Lipton, Rosen & Katz specializing in the areas of mergers and acquisitions and complex securities transactions. The following post is based on an article by Mr. Katz and Laura A. McIntosh that first appeared in the New York Law Journal; the full article, including footnotes, is available here.

David A. Katz is a partner at Wachtell, Lipton, Rosen & Katz specializing in the areas of mergers and acquisitions and complex securities transactions. The following post is based on an article by Mr. Katz and Laura A. McIntosh that first appeared in the New York Law Journal; the full article, including footnotes, is available here.

This has been called “the heyday of hedge fund activism,” and it is certainly true that today boards of directors must constantly be vigilant to the many and varied ways in which activist investors can approach a target. Commencing a proxy fight long has been an activist tactic, but it is now being used in a different way. Some hedge funds are engaging in proxy fights in order to exercise direct influence or control over the board’s decision-making as opposed to clearing the way for a takeover of the target company or seeking a stock buyback. In some cases, multiple hedge funds acting in parallel purchase enough target shares to hold a voting bloc adequate to elect their director nominees to the board. A recent Delaware case addressed a situation in which a board resisted a threat from hedge funds acting together in this manner. The court determined that a shareholder rights plan, or poison pill, could, in certain circumstances, be an appropriate response. As a general matter, boards of directors facing activist share accumulations and threats of board takeovers can take comfort in this latest affirmation of the respect accorded to an independent board’s informed business judgment.

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Schedule 13D Ten-Day Window and Other Issues: Will the Pershing Square/Valeant Accumulation of a 9.7% Stake in Allergan Lead to Regulatory Action?

Victor Lewkow is a partner at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum by Mr. Lewkow and Christopher Austin that was issued on April 24, 2014.

Victor Lewkow is a partner at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum by Mr. Lewkow and Christopher Austin that was issued on April 24, 2014.

As widely reported, a vehicle formed by Pershing Square and Valeant Pharmaceuticals acquired just under 5% of Allergan’s shares after Allergan apparently rebuffed confidential efforts by Valeant to get Allergan to negotiate a potential acquisition. The Pershing Square/Valeant vehicle then crossed the 5% threshold and nearly doubled its stake (to 9.7%) over the next ten days, at which point it made the required Schedule 13D disclosures regarding the accumulation and Valeant’s plans to publicly propose an acquisition of Allergan. The acquisition program has raised a number of questions.

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Activist Abuses Require SEC Action on Section 13(d) Reporting

Theodore N. Mirvis is a partner in the Litigation Department at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton memorandum by Mr. Mirvis, Andrew R. Brownstein, Adam O. Emmerich, David A. Katz, and David C. Karp. Work from the Program on Corporate Governance about about Section 13(d) and blockholder disclosure includes The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson, Jr., discussed on the forum here.

Theodore N. Mirvis is a partner in the Litigation Department at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton memorandum by Mr. Mirvis, Andrew R. Brownstein, Adam O. Emmerich, David A. Katz, and David C. Karp. Work from the Program on Corporate Governance about about Section 13(d) and blockholder disclosure includes The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson, Jr., discussed on the forum here.

Three years ago we petitioned the SEC to modernize the beneficial ownership reporting rules under Section 13(d) of the Securities Exchange Act of 1934 (see our rulemaking petition, our memos of March 7, 2011, April 15, 2011, March 3, 2008 and our article in the Harvard Business Law Review). Since we filed our petition, activist hedge funds have grown more brazen in exploiting the existing reporting rules to the disadvantage of ordinary investors.

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Canada Proposes Improvements in Early Warning Disclosure, Rights Plans

Theodore N. Mirvis is a partner in the Litigation Department at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton memorandum by Mr. Mirvis, Eric S. Robinson, Adam O. Emmerich, William Savitt and Adam M. Gogolak. Posts regarding the Wachtell Lipton rule-making petition referred to in the post, and Wachtell Lipton’s forthcoming Harvard Business Law Review article on the subject, are available here and here. A post by Lucian Bebchuk and Robert Jackson regarding an article to which the Harvard Business Law Review article responds is available here. Other posts about blockholder disclosure and Schedule 13D are available here.

Theodore N. Mirvis is a partner in the Litigation Department at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton memorandum by Mr. Mirvis, Eric S. Robinson, Adam O. Emmerich, William Savitt and Adam M. Gogolak. Posts regarding the Wachtell Lipton rule-making petition referred to in the post, and Wachtell Lipton’s forthcoming Harvard Business Law Review article on the subject, are available here and here. A post by Lucian Bebchuk and Robert Jackson regarding an article to which the Harvard Business Law Review article responds is available here. Other posts about blockholder disclosure and Schedule 13D are available here.

The Canadian Securities Administrators (CSA) recently proposed changes to Canada’s early warning regime for the disclosure of substantial blockholdings, including to lower the initial reporting trigger to 5% from 10%, to require disclosure no later than the opening of trading on the next business day, and to include equity equivalent derivatives and securities lending arrangements in the ownership calculation. Separately, the CSA proposed a new policy of greater flexibility as to rights plans, including in connection with unsolicited takeover bids. These proposals reflect sensible and necessary improvements to Canadian market regulation, to protect shareholders from the sorts of activist and takeover techniques and abuses that militate for changes in the U.S.’s Section 13(d) rules, and which, in the context of unsolicited takeover bids, the U.S. acceptance of rights plans have largely banished from the U.S.

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Rulemaking Petition Calls for Modernization of Section 13 Reporting Rules

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton, Theodore N. Mirvis, Eric S. Robinson, Adam O. Emmerich, William Savitt, and Adam M. Gogolak.

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton, Theodore N. Mirvis, Eric S. Robinson, Adam O. Emmerich, William Savitt, and Adam M. Gogolak.

NYSE Euronext, the Society of Corporate Secretaries and Governance Professionals and the National Investor Relations Institute have jointly filed a rulemaking petition with the SEC, seeking prompt updating to the reporting rules under Section 13(f) of the Securities Exchange Act of 1934, as well as supporting a more comprehensive study of the beneficial ownership reporting rules under Section 13. The petitioners urge the SEC to shorten the reporting deadline under Rule 13f-1 from 45 days to two business days after the relevant calendar quarter, and also suggests amending Section 13(f) itself to provide for reporting on at least a monthly, rather than quarterly, basis, to correspond with Dodd-Frank’s mandate for at least monthly disclosure of short sales. We applaud the petitioners for urging the SEC to modernize Section 13’s reporting rules, both with respect to Section 13(f) and more generally.

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Don’t Make Poison Pills More Deadly

Editor’s Note: Lucian Bebchuk, professor of law, economics and finance at Harvard Law School, is co-author (with Robert J. Jackson Jr.) of The Law and Economics of Blockholder Disclosure. This post draws on Professor Bebchuk’s New York Times DealBook column Don’t Make Poison Pills More Deadly.

In a column published today on the New York Times DealBook, as part of my column series, I focus on an important but largely overlooked aspect of the SEC’s expected consideration of tightening the 13(d) rules governing blockholder disclosure. The column, titled “Don’t Make Poison Pills More Deadly,” is available here, and it develops an argument I made in a Conference Board debate with Martin Lipton, available here.

The column explains that an unintended and harmful effect of the considered reform may be that it will help companies adopt low-threshold poison pills – arrangements that cap the ownership of outside shareholders at levels like 10 or 15 percent. The SEC, I argue, should be careful to avoid such an outcome in any rules it may adopt.

The SEC is planning to consider a rule-making petition, filed by a prominent corporate law firm, that proposes to reduce the 10-day period, as well as to count derivatives toward the 5 percent threshold. The push for tightening disclosure rules is at least partly driven by the benefits that earlier disclosure would provide for corporate insiders. Supporters of the petition have made it clear that tightening disclosure requirements is intended to alert not only the market but also incumbent boards and executives in order to help them put defenses in place more quickly.

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