The following post comes to us from Phillip R. Mills, partner in the Mergers and Acquisitions Group at Davis Polk & Wardwell LLP, and is based on a Davis Polk client memorandum. Work from the Program on Corporate Governance about bundling includes Bundling and Entrenchment by Lucian Bebchuk and Ehud Kamar, discussed on the Forum here.
The SEC’s Division of Corporation Finance recently released three Compliance and Disclosure Interpretations concerning the SEC’s so-called unbundling rule (Exchange Act Rule 14a-4(a)(3)), which requires proxies to identify clearly and impartially each “separate matter” intended to be acted upon.
Nearly a year ago, in Greenlight Capital, L.P. v. Apple, Inc., a federal court enjoined Apple from bundling four charter amendments into a single proposal. The Apple decision highlighted the lack of clarity in the unbundling rules and the risk that the SEC or an activist shareholder could challenge a company’s presentation of proposals. The new C&DIs provide bright-line guidance for amendments to equity incentive plans but leave other situations to be considered on a facts-and-circumstances basis and, implicitly, to be discussed with the SEC Staff in cases of uncertainty.
Two new concepts will need to be addressed going forward: