Mergers & Acquisitions

Why Divisive Mergers Are Gaining Popularity and How They Can Be Structured to Mitigate Risk

Although spin-offs and asset sales are the traditional means of separating business lines, divisive mergers provide an attractive option for companies looking to achieve contractual continuity and a clean separation of assets and liabilities. A divisive merger is a statutory mechanism that divides a company’s assets, liabilities and operations among two or more recipient entities, functioning in the reverse direction of a traditional merger. A key advantage is that divisive mergers allow complex businesses to avoid individually assigning each contract and obligation as required in traditional asset sales. However, this flexibility comes with unique risks of fraudulent transfer challenges and remedies.

Certain states, including Texas and Delaware, have statutory schemes that allow for divisive mergers. Texas first codified divisive mergers by broadening its definition of “merger” to include the division of one domestic entity into two or more organizations.[1] Under Texas law, all types of corporate entities (including corporations, partnerships and limited liability companies) may undergo a divisive merger, and the resulting entities may take any corporate form, even one different from that of the original entity.[2] Delaware, by contrast, allows only limited liability companies, limited partnerships and limited liability limited partnerships to effect divisive mergers, and the resulting entities must be of the same form as the original dividing entity.[3] Corporate entities may first undergo a change of corporate form in order to take advantage of the Delaware divisive merger statutes. In both states, divisive mergers are not considered assignments of assets or liabilities, potentially allowing companies to avoid triggering anti-assignment provisions,[4] reduce transaction costs and bypass third-party waivers or consents.

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Key Takeaways:

• The U.S. Food and Drug Administration and Securities and Exchange Commission recently announced a new three-year Memorandum of Understanding (“MOU”) establishing a formal framework for the agencies to exchange nonpublic information concerning FDA-regulated products, activities and companies.
• For pharmaceutical, biotechnology and medical-device companies that are publicly traded or otherwise are SEC-reporting companies, the MOU could have significant implications for disclosures concerning clinical trials, FDA interactions, product approvals, manufacturing and inspection developments, and other regulatory matters that may be material to investors.
• Although the MOU does not change the securities-law disclosure standard, it likely makes it easier for SEC staff to test a company’s account of an FDA interaction against FDA’s own contemporaneous record.

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Significant stockholders of Delaware corporations may negotiate for the right to designate one or more directors of their choosing to the board. While such a designation right may be extremely valuable, several recent Delaware Chancery Court opinions highlight the risks of personal liability for the designated directors and the stockholders who appoint them. This Legal Update provides guidance on how designated directors and stockholders can navigate these risks, particularly in light of the 2025 amendments to Delaware General Corporation Law (DGCL) §144.

Background and Key Principles

Fiduciary Duties of Designated Directors: Directors appointed by a specific stockholder or a class of stockholders are often referred to as “constituency directors,” “designated directors,” or “blockholder directors,” among other terms. The right to appoint such directors might appear in the certificate of incorporation or in a separate governance agreement. [1] A company might grant director designation rights to its venture capital, private equity, or strategic investors, as well as to stockholders as part of a shareholder activist proxy contest settlement. Often, the designated directors are principals, officers, or employees of the appointing stockholder; however, they can also be individuals independent of both the corporation and the appointing stockholder.

Holders of designation rights might hold the mistaken belief that a designated director is intended to serve as their representative, who in addition to providing information and monitoring corporate developments, should vote in their interests. In reality, Delaware courts have long held that a designated director owes fiduciary duties of care and loyalty to the corporation and all the stockholders and not to any subset of stockholders, including the stockholders that appointed the director. Specifically, directors owe fiduciary duties to “the stockholders in the aggregate in their capacity as residual claimants, which means the undifferentiated equity as a collective, without regard to any special rights.” [2] In other words, a director’s duties run to “the entity and the entire body of stockholders generally rather than to individual stockholders or stockholder subgroups.”[3]

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This report examines forced CEO departures in the Russell 3000 and S&P 500 from 2024 through August 2026, focusing on differences by index, business sector, company size, and the circumstances driving board-initiated leadership changes.

Trusted Insights for What’s Ahead®

• Roughly 1 in 7 CEO succession cases were forced in both 2024 and 2025. The Russell 3000 recorded 49 forced departures in 2024 and 55 in 2025, while the S&P 500 increased from seven to 10; in 2026 so far, forced departures account for a smaller share of CEO succession cases than the prior two years.
• While there is no single industry profile for forced CEO turnover, health care accounts for the largest share so far in 2026. The sector represents 35% of all Russell 3000 forced departures year to date, after consumer discretionary recorded the highest number of forced departures in 2025.
• Company size was not a consistent predictor of forced CEO turnover. Elevated rates appeared across the revenue spectrum, suggesting succession risk is driven more by company-specific performance and strategic circumstances than by scale alone.
• Underperformance became a more prominent driver of forced departures in 2025. It rose from 31% of Russell 3000 forced departures in 2024 to 44% in 2025 and remains the largest reason category through August 2026.
• Activist pressure was a notable factor among S&P 500 forced departures. It accounted for eight of 19 departures across the period, reinforcing the importance of boards independently testing strategy, capital allocation, and leadership effectiveness before external pressure forces the issue.
• Successfully navigating potential forced departures requires proactive management. Boards can focus on establishing the criteria for when underperformance becomes a leadership issue, regular maintenance of their succession plan, and reaching out to shareholders to keep abreast of possible concerns or issues.

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Today, the Commission proposes to rescind Rule 14a-8, which leaves determination about whether a shareholder proposal may be properly placed on a proxy statement to the states, companies, and shareholders. The Commission also proposes to amend Rule 14a-4 to expand the circumstances under which a company may exercise discretionary voting authority on certain proposals.[1] Lastly, the Commission proposes amendments that would modernize certain rules related to proxy solicitations.[2]

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On August 24, sixteen Republican state attorneys general (AGs) sent a 38-page letter to the chief executives of Deloitte, EY, KPMG and PwC, copying the SEC’s Chairman and its Director of Enforcement. The AGs allege that the firms compromised their professional independence by publicly supporting climate-related disclosure, and end with thirty-eight demands for documents.

We come at this from opposite political directions and agree on the following. This letter continues the effort to pressure participants across the financial markets to ignore the potential financial implications of climate risks. Like the July 2025 State Financial Officers Foundation’s letter to asset managers regarding ESG, to which we responded in Here We Go Again: Red States Continue to Focus on ESG, it sets a dangerous precedent for all sides.  In this shot at accounting firms, the AGs ask the wrong questions, misunderstand the standards that purportedly support their claims, and insinuate conflicts with no factual evidence. Regardless of one’s views on climate disclosure, targeting groups of professionals in this manner can distort the functioning of free markets and have unintended consequences. Indeed, once unleashed, misfires can ricochet.

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The basic objectives of executive pay have been the same since the rise of large corporations in the late 19th century. Shareholders want to give managers strong incentives to increase shareholder value while retaining key talent and limiting shareholder cost. Today, it’s widely accepted that these three objectives can be achieved by managing two dimensions of executive pay: the percent of pay at risk and the company’s target pay percentile.

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Introduction

Since the launch of ChatGPT in late 2022, AI has rapidly evolved from a breakthrough technology into a core driver of business transformation. The pace of change has been rapid, and companies are now moving beyond experimentation to redesign how work gets done across products and services, decision-making, operations, and the workforce itself. As with other major technology shifts, the long-term impact will depend less on the tools themselves and more on how efficiently companies redesign the business around them.

A company’s success with AI will likely depend on clear strategic choices, disciplined investment, workforce and operating model change, and the ability to scale adoption for competitive advantage. It will also depend on building trust through effective risk management, strong governance, and responsible use.

As technology advances and becomes more accessible, companies face dynamic and evolving transformation. AI strategies may need to adapt over time, requiring ongoing reassessment of priorities and investments. History shows that we often misjudge technological change, overestimating short-term breakthroughs while overlooking its deeper, long-term impact. AI is no exception.

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In Berger v. Fox (“Envestnet”) (July 21, 2026), the Delaware Court of Chancery dismissed a suit challenging the $4.5 billion stockholder-approved take-private merger (the “Merger”) of Envestnet, Inc. (the “Company”) with affiliates of a private equity firm (the “Buyer”). The Plaintiffs claimed that the Company’s directors breached their fiduciary duties by (i) engaging a financial advisor (the “Financial Advisor”) that they knew was conflicted due to its extensive business relationships with the Buyer, and (ii) then permitting the Financial Advisor to steer the sale to the Buyer and away from two higher, unsolicited competing bids. They also claimed that the Financial Advisor aided and abetted the directors’ breaches. The Merger price was near the bottom of the Financial Advisor’s discounted cash flow valuation range for the Company and represented a 4.8% discount to the 52-week share price high.

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This post is the second part of D.F. King’s 2026 Proxy Season debriefing report. See here the first part on Shareholder Proposals and here for the second part on Trending Proposal Topics.

In May 2026, the SEC proposed sweeping changes to the public company reporting framework that, if adopted, would significantly reduce disclosure and compliance obligations for a substantial portion of U.S. public companies. The proposal would simplify the current filer-status structure, increase the threshold for large accelerated filer status from $700 million to $2 billion of public float, and provide a broader group of companies with access to disclosure accommodations currently available only to smaller reporting companies and emerging growth companies. SEC Chair Paul Atkins stated that the objective of the proposal is to encourage companies to access and remain in the public markets by reducing regulatory burdens and creating greater certainty regarding reporting obligations.

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Boards are routinely assessed with tools that cannot answer the question that matters most: whether a given director’s accumulated professional experience fits the strategic needs of the specific company on whose board that director sits. This post describes a new method that uses contextualized word embeddings to measure such fit directly, and applies it to Elliott Investment Management’s 2026 campaign at Norwegian Cruise Line Holdings. The analysis finds that NCLH’s pre-campaign board was less aligned with its own strategic identity than the boards of its closest peers, that its directors were unusually similar to one another, and that the post-settlement board narrowed both gaps. With this method, directors and investors can build better boards.

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Amidst growing federal and state scrutiny of proxy advisory firms, the U.S. Department of Justice’s Antitrust Division (the “Division”) recently entered the fray. On August 5, 2026, the Division withdrew its 1987 business review letter (the “Letter”) to proxy advisory firm Institutional Shareholder Services Inc. (ISS), stating that the Letter no longer reflects ISS’s current business practices and citing concerns about concentration among proxy advisors.

The Division’s decision to withdraw the Letter is not an enforcement action or a finding that ISS violated the antitrust laws. In fact, the Division emphasized that proxy advising is not inherently problematic and that voting based on a proxy advisor’s recommendation does not by itself raise competition concerns. However, the Division’s decision signals that proxy advisors like ISS, and perhaps the broader asset management industry, may face increased scrutiny, especially during next year’s proxy season.

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In In re Boeing (Aug. 14, 2026), the Delaware Court of Chancery, at the pleading stage of litigation, dismissed Caremark claims brought against directors and officers of The Boeing Company (the “Company”) after alleged manufacturing process defects led to a dramatic, mid-flight mechanical failure of a Boeing airplane, which followed two earlier catastrophic accidents due to alleged manufacturing defects in Boeing airplanes. The allegations included years-long, ongoing violations by the Company of manufacturing safety laws and regulations.

In two separate incidents in 2018 and 2019, a Boeing MAX 737 airplane crashed in mid-flight—resulting in hundreds of lives lost; the Company paying billions of dollars in fines and settlements; and the Company committing to regulators, the U.S. Department of Justice and stockholders to revamp its safety systems and culture. The recent incident occurred in 2024—when a Boeing MAX-9 737 airplane reached 15,000 feet, the mid-cabin door plug flew off, leaving a gaping hole in the airplane. The airplane made a safe emergency landing, and eight people sustained minor injuries. The Plaintiffs sued, claiming that Company directors and officers breached their oversight duties under Caremark by having ignored in bad faith numerous “red flags” of the Company’s continued airplane manufacturing safety issues. The court dismissed the case, holding that the Defendants did not face a substantial likelihood of liability under Caremark, and therefore demand on the Company’s board of directors (the “Board”) to bring the derivative lawsuit was not excused.

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KEY TAKEAWAYS

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This post is the second part of D.F. King’s 2026 Proxy Season debriefing report. See here the first part on Shareholder Proposals.

‘Anti-ESG’ Proposals

This year, the ‘anti-ESG’ movement remained a fixture in the shareholder proposal space, remaining in the upper half of our ‘top proposals’ lists. However, the number of proposals decreased meaningfully and average support levels for these proposals remain in the single digits.

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On August 14, 2026, the SEC’s Division of Corporation Finance updated its statement on how it handles Rule 14a-8 shareholder proposals. The Division will now stop responding to shareholder proposal related no-action requests of any kind, and it will no longer issue “no-objection” letters in response to a company’s representation that it has a reasonable basis to exclude. The change is effective immediately and extends the modified process the Division rolled out last November, which we covered here.

For the coming proxy season, this reads as a slightly modified continuation of last season’s approach. The underlying rule has not changed, so a company weighing an exclusion is faced with the same set of exclusions it always has. The main practical difference is that companies will need to analyze the applicability of exclusions without expectation of a response from the Division; including a reasonable-basis representation will no longer elicit a no-objection response. Companies will still be required to submit an explanation of why the company believes that it may exclude a proposal. The statement has no end date and applies “unless and until the Division announces otherwise,” so we expect this to be the status quo until the SEC completes its planned Rule 14a-8 rulemaking, unless pending litigation against the SEC over last season’s process revision forces a change sooner.

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Introduction

The 2026 U.S. proxy season marked another period of significant change in shareholder proposal activity. While environmental and social (E&S) proposal volumes continued to decline sharply, governance-related proposals proved more resilient, increasing modestly from the prior year and accounting for a larger share of overall shareholder-sponsored resolutions. These developments unfolded against an evolving regulatory backdrop following changes to the SEC staff’s approach to shareholder proposal exclusions, as well as a broader reassessment of stewardship priorities by both proponents and investors. Voting outcomes suggest that shareholders remain willing to support proposals linked to established governance principles, while support for most E&S proposals remains well below their early 2020s peak despite signs of stabilization in certain issue areas. Together, these trends provide insight into how many investors are calibrating their issuer engagement and voting approaches amid changing market, regulatory, and political dynamics.

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The choice of state of incorporation used to be handled quietly at formation or IPO and rarely revisited. Even as a handful of high-profile companies and commentators began questioning Delaware’s judge-made law and domicile dominance in 2024, it was unclear whether the sentiment would be temporary or make corporate domicile a more consequential decision.

For now, the latter appears more likely. In the past two years, 50+ public companies have reincorporated out of Delaware, while the First State’s share of the IPO market dropped from 81% in 2024 to “nearly 70%” in 2025. More recently, certain prominent companies have chosen Texas as their state of incorporation and are using the state’s statutory tools to tailor stockholder rights. Although very few widely held large-cap public companies have moved out of Delaware, the trend is more pronounced among founder-led companies or companies with large influential shareholders. The topic is drawing attention in proxy statements, academic journals and the financial press.

Once a company is public and widely held, reincorporation becomes much tricker, as proxy advisory firms have generally opposed moves to Nevada and Texas, and large institutional shareholders have also often opposed reincorporations, resulting in difficult shareholder votes for noncontrolled companies. For a founder-led technology company, where to incorporate is a strategic governance decision. This post offers factors to help companies and their advisors evaluate three prominent options: Delaware, Nevada and Texas. Contact your Cooley counsel to apply these factors to your company’s circumstances.

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