McDermott Will & Emery has released the October 2015 issue of Inside M&A, which focuses on current issues surrounding special-purpose acquisition companies. Articles in this issue include:

Overview of SPACs and Latest Trends
A number of recent successful business combination transactions involving special-purpose acquisition companies (SPACs) led by prominent sponsors have driven a resurgence in the SPAC inital public offering (IPO) market and an evolution in some SPAC terms. In this article, we provide an overview of SPACs and discuss the latest trends in SPAC structures and terms.

Creative Business Combination Structures Allow SPACs to Successfully Compete with Non-SPAC Bidders
Certain structural features of SPACs that offer benefits to their public investors often put SPACs at a competitive dis-advantage when they are among multiple bidders for a target company. Recent SPAC business combination transactions demonstrate, however, that careful structuring of a transaction to meet the needs of the target’s owners can overcome these structural challenges and level the playing field for SPACs in a competitive bidding process.

SPAC Directors Cannot Take the Protection of the Business Judgment Rule for Granted
A recent decision by the New York State Supreme Court’s Commercial Division—in AP Services, LLP v. Lobell, et al., No. 651613/12—suggests that certain structural terms of SPACs may make it more challenging for the business judgment rule to apply to decisions by SPAC directors to enter into agreements for business combination transactions.

View the full issue (PDF).

The Corporation Law Section of the Delaware State Bar Association has proposed legislation that will amend the General Corporation Law (DGCL) to allow public companies to opt out of the current requirement to obtain stockholder approval of the back-end merger following a successful tender offer in which the buyer has obtained a majority of the target company’s voting stock.  Traditionally, an accelerated back-end merger was only available if the buyer first obtained 90 percent ownership following a successful tender offer.  In situations where the buyer was unable to achieve this 90 percent threshold, the buyer was required to proceed with the formality of obtaining stockholder approval of the back-end merger, which required the preparation of a proxy statement that would be filed with, and subject to the comments of, the Securities Exchange Commission (SEC) before it could be mailed to the target company’s stockholders in advance of the stockholder meeting to approve the back-end merger.  In addition, if the buyer was using debt financing to acquire the target company’s stock, then this delay between the closing of the tender offer and the stockholder vote approving the back-end merger frequently required the buyer to obtain bridge financing.

Avoiding the cost and delay of such “long form” back-end mergers (and avoiding the need for bridge financing) caused buyers of public companies either (a) to shun the tender offer process entirely or (b) to utilize various tools in an attempt to avoid financing constraints or ensure a faster timetable, such as the use of top-op options, subsequent offer periods under Rule 14d-11, the “Burger King” dual track tender offer/proxy statement structure, stockholder action by written consent, and other creative alternatives.  However, if Delaware adopts proposed Section 251(h) to the DGCL as expected in August 2013, then buyers will be able to acquire Delaware public companies through a tender offer without the need for a “long form” back-end merger or  top-up options, subsequent offer periods or other alternatives.  Specifically, under proposed Section 251(h), a buyer would be able to acquire a Delaware public company (defined as a corporation whose shares are listed on a national securities exchange or held by more than 2,000 stockholders) through a tender offer without stockholder approval of the back-end merger, if the following requirements are satisfied:

  • the merger agreement must expressly state that the back-end merger is governed by Section 251(h) and will be consummated “as soon as practicable” following completion of the tender offer;
  • the buyer must initiate and consummate the tender offer for the target company’s shares otherwise entitled to approve the back-end merger;
  • after the consummation of the tender offer, the buyer must own at least the number of shares of the target company otherwise necessary under the DGCL to approve the back-end merger;
  • at the time the target company’s board approves the merger agreement, no party to the merger agreement is an “interested stockholder” of the target company pursuant to Section 203(c) of the DGCL;
  • the buyer must merge with or into the target company pursuant to the terms of the merger agreement; and
  • the buyer must pay the same consideration at the consummation of the back-end merger as it paid upon consummation of the tender offer.

We believe that this new Section 251(h) will allow buyers to realize the timetable and other benefits of tender offers and will significantly increase the frequency with which tender offers are  used to acquire Delaware public companies.

Where have all the transactions gone?  The first quarter has quietly passed by.  Just a few weeks ago, looking through the pipeline, one could see almost unimpeded to the other side, relatively empty as the bankers say.  But hope exists, as suddenly activity seems to be reemerging.  We call it letter of intent flow (more poetically, LOI Flow).  The beginnings of real transactions.  Concurrently with these beginnings, we launch our inaugural Corporate Deal Source Blog.  And perhaps timing is on our side and we are well positioned to ride the next wave of deal activity from its very beginning.

We set out here to provide commentary, not intended for other lawyers, but for our clients and those we hope will find benefit from becoming our clients.  Our goal is to dialogue as much as one can in the blogosphere and that our followers will help drive our content through comment and suggestion.  The Corporate Deal Source Blog aims to be a professional, yet light-hearted source of pertinent information.  Some posts will be pithy updates of the LOI Flow, announcements and important releases; others will be more comprehensive analysis of meaningful changes in law, pitfalls in transacting globally or recent trends in private equity buyouts.  We will also cover issues affecting family office direct investing, corporate finance, real estate transactions and other topics of interest.  But all well tied with a common theme: deal-making and the people who make them.

With that, we invite you to follow Corporate Deal Source—a must for any true deal-maker.  We promise to excite as much as any band of lawyers possibly can.