Tagged: Corporate Law

On Notice: FTC Releases Final Changes to Hart-Scott-Rodino Premerger Notification Form

After leaving practitioners and their clients waiting for months with bated breath, the Federal Trade Commission (FTC) recently released its final changes to the Hart-Scott-Rodino (HSR) premerger notification form. The consensus seems to be that the proverbial bark that accompanied the amendments when they were initially published in June 2023 may have been worse than the bite taken by the final rule announced on October 10. Under the HSR Act, transacting parties whose contemplated mergers exceed certain size and dollar thresholds must submit a notification form to the FTC and to the Antitrust Division of the Department of Justice at least 30 days before closing so that those regulators can review the competitive effects of a deal before it is consummated. Most deals proceed to close after the 30-day waiting period with no regulatory action taken, but a small subset garner a “second request” for additional information, and a few of those wind up in litigation with regulators seeking to enjoin the deal because of its potential to harm competition in the relevant market. Proposed amendments to the form – the most far-reaching updates in more than four decades – created a stir when they were published two summers ago. As proposed, the changes worked a significant overhaul, with businesses concerned about what was perceived to...

Corporate Counsel Is Not Your Counsel: Communications Between Shareholders and Corporation Counsel Are Not Necessarily Privileged

You founded, own, and run your company. So, it is natural to assume that your company’s lawyer is your lawyer, right? While the assumption may be natural, the courts are firm in differentiating an attorney’s responsibilities to a corporation versus an individual shareholder. One who disregards this distinction may find that communications believed to be confidential and privileged are subject to discovery in later litigation. “A lawyer employed or retained to represent an organization represents the organization as distinct from its directors, officers, employees, members, shareholders or other constituents.” NJRPC 1.13(a). Shareholders of a closely held corporation are no exception to this rule and are not entitled to any presumption of privilege distinct from the corporate entity. The New Jersey Appellate Division recently emphasized this point in Royzenshteyn v. Pathak, where two shareholder-owners of a closely held corporation unsuccessfully appealed a trial court order that compelled production of allegedly privileged communications between the plaintiffs and corporate counsel. In Royzenshteyn, the plaintiffs retained corporate counsel for a transaction that transferred majority ownership of their corporation to the defendants. That transaction was completed in 2015. Soon thereafter, the parties’ relationship soured, and, in 2018, the plaintiffs retained new counsel to file a lawsuit that challenged the 2015 transaction. During discovery, the plaintiffs asserted attorney-client privilege over communications...

The Tip of the Iceberg? Recent Developments in Merger Enforcement

Ten months into the Biden Administration, the President’s choice to lead the Antitrust Division of the Department of Justice (DOJ), former Federal Trade Commission (FTC) attorney and antitrust law practitioner Jonathan Kanter, has received Senate confirmation by a vote of 68-29. Time will tell whether Assistant Attorney General Kanter’s reputation in the legal community as an advocate for vigorous antitrust enforcement spills over into his new role, as many expect it will. In the meantime, recent developments on the merger enforcement front signal tighter oversight and will almost certainly impact merger review going forward. The first change implicates the 30-day waiting period that begins to run when parties to a reportable transaction notify the FTC and DOJ of their intended merger, as required by the Hart-Scott-Rodino (HSR) Act. It used to be that parties could request so-called early termination of the waiting period, which on occasion the Government would grant if it was clear the merger did not trigger anti-competitive concerns, thereby obviating the need for further review. But that all changed in February, when the FTC announced it was suspending the practice of early termination, citing the transition to the new Administration and the unprecedented volume of HSR filings for the start of a fiscal year. What was initially termed a temporary suspension has...

DOJ Updates Merger Remedies Manual

On September 3, 2020, two months after releasing the long-awaited Vertical Merger Guidelines, the Antitrust Division of the U.S. Department of Justice issued an update to its 2004 Policy Guide to Merger Remedies. The focus of the updated (and newly titled) Merger Remedies Manual is on structuring and enforcing remedies, short of full-stop injunctions, designed to cure competitive harms caused by mergers – both horizontal and vertical – that would lessen competition if left unchecked. The Manual begins with a set of guiding principles, among them that remedies should preserve premerger competition, but not create ongoing government regulation of the market; temporary relief should not be used to redress persistent competitive harm; the merging entities, not consumers, should bear the risk of a failed remedy; and a remedy must be enforceable to be effective. From these first principles flow two basic tenets of remedies in merger cases: first, that divestitures (so-called structural remedies) are preferable to conduct remedies aimed at regulating the merged firm’s post-merger operations, which are rarely appropriate, and, second, that settlements designed to rectify competitive harm (so-called consent decrees) must be clear, fully implemented, and strictly complied with. To this end, entire sections of the Manual address various aspects of divestitures: from the characteristics of an acceptable third-party buyer, to the ideal...

DOJ and FTC Issue Final Vertical Merger Guidelines

On June 30, 2020, the Department of Justice (DOJ) and the Federal Trade Commission (FTC) finalized their much-anticipated Vertical Merger Guidelines. The new Guidelines, which were last updated in 1984, seek to increase transparency around the analytical techniques, practices, and enforcement policies that U.S. antitrust authorities use to regulate mergers between firms at different stages of the supply chain (e.g., a furniture maker that acquires a producer of timber). Vertical mergers generally raise fewer anticompetitive concerns than horizontal mergers between direct competitors. This, in part, is because consolidation along the supply chain tends to result in lower prices, as distributors and finished goods manufacturers can source inputs at cost rather than at the markup they would pay to a third-party supplier. But, as the Guidelines make clear, vertical mergers “are not invariably innocuous”: a merged firm could raise the price for – and even withhold – a necessary input from its rivals or exploit sensitive business information about rivals that it obtains as part of the merger. These so-called unilateral effects threaten harm to competition in the relevant market if rivals wind up abandoning the market, leaving consumers with higher prices and less innovation as a result. Per the Guidelines, DOJ and FTC evaluate the extent to which a vertical merger will raise rivals’ costs...

DOJ Updates Corporate Compliance Program Evaluation Guidelines to Invite the Practice of Continuous and Evolving Improvements Through Data Analysis

The Department of Justice (DOJ) recently updated its Evaluation of Corporate Compliance Programs guidelines, which federal prosecutors consider when making decisions to prosecute corporate compliance violations, impose monetary penalties, and require future compliance commitments. The guidelines highlight what prosecutors should deem relevant in evaluating a corporate compliance program, both at the time of the offense(s) and at the time of the charging decision and resolution. In turn, the guidelines serve as a roadmap for corporate compliance and control personnel in designing a corporate compliance program, allocating resources to the program, evaluating the efficacy of the program in practice, and redesigning the program as needed on a regular basis. The updates make clear that the DOJ is interested in the continuous evaluation and evolution of corporate compliance programs, and that prosecutors will now be examining whether and how a compliance program incorporates data analytics. As before, the guidelines instruct federal prosecutors to ask three questions, though now slightly revised as follows: Is the compliance program well designed? Is the program adequately resourced and empowered to function effectively? Does the program work in practice? A welcome addition to the guidelines is a stated recognition that the circumstances of the company, e.g., size, industry, geographic footprint, regulatory landscape, etc., are relevant to prosecutors’ analysis. The guidelines also suggest...

NJ Supreme Court Narrowly Construes Shareholder’s Right to Inspection of Corporate Records

In R.A. Feuer v. Merck & Co., Inc., the New Jersey Supreme Court affirmed the Appellate Division’s narrow construction of the scope of a shareholder’s right to inspect a corporation’s records under N.J.S.A. 14A:5-28 and the common law. In the underlying case, a Merck & Co, Inc. shareholder sought documents in order to elicit evidence that Merck acted wrongfully in its acquisition of another pharmaceutical firm. Merck appointed a “Working Group” to respond to the shareholder’s demand, which rejected the shareholder’s request for documents relating to the acquisition. Following this rejection, the shareholder sought twelve broad categories of corporate documents, including documents pertaining to the Working Group’s activities, communications, and formation; documents provided to the board regarding the target pharmaceutical firm and two of its drugs; and the board’s consideration of the shareholder’s demands and the Working Group’s recommendation. Merck disclosed pertinent minutes of the board and of the Working Group, but denied the remainder of the shareholder’s demand. The shareholder sued Merck, alleging entitlement to the documents under N.J.S.A. 14A:5-28(4), which permits a shareholder to compel the corporation to produce its “books and records of account, minutes, and record of shareholders,” and the common law. The trial court denied the shareholder’s request and the Appellate Division affirmed. In a per curiam decision, the New...

Delaware Supreme Court Orders Production of Emails in Response to Section 220 Demand and Refuses to Restrict Knock-On Litigation to Delaware

In KT4 Partners LLC v. Palantir Technologies Inc., the Delaware Supreme Court required a corporation to produce emails in response to a “books and records” demand under 8 Del. C. §220; it also refused to limit any knock-on litigation on the merits to the Delaware Court of Chancery. KT4 is a stockholder in Palantir and received certain rights under a series of Investor Rights Agreements and a First Refusal and Co-Sale Agreement. After a falling out between KT4 and Palantir’s management, Palantir amended the Investor Rights Agreement in ways detrimental to KT4. KT4 responded with a request to inspect Palantir’s “books and records” pursuant to 8 Del. C. §220, which entitles a stockholder to inspect a corporation’s “books and records” if, and to the extent that, the requested inspection “is for a proper purpose.” Palantir refused to comply, and KT4 filed a §220 action in the Delaware Court of Chancery to compel production of the requested documents. The Court of Chancery ruled that KT4 had a statutory “proper purpose” of investigating three areas of potential corporate wrongdoing: 1) Palantir’s failure to hold stockholder meetings, 2) Palantir’s amendment of the Investor Rights Agreement, and 3) Palantir’s potential breach of the Investor Rights and Co-Sale Agreements. The Court of Chancery further held that KT4 was “entitled to...

Delaware Chancery Court Rejects Appraisal Rights for Stockholders Who Relinquish Control of their Corporation Through Merger Involving a Special Merger Subsidiary

Delaware law generally grants appraisal rights to shareholders of corporations involved in statutory mergers or consolidations. But, what are the rights of shareholders when control of their corporation is relinquished through a merger between a specially-created merger subsidiary and another corporation? According to Chancellor Bouchard’s recent opinion, the shareholders have no appraisal rights because they do not own shares in a “constituent corporation in the merger.” Chancellor Bouchard also found that the shareholders are not entitled to appraisal rights because they will retain their shares in the parent corporation in the contemplated transaction. Dr. Pepper Snapple Group, Inc., a publicly-traded corporation, and Keurig Green Mountain, Inc., a privately-held corporation, wanted to combine their businesses. They therefore agreed to a so-called reverse triangular merger, pursuant to which (1) Dr. Pepper will create a new subsidiary, (2) that subsidiary will be merged into Keurig’s owner, Maple Parent Holdings Corp., and (3) Maple Parent will become a wholly-owned subsidiary of Dr. Pepper. In addition, Maple Parent will pay a $9 billion dividend to Dr. Pepper and receive enough shares in Dr. Pepper to give it a controlling 87% share of Dr. Pepper’s common stock. Maple Parent’s $9 billion payment to Dr. Pepper will then be used to help finance special cash dividends of $103.75 per share to Dr....

Access Denied: NJ Appellate Division Clarifies Shareholder’s Right to Inspection of Corporate Records

In R.A. Feuer v. Merck & Co., Inc., the New Jersey Appellate Division, in a to-be-published opinion, narrowly construed the scope of a shareholder’s right to inspect a corporation’s records under N.J.S.A. 14A:5-28 and the common law. A Merck & Co, Inc. shareholder appealed from the dismissal of his complaint seeking various corporate records, including twelve broad categories of documents. The shareholder sought evidence that Merck acted wrongfully in its acquisition of another pharmaceutical firm. After Merck appointed a working group to assess the shareholder’s concerns, the shareholder requested documents pertaining generally to the working group’s activities, communications, and formation; documents provided to the board regarding the target pharmaceutical firm and two of its drugs; and the board’s considerations of the shareholder’s demands and the working group’s recommendation. Merck disclosed pertinent minutes of the board and of the working group, but denied the remainder of the shareholder’s demand. The trial court determined that the shareholder’s demand exceeded the scope of the “books and records of account, minutes, and record of shareholders,” which the shareholder had a statutory right to inspect and that the common law did not expand that statutory right. The Appellate Division affirmed, narrowly construing the plain language of N.J.S.A. 14A:5-28(4). According to the court, “minutes” refers to “shareholder, board, and executive committee...