The Justice Department’s antitrust division has prevailed in its first trial opposing a merger since its defeat by Bay Area giant Oracle in 2004. In an order issued on October 31, D.C. District Court Judge Beryl Howell granted the government’s motion to enjoin H&R Block’s $287.5 million acquisition of 2SS Holdings Inc., the maker of TaxAct, a popular do-it-yourself (“DIY”) software program.
Three Is The Magic Number: District Court Preserves Tax-Prep Triumvirate, Permanently Enjoins H&R Block Merger
Seasoning Requirements: Regulating Chinese Companies And Reverse Mergers
On October 26th the SEC closed debate on a proposal to adopt “seasoning” requirements for companies listed on public exchanges, such as NASDAQ and NYSE. The proposed seasoning requirements aim to protect investors from a rash of accounting scandals perpetrated by companies that have avoided normal reporting and auditing requirements through the strategic use of reverse mergers. Many of the companies that have been engaging in reverse mergers and perpetrating these accounting scandals have been based in China, which have caused US investors to flee from Chinese equities.
“Poison Pills” a Plausible Legal Solution for Dealing with External Activist Investors in Proposed Mergers/Acquisitions
It’s not uncommon for one or a few investors to acquire a large stake in a publicly-traded company in order to either force through or interfere with a proposed merger/acquisition. These investors can, on the one hand, engage in “vote no” campaigns, which can lead to large pay-outs (in the form of better terms for the deal) as well as temporary increases in the stock price of the company, but it can also prevent otherwise beneficial and profitable deals from occurring.Today some companies are requiring potential targets to adopt “poison pills” in order to prevent such hold-ups. Case in point: Dell, which insisted that Compellant Technologies implement a poison pill provision before entering into a merger agreement with the company.
There are limits on the legal efficacy awarded to these provisions. Latham & Watkins recently issued a client alert highlighting the generally recognized legal limits of poison pill provisions under Delaware state law by reviewing several recent cases.The limits are centered around the existence of a reasonable threat and whether the challenged provision was a proportional response that did not sacrifice the exercise of the franchise by stockholders.One solution that exists to satisfy the last provision (exercise of the franchise) is to require stockholder approval before a poison pill provision kicks in (known as a “chewable pill”).