M&A 2018 Annual Review

added urgency to discussions of the possibility of Congress adopting a federal data privacy law. 11 • Increasing Numbers of Data- Driven Business Models . The growing focus on privacy and data protection in M&A deals is driven not only by changes in laws, but also by the growing importance of data-driven business models. When a target’s business model is fueled by user data, privacy and data protection are integral to the risks and rewards of the deal. 12 As the risks and requirements grew, and the portion of businesses that were implicated expanded, buyers expanded their due diligence investigations. Buyers have also taken care to conduct diligence in compliance with the new rules and exercised additional caution in requesting and handling personal information. In acquisition agreements, buyers have expanded reps and warranties and, in some cases, specific indemnities. For the longer term, buyers have also increased their attention on data- related integration issues. 7 SHAREHOLDER ACTIVISM DRIVES M&A AND AFFECTS STRATEGIES Activist campaigns hit a record pace in 2018, with 226 companies targeted by shareholder activists, up from 188 in 2017. 13 The U.S. remained the focus, but activism also expanded abroad, particularly in Europe and Asia Pacific. Activist M&A Goals M&A is typically one of the most commonly announced objectives for activists, occurring with about the same frequency as demand for board changes. Activists also push for other M&A-related objectives, such as divestitures, and other capital allocation steps, such as dividends and buybacks. • The most common objective is to push the targeted company to sell, accounting for more than 41% of M&A-related campaigns in 2018. For example, TV-ratings producer Nielsen Holdings reportedly 14 faced an activist campaign in the summer of 2018 from Elliott Management, which had accumulated an 8% stake and was encouraging a full company sale. At the beginning of 2019, Starboard Value announced that it had accumulated a 1.7% stake in Dollar Tree and suggested that it consider a sale or other strategic alternative for the Family Dollar business acquired in 2015. • Challenging, or seeking to change the terms of, announced deals is also a common theme, involving about 30% of M&A-driven campaigns in 2018. Such is the case with Alps Electric’s proposed acquisition of Alpine Electronics, a deal that involved both Elliott Management and Hong Kong-based Oasis Management. The number of activists has also continued to grow. 131 activists were responsible for campaigns in 2018, up from 108 in 2017. 15 Despite that growth, a small number of activists accounted for a large percentage of activity, with Elliott Management alone accounting for 9% of campaigns. Board Duties Boards contending with activists in an M&A setting need to keep in mind their legal duties within the company’s overall context, as well as the demands of activists and the apparent wishes of their shareholders. Courts have generally been reluctant to apply greater scrutiny to board decisions merely because they are made under threat of a proxy contest, but when combined with other facts relevant to the company, or to the sales process, other shareholders may complain that directors have failed to comply with their duties to make their own decisions. 16 8 PROPER DEAL PROCESSES SUPPORT RELIANCE ON DEAL PRICE Delaware courts in 2018 continued the trend in appraisal cases toward reliance on the negotiated deal price as an indicator of a target company’s fair value. This bodes well for buyers whose transactions fit within the requirements for such reliance. The Delaware Supreme Court has refrained from setting a “bright line” rule requiring reliance on deal price. However, in its 2017 decisions in DFC and Dell , 17 it emphasized that a deal price set through “an open process, informed by robust public information, and easy access to deeper, non-public information” “deserved heavy, if not dispositive weight.” Deals that do not follow such a process, particularly where significant conflicts are involved, on the other hand, could end up with the court calculating a different fair value. The trend seems to be playing out in the incidence of appraisal litigation as well: In 2017, the number of appraisal cases filed in Delaware AS THE RISKS AND REQUIREMENTS GREW, AND THE PORTION OF BUSINESSES THAT WERE IMPLICATED EXPANDED, BUYERS EXPANDED THEIR DILIGENCE INVESTIGATIONS. 5 MORRISON & FOERSTER 2018 M&A ANNUAL REVIEW