2020 M&A Annual Review

of M&A-focused campaigns, with 50% of all campaigns having an M&A objective. 7 2020 also saw: • Proliferation of Poison Pills. The collapse in equity values that occurred during the first few months of the pandemic made public companies more vulnerable to opportunistic acquisition and activist strategies. In response, companies increasingly adopted shareholder rights plans (aka “poison pills”) as protective measures. From March through July, 53 such plans were adopted, compared to just 23 in all of 2019. 8 We also saw companies preparing “on the shelf” plans (i.e., preparing to adopt, but not implementing, a draft plan) so they can act quickly in the event a specific threat materializes. Since equity values for many have normalized to pre-pandemic levels, the rate of plan adoptions has decreased, but companies remain on guard. • Continued Convergence of PE and Shareholder Activism. The convergence of private equity and shareholder activism continued. On the one hand, PE firms continued to use more aggressive, activist strategies, such as making minority investments in public companies to force a dialogue with management. For example, PE firm New Mountain nominated three directors to the board of Virtusa, and Elliott and PE firm Veritas Capital reportedly partnered in a joint bid for Cubic Corp. On the other hand, activist investors continued to use traditional private equity strategies, such as investing through PIPEs and forming SPACs. Examples include Elliott Capital Advisors’ proposed acquisition of Aryzta AG and Pershing Square’s SPAC, which raised $4 billion—a record SPAC. • Proposed Rule Changes May Facilitate Activism. » In September, the FTC proposed to exempt acquisitions from HSR reporting where the acquiror would not own more than 10% of the issuer’s stock (regardless of value) and does not have a competitively significant relationship with the issuer. 9 The proposal would eliminate the $94 million HSR filing trigger that serves as an early warning system for mid- and large-cap issuers, as such accumulations often trigger the current HSR filing threshold before hitting the Schedule 13D disclosure threshold (i.e., 5% of an issuer’s stock). » In July, the SEC proposed to amend Form 13F to raise the reporting threshold for investment managers to $3.5 billion from the current $100 million. The SEC expects the amendment would eliminate Form 13F filings for nearly 90% of current filers, including many activist investors and hedge funds. CFIUS JURISDICTION AND NATIONAL SECURITY ACTIONS EXPAND 7 Governments responded to the pandemic by shutting down national borders on a global scale. Governments also became more concerned with supply chains and sustainability, with particular focus on medical supplies. Even as cross-border M&A volume fell, governments focused on national security issues related to foreign investments. CFIUS. The U.S. continued to implement the legislative expansion of authority of the Committee on Foreign Investments in the U.S. (CFIUS). • Authority Over Non-Control Investments. In addition to its traditional authority to review the acquisition by a foreign person of “control” of a U.S. business, CFIUS now can review non-control investments, if (1) the U.S. business develops “critical technologies,” functions as “critical infrastructure,” or collects or maintains “sensitive personal information” (referred to collectively as a “TID U.S. business”) and (2) the foreign investor obtains access to “material nonpublic technical information,” board membership, observer rights, or involvement in substantive decision-making regarding the TID assets. The expanded CFIUS jurisdiction also covers the acquisition of certain real property that is in “close proximity” to certain sensitive U.S. military facilities. • Mandatory Filings. In the past, parties could decide whether to submit a transaction for CFIUS review, though covered transactions not reviewed by CFIUS remained subject to CFIUS review and action after closing. Now, parties must file in advance with CFIUS for a covered transaction concerning (1) a U.S. business that develops critical technology that is subject to export controls or (2) the acquisition of a 25% or greater interest in a TID U.S. business by a 49% foreign government-owned entity, unless the foreign investor is from Australia, Canada, or MORRISON & FOERSTER 2020 M&A ANNUAL REVIEW 7