M&A 2019 Annual Review

number of the target’s representations might have been inaccurate as of the date of the agreement, the buyer failed to prove that such inaccuracies reasonably would be expected to have a material adverse effect at the time of termination. The court explained that the buyer “will obtain the essence of what it bargained for by closing the transaction.” 4 SHAREHOLDER ACTIVISM DRIVES DIVESTITURES AND OTHER M&A During 2019, activist investors increasingly focused on M&A, with about 47% of all campaigns having an M&A thesis, up from about 35% in prior years. 5 Activists continued to pursue a variety of M&A-related objectives, including outright sales of targeted companies, divestitures and break-ups, and challenges to announced deals, either on the target side through traditional “bumpitrage” demands for a higher price or on the buy side by opposing a proposed acquisition. 2019 also saw: • Convergence of Activism and Private Equity – Activist funds made numerous private equity-like investments, including by partnering with private equity funds on acquisitions. For example, Elliott Management proposed to acquire QEP Resources, and Elliott Management’s private equity arm, Evergreen Coast Capital, partnered with Siris Capital Group to acquire Travelport Worldwide and with Francisco Partners to acquire LogMeIn. • Institutional Investors Using Activist Strategies – Prominent institutional investors turned to activist strategies to oppose M&A transactions they perceived to be unfavorable. Notable examples include Wellington Management’s public challenge to the Bristol-Myers Squibb acquisition of Celgene and T. Rowe Price’s public disclosure that it would vote against Occidental Petroleum’s directors in response to Occidental’s restructuring of its acquisition of Anadarko to avoid a shareholder vote. • Overseas Activity – The proportion of activism aimed at non-U.S. targets continued to increase. Japan was the busiest non-U.S. jurisdiction with campaigns including Elliott Management’s criticism of Unizo’s response to takeover offers and ValueAct’s campaign against Olympus. • SEC Rule-Making with Respect to Proxy Advisors – In August 2019, the U.S. Securities and Exchange Commission (SEC) confirmed its position that proxy voting advice issued by proxy advisors generally constitutes a “solicitation” and accordingly is subject to anti-fraud and other federal proxy rules. 6 The proxy advisory industry objected, and Institutional Shareholder Services (ISS) sued the SEC. In November 2019, the SEC proposed rules that would require proxy advisors, in order to avoid the proxy rules’ filing requirements, to disclose conflicts of interest and to interact with issuers before sharing their advice with their clients. 7 5 NATIONAL SECURITY CONCERNS AND TRADE TENSIONS COMPLICATE DEALS Heightened U.S. national security concerns and trade tensions resulted in new rules being pursued and effected that will impact M&A processes and, moreover, the value of businesses. • Expanded CFIUS Regulations – On January 13, 2020, the Committee on Foreign Investment in the United States (CFIUS) published final regulations that expand the existing “pilot program” to cover, more broadly, foreign investments in U.S. businesses performing critical infrastructure functions – which include more modern security concerns, such as internet protocol networks and exchange points, data centers, and core processing services for federal financial institutions – and collecting sensitive personal data pertaining to U.S. citizens. 8 These rules are substantially similar to the proposed rules CFIUS issued in September 2019. 9 Under the final rule, the principal requirements of the pilot program will be subsumed in the new regulations, rather than remain a standalone regime. “Delaware courts in 2019 reminded parties in emphatic fashion that they will enforce the terms of the parties’ negotiated agreement.” 4