14 Morrison Foerster In 2023, shareholder activists continued to press M&Arelated theses, along with more general board and governance initiatives. Shareholder activism related to M&A may increase in 2024 as the M&A market strengthens. Activists press for, or complicate, M&A efforts by companies. Activists continued to pressure boards to sell companies, in whole or, increasingly (perhaps reflecting the weaker M&A market), in part (via a spinoff or divestiture). Activists also opposed announced transactions, often on the buy-side, by criticizing an announced transaction as too expensive (such as Ancora’s opposition to Forward Air’s acquisition of Omni), but also on the sell-side, by questioning the process or the price (such as Madryn’s opposition to the merger of SomaLogic with Standard BioTools). SEC modernizes beneficial ownership filings. Under SEC rules amended in October and effective February 5, 2024:17 ▪ Schedule 13Ds must be filed within five business days, rather than 10 business days, after crossing the 5% beneficial ownership threshold (beginning February 5, 2024). ▪ Schedule 13Gs by Qualified Institutional Investors must be filed within 45 days after quarter-end, rather than 45 days after year-end (beginning September 30, 2024). These changes could have significant effects on some activist campaigns. For example, with the compressed reporting period, unless activists are willing to stay under the applicable reporting threshold, companies will get quicker notice of activist accumulations, and activists will have less time before their campaigns become public to expand their equity ownership base and their corresponding ability to profit from changes in the stock price. The new rules were accompanied by guidance on cash-settled derivatives and group formation, to clarify, among other things, that: ▪ A Schedule 13D filer must disclose cashsettled and other derivatives that use the company’s shares as an underlying security. ▪ A group may be formed when a substantial beneficial owner (who is or will be required to file a Schedule 13D) intentionally communicates to others that the owner will file a Schedule 13D with the purpose of inducing such others to purchase the underlying securities, and one or more of the others purchase the securities as a direct result of that communication. Boards increasingly reject activist nominations. The number of companies rejecting director nominations by activists due to purported non-compliance with the company’s advance notice bylaws increased significantly. Companies may be encouraged in this respect by recent Delaware decisions upholding the rejection of nominees at several companies.18 Initial experience with the universal proxy card. 2023 saw the first proxy season under the SEC’s universal proxy rules. While activism levels did not seem to increase as a result, for proxy fights that went to a contested vote, activists generally were more successful in securing at least one board seat as compared to 2022. In future proxy seasons, the influence of ISS and Glass Lewis could increase as shareholders look for guidance on choosing amongst director nominees. Anti-ESG movement. Activists have used ESG considerations as wedge issues in advancing their campaigns, in an attempt to sway institutional investors. While activists continue to do this, growing opposition to the overall ESG movement may impact their ability to leverage ESG themes going forward. At the same time, in response to mounting anti-ESG pressure, some institutional investors have updated their voting policies to deemphasize ESG as a standalone priority and instead emphasize risk stewardship. 8 17 18 For further discussion of the rule changes, see our Oct. 25, 2023 client alert, U.S. SEC Adopts Amendments to Beneficial Ownership Reporting Rules. Recent litigation and other developments with respect to advance notice bylaws are discussed in our Sept. 5, 2023 client alert, Advance Notice Bylaws and the Increasing Number of Stockholder Director Nominations That Are Rejected by the Target Companies. Shareholder Activism Continues to Impact M&A
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