Corp Fin issues new M&A-related CDIs

Last week, the SEC issued a number of new CDIs related primarily to M&A transactions, including Forms 8-K, communications under Rule 14a-12, and, in the context of de-SPAC transactions, the Rule 14e-5 prohibition of purchases outside of a tender offer.

Form 8-K 

There were two new CDIs concerning Forms 8-K reporting about the entry into material agreements for business combinations.

Item 1.01 Entry into a Material Definitive Agreement

• Question 102.04  This CDI discusses the terms that should generally be reported when providing a description of a business combination agreement in a Form 8-K. Although ultimately, materiality will depend on the particular facts and circumstances, according to the CDI, the following terms should generally be viewed as material and should be disclosed: 

There may, however, be other material information that is necessary to make the required disclosure, in light of the circumstances under which it is made, not misleading.  For example, if a material term has not yet been determined, the staff advises that the Form 8-K should affirmatively so state. In addition, where the reporting company is the acquiror, the Form 8-K “should briefly describe the nature of the target company’s business, including, at a minimum, whether it has existing operations or has generated revenues, as well as any information disclosed by the target company in announcing the business combination transaction.”

• Question 102.05 Companies are encouraged, as a best practice, to file the agreement as an exhibit to the Form 8-K. Originally, the SEC did not require the material definitive agreement to be filed as an exhibit to the Form 8-K because of the time implicated in requesting confidential treatment and preparing the agreement in the proper EDGAR format. In light of the SEC’s recent amendment to Form 8-K that allows companies to redact sensitive terms without going through the process of submitting a CTR (see this PubCo post), the staff believes that “the need for confidential treatment generally can no longer be the basis for declining to file the material definitive agreement as an exhibit to the Item 1.01 Form 8-K.” The staff also believes that it should generally be feasible to prepare the agreement in the proper EDGAR format by the four-business-day deadline.  Companies that are still unable to prepare the agreement for filing “should, as a best practice, provide an explanation in the Form 8-K.”

Proxy Rules and Schedules 14A/14C

New CDIs also address communications regarding a business combination that could be proxy solicitations from a party that does not intend to file a proxy statement.

General and Rule 14a-12

• Question 101.02 and Question 132.01  Where the acquiror is a public reporting company, but the target is not (and, accordingly, does not need to file a proxy statement to solicit its own shareholders), the target may issue press releases and other public communications, including through its social media channels, that publicize the merits of the proposed transaction and its benefits for both companies’ shareholders. If these communications “promote the proposed transaction or may be reasonably expected to influence the voting decisions of the acquiror’s shareholders,” the staff indicates, these communications could constitute solicitations subject to the proxy rules. A solicitation includes any “communication to security holders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy.” As a result, even though the target does not plan to solicit proxies from its own shareholders, it could be engaged in a solicitation of the acquiror’s shareholders, and those communications would be subject to liability under Rule 14a-9 and to the filing and information requirements of the federal proxy rules. Rule 14a-12 permits solicitations before a proxy statement is furnished, but requires as a condition that “a definitive proxy statement…is sent or given to security holders solicited.” However, recognizing that the acquiror will send its own definitive proxy statement to its shareholders, the staff will permit the target to rely on Rule 14a-12 to communicate publicly about the proposed business combination even if it doesn’t intend to file its own definitive proxy statement, provided that:

The staff advises that the “target company may have its written communication filed by the acquiror on its behalf and under the acquiror’s Exchange Act file number, provided the communication is clearly identified as that of the target company.”

• Question 132.02  The Rule 14a-12 position described in Question 132.01 above is also available for an acquiror that makes public communications regarding a proposed business combination where the acquiror will not file a definitive proxy statement for the transaction but the target company will, provided that:

As above, the “acquiror may have its written communication filed by the target company on its behalf and under the target company’s Exchange Act file number, provided the communication is clearly identified as that of the acquiror.”

Tender Offers and Schedules 

A new CDI addresses the application of Rule 14e-5 to SPAC sponsor purchases made outside of redemption offers in connection with de-SPAC transactions.

Rule 14e-5

Question 166.01  Where, in connection with a de-SPAC transaction, the SPAC will offer its security holders the right to redeem their SPAC securities in exchange for a pro rata portion of the funds held in the SPAC’s trust account, the staff believes that these redemption provisions include some indicia of tender offers, such as limited periods of time for SPAC security holders to request redemptions.  If the SPAC sponsor also plans to purchase SPAC securities outside of this redemption offer, to the extent that the SPAC redemption offer does constitute a tender offer, the Rule 14e-5 prohibition of purchases outside of a tender offer could apply to the SPAC sponsor’s purchases. For policy reasons, however, the staff will not object to purchases by the SPAC sponsor or its affiliates outside of the redemption offer as long as the following conditions are satisfied: