de-SPAC Mergers Facing Increased Scrutiny

Over the last year and a half we have seen an increased volume of complaints filed against SPAC boards in the Delaware Court of Chancery, challenging their decisions regarding de-SPAC mergers. In this article, Charlotte Newell, James Heyworth, and Josh DuClos discuss the increased scrutiny. (more…)

Another Section 220 Landmine: Opportunistic Third-Party Challenges to Confidentiality

Delaware Section 220 corporate books and records inspection demands have long been a precursor to stockholder litigation. Companies often challenge the propriety and scope of inspection demands and, even when companies ultimately produce books and records for inspection, they routinely do so subject to a confidentiality agreement. However, a February 28, 2022 letter decision in In re Lordstown Motors Corp., Stockholder Litigation illustrates how confidentiality agreements may not fully protect the information in those books and records from public disclosure or use in other litigation.

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Expansive New SEC Rule Proposals Seek to Rewrite the SPAC Playbook

On March 30, 2022, the U.S. Securities and Exchange Commission (SEC) issued proposed rules and amendments relating to special purpose acquisition companies (SPACs), shell companies and the use of projections in SEC filings that, if adopted, would significantly rewrite the playbook for SPAC initial public offerings (IPOs) and acquisitions of private operating companies by SPACs (or “de-SPAC” transactions).1 In particular, the proposed rules (i) would require enhanced disclosures and increase potential liability under the federal securities laws for shell companies (including SPACs), target companies and investment banks participating in de-SPAC transactions, (ii) provide updated guidance regarding the use of projections in all SEC filings and (iii) propose a new safe harbor for SPACs under the Investment Company Act of 1940.

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Sidley Perspectives on M&A and Corporate Governance

Sidley is pleased to share the March 2022 issue of Sidley Perspectives on M&A and Corporate Governance, a quarterly newsletter designed to keep you current on what we consider to be the most important legal developments involving M&A and corporate governance matters. (more…)

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Guarding Its Turf: SPAC-Related Chancery Opinion May Force Companies to Defend Disclosure-Based Claims on Multiple Fronts

Companies that have endured a corporate trauma are often faced with a two-headed monster of litigation: first, a federal securities class action, typically alleging that misstatements or omissions inflated the company’s stock price because the company failed adequately to predict, or disclose the likelihood of, the trauma; and, second, stockholder litigation claiming that the company’s directors (and sometimes officers) breached their state-law fiduciary duties in subjecting the company to the costs of defending or settling the securities litigation. In order to avoid (or at least defer unless and until necessary) the expense and distraction of litigating identical or overlapping issues in two or more fora, defendants often have sought a stay, by agreement or motion, of the fiduciary duty litigation, pending at least resolution of a threshold motion to dismiss in federal court. This approach has proven beneficial for all involved because it allows the parties to concentrate their resources in the federal proceeding that will determine whether viable disclosure claims have been alleged; if those claims fail, then there may no longer be any basis to pursue the state-law fiduciary duty claim and all can save the resources of litigating those claims in the meantime. (more…)

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Litigation Trends in Delaware and How Businesses and Boards Can Mitigate Risk

New structures, new rules? Delaware’s Chancery Court provides guidance on disclosure, conflicts, and risk allocation. We take a look at the latest Delaware rulings and what they say about SPAC directors’ fiduciary duty, as well as COVID’s effect on M&A deals, and how corporations and boards can mitigate their liability. Join host and Sidley partner, Sam Gandhi, as he speaks with two of the firm’s thought leaders on these subjects — Jim Ducayet and Charlotte Newell.
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New School SPAC Subject to Old School Rules: Court of Chancery Rejects SPAC Sponsor’s Motion to Dismiss

We previously wrote about the MultiPlan Corp. SPAC litigation relating to the de-SPAC merger of Churchill Capital Corp. III (“Churchill”) and its target, MultiPlan Corp.  On January 3, the Delaware Court of Chancery issued its long-anticipated decision on the defendants’ motion to dismiss—the first dispositive motion to be briefed and decided in the Delaware courts in the wave of recent SPAC litigation.  Below we highlight some key takeaways. (more…)

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Still in the Crosshairs: Plaintiffs Continue to Take Aim at Post-Merger SPACs

We previously wrote about the trend of SPAC (special purpose acquisition company) lawsuits filed in the Delaware Court of Chancery, with some combination of the post-merger entity, its board of directors, or the SPAC sponsor named as defendants.  Over the course of this year, we have seen this trend continue, with a number of new SPAC lawsuits filed in the Court of Chancery since we last wrote on this topic.  Several recent complaints filed in the Court of Chancery exemplify that the same recurring issues discussed in this space previously (e.g., alleged sponsor conflicts of interest, a hasty process to speedily complete a de-SPAC deal, lack of pre-merger diligence) likely will continue to feature prominently in SPAC litigations. (more…)

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SPACs: A New Frontier for Shareholder Activism

In NIRI’s IR Update, Derek Zaba, Kai Liekefett, and Joshua DuClos published an article titled, “SPACs: A New Frontier for Shareholder Activism.” Their article discusses how the SPAC boom has created a new breeding ground for activism targets and how SPACs should prepare for an activist attack. (more…)

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Stockholder Suits Are Fewer—and Smaller—in 1H 2021

According to Cornerstone’s midyear report on federal and state securities class actions, new securities case filings have continued a substantial downward trend in the first half of 2021.

Plaintiffs filed 112 class action securities cases in the first half of 2021, down 25% from 150 in the second half of 2020 and 38% compared to the 182 cases filed in the first half of 2020, following a marked trend that has emerged since 2019.  That trend continues to be animated in large part by significant declines in M&A-related federal filings, which fell to just 12 during the period, a 66% reduction (or 83% relative to the semiannual average of 70 during the last five years). (more…)

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