INTRODUCTION

After a record-breaking 2021, deal activity in 2022 dropped by 37%, its largest year-overyear decline since 2001. Facing all the 2022 headwinds, including a difficult and uncertain financing market, the Ukraine war, inflation, the continuing effects of the COVID-19 pandemic, supply chain issues, and unfriendly regulators, in many ways the M&A market held up better than expected.

This update highlights many of the challenges experienced in 2022 that continue to unfold in 2023, ranging from the new universal proxy card rules to heightened antitrust scrutiny, expanding FDI regimes across the globe, and the hotly disputed question of whether non-majority stockholders are controllers.

Against this backdrop, clients once again turned to Jones Day for some of their most significant and complex transactions, whether carve-outs, spin-offs, joint ventures, public company acquisitions, or cross-border transactions. The pages that follow spotlight just a few of the Firm's 2022 engagements across a range of sector

CORPORATE GOVERNANCE DEVELOPMENTS TO WATCH IN 2023

ESG issues remained a focal point in 2022, as SEC initiatives and shareholder advocacy shaped disclosures on environmental, social, and governance issues. Delaware law developments are expected to spur many companies to put charter amendments on their 2023 annual meeting ballots, and the SEC's finally adopted universal proxy card rules will shape contested elections in 2023 and beyond.

2022 Proxy Season

As in 2021, ESG took center stage in the 2022 proxy season. Social and political shareholder proposals remained at the forefront, with a significant uptick in proposals relating to civil rights, human rights, and racial equity. The number of climate-related and other environmental proposals also rose significantly, and many of these proposals, including those relating to emissions targets, were more prescriptive in nature. While the number of successful proposals on these topics did not increase dramatically in 2022, we expect ESG proposals again to make a strong showing in the 2023 season.

SEC Rulemaking Initiatives

The SEC is expected to advance several of its governance-related rulemaking initiatives in 2023, including those on human capital management, climate-related disclosures, and board diversity. Each of these may have a major impact on the governance disclosure landscape in years to come. In 2022, the SEC also called for enhanced governance disclosures outside of its formal rulemaking process, issuing several comment letters asking companies to enhance their narratives relating to board leadership and risk oversight, including the role of the lead director

Universal Proxy Cards and Advance Notice Provisions

In 2023, the number of proxy contests may rise as a result of the effectiveness of Exchange Act Rule 14a-19, the SEC's "universal proxy card" rules for contested director elections. In light of this, many companies have adopted or are considering adopting bylaw updates to address the universal proxy card rules directly and to ensure that advance notice provisions reflect current market practice. Such updates are not without peril, however; some companies have drawn shareholder proposals (and in some cases, litigation) seeking to restrict expansions to advance notice provisions. Companies would be well served to evaluate their current bylaws holistically and advance notice provisions, as such changes are best adopted on a "clear day," but to be wary of implementing aggressive changes that may invite litigation or negative attention from investors.

Officer Exculpation Under Delaware Law

In August 2022, DGCL Section 102(b)(7) was amended to permit a corporate charter to eliminate or limit the personal liability of certain officers for breaches of the duty of care, which historically applied only to corporate directors. Although the exculpation provided to directors and officers under the amended statute is not identical—the liability of officers for derivative claims may not be limited—these amendments will substantially close the gap between the treatment of directors and officers in M&A-related litigation. Of course, charter amendments require shareholder approval, and and we expect that many companies will ask shareholders to approve officer exculpation provisions the next time they are amending their charters.

NAVIGATING HEIGHTENED ANTITRUST SCRUTINY IN M&A/PE TRANSACTIONS

Antitrust scrutiny remained high during 2022 as competition officials globally continued to advocate for more aggressive enforcement. U.S. enforcers adopted a more expansive view of competitive harm, accounting for transaction effects on workers, and expressed greater skepticism of remedies to address competitive concerns. Authorities in Europe and Asia also remained active. Despite the tough talk from enforcers and shifting focus, the number of significant merger investigations in 2022 did not deviate materially from historic totals. Most transactions closed with no or limited agency review.

For deals facing a close antitrust review, merging parties were more likely to confront a long (10+ month) merger investigation and greater risk that their transaction would be challenged in court or blocked. Those dynamics increase the importance for buyers and sellers to negotiate transaction terms that fully account for potential antitrust risk, including an extended investigation, demand for remedies, and government efforts to prevent closing. The following highlights significant developments in the United States, Europe, and Asia Pacific:

United States

  • New Hart-Scott-Rodino merger notification filing fees will increase for large transactions (e.g., $2.25 million for deals valued at $5 billion or more—a 704% increase, compared to $280,000) and decreases fees for small transactions ($30,000 for deals between $101 million–$161.5 million, down from $45,000). The new fee structure went into effect on February 27, 2023.
  • Heightened scrutiny on:
    • Large companies acquiring new or "nascent competitors."
    • Vertical transactions (companies at different levels of the supply chain).
    • Serial acquisitions in the same industry, particularly involving private equity.
    • Effects in labor markets and broad non-compete, non-solicit, or no-poach agreements.
  • The agencies are likely to be most aggressive in the technology, health care, pharma, agriculture, and consumer products sectors.
  • Settlements designed to address antitrust concerns and allow antitrust clearance for the main transaction remain possible but challenging. Enforcers continue to require both the asset package and proposed buyer(s) to replace competition purportedly lost by the original transaction as early as possible to maximize agency vetting.
    • All FTC orders settling merger investigations now include a "prior approval" clause that grants the agency the unilateral authority to approve or deny certain future transactions for a minimum of 10 years. Although prior approval may affect a small number of transactions, it could have outsized consequences for the M&A strategies of companies subject to it.
    • Negotiating remedies at DOJ remains especially challenging. The DOJ continued to adopt a preference to seek injunctions to block transactions outright rather than accept a remedy.
    • DOJ and FTC have expressed interest in "fix-it-first" remedies in which the parties offer an upfront structural remedy to an otherwise problematic transaction.

To view the full article click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.