For thirty years, I have had a pet peeve about the media's routine reporting on mergers and acquisitions. I have kept this to myself, for the most part, other than scattered comments to law practice colleagues and law students over the years. Today, I go public with this veritable thorn in my side.
From many press reports (which commonly characterize business combinations as mergers), you would think that every business combination is structured as a merger. I know I am being picky here (since there are both legal and non-legal common parlance definitions of the verb "merge"). But a merger, to a business lawyer, is a particular form of business combination, to be distinguished from a stock purchase, asset purchase, consolidation, or statutory share exchange transaction.
The distinction is meaningful to business lawyers for whom the implications of deal type are well known. However, imho, it also can be meaningful to others with an interest in the transaction, assuming the implications of the deal structure are understood by the journalist and conveyed accurately to readers. For instance, the existence (or lack) of shareholder approval requirements and appraisal rights, the need for contractual consents, permit or license transfers or applications, or regulatory approvals, the tax treatment, etc. may differ based on the transaction structure.
Some media coverage does get at least some of these important details right, even where the transaction structure is portrayed inaccurately or is unclear. That may be attributed to the issuance of a press release that is, at least in part, well-drafted by the transaction principals. These releases are customarily reviewed (and sometimes drafted) by legal counsel to the principals.
However, it also may be that the press release does not well describe the transaction, because the transaction principals and their counsel do not deem some of the details to be relevant to, or sufficiently simple for digestion by, the relevant public. Some of these press releases raise questions for the lawyers who read them. In these cases, only a review of the primary business combination agreements can offer definitive information.
Two immediate observations flow from all this. Both allow for "teaching moments" in advanced (and maybe even basic) business law courses. First, press releases are poor–or at least shallow–disclosure vehicles for business combinations. One must look at the actual merger, consolidation, share exchange, or acquisition agreement in order to identify the form of a transaction with certainty. Second, lawyers drafting or reviewing a press release announcing a business combination should give a significant amount of thought to making sure the press release gives readers sufficient, clear, accurate information about transactional structure and its implications.
The general touchstone for press release disclosures under securities fraud principles is the avoidance of (1) misstatements of material fact and (2) omissions to state material fact that make disclosed facts misleading. Manipulation or deception, including by misstatements of material fact and omissions to state material fact that make disclosed facts misleading, when undertaken in connection with a purchase or sale of securities, with scienter, is actionable under Section 10(b) of, and Rule 10b-5 under, the Securities Exchange Act of 1934, as amended. Unfortunately, the concept of material facts (facts that are substantially likely to (i) be important to a reasonable investor or (ii) significantly impact, from the standpoint of the reasonable investor, the total mix of available information) is not always interpreted by courts in predictable, consistent ways. Accordingly, it is difficult to provide definitive advice on the content of press releases based on Section 10(b) and Rule 10b-5.
Do any of you all share my pet peeve? Do you do any teaching in this area that incorporates in a similar way the role of Section 10(b) and Rule 10b-5 in (and the possibility of related liability)–litigation risk–supplement mandatory disclosure regulation? I have determined that it's an important point to make with students both in this context and in contexts where mandatory disclosure rules operate.