SEC Staff Updates Proxy 'Unbundling' Guidance For M&A Transactions

The staff of the SEC's Division of Corporation Finance (Staff) recently issued updated guidance regarding "unbundling" of separate proposals in M&A transactions under Rule 14a-4(a)(3) of the Securities Exchange Act of 1934, which requires the form of proxy to "identify clearly and impartially each separate matter intended to be acted upon." The updated guidance issued in the form of two new C&DIs, which can be found here, replaces the Staff's prior guidance on the matter from September 2004, which can be found here. The effect of portions of these C&DIs is to impose SEC-mandated voting on certain matters even if applicable state law would not require a separate vote.

Under the updated guidance, in an M&A transaction where (i) the target's shareholders will receive acquiror equity, (ii) a material amendment to the acquiror's organizational documents is required by the transaction agreement and (iii) the amendment would, on a standalone basis, require shareholder approval under state law, stock exchange rules or the acquiror's organizational documents:

the acquiror's proxy card must present to its shareholders for approval the material amendment to its organizational documents separately from the proposal to approve the M&A transaction; and the target (if subject to the SEC's proxy rules) must also present to its shareholders for approval the material amendment to the acquiror's organizational documents as a separate proposal even though the target's organizational documents already include a provision similar to the amendment and a vote of the target shareholders would not be required under state law, except for an amendment that would increase the acquiror's authorized shares solely by the number of shares reasonably expected to be issued in the transaction. This is one of those instances in which the SEC's position would require approval by the target's stockholders when applicable state law would not provide the target's stockholders an approval right. The Staff has previously indicated that although there is no bright-line test for determining materiality in the context of Rule 14a-4(a)(3), issuers should consider whether a given matter substantively affects shareholder rights when determining whether an amendment is material and must be separately presented. Examples of material provisions in the M&A context include governance- and control-related provisions such as (i) classified/staggered boards, (ii) limitations on director removal...