Merger Disclosures Required by the SEC: An Overview
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Public company merger activity has been on the rise in recent years. Global mergers and acquisitions (M&A) volume hit a record in 2021. Fueled by the availability of low-cost financing, 2021 M&A activity exceeded $5 trillion in transactions. In the U.S., dealmaking nearly doubled to $2.61 trillion.
Public company mergers require filing a variety of public disclosure documents. In the United States, the companies make public filings of these materials with the Securities and Exchange Commission (SEC). The rationale is to promote transparency and give investors access to important business information.
Highlighted below are some of the major types of public disclosure documents a public company must file.
Current Report on Form 8-K
When the parties enter into a merger agreement, there is often a press release to announce the news. The press release typically highlights the material terms of the deal and the expected closing date. Its purpose is to notify stockholders, investors, and the public of the upcoming merger.
In the public merger context, the SEC has certain public disclosure requirements. The SEC requires public companies to report entering into a merger agreement, if it is material to the company, on a Form 8-K. Companies often file the press release as an exhibit to the Current Report on Form 8-K.
Under the rules of the New York Stock Exchange and Nasdaq Stock Market, companies must publish a press release or similar public disclosure, which reports information material to investors.
Rule 425 and Rule 14a-12 Filings
Between the signing of the merger agreement and the closing date of the merger, there are a variety of stockholder communications that take place. The most common types of stockholder communications during this timeframe are press releases and investor presentations.
Under Rule 425 of the Securities Act of 1933, a company must file these written communications with the SEC on the date the information is first distributed. A “Rule 425” legend appears on the top corner of the press release, investor presentation, or other form of written communication.
If stockholders must consent to the merger, the company must also file under Rule 14a-12 of the Securities Exchange Act of 1934.
Merger Proxy Statement
The closing of public company mergers is subject to the approval of the target company’s stockholders. The target company must disclose information relating to the merger to stockholders in a proxy statement. The company files the preliminary proxy statement filed with the SEC. It is subject to SEC review before it becomes a definitive proxy statement.
Regulation 14A of the Securities Exchange Act of 1934 contains the main rules governing the proxy statement and proxy solicitation process. The accompanying Schedule 14A lays out the specific information the company must disclose in a proxy statement.
The proxy statement is a lengthy document that takes a number of weeks to prepare. Multiple parties, including lawyers, accountants, bankers, and other advisers for both parties, are responsible for drafting different sections.
Proxy Statement Details
The proxy statement covers a wide range of topics in detail, including:
- Description of the merger agreement
- Background and reasons for the merger
- The recommendation of the board of directors with respect to the merger
- Fairness opinion of the financial advisor, which summarizes whether the price being paid or received in the merger is fair
- Appraisal rights, which represents the legal rights of dissenting stockholders to demand an independent valuation to determine the fair price
- The material tax consequences that will result from the merger closing
After the initial filing, the SEC can take up to 30 days to review. The SEC may respond with a comment letter, which will outline requests for additional disclosure or revisions to the proxy statement. The target company will respond to the comment letter and file an amended proxy statement with the SEC for another round of review. This process can result in more rounds of SEC comment letters or clearance of the proxy statement by the SEC. Once the proxy statement is satisfactory to the SEC, the company mails it to stockholders.
Registration Statement on Form S-4 for Merger
The SEC uses a Form S-4 registration statement to register the securities issued in the merger. The Form S-4 registration becomes integrated with the target company’s proxy statement. Therefore, the joint document is known to as the proxy statement/prospectus.
The Form S-4 contains information about the merging companies, the risk factors relating to the merger, a description of the rights of stockholders, and financial information about the companies.
Registration Statement on Form S-8
The Form S-8 comes into play when there are equity incentive plans involved in the merger. The Form S-8 registers issuances of equity awards under the company’s benefit plans or any roll-over benefit plans following the merger.
Section 16 Reporting Obligations for Merger
Under Section 16 of the Securities Exchange Act of 1934, executive officers, directors, and beneficial owners of more than 10% of the company’s equity securities must file certain SEC reports to disclose their securities holdings. A Form 3 is used to report initial holdings of securities, while a Form 4 is used to report any changes in securities holdings.