USA LAW AND PRACTICE Contributed by: George Casey, Heiko Schiwek, Elena Rubinov, Kristina Trauger, Pierre-Emmanuel Perais, Clara Pang, Gregory Gewirtz and Vinita Sithapathy, Linklaters
4.3 Hurdles to Stakebuilding US public companies cannot introduce higher own - ership reporting thresholds and generally would not introduce lower reporting thresholds than those man - dated by federal securities laws. However, a target’s board of directors can implement certain obstacles to stakebuilding tied to ownership thresholds, such as adopting a shareholder rights plan (ie, a “poison pill”); see 9.3 Common Defensive Measures . 4.4 Dealings in Derivatives Dealings in derivatives are allowed in the United States, subject to applicable insider trading restric - tions. 4.5 Filing/Reporting Obligations Historically, holding derivatives that, by their terms, only provide the holder with economic exposure to a covered class of security has not been considered suf - ficient to constitute beneficial ownership and requir - ing disclosure under Regulation 13D-G. A person is deemed a beneficial owner of an equity security if the person: • has a right to acquire beneficial ownership of the equity security within 60 days; or • acquires the right to acquire beneficial ownership of the equity security with the purpose or effect of changing or influencing the control of the issuer of the equity security, or in connection with or as a participant in any transaction having such purpose or effect, regardless of when the right is exercis - able. If such a right originates in a derivative security that is nominally “cash-settled” or from an understanding in connection with that derivative security, the holder of such cash-settled derivative security may be deemed a beneficial owner. Aspects of a derivative instrument, including if they carry the current right to vote for directors, can deter - mine whether acquisition of derivatives would be reportable under the HSR Act. 4.6 Transparency Shareholders must disclose beneficial ownership of more than 5% of the outstanding shares of a class
of US public company equity voting securities pur - suant to a Schedule 13D filing, as discussed in 4.2 Material Shareholding Disclosure Threshold . Share - holders that are required to make pre-merger notifica - tions under the HSR Act, or certain shareholders and indirect investors with more than nominal interests in entities filing with CFIUS or other US national security review regimes, should also expect to address ques - tions regarding the purpose of their acquisition and intentions regarding their interests in the target. Under US federal securities laws, entry into a material definitive transaction agreement requires disclosure by public companies. Prior to signing the transaction agreement, a disclosure obligation can still exist for non-public information relating to a merger or acqui - sition if: • the information is “material”; and • the company has a duty to disclose such informa - tion. 5. Negotiation Phase 5.1 Requirement to Disclose a Deal The US Supreme Court has rejected the idea that merger negotiations are only material when the par - ties have agreed in principle to the price and struc - ture of the transaction. The materiality of contingent or speculative events such as M&A is determined on a case-by-case basis. There are situations where the companies involved in negotiations may remain silent as long as they do not release false or mislead - ing information. Ultimately, the materiality of negotiations is still deter - mined by weighing the magnitude against the prob - ability of the event, with additional consideration to the sensitivity of the information and the business’s purpose compared to the substantial impact on inves - tors of a potential merger or acquisition. In practice, the determination of whether to disclose negotiations often turns on the probability that the transaction will occur. While there is no bright line test which makes the event more probable than not (short of an agree - ment in principle), key events that a court may con - sider in determining whether a disclosure obligation
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