USA – NEW YORK Trends and Developments Contributed by: Karessa Cain, Gregory Pessin, Mark Veblen, Victor Goldfeld, George Tepe and Courtney Hauck, Wachtell, Lipton, Rosen & Katz
Court in In re Mindbody, Inc. , reversing in part the Court of Chancery, held that a private equity buyer was not liable for aiding and abetting certain sell-side breaches. The Court of Chancery had determined that by reviewing drafts of the target’s proxy statement containing misleading omissions and failing to correct or prevent them, the buyer could be held liable for aiding and abetting. Although the Delaware Supreme Court left open the possibility that a buyer could risk liability stemming from aiding and abetting disclosure violations in the course of reviewing a target’s disclo - sures, it reversed this decision on the grounds that the private equity firm did not knowingly participate in the target’s material omissions. Specifically, the court reasoned that a third-party buyer is afforded “some protection in its negotiations with potential target companies and the directors and officers of those companies”, and the merger agreement only gave the buyer the opportunity to review the disclosures and to make changes that the target must consider; it did not impose an obligation on the buyer to guarantee the accuracy of the disclosures. “Liability Management Exercises” Adjudicated Sponsors continue to pursue out-of-court liability management exercises (LMEs) as “Plan A” for trou - bled portfolio companies. Techniques deployed by sponsors and creditors have continued to develop in response to market transactions and court decisions. Following any LME that purports to reorder credi - tor priorities, a major question has been whether the transaction will be respected in a downside scenario. In 2024, courts devoted significant attention to cases presenting that issue. Much of the public attention focused on Incora and Serta – two Chapter 11 cases where litigation challenges to LMEs were successful. But those decisions turned on the application of nar - row contractual language and idiosyncratic fact pat - terns. In Mitel , on the other hand, the New York Appel - late Division (whose rulings carry particular weight given how many loan agreements are governed by New York law) fully upheld an uptier transaction. The decision made it clear that challenges to LMEs require specific, on-point contractual prohibitions to succeed; New York courts are not likely to invalidate transactions based on generalised complaints about non-pro-rata treatment or violations of the implied covenant of good faith and fair dealing. While certain
forms of transactions may be deterred where specific contractual language is present (eg, Serta-like uptiers with agreements containing “open market purchase” exceptions to pro rata sharing requirements), the twin Serta and Mitel decisions provide the market an over - all level of clarity that should encourage dealmaking. Sponsors would do well to heed these twin decisions (and other market developments) when negotiating terms at origination to provide the sponsor with valu - able flexibility when an investment does not go as planned. Antitrust regulators continue rigorous enforcement – but are less hostile to M&A and demonstrate openness to remedies The US antitrust agencies have continued a multi-year trend of aggressive antitrust enforcement. The Trump administration endorsed the 2023 Merger Guidelines, and rulemaking that went into effect earlier this year that significantly expands the reporting obligations under the HSR Act, including, most notably for private equity, additional disclosure requirements regarding certain limited partners and officer and director inter - locks. Both agencies have initiated litigation to block mergers – in January, the DOJ sued to block Hewlett Packard’s proposed acquisition of Juniper Networks (which the parties later settled) and in March, the FTC sued to block GTCR’s proposed acquisition of Sur - modics. Nevertheless, three silver linings demonstrate the antitrust agencies’ greater openness to M&A: (1) the apparent removal of private equity from the cross - hairs, (2) the re-emergence of remedies as a solution to competitive concerns and (3) the reinstatement of early termination of the 30-day HSR waiting period. On the first point, in contrast to the prior adminis - tration, the Trump administration has disavowed any “antipathy” towards private equity as a business mod - el. As to the second, whereas the prior administration took a de facto “no remedies” position, US antitrust leaders have recently taken a pragmatic stance, allow - ing structural remedies to address anti-competitive concerns, as in the DOJ’s HPE/Juniper, Safran/Ray - theon and Keysight/Spirent settlements, and the FTC’s Couche-Tard/Giant Eagle and Synopsis/Ansys settlements. Finally, the FTC recently reinstated the practice of granting early termination of the HSR wait -
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