December 11, 2015

FAST Act: Corp Fin Weighs In

Yesterday, Corp Fin weighed in on the FAST Act with this pair of CDIs and this “announcement,” which not only is a brief summary highlighting changes in the securities laws – but also provides some interpretive guidance. Meanwhile, I have calendared this webcast: “FAST Act: Gearing Up.”

As noted by Latham & Watkins, under the announcement & CDIs:

1. Reduced EGC public filing period – The 15-day period is immediately effective, and EGCs with IPOs pending before the FAST Act was signed on December 4, 2015 may take advantage of it. An EGC that has used a confidential submission process must publicly file its registration statement and all previously submitted drafts no later than 15 days (rather than 21 days) before conducting a road show. In offerings that do not involve a road show, the public filing must occur at least 15 days before the registration statement goes effective.

2. Omission of certain financial information – Effective immediately, in either a confidential submission or a public filing:
– EGC may omit the earlier of the two required years of annual financial statements if the EGC reasonably believes it will have provided an additional full year of annual financial statements when it commences its IPO;
– EGC may omit financial statements of an acquired business required by S-X Rule 3-05 if the issuer reasonably believes those financial statements will not be required at the time of the offering; and
– EGC must, however, include interim financial statements for any longer period for which financial information will be required at the time of the IPO (even if the final disclosure at the time of the IPO will include a longer interim period or an annual period that subsumes the shorter interim period).

3. EGC status lock-in – EGC status is extended during the registration process. Any confidential submission or public filing by an EGC will lock in EGC status through the earlier of (i) the IPO date or (ii) one year after the issuer would have otherwise lost EGC status. The EGC status lock-in is effective immediately and also applies to an EGC with an IPO registration statement pending on December 4, 2015.

Proxy Plumbing: Proxy Rigging Rears Its Ugly Head

As I recently blogged on our “Proxy Season Blog,” if you’re wondering what happened with the SEC’s proxy plumbing project that was kicked off five years ago, you’re probably not alone. It shows how hard it is to get a major project off the ground at the SEC – one that will span multiple stewards and Commissioner compositions, etc. Anyways, this Bloomberg article weaves a tale of impersonated shareholders caught by the Massachusetts’ securities regulator. Fascinating reading – and fits in well with other tales told in our “Proxy Plumbing” Practice Area.

I asked Carl Hagberg if he’s seen cases like this – and he said:

Sadly, Yes, I have seen – and reported on – many, many cases like this. For example:

– Hedge-fund investor who lent his shares to another, related entity so both the borrower (*him) and lender (also him) could vote the same shares twice – and who also tried to bluff the target into submission by asserting that he had taken an even bigger position (which he had not done.)

– Big proxy solicitor in Canada (which has since left the field there) that was ordered to pay for an entirely new shareholder meeting after big holders discovered their votes were improperly switched from NO to Yes (on purpose) by the proxy solicitor’s telephone voting service…so the solicitor could win – and collect a bonus

– Last-minute faxed votes in a proxy contest – that were being “manufactured” and sent to the meeting site from a dissident’s place of business – and where, happily for the target company, the fax ID gave them away as fabricated…and yes….there’s more….

So a few additional reasons why well-governed companies need to have knowledgeable – and truly independent – Inspectors of Election!

Buybacks: Still In the News

I’ve blogged several times in recent years about the growing criticism about how buybacks are used to prop up stock prices, etc. (here’s one such blog). The use of buybacks continues to grow – and so does the criticism. Here’s a recent Reuters report – and an excerpt from this WSJ piece entitled “Is the Surge in Stock Buybacks Good or Evil?”:

Buybacks have drawn criticism from some fund managers including Larry Fink, chief executive of BlackRock Inc., which oversees $4.5 trillion in assets. He has said some companies invest too much in buybacks and too little in longer-term business growth. Repurchases also have become a political issue. Democratic presidential candidate Hillary Clinton has called for more-frequent and fuller disclosure of them by the companies involved, even as some activist investors push for more buybacks as a way of returning cash to investors.

In the year’s first nine months, U.S. companies spent $516.72 billion buying their own shares, with third-quarter reports still not complete, according to Birinyi Associates. That is the highest amount for the first three quarters since the record year of 2007, the year before the financial crisis. It leaves this year on track for a post-2007 high if fourth-quarter buybacks hold up.

And in this blog, “The Activist Investor” takes on some of the buyback criticisms and explains how capital allocation is a really complicated proposition at most companies.

Broc Romanek