January 23, 2019

More on “Shareholder Proposals: Impact of SEC’s Shutdown?”

A few weeks ago, Broc blogged about how a government shutdown was gonna really disrupt the processing of no-action requests related to shareholder proposals if the shutdown went much longer. Now that the conjecture has become reality, we just fielded this question in our “Q&A Forum” (#9722):

We submitted a no-action request to the Staff to exclude a shareholder proposal made under Rule 14a-8 during the shutdown but obviously haven’t heard anything. Seems like we will be forced to include it as our date for providing the proponent our Statement in Opposition and eventual filing are coming up in a week or two. Any other thoughts, reasons we can exclude the proposal even if we don’t hear from the SEC?

My response was:

You might have seen this recent Reuters article – and this WSJ article. Here’s a quote from Ron Mueller in the WSJ article: “If the shutdown continues even after a company needs to send out its proxy statement to shareholders, the company could include proposals in the statements but not make them subject to a vote, saying it is awaiting a determination from the SEC, Mr. Mueller said. A company also can negotiate with shareholders who made a proposal, striking a deal that results in it withdrawing the SEC application and removing the proposal from the proxy in exchange for concessions.”

And Broc added:

This sure is interesting stuff since it’s novel. On page 41 of our “Shareholder Proposals Handbook,” there’s a section about exclusion without Staff relief. I talk about the risk of an SEC enforcement action – but I don’t know how high that risk would really be in these circumstances. Of course, it will depend on how strong your argument is that a proposal is excludable under one – or more – of the exclusion bases in Rule 14a-8. So I imagine companies might do some hard thinking and see how comfortable they are about exclusion without the no-action relief…

Removing the Delaying Amendment: Nasdaq Gets Nervous

As the shutdown drags on, we’ve blogged several times that removing the delaying amendment is really the only way to go effective with a registration statement right now. But that’s a big deviation from standard practice – and this WSJ article reports that (not surprisingly) it’s making banks & exchanges nervous. Here’s an excerpt:

But the Nasdaq Stock Market, where both companies are aiming to list, has balked at firms using the method over worries that such deals could be vulnerable to regulatory or legal challenge later on, according to people familiar with the matter. Still, the exchange hasn’t ruled it out in certain cases, one of the people said. Some bankers have also been wary of such deals.

Proceeding without Corp Fin’s signoff could carry substantive risk, some bankers and lawyers say. If the IPO disclosures given to investors are later shown to have shortcomings, plaintiffs’ lawyers could pounce and point to the unusual way the deals were done.

Another downside to the automatic route is companies would need to price their stock at least 20 days in advance of trading, whereas in a traditional IPO the price is set the day before trading begins. Bankers worry the price might become stale as economic crosswinds or other factors could affect demand for the offering.

Against my better judgment, I read some of the comments on that WSJ article. Here’s a taste:

Capitalists do not need government bureaucrats to raise capital. Abolish the SEC and let markets work.

Point taken that companies have been moving away from traditional IPOs – and this Matt Levine blog imagines a functioning world in which the SEC is accidentally no longer involved in that process…

How the Shutdown Impacts the SEC’s Enforcement Program

Check out this piece from John Reed Stark about how the government shutdown impacts the SEC’s enforcement program…

Liz Dunshee