Shareholder Disclosure Issues in M&A Transactions: Notice and Appraisal Rights, Materiality, Conflicts, Omissions

Communications between a company and its shareholders are subject to the fiduciary duties imposed on the board of directors and should be handled with care. Disclosure requirements commonly associated with public companies can also apply to private companies, particularly with proposed mergers.

The Delaware General Corporation Law (and comparable statutes in other states) allows a corporation to obtain stockholder approval of a proposed merger by written consent instead of a meeting. Still, it must notify the non-consenting stockholders of the action taken, the pricing associated with the transaction, the extent to which any directors or shareholders receive benefits different than those received by the common stockholders, and other material information. The board must also avoid omissions that would make the disclosure materially misleading.

An appraisal notice in effect asks stockholders to make an investment decision of whether to accept the terms of the merger or demand appraisal. Thus, the disclosure requirements associated with an appraisal notice are extensive and comparable to those deemed material under U.S. securities law. They will include the merger agreement, instructions for demanding an appraisal, financial statements, a description of the company's business and prospects pre- and post-merger, and any conflicts of interest among directors or shareholders.

Listen as our authoritative panel discusses the disclosure obligations of directors and officers in connection with private company mergers and how they compare to public company disclosures in M&A deals.