When a public M&A deal commences, in-house counsel often face the daunting task of coordinating various work streams involving both outside counsel and company personnel while juggling responsibility for spotting legal issues and managing communications. Below is a checklist to assist in-house counsel of public companies when they become engaged in an M&A transaction:

  1. Non-disclosure agreement
  • Enter into non-disclosure agreement: When parties first engage in merger talks they should execute a confidentiality or non-disclosure agreement.
  • Negotiate sensitive provisions: Special attention should be paid to whether it is appropriate to include “standstill” provisions restricting the potential buyer from acquiring the target’s securities.
  1. Board updates
  • Gauge initial interest: In connection with a change of control or material M&A transaction, management should consult with the board to gauge the directors’ initial reaction to the proposed transaction and, if the transaction appears to be viable, should schedule a special board meeting to discuss whether or not to proceed.
  • Regular updates: Throughout the negotiation process, management should keep the board regularly informed of material developments, and the board should actively oversee the process.
  1. Financial advisor
  • Engage financial advisor: Once the potential target’s board has decided to pursue a possible transaction, it should engage a financial advisor or investment bank to assist with the process. A financial advisor can serve as a liaison for negotiating purposes and assist the board in evaluating the financial terms of the transaction. Recent Delaware cases have highlighted the problems associated with conflicts of interest of financial advisors. The company should pose questions to financial advisor candidates to solicit information regarding conflicts, such as the financial advisor’s relationship with potential transaction counterparties, so that the board can assess the financial advisor’s independence.
  1.  Conflicts
  • Evaluate potential conflicts: The board should evaluate whether the transaction poses any potential conflicts involving members of the board or management. Potential conflicts can arise in a variety of situations, including due to management’s participation in the transaction.
  • Consider need to form a special committee: In the event potential conflicts arise, consideration should be given to whether it is appropriate to form a special board committee of disinterested directors to negotiate the transaction and should engage a separate financial and legal advisor to assist in the process.
  1. Confidentiality
  • Form an internal working group: To avoid premature disclosure of the potential transaction, companies should usually restrict the number of individuals within and outside the company who know about transaction.
  1.  Trading in company securities
  • Impose restrictions on trading: Companies should also consider imposing a “blackout” on insiders’ transactions while the transaction is being negotiated. In-house counsel will need to consider the impact of closing the trading window for all employees or just for the internal working group with knowledge of the transaction. Consideration should be given to the fact that following the public announcement of a transaction, pre-announcement trading in the companies’ securities may be scrutinized by stock exchanges, the Financial Industry Regulatory Authority and the Securities and Exchange Commission. The company should also assess with counsel the need to suspend any ongoing share buyback program.
  1. Public disclosure
  • Design a plan to respond to inquiries: Although federal securities laws generally do not require disclosure of preliminary M&A negotiations, a company should be prepared to respond to rumors that could have an impact on the company’s stock price. Premature disclosure of a transaction can lead to unusual market activity in the company’s stock price, making an immediate public announcement necessary in some transactions.
  1. Anti-trust matters
  • Engage anti-trust counsel: Because most public company transactions will need to be reported pursuant to the Hart-Scott-Rodino regulations, consideration should be given to whether the transaction will likely be scrutinized by regulators. Companies should consider engaging anti-trust counsel early in transactions that will involve a heightened level of review.
  • Develop procedures for document creation: Any documents created for the purpose of analyzing a potential transaction may have to be submitted to anti-trust regulators. Companies should develop guidelines for creating written work product and particular attention should be paid to documents related to the impact on competition and consumers.
  • Establish clean team (if necessary): As a general rule, parties to a transaction that are actual or potential competitors must remain full arms-length competitors until a deal closes. To facilitate the duediligence process and exchange of information it may be necessary to establish a “clean team” consisting of members of the in-house legal department and outside advisors that will have access to potentially sensitive information.
  1. Local counsel
  • Engage local counsel: Depending on the governing law and jurisdiction of incorporation of the parties involved in a potential transaction, it may be necessary to engage Delaware or other local counsel early in the negotiation process. Local counsel can provide valuable advice regarding compliance with fiduciary duties of directors, potential shareholder approval and/or appraisal rights that may be triggered in connection with the transaction.
  1. Due diligence
  • Organize and obtain due diligence information: One of the initial steps in a transaction is the distribution of a lengthy due diligence request list that will likely cover accounting, financial, tax and legal due diligence items. Inhouse counsel will be responsible for collecting and organizing information and documents from various departments in the company without alerting individuals of the possibility of a transaction.
  • Engage a third-party service provider: It has become increasingly common to respond to due diligence requests by placing documents into “virtual data rooms” where the company can restrict access to certain groups and monitor who is reviewing particular pieces of information.
  1. Maintaining a record
  • Design a plan to ensure an adequate record: Shareholder litigation challenging a sale transaction has become the norm in public company transactions. Maintaining an appropriate record of the negotiation process will be essential in dealing with these issues. In-house counsel should document the process through formal board minutes that should be regularly prepared after each meeting with the assistance of M&A counsel.
  • Prepare in advance for required disclosure: Most transactions will also require that the target prepare and deliver a merger proxy statement to its shareholders to obtain the necessary shareholder approval for the transaction. The merger proxy statement or other public disclosure document is required to contain a description detailing meaningful interactions between the buyer and target and the internal consideration of the transaction.