Glazer’s Impact on M&A Deals

November 17, 2010Articles Law360

In Glazer Capital Management LP v. Magistri, the U.S. Court of Appeals for the Ninth Circuit implied that the amended disclosure rules under the Securities and Exchange Act of 1934 may require public companies that have entered into merger agreements to publish the exhibits to such agreements, despite their confidentiality. As a result, representations made solely for the benefit of private merger partners may form the basis for future securities fraud claims by discontented shareholders unaware of the disclosures.

If the case is followed widely, new disclosure burdens will be imposed on mergers and acquisitions participants, which could reduce M&A activity due to the reluctance of public target companies to publicize disclosures that would have remained outside the public domain. Since post-closing indemnification is not a typical, customary or functional risk allocation device in public merger transactions, the most likely outcomes will be renewed emphasis on pre-closing due diligence, longer periods between signing and closing and reduced valuations for public targets as acquirers take discounts in anticipation of disclosure-related strike suits brought by shareholders.