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DE Court Refuses to Enjoin Stockholder Vote for Alleged Disclosure Violations

By Robert S. Reder

Mergers & Acquisitions (M&A) practitioners frequently face the vexing issue of whether to include target company financial projections, usually prepared by management but on occasion by outside advisers, in stockholder solicitation materials. This decision often depends not only on whether such projections were furnished to directors, bidders and/or financial advisers, but also on the quality of the projections. Further, it is not unusual to have multiple projections prepared at different times and furnished to different parties for different reasons (i.e., to bidders to induce a higher offer price, to directors to help them assess the company's performance and prospects, and to financial advisers in connection with their fairness analysis of deal terms).

The rules of the Securities and Exchange Commission (SEC) do not squarely address this issue, leaving it to legal counsel to help the disclosing company make the decision on whether or not to disclose projections. Generally, full projections furnished to the acquiring company are included in tender offer disclosure materials when a tender offer is utilized as the first step in a negotiated two-step transaction. In the case of proxy materials used to solicit stockholder votes in a one-step merger transaction, key line items from projections furnished to the target's financial adviser in connection with its fairness analysis often are included in the proxy statement. Sometimes, if more than one set of projections is available (for instance, management-prepared projections and financial adviser-prepared projections) and they are not consistent, both are included or at least referenced.

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