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In M&A, communication reigns

Part 8: What and when—and what not—to tell stockholders during a deal

In M&A, communication reigns

What is an appropriate level and type of disclosure to your shareholders? 

In my last several blogs, I have discussed various components of the acquisition process for community banks. This blog addresses the appropriate level of disclosure and the timing, in general, to your shareholders once the board decides to undertake a strategic initiative.

And I’ll even tell you when to shut up.

How are you owned?

At the forefront, the appropriate level of disclosure largely depends on whether your bank holding company is a public SEC reporting company, a private non-SEC reporting company, or a very private company, such as a Subchapter S.

SEC reporters. As an SEC reporting company, the disclosure obligations are well spelled out. The content of the disclosure, however, is not.

For example, if your community bank holding company is a public company with a disclosure obligation to file a 10-K annual report, 10-Q quarterly report, 8-Ks when anything material happens, and Forms 4 and 5 when shares trade and are purchased by insiders, the obligation to disclose is clearly present.

But there is not much guidance for the content.

Private and Sub S banks. As a private company or as a Subchapter S, as a practical matter, there are no disclosure obligations regarding your shareholders other than the fact that your bank holding company cannot defraud them in anything it does tell them. That and that the disclosed information has to be full and complete without leaving out any material facts or circumstances.

Interestingly, when community bank holding companies go from being a public company to a private company as a result of a going-private transaction (for most, filing a Form 15), many of them often continue to disclose as though they were public even though they have no further specific disclosure obligation. Interesting but inefficient!

My general recommendation in that regard is to wean the shareholders off of the multiple pages of public disclosure down to something more reasonable. Private companies, as noted, have no obligation to disclose. So many of them simply provide periodic newsletters to shareholders or provide a two-page proxy once a year for the annual meeting.

Why you have to think of this stuff

The germination of this blog was several recent filings that have been made by public companies in 8-Ks that at best can be said to be “out there.” 

The filing of an 8-K by a public company is required any time the company enters into a material definitive agreement; declares bankruptcy; completes an acquisition; discloses results of operations or financial statements; changes accountants; or amends its articles or bylaws, among other things.

Recently, several companies that had been merely contemplating strategic initiatives and opportunities filed 8-Ks that essentially highlighted the dilemma:

“The company is considering buying a bank, selling the company, buying back stock, not buying back stock, hiring new advisors, or sticking with its current advisors, but it is not really sure what it wants to do.” 

Not very confidence inspiring for the reading public!

I suppose several of those filings may have been prompted by rumors whirling about the company selling or retaining advisors or something. In general, however, when there is an obligation to disclose, particularly for an SEC reporting company, there is also an obligation to make the disclosure make sense to the reader.

Enumerating every possible or potential strategic activity by the company in an 8-K generally does not make much sense.

When in doubt, think it out first

Depending upon the community bank holding company’s ownership, its disclosure obligation goes from very little to significant. At either end, make sure the disclosure makes sense.

In future blogs, I will deal with the specific disclosure required in specific transactions, such as mergers and acquisitions, share redemptions, retention of an advisor, and the like.

Jeff Gerrish

Jeff Gerrish is chairman of the board of Gerrish Smith Tuck Consultants, LLC, and a member of the Memphis-based law firm of Gerrish Smith Tuck, PC, Attorneys. He frequently contributes to Banking Exchange and frequently speaks at industry events.

In mid-2016 Gerrish's blog received a national bronze excellence award from the American Society of Business Publication Editors. This followed his receipt of the regional silver excellence award for the Northeastern Region from the same group.

Gerrish formerly served as regional counsel for the FDIC’s Memphis regional office and with the FDIC in Washington, D.C., where he had nationwide responsibility for litigation against directors of failed banks. Since the firm’s formation in 1988, Gerrish Smith Tuck has assisted over 2,000 community banks in all 50 states across the nation with matters such as strategic planning, mergers and acquisitions, common stock private placements, holding company formation and reorganization, and a wide variety of regulatory matters. Jeff Gerrish can be contacted at [email protected].

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