[Last updated: 1 January 2025, unless otherwise noted]

2.1 Securities and corporate regulation

The acquisition of a public company (i.e., a company with securities listed on a US securities exchange) requires compliance with certain United States federal laws and state laws. While this chapter addresses both friendly acquisitions and hostile bids, the primary focus is on friendly (non-hostile) transactions. Whatever the acquirer’s disposition, friendly or hostile, the legal and regulatory framework discussed below generally applies equally.

• Federal securities laws – US federal securities laws generally govern the information to be provided to a target public company’s shareholders and mandate procedures that must be followed in an acquisition transaction. The specific securities laws applicable to the transaction will depend on the structure of the transaction, the place of organization of the target public company, and the nature of the transaction consideration. The laws applicable to any given acquisition transaction may include:
  • SEC proxy rules – In the most commonly used public company acquisition transaction form, the “one-step” merger, there must be a vote or consent of the target public company's shareholders to authorize the transaction. In these cases, the target public company will need to solicit such approval by means of a formal proxy solicitation (unless approval by written consent is obtained from a sufficient number of target public company shareholders, in which case non-consenting shareholders must nonetheless receive an information statement containing comparable content and explaining the consented-to action. These cases are rare). When directed to the shareholders of US domestic companies or non-FPI US-listed companies, these solicitations are governed by the Securities and Exchange Commission ("SEC") proxy rules, which include Section 14 of the United States Securities and Exchange Act of 1934 (the "Exchange Act") and Regulations 14A (for proxy solicitations) and 14C (for informational notices) issued under the Exchange Act. These proxy rules prescribe extensive disclosure requirements for proxy solicitations. Solicitation of a shareholder vote will also be required for other types of significant corporate transactions, including asset sales followed by dissolution of the target public company and distribution of the consideration to the target public company's shareholders and by whether, and the extent to which, an acquirer offers its own securities as consideration in the transaction, as in particular a US domestic public company acquirer may be required to solicit the vote of its own shareholders to permit issuance of such securities consideration.
  • SEC tender offer rules – In the second-most commonly used public company acquisition transaction form, the “two-step” merger, a tender offer is directed to the target public company shareholders in the first step and a back-end statutory merger in the second. Section 14(d) of the Exchange Act and Regulations 14D and 14E issued under the Exchange Act regulate (i) the information to be provided to target public company shareholders in the first step tender offer at both the preliminary communication and announcement stage before offer commencement, and in connection with the actual offer, and (ii) the procedure for conducting a tender offer. While a two-step merger is effected through a friendly transaction, if an acquirer is proceeding with a hostile transaction, such transaction would be effected by potentially utilizing, among other things, a tender offer, in which case the set of laws and regulations would apply. If a tender offer directed to the target public company shareholders includes an acquirer's securities as all or part of the offered consideration for the public company acquisition transaction, such tender offer (commonly referred to as an 'exchange offer') and the tender offer rules generally equally apply. A summary of the principal procedural rules for conducting a tender offer of a US domestic public company is set forth in "4. Effecting a Takeover" below.
  • SEC going private rules – Transactions by a public company or between a public company and an affiliate (which is generally defined as a controlling person of a public company, a person under common control with a public company or a person controlled by the public company and which typically includes the public company's senior management or significant public company shareholders) with a reasonable likelihood or purpose of causing the public company’s securities to be delisted, to cease to be registered under the Exchange Act, or to cease being subject to periodic reporting requirements under the Exchange Act, are referred to as "going private" or "Rule 13e-3" transactions. Going private transactions are subject to enhanced disclosure requirements because, among other reasons, they have the potential for abuse or coercive treatment of public company shareholders by insiders who are likely to have access to non-public information, and such transactions may involve the elimination of public ownership at propitious times by management or controlling shareholders of the public company (See "8. Delisting"). Such going private transactions may also attract more attention from shareholder plaintiffs and present a heightened risk of shareholder litigation.
  • SEC rules governing public offerings of securities – In the case of an acquisition transaction where the acquirer wishes to use its own securities as transaction consideration, SEC Rule 145 under the United States Securities Act of 1933 ("Securities Act") applies. Under this Rule, the act of submitting to a target public company’s shareholders for a vote on a plan or agreement contemplating a merger, consolidation, transfer of assets or certain other transactions, where the consideration includes securities of another person that would be issued or distributed to the target public company's shareholders, constitutes an offer or sale of a security under the Securities Act. As a result, the securities offered in such transactions (as well as securities offered by an acquirer in an exchange offer made directly to a target public company’s shareholders), must be registered under the Securities Act unless an exemption from such registration is available for the transaction. Generally, under applicable SEC rules, the same document that solicits the votes or other action of the target public company shareholders in such transactions, i.e., the target public company's proxy statement for a merger or consolidation (or the offer to exchange distributed by the acquirer to target public company’s shareholders in the case of an exchange offer) also serves as the prospectus for the acquirer's shares to be issued as the transaction consideration. A detailed discussion of Securities Act registration requirements is beyond the scope of this chapter.
  • SEC beneficial ownership disclosure rules – Section 13(d) of the Exchange Act and Regulations 13D and 13G issued under the Exchange Act require disclosure upon acquisition of "beneficial ownership" of more than 5% of the voting equity securities of a company listed on a US stock exchange (a public company) or registered under the Exchange Act. The current disclosure requirements under Section 13(d) and Regulations 13D and 13G are discussed in greater detail in "3. Before a Public Takeover Bid" below.

    In addition, Section 16 of the Exchange Act, and the SEC rules promulgated thereunder, provide for reporting requirements and "short-swing" profit disgorgement for beneficial owners of more than 10% of the outstanding voting securities of a public company and its officers and directors.

• State entity laws – Legal entities organized within the US exist as creations of the individual state laws for the state where they are formed and are governed in their basic legal operation by the applicable entity laws of that particular state, with Delaware being the most common and US federal law generally not providing a nationalized corporate or other entity law dictating basic entity elements such as governance mechanics. Exceptions notwithstanding, many of the entity laws, and in particular the corporate laws, of the fifty states are similar in their basic mechanisms for mergers and acquisitions, and all fifty states permit the use of statutory mergers (although the specific requirements, procedures and approval thresholds may vary by state), which is the prevailing method for either directly consummating an acquisition or, in the case of a tender offer, squeezing out minority non-tendering public company shareholders in a “two-step” merger. State entity laws and judicial decisions under those laws govern:
  • procedural matters, e.g., notice, timing and voting requirements, for seeking shareholder approval under the state merger statute or in effecting an asset sale or a dissolution of a seller following an asset sale;
  • minority shareholder squeeze-outs;
  • in all-cash acquisitions and certain other acquisitions, the rights of shareholders who do not vote in favor of a merger to receive the judicially determined value of their shares in lieu of the merger consideration, and the procedures for doing so (generally referred to as 'dissenters' rights' or 'appraisal rights'); and
  • the duties of members of the board of directors of the target company in the context of a merger or other business combination. These duties are discussed further in "4. Effecting a Takeover – Fiduciary duties of directors" below.

2.2 Other regulatory requirements - Hart-Scott-Rodino

Apart from industry-specific requirements and restrictions noted in 2.3 below, parties planning an acquisition should be aware that regulatory issues could arise under the Hart Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act").

Under the HSR Act, prior to consummation of an acquisition of voting securities of a public company exceeding certain size thresholds, including open market purchases of securities in advance of an acquisition transaction, US antitrust authorities – the Department of Justice ("DOJ") and the Federal Trade Commission ("FTC") – must be notified, and details of the transaction and the parties must be disclosed in an HSR filing. As of 2025, the current minimum transaction size which may trigger an HSR filing requirement is US$126.4 million. For transactions above US$126.4 million and up to US$505.8 million there is also a size-of-the parties test. For transactions above US$505.8 million, there is no size-of-the-parties test. The size of the parties and transaction thresholds are adjusted annually. In most cases, if a filing is required, the parties may not close the transaction until the expiration or termination of a 30 calendar day waiting period. However, for certain transactions—including all-cash tender offers—the applicable waiting period is 15 calendar days. In addition, where an acquirer wishes to use its own securities as consideration paid to the target public company shareholders, receipt of those securities may result in additional HSR filing obligations if applicable thresholds are met.

The FTC recently issued new rules regarding the scope of information and documents that need to be provided in connection with an HSR filing. The FTC estimates that the changes to the HSR notification process will add an average of 68 hours to preparation time for an HSR filing (with an estimated range of between 10 to 121 additional hours of preparation time depending on the complexity of the filing). This average and range likely underestimate the time that will be required for more complicated filings. The final rule introduces several detailed requests for information and documents, contributing to this significantly increased burden.

2.3 Regulation of Foreign Investment - CFIUS

Under the Defense Production Act of 1950, as most recently amended by the Foreign Investment Risk Review Act of 2018 ("FIRRMA"), the President of the United States has broad authority to block or require divestiture of foreign investments where they find there is a threat to national security. The President is assisted by the Committee on Foreign Investment in the United States ("CFIUS" or the "Committee"), an inter-agency committee including economic and security agencies, in the administration of their authority. CFIUS regulations implementing FIRRMA became effective on February 13, 2020.

While the fundamental powers of the President have remained unchanged for decades, recent legislation and regulation have expanded CFIUS' jurisdiction and created a two track system with pre-closing filings being mandatory for certain foreign investments, and voluntary for others. The incentive for making a voluntary CFIUS filing is legal certainty: if CFIUS clears a transaction, neither the Committee nor the President can subsequently challenge it.

Pre-closing filings are mandatory for two classes of transactions:

• Substantial government interest – Transactions where a foreign person in which a foreign government has a 49% or more voting interest acquires 25% or more of the voting interest in a US critical technology, critical infrastructure or sensitive personal data business.
• Critical technology – Transactions where a foreign person acquires certain governance or information rights in a business that develops, tests or produces a critical technology for use in a listed sector.

Mandatory filings can be made through a short form "declaration" or a longer "notice." A mandatory declaration must be filed 30 days before closing, and possible outcomes include clearance, no-action (effectively a clearance) and a requirement to file a notice, which entails a longer administrative process. Possible outcomes from a notice are clearance, clearance subject to conditions or opposition, with the formal process taking typically 45 to 90 days. Failure to make a required filing can result in penalties up to the value of the transaction.

Where CFIUS has jurisdiction and filing is not mandatory, the parties may file either a voluntary declaration or a notice. The statute provides broad discretion to the President and CFIUS, and there is little opportunity for judicial review. "National security" is not defined, and CFIUS has interpreted the term broadly. CFIUS has particular interest in transactions involving US companies (1) having sensitive government contracts, (2) operating critical infrastructure, (3) producing sensitive technologies, (4) having operations or real estate proximate to sensitive US government facilities, and, more recently, (5) possessing or handling sensitive personal data of US citizens. On the investor-side, CFIUS focuses in particular on investors from jurisdictions that are strategic competitors of the United States, and investors that have other attributes that give rise to security concerns, e.g., export control or sanctions compliance issues. There are certain exceptions available for investors from allied countries, such as Australia, Canada, New Zealand, and the United Kingdom.

Finally, a filing fee is required for a notice (but not a declaration) filed with CFIUS. The filing fee amount is determined by the value of the transaction, based on the tiers set out below:

2.4 Regulation of Outbound Investment - CFIUS

On August 9, 2023, President Biden issued Executive Order 14105 to address a US national security concern posed by certain countries that seek to develop and exploit sensitive or advanced technologies or products critical for military, intelligence, surveillance, or cyber-enabled capabilities. Effective January 2, 2025, the US government prohibits or requires notification of certain types of outbound investments by United States persons into certain entities located in or subject to the jurisdiction of China, Hong Kong, or Macau, and certain other entities owned by persons from China, Hong Kong, or Macau, involved in specific categories of advanced technologies and products.

Covered transactions include acquisitions of equity and contingent equity interests, conversions of contingent equity interests into equity interests, debt financing transactions, greenfield and brownfield investments, joint ventures, and acquisitions of a limited partner (LP) interest in non-US person funds investing in China, Hong Kong, or Macau.

Covered activities include three categories of national security technologies and products: (1) semiconductors and microelectronics, (2) quantum information technologies, and (3) artificial intelligence. There are both prohibited and notifiable activities related to these categories of technologies and products. Violations may result in civil fines up to twice the value of the transaction or US$368,136 and/or criminal fines of up to US$1 million and imprisonment for up to 20 years.