One of the more difficult tasks that face deal makers in the context of public company mergers and acquisitions is the decision whether or not to disclose pending negotiations for ongoing transactions. A recent case involving merger negotiations between Sears and Kmart reaffirmed the general practice not to disclose merger negotiations.
In Levie v. Sears Roebuck & Co., the United States District Court for the Northern District of Illinois (Court) reiterated several key principles originally developed in the 1988 landmark case Basic v. Levinson that are useful guidelines when a public company considers the necessity of disclosing merger negotiations:
- Even if material, there is no general duty to disclose merger negotiations.
- Merger negotiations must be disclosed if the merger is material and non-disclosure makes other disclosures misleading.
- The materiality of a merger depends upon the probability that the transaction will occur and the significance of the transaction to the issuer.