November 2012

Small tick sizes are hurting the markets
Photo by Luigi Rosa

Mr. Steiner is the Chief Operating Officer and Managing Director – Investment Banking at Ladenburg Thalmann & Co. Inc.  The views expressed in this posting are Mr. Steiner’s personal views and should not be attributed to Ladenburg Thalmann & Co. Inc., its employees, affiliates or subsidiaries or to Gunster.   

While the Jumpstart Our Business Startups Act (the “JOBS Act”) is a well-intentioned effort to assist smaller companies in their ability to raise capital (and ultimately increase hiring), it falls short with respect to one of the most pressing problems facing capital formation. One can not argue with relaxed rules in several areas such as (i) permitting solicitation for certain private placements; (ii) reducing the reporting requirements for Emerging Growth Companies (generally, newly public companies with less than $1 billion in annual revenue); and (iii) improving the largely unused Regulation A; however, while the burdens of becoming publicly traded have been eased for some smaller companies under the JOBS Act legislation, a major issue that was not addressed is the inability of small and micro-capitalization public companies to fully gain the benefits of their publicly traded status. Or more to the point – it might be easier to go public via the IPO process, but why be public in the first place? 

Regardless of size, a company’s status as being publicly traded is an asset. The manner in which a company maximizes the value of its public status is by maximizing the liquidity in its traded securities in the public markets. This results in easier, more predictable capital raising, the ability to use its stock as currency for acquisitions and hiring of key personnel, and less opportunity for “game-playing” by the unsavory Continue Reading GUEST BLOGGER: Tick size remains large obstacle for middle market public companies

Business CombinationsCash may be king, but the use of stock to buy a target company can be very advantageous.  The practice of using stock to purchase a target company never really went away, but it did become less desirable to target company shareholders during the recent economic downturn.  With stock values dropping and access to credit diminishing, mergers and acquisitions that did close were often done in cash.  However, as markets have become more stable and many stocks have risen to higher valuations, purchasers are looking more and more to again use their stock to buy companies.

In a typical merger, the question of whether to use cash, stock, a combination of the two or some other form of consideration is a business decision to be negotiated by the purchaser and target companies, with the consultation of professionals. Despite the recent economic downturn and its effect on market volatility, reduced market volatility over the last three years, combined with a legislative push to assist small businesses in raising capital, has made stock a more attractive form of consideration for buyers and sellers alike.

There are many benefits to using stock in a deal.  Perhaps the most important benefit stems from qualifying the transaction as a tax-free “reorganization,” provided that the transaction is structured properly. As a tax-free reorganization, the target shareholders would generally not have to realize gains on the exchange of their stock for the purchasers stock.  In contrast, target shareholders would normally have to realize gains to the extent they receive cash for their shares in a merger.  So the use of stock in a deal can be very advantageous to seller shareholders for tax reasons.

The use of stock consideration can also assist in addressing possible absolute and relative valuation issues by allowing the parties to negotiate with an eye toward the market. Further, stock consideration can help to minimize deal risks that arise in transactions where Continue Reading Has stock returned as the currency of choice in mergers and acquisitions?

Campaign contribution disclosure rulesPetition and comment letters urging the SEC to create rules requiring public companies to disclose their political contributions may finally be gaining some traction.  We previously blogged about this petition, which was submitted by a group of ten law professors in response to the Supreme Court’s opinion in the Citizens United v. Federal Election Commission case, asking the SEC to consider adopting rules that would require public companies to make disclosures about their political contributions. We also blogged about SEC Commissioner Luis Aguilar’s subsequent comments during a speech stating that the SEC should consider rules requiring this type of disclosure. Until recently, the SEC had not taken any action to consider issuing rules in this area. 

However, according to a Wall Street Journal report from November 8th, the SEC’s Division of Corporate Finance is now considering recommending that the agency’s commissioners propose rules mandating public companies to provide disclosure to shareholders regarding the uses of corporate resources for political purposes. Such rules, of course, would not be inconsistent with the recent trend toward mandating social disclosures in public company filings, like the conflict mineral rules which were recently adopted in August of this year. Although many have argued that these types of social disclosure rules Continue Reading Are political contribution disclosure rules for public companies coming in the near future?

How public companies should handle social mediaSocial media use has experienced a meteoric rise. According to Tweetsmarter (a social media blog), the top five social media sites (Facebook, Twitter, LinkedIn, Google+ and Pinterest) have 1.8 billion users. Many companies have also embraced social media use as a cheap and efficient channel for the dissemination of information. Good examples here include Best Buy’s Facebook page and Whole Foods’ Twitter account.

While social media is a very powerful force in marketing and branding, public companies face significant potential problems from its use.  A public company’s posting of information on a social media site is equivalent to any other written information that is disclosed by other means. If material nonpublic information is disclosed via a social media channel, the company will face the same securities law issues that it would face from any other disclosure made through other means. Accordingly, public companies must consider the possible impacts of social media use and take steps to control and mitigate the potential negative effects of social media use.

While there is no perfect solution to the potential problems that social media use creates for public companies, I have assembled the following list of guidelines and best practices for public companies in the social media area:

Continue Reading Careful with that tweet! Social media considerations for public companies

What has changed with JOBS ActAfter a flurry of news articles when the JOBS Act became law in April, the news cycle has been non-stop election coverage.  While we all look forward to the end of the political advertisements (especially us Floridians), I wanted to take a moment to bring you up to date on the JOBS Act.  So, where are we now?  What has been enacted and what issues have been identified with the JOBS Act?  I look at each of the provisions of the JOBS Act below:

Title I – Reopening American Capital Markets to Emerging Growth Companies (IPO On-Ramp)

Title I eases the path for companies going public by greatly reducing the regulatory burden for companies with less than $1 billion in revenue.  While I believe that regulatory relief is a great first step, Congress should have made much of the relief permanent for small- and mid-cap public companies.  But, I suppose we should take what we can get. 

One of the most used (maybe universally used) provision of Title I is the ability of an Emerging Growth Company (EGC) to submit its initial registration statement confidentially.  This allows a company that begins the IPO process to stop the process without having released its financial and other confidential information to the public or its competitors.  Beginning in October, the SEC streamlined the confidential submission process by moving from an email submission process to an Edgar submission process. 

One of the biggest complaints with the capital raising process for newly public companies and small- to mid-cap public companies in general is their inability to attract investors and establish a market for their securities.  Several provisions in the JOBS Act enhance the EGC’s ability to market its registered offerings.  For example, investment banks are now expressly permitted to publish or otherwise distribute research reports on an EGC at any time before, during, or after any offering, including an IPO.  Previously, research reports, particularly those by investment banks participating in the offering, had to wait at least 25 days after the offering (40 days if the underwriter served as a manager or co-manager).  Unfortunately, because of the risk of lawsuits, investment banks have not fully embraced this change.  The industry standard that has developed is to wait 25 days after the offering to publish reports.  Despite recent rule changes from FINRA, the investment banks’ regulator, the 25-day waiting period will likely persist for now.

And it was just a matter of time, but Continue Reading Update on the JOBS Act: Where are we now?