Melissa Sawyer, Global Co-Head of M&A at Sullivan & Cromwell LLP, has authored a compelling analysis that challenges the efficacy and necessity of the burgeoning trend in supplemental disclosures within Mergers & Acquisitions (M&A) transactions. This article serves as a sequel to her previous impactful works, "Merger Agreements Are Too Long" and "Disclosure Schedules Are a Waste of Money," continuing her examination of the complexities and potential inefficiencies in M&A documentation. Sawyer’s latest piece, drawing on recent deal data, argues that the vast majority of these supplementary disclosures offer little material value to reasonable stockholders and often represent a "path of least resistance" response to litigation tactics rather than genuine efforts to enhance transparency.
The Proliferation of Supplemental Disclosures
In recent years, a noticeable segment of the plaintiffs’ bar has actively pursued additional disclosures from parties involved in M&A transactions. This practice, often initiated through litigation or the threat thereof, aims to extract more detailed information about the deal’s background, financial analyses, and management projections. To investigate this phenomenon, Sawyer’s team analyzed a sample of 51 of the largest all-cash M&A deals announced between January 1, 2024, and May 31, 2026, that had supplemental disclosures. The findings indicate a clear pattern: a handful of plaintiff firms were responsible for the majority of publicized disclosure challenges during this period.
The structure of M&A disclosures typically involves condensing months of intensive negotiations and complex financial modeling into relatively brief summaries. Merger agreement background sections, for instance, may span only a few pages, while extensive financial projections derived from numerous spreadsheets are often distilled into concise tables. This inherent summarization process creates fertile ground for disclosure challenges, as plaintiffs can argue that crucial details or underlying assumptions were omitted.
Common Targets for Disclosure Challenges
The analysis revealed a significant concentration of disclosure deficiencies claims within specific areas. Nearly half of the alleged disclosure inadequancies in the surveyed sample pertained to financial advisor analyses or management projections. This focus is understandable, as these components are inherently data-rich and involve numerous assumptions and calculations, making them prime candidates for detailed scrutiny and requests for additional granularity. Plaintiffs can argue that omitted inputs, specific assumptions, or intermediate steps in financial modeling were material to a reasonable stockholder’s understanding of the deal’s fairness and valuation.
However, Sawyer emphasizes that the mere existence of an "omitted input" or a piece of "banker math" does not automatically equate to a material omission. The legal standard, as established in landmark cases like TSC Industries, Inc. v. Northway, Inc., requires that the omitted information must have been "so important that it would have been significant to the reasonable investor in passing on a proposed transaction." The data suggests that many of these disclosure challenges, particularly those focusing on financial analyses and projections, often fall short of this materiality threshold.
The "Path of Least Resistance"
Despite the legal standard for materiality, transaction parties frequently opt to provide supplemental disclosures and settle these challenges, often by paying a "mootness fee." Sawyer posits that this approach is often driven by a pragmatic calculation: litigating a disclosure challenge can be time-consuming and may risk delaying the transaction’s closing. The costs associated with such litigation, including management’s diverted attention and potential deal disruption, can significantly outweigh the average mootness fee, which is typically modest in comparison to the overall deal value. Dealmakers, therefore, may advise their clients that conceding to supplemental disclosures, even if the added information is arguably immaterial, is the most efficient and cost-effective strategy to ensure a smooth closing.
Materiality Thresholds and the Reality of Supplemental Disclosures
Sawyer’s research indicates that the overwhelming majority of these supplemental disclosures add minimal substantive value. In the sample of 51 large all-cash deals, over three-quarters of the supplemental disclosures involved details that federal courts have previously deemed immaterial. This suggests a pattern of providing information that, while technically additional, does not significantly alter the overall understanding of the transaction for a reasonable investor.
More strikingly, less than 0.2% of the supplemental disclosures contained information of a type that a federal court has actually identified as potentially material. This statistic underscores the core argument: the current practice often results in an abundance of disclosures that do not meet the critical threshold of materiality, failing to provide meaningful assistance to stockholders in their decision-making process.
Examples of Supplemental Disclosures
The article provides concrete examples to illustrate the nature of these supplemental disclosures. In one instance, a supplemental disclosure elaborated on the "fully diluted shares outstanding" calculation used in a discounted cash flow analysis, detailing the number of outstanding shares, options, and restricted stock units. While providing more input detail, the core analysis and its resulting valuation range remained the primary focus.
Another example cited concerns stock price targets from Wall Street research reports. The supplemental disclosure added the median price target, a statistic that, while numerical, may not fundamentally change a stockholder’s perception of the deal’s fairness, especially when juxtaposed with the extensive financial analyses already provided.
Supplemental disclosures related to the transaction process and potential conflicts of interest also featured prominently. These often clarified the absence of conflicts rather than detailing their presence. For example, one disclosure noted that a "Prior Transaction Committee" was formed for oversight and not due to actual conflicts, and it never met but was never formally disbanded. Another stated that at "no point did the parties discuss" a particular employee’s future employment, highlighting the absence of a discussion rather than a substantive event.
Implications and Analysis
Sawyer’s analysis has significant implications for the M&A landscape. Firstly, it highlights a potential regulatory arbitrage where the threat of litigation, rather than the substance of disclosure, drives costly procedural steps. Secondly, it raises questions about the true purpose of M&A disclosures. If the goal is to inform stockholders, then disclosures that are not material, even if voluminous, may be counterproductive, potentially "burying the needle" of truly important information.
The prevalence of these non-material disclosures may also indicate a broader trend of increased litigation risk aversion among dealmakers. The legal system’s response to disclosure challenges, while intended to protect investors, may be inadvertently encouraging a compliance-driven approach that prioritizes avoiding litigation over enhancing genuine shareholder understanding.
Conclusion
Melissa Sawyer’s research provides a data-driven perspective on a critical issue in M&A. The article argues that while transparency is paramount, the current trend of supplemental disclosures, largely driven by litigation concerns, often fails to deliver material information to stockholders. The analysis suggests a need for a re-evaluation of disclosure practices, focusing on substance over form and ensuring that any additional information provided genuinely contributes to a reasonable stockholder’s ability to make informed decisions. The "path of least resistance" in M&A disclosure, as Sawyer’s work implies, may ultimately be a path that leads away from effective shareholder communication.
