Wednesday’s blog post on 8-Ks for M&A brought up an interesting discussion about materiality. Unlike IR’s “non-deal 8-k,” an 8-K for M&A can be determined by quantitative math-based triggers called significance tests.
M&A 8-Ks can be defined by the significance testing described in Rule 3-05 of Regulation S-X. Rather than “being material,” the results are referred to as “significant” and the end math affects the pro forma 8-K.
Investment test = purchase price ÷ acquirer total assets
Asset test = target total assets ÷ acquirer total assets
Income test = target pre-tax income ÷ acquirer pre=tax income
When the significance results of any of these tests is greater than 20%, pro forma financial statements will generally be required to be filed via an 8-K/A mentioned yesterday. For a deep dive on this, Sherman & Sterling is recommended reading.
“Non-deal 8-K” material triggered events include:
- Entering into amending or terminating a material contract
- Material dispositions
- The disclosure of quarterly or annual financial results
- Material financing arrangements
- The acceleration of material financing obligations
- Material exit or disposal activities (bankruptcy or receivership)
- Delisting or noncompliance with a listing rule
- Unregistered sales of the company’s equity securities
- A change in accountants
- A change in auditors
- A change in compensation of certain officers
- A determination that the company’s previously issued financial statements should no longer be relied upon (restatement)
- Changes in the board of directors
- The appointment, retirement, resignation or termination of certain executive officers, or the entry into or amendment of a material compensatory arrangement with such officers
- Charter and bylaw amendments
- Amendments to or waivers of the company’s code of ethics
- Voting results of shareholders’ meetings
- Material debt incurred
- Changes in control of the company
With some exceptions, 8-K are generally required to be filed with or furnished to the SEC within four business days after the occurrence of the event to be disclosed. RegFD defines the outer boundary for “prompt disclosure” to mean as soon as reasonably practical, but within 24 hours or by the start of the next day’s trading on the NYSE, regardless of where or whether the company’s stock is traded.
PS: a “non-deal 8-K” is not really a thing. It simply sounded more IR-ish than saying a “normal 8-K” in this blog post.