On June 29, the Federal Trade Commission (FTC) published its updated Guides Concerning the Use of Endorsements and Testimonials in Advertising (“Guides”), together with an FAQ document, FTC’s Endorsement Guides: What People Are Asking (“FAQ”). One day later, it announced its proposal for a new Trade Regulation Rule on the Use of Consumer Reviews and Testimonials (“Trade Regulation”). In the spirt of the FTC’s FAQ, we figured we would post a brief one of our own, highlighting some of the big changes (and non-changes).
With continued headwinds that include rising interest rates, high inflation and the general sentiment of a recission that is always right around the corner, the outlook for merger and acquisition activity generally – and for the retail industry in particular – seems likely to include more transactions with distressed targets than in recent years. Here is a brief summary of some unique considerations for deals involving distressed targets to help you brush up your playbook for potential transactions as the U.S. and world continue to navigate a challenging macroeconomic environment:
- Transaction Structure – Given the general ability to pick-and-choose what assets a purchaser wants to acquire, and what liabilities a seller is willing to assume, distressed transactions frequently are structured as asset sales rather than equity sales or mergers. The benefits to a buyer of being able to select the assets it purchases and the liabilities it assumes, and tax benefits of the step-up in basis that the buyer can receive by purchasing assets, typically outweigh the burden of additional third-party consents associated with asset deals. It is critical for buyers in an asset deal to ensure that the purchase agreement is clear on the assets being purchased to ensure that the scope includes everything the buyer intends to purchase and the liabilities that it is (and is not) assuming to avoid taking on unintended obligations from a seller.
Over the last few years, perhaps prompted by the proliferation of subscriptions for consumer goods and services during the pandemic, several states have passed new automatic renewal laws (ARLs) that regulate continuing or renewing contracts. Other states have likewise amended existing ARLs to add detailed restrictions and requirements. Our most recent coverage of those efforts can be found in our Fall 2021 and Summer 2022 alerts.
With such activity at the state level, it was only a matter of time before federal regulators joined the fray. The Federal Trade Commission (FTC) recently did so by issuing a statement regarding its nearly 50-year-old Negative Option Rule. As announced by the FTC, the existing federal regulatory regime has “major gaps”: the Negative Option Rule regulates only “prenotification plans” (where sellers send products and charge for them unless consumers decline); the Telemarketing Sales Rule (TSR) regulates only telemarketing; and the Restore Online Shoppers’ Confidence Act (ROSCA) regulates only online purchases.