Tender Offer Rules and Schedules

Question: Must issuer exchange offers that are conducted for compensatory purposes comply with Rules 13e-4(f)(8)(i) and (ii), the all holders and best price rules?

Answer: Pursuant to a 2001 exemptive order, such offers need not comply with Rules 13e-4(f)(8)(i) and (ii) so long as the following conditions are met:

• the issuer is eligible to use Form S-8, the options subject to the exchange offer were issued under an employee benefit plan as defined in Rule 405 under the Securities Act, and the securities offered in the exchange offer will be issued under such an employee benefit plan;
• the exchange offer is conducted for compensatory purposes;
• the issuer discloses in the offer to purchase the essential features and significance of the exchange offer, including risks that option holders should consider in deciding whether to accept the offer; and
• except as exempted in such order, the issuer complies with Rule 13e-4.

Issuers that are subject to Rule 13e-4 are reminded that the remaining provisions of Rule 13e-4, as well as Regulation 14E, apply to these exchange offers. A Schedule TO-I must be filed at the time the exchange offer commences, and the disclosure required by the schedule must be disseminated to option holders in accordance with Rule 13e-4. The disclosure items of the Schedule TO-I must be complied with in the offer to purchase only to the extent applicable. The disclosure should set forth clearly the essential features and significance of the exchange offer, including risks that option holders should consider in deciding whether to accept the offer. The disclosure also should include financial information about the issuer, which generally is material to the option holders’ investment decisions. See Item 10 of Schedule TO. The financial information in the disclosure may be in summary form if the issuer incorporates its financial statements by reference into the schedule and offer to purchase. See Instruction 6 to Item 10 of Schedule TO. [March 17, 2023]

Question 104.02

Question: An issuer makes a tender offer for its debt securities that are convertible into the Section 12-registered common stock of another unaffiliated issuer. The common stock, amounting to less than 5 percent of the class, had been purchased and placed in escrow at the time the debt securities were issued. The issuer of the debt securities making the tender offer currently owns none of the common stock of the unaffiliated issuer. Is the tender offer subject to Rule 13e-4?

Answer: To the extent the offer is for an equity security, as defined in Rule 3a11-1, the equity security was issued by a company other than the issuer conducting the tender offer. The offer, therefore, is not subject to Rule 13e-4. Because consummation of the offer would not result in the bidder owning more than 5 percent of the subject class, Exchange Act Section 14(d) is inapplicable. The offer is, however, subject to Section 14(e) and the Regulation 14E rules. [March 17, 2023]

Question: A third-party bidder makes a tender offer for convertible debt securities. The class of such debt securities is not registered under Exchange Act Section 12. However, the debt securities are convertible into common stock, and the class of such common stock is registered under Section 12. Is the offer for debt securities subject to the requirements of Exchange Act Section 14(d) and Regulation 14D?

Answer: No, the tender offer is not subject to Section 14(d) and Regulation 14D. Although the conversion feature results in the debt securities being a class of “equity securities” within the meaning of Exchange Act Section 3(a)(11) and Rule 3a11-1, the tender offer is not subject to Section 14(d) and Regulation 14D because the class of debt securities itself is not registered under the Exchange Act. [March 17, 2023]

Question 130.02

Question: X and Y are conducting competing tender offers subject to Section 14(d) and Regulation 14D for the shares of common stock of Company Z. X decides to tender to Y the shares of Company Z it owns or expects to acquire pursuant to its tender offer. What disclosures should X provide?

Answer: Regulation 14D does not prohibit X from tendering its Z shares to Y. X’s tender offer materials must be reviewed, however, to determine if there are any statements or conditions in X’s Schedule TO-T (or Schedule 14D-9 if one has been filed by X pursuant to Rule 14d-9(b) relating to X’s recommendations concerning whether the subject shareholders should tender to Y) which state that X will not tender to Y (or another party) or that set forth a condition that would be triggered by such a tender. In addition, X must (1) announce its decision to tender to Y as soon as possible after the decision; (2) amend its Schedule TO-T to reflect this material change and disseminate any other additional material changes in the information prompted by the need to comply with Section 14(e), including, but not limited to, changes relating to the merits of X’s offer as promptly as possible in accordance with Rule 14d-4(d); and (3) make a determination whether an offer condition has been triggered, and, if so, whether or not X intends to waive or assert the offer condition. [March 17, 2023]

Question: May a bidder in a tender offer subject to Exchange Act Section 14(d) and Regulation 14D accept and pay for tendered shares prior to the end of the withdrawal periods specified in Exchange Act Section 14(d)(5) and Rule 14d-7 if such purchase is also subject to the offeree’s right of rescission?

Answer: No. The right of rescission is merely a contractual right under state law, whereas the right of withdrawal is a right created by federal statute and also governed by a rule promulgated under the Exchange Act. [March 17, 2023]

Question: An affiliate conducting a third-party tender offer subject to Rule 13e-3 will disseminate the tender offer materials and the disclosures required by Rule 13e-3 by mailing the disclosure document to security holders. Although Rule 14d-4(a)(2)(i) does not authorize a summary advertisement to be used to commence a tender offer subject to Rule 13e-3, can the bidder, several days after validly commencing the tender offer via other permissible means (see, e.g., Instruction to paragraph (a) of Rule 14d-4(a)), publish a summary advertisement complying with Rule 14d-6(b) and noting that the offer will result in the issuer “going private?”

Answer: Yes. [March 17, 2023]

Question: A foreign bidder and U.S. target with a class of equity securities registered under Exchange Act Section 12 entered into a memorandum of understanding whereby the foreign bidder will buy shares from insiders and engage in a cash tender offer to acquire the rest of the shares. If the bidder and the target make a joint statement setting forth the identities of the parties, the consideration to be paid, and the amount and class of securities being sought, is such a statement considered a pre-commencement communication by each party subject to Regulation 14D?

Answer: Yes, such a statement is considered a pre-commencement communication and is subject to Rules 14d-2(b)-(c) and 14d-9(a). [March 17, 2023]

Question: Three separate offers were contemporaneously made by a bidder for three different classes of the target’s stock. The bidder conditioned its obligation to purchase securities on a separate minimum condition being met with respect to each class. Can the bidder waive the minimum condition with respect to one class without extending the offers for the other classes?

Answer: No. Minimum conditions are considered material conditions. In this case, changes in or waivers of the minimum condition for each offer would also be considered material changes or developments with respect to the other two offers. The bidder, therefore, should not waive the minimum condition with respect to one class without extending all three offers, to the extent necessary, so at least five business days remain prior to the time of expiration. [March 17, 2023]

Question: A bidder, in making its written request for a security holder list in connection with the dissemination of its initial tender offer materials pursuant to Rule 14d-5, elects to disseminate amendments under Rule 14d-5(f)(1) rather than require the subject company to disseminate amendments to the materials (assuming that it otherwise could identify all holders). The subject company elects to mail the materials for the bidder under Rule 14d-5(a)(3), rather than furnish a stockholder list to the bidder. Prior to delivering the materials to the subject company for mailing, the bidder increases the tender offer price and the materials delivered to the subject company reflect this increased price. Since the subject company is not responsible for disseminating amendments, is the subject company required under Rule 14d-5 to mail the amended tender offer material?

Answer: Yes. Once having elected to mail the initial tender offer documents, the subject company is obligated to mail such materials because such information reflects only an amendment to the tender offer made prior to the bidder’s original delivery of the initial offering material to the subject company. The bidder is obligated to disseminate the amendment under these circumstances, as the revised disclosure is viewed as part of the “tender offer materials” that the subject company remains obligated to disseminate under Rule 14d-5(b). [March 17, 2023]

Question: Rule 14d-7 provides that any tendering security holder has the right to withdraw its tendered securities “during the period such offer request or invitation remains open.” If a bidder extends an offer period, can it limit the availability of withdrawal rights during this extended offer period to a select group of the subject company’s security holders (e.g., only those security holders who tendered prior to the extension of the offer period)?

Answer: No, the withdrawal rights required under Rule 14d-7 must be made available to all security holders during any extension of the offer period. [March 17, 2023]

Question: Can a bidder conduct a tender offer that conditions the acceptance of shares from the controlling shareholder on the grant of representations and warranties by that security holder with respect to the accuracy of the issuer’s books and records and financial statements?

Answer: Although the bidder could condition the entire offer on the grant of such warranties, it could not impose conditions upon the acceptance of one individual security holder’s tender without violating the “all-holders” provision of Rule 14d-10. [March 17, 2023]

Question: Item 10 of Schedule TO requires disclosure of financial information concerning a bidder when the bidder’s financial condition is material to a decision by a security holder whether to sell, tender, or hold securities sought in a tender offer. Are there circumstances that require disclosure of financial information of a bidder who is a natural person?

Answer: Yes, as set forth in footnote 22 of Release No. 34-13787 (July 21, 1977) (adopting former Schedule 14D-1, predecessor to current Schedule TO), financial information concerning a bidder who is a natural person may be required in certain circumstances. For example, bidders who are natural persons may be required to disclose information concerning their net worth in accordance with Instruction 4 to Item 10 of Schedule TO. [March 17, 2023]

Question: Item 5 of Schedule 14D-9 and Item 1009(a) of Regulation M-A together require a summary of all material terms of employment, retainer or other arrangement for compensation regarding "all persons [ ] that are directly or indirectly employed, retained, or to be compensated to make solicitations or recommendations in connection with" a transaction subject to the provision. Is a financial advisor engaged by an issuer's board or independent committee for the exclusive purpose of providing financial advice considered a person "directly or indirectly employed, retained, or to be compensated to make solicitations or recommendations" within the meaning of Item 1009(a), even if its opinion expressly states that it is not making a solicitation or recommendation to any of the target company shareholders?

Answer: Yes. Notwithstanding the disclaimer that it is not making a solicitation or recommendation, a financial advisor engaged by the issuer's board or independent committee to provide advice with respect to the tender or exchange offer and whose analyses or conclusions are discussed in the issuer's Schedule 14D-9 is "indirectly employed, retained, or to be compensated" to assist the issuer to make its Schedule 14D-9 solicitation or recommendation. [November 18, 2016]

Question 159.02

Question: Item 5 of Schedule 14D-9 and Item 1009(a) of Regulation M-A together require a "summary of all material terms" of employment, retainer or other arrangement for compensation paid or to be paid to all persons directly or indirectly employed, retained, or to be compensated to make solicitations or recommendations in connection with the transaction. Would disclosing that "customary compensation" will be paid to financial advisors engaged to assist the issuer in making its required response to a tender or exchange offer, without any further details, satisfy this requirement?

Answer: While such a determination ultimately depends on the relevant facts and circumstances, generic disclosure such as “customary compensation” will ordinarily be insufficient as it lacks the specificity needed to assist security holders in evaluating the merits of the solicitation or recommendation and the objectivity of the financial advisors’ analyses or conclusions used to support such solicitation or recommendation. See generally Exchange Act Release No. 16384 (Nov. 29, 1979)(stating that the disclosure in Schedule 14D-9 is intended to “assist security holders in making their investment decision and in evaluating the merits of a solicitation/recommendation”). While quantifying the amount of compensation payable to the financial advisors may not necessarily be required in all instances, disclosure of the summary of the material terms of the financial advisors’ compensatory arrangements would generally include:

• the types of fees payable to the financial advisors (e.g., independence fees, sale transaction or “success” fees, periodic advisory fees, or discretionary fees);
• if multiple types of fees are payable to the financial advisors and there is no quantification of these fees, then sufficiently-detailed narrative disclosure to allow security holders to identify the fees that will provide the primary financial incentives for the financial advisors;
• any contingencies, milestones, or triggers relating to the payment of the financial advisors’ compensation (e.g., the payment of a fee upon the consummation of a transaction, including with a bidder in an unsolicited tender or exchange offer); and
• any other information about the compensatory arrangement that would be material to security holders’ assessment of the financial advisors’ analyses or conclusions, including any material incentives or conflicts that should be considered as part of this assessment. [November 18, 2016]

Question: Does Regulation 14E apply to tender offers for securities of a non-reporting company?

Answer: Yes. Pursuant to Rule 14d-1(a), Regulation 14E applies to tender offers for any securities other than exempted securities, as defined by Exchange Act Section 3(a)(12). This includes issuer and third-party tender offers, (i) whether for debt or equity securities, (ii) whether or not such securities belong to a class registered pursuant to Exchange Act Section 12, and (iii) whether or not the subject company, as defined in Item 1000(f) of Regulation M-A, is required to file periodic reports pursuant to Exchange Act Section 15(d). [March 17, 2023]

Question: The Abbreviated Tender or Exchange Offers for Non-Convertible Debt Securities no-action letter (Jan. 23, 2015) states that if the issuer is an Exchange Act reporting company, the issuer must furnish a press release announcing the abbreviated offer on a Form 8-K filed prior to 12:00 noon, Eastern time, on the first business day of the abbreviated offer. Can a foreign private issuer satisfy this condition by filing a Form 6-K?

Answer: Yes. [November 18, 2016]

Question: The Abbreviated Tender or Exchange Offers for Non-Convertible Debt Securities no-action letter (Jan. 23, 2015) states that abbreviated offers must be made “for any and all” subject debt securities. Does this mean that abbreviated offers cannot have minimum tender conditions?

Answer: No. Abbreviated offers can have minimum tender conditions. [November 18, 2016]

Question 162.03

Question: Under the Abbreviated Tender or Exchange Offers for Non-Convertible Debt Securities no-action letter (Jan. 23, 2015), abbreviated offers for cash consideration to all holders may be made for a fixed amount of cash or for an amount of cash calculated with reference to a fixed spread to a benchmark as of the last business day of the offer. The letter also provides that abbreviated offers for consideration consisting of Qualified Debt Securities, as defined in the letter, may be made to all persons who are QIBs and non-U.S. persons for a fixed amount of Qualified Debt Securities or for an amount of Qualified Debt Securities calculated with reference to a fixed spread to a benchmark, so long as a fixed amount of cash consideration is concurrently offered to persons other than QIBs and non-U.S. persons to approximate the value of the offered Qualified Debt Securities. In the latter case, can the amount of cash consideration offered to persons other than QIBs and non-U.S. persons instead be calculated with reference to a fixed spread to a benchmark?

Answer: Yes, the amount of cash consideration offered concurrently to persons other than QIBs and non-U.S. persons can be calculated with reference to a fixed spread to a benchmark, provided that the calculation is the same as the calculation used in determining the amount of Qualified Debt Securities. [November 18, 2016]

Question: Can offerors issue Qualified Debt Securities under Securities Act Section 3(a)(9), rather than Securities Act Section 4(a)(2) or Securities Act Rule 144A, to Eligible Exchange Offer Participants, as defined in the letter, and still conduct an abbreviated offer in reliance on the Abbreviated Tender or Exchange Offers for Non-Convertible Debt Securities no-action letter (Jan. 23, 2015)?

Answer: Yes. [November 18, 2016]

Question 162.05

Question: One of the conditions specified in the Abbreviated Tender or Exchange Offers for Non-Convertible Debt Securities no-action letter (Jan. 23, 2015) is that the abbreviated offer not be “commenced within ten business days after the first public announcement or the consummation of the purchase, sale or transfer by the issuer or any of its subsidiaries of a material business or amount of assets that would require the furnishing of pro forma financial information with respect to such transaction pursuant to Article 11 of Regulation S-X (whether or not the issuer is a registrant under the Exchange Act).” If the offeror announces one of these transactions, when can it announce the abbreviated offer?

Answer: Offerors may announce the abbreviated offer at any time, but should not commence the abbreviated offer prior to 5:01 p.m. on the tenth business day after the first public announcement of a purchase, sale or transfer of a material business or amount of assets described in the letter. Note that, if the abbreviated offer is commenced after 5:01 p.m. on a particular business day, the first day of the five business day period would be the next business day. [November 18, 2016]

Question: Two competing tender offers describe the bidders’ intent to acquire any shares remaining after completion of their respective offers through second-step “squeeze-out” transactions. Where the type or the amount of the consideration to be paid in the second-step squeeze-out transaction changes from what was disclosed in the initial offer materials, is the bidder obligated to extend the first-step tender offer?

Answer: Although Rule 14e-1(b) is not directly implicated because the terms of the first-step tender offer are unchanged, the type or amount of consideration to be offered in the second-step “squeeze-out” transaction may nevertheless be material to shareholders’ decision on whether or not to participate in the first-step tender offer. A material change to the consideration offered in the second-step transaction may therefore be comparable in significance to a material change in consideration offered in a tender offer subject to Rule 14e-1(b). See footnote 70 in Release No. 23421 (July 11, 1986). Accordingly, the first-step tender offer must remain open for a minimum of ten business days from the date that a change in the type or amount of consideration offered in the second-step “squeeze-out” transaction is first published, sent or given to security holders, and the bidders must extend the offers if needed to ensure this minimum period of time. [March 17, 2023]

Question: Rule 14e-1(c) requires that an offeror in a tender offer either pay the consideration offered or return the securities tendered “promptly” after the withdrawal or termination of the tender offer. Can the offeror delay payment because it must obtain regulatory approvals before completing the purchase?

Answer: Depending on the length of the delay resulting from the offeror awaiting regulatory approvals, the staff will not object to the delay, provided the tender offer materials fully disclose the possibility of such delay. [March 17, 2023]

Question: In a third-party tender offer, may the target company satisfy its requirement to publish, send or give to security holders the statement required by Rule 14e-2 by attaching its solicitation/recommendation statement to materials sent by the bidder to security holders?

Answer: Yes. If the tender offer is subject to Regulation 14D, the target company must also comply with its obligations under Rule 14d-9. [March 17, 2023]

Question: An issuer will conduct a tender offer in accordance with Rule 13e-4. Before the tender offer commences, however, the issuer proposes to purchase in the open market some of the securities that will be the subject of the tender offer. Would such purchases violate Rule 14e-3?

Answer: No. If an issuer has taken a substantial step to commence, or has commenced a tender offer, Rule 14e-3 places a “disclose or abstain from trading” burden on “any other person” in possession of material, nonpublic information relating to the tender offer and acquired from the issuer or any of its officers, directors, partners or employees or any other person acting on the issuer’s behalf. As explained in footnote 34 in Release No. 34-17120 (September 4, 1980), “any other person” means “someone other than the offering person, or in the case of an issuer tender offer, the issuer.” Note that, to the extent that the issuer had publicly announced its intention to commence a tender offer, the issuer would have to consider the application of Rule 14e-5 to its proposed open market purchases. [March 17, 2023]

Question: A special purpose acquisition company (SPAC) publicly announces its intention to engage in a business combination transaction with another company. In connection with this business combination transaction, the SPAC will offer its security holders the right to redeem the SPAC securities in exchange for a pro rata portion of the funds held in the SPAC’s trust account. The SPAC sponsor also plans to purchase the SPAC securities outside of this redemption offer. Does the Rule 14e-5 prohibition of purchases outside of a tender offer apply to the SPAC sponsor’s purchases?

Answer: SPAC redemption provisions generally have indicia of being a tender offer, such as a limited period of time for SPAC security holders to request redemptions. To the extent that the SPAC redemption offer constitutes a tender offer, the Rule 14e-5 prohibition applies to the purchases of SPAC securities by the SPAC sponsor or its affiliates outside of the redemption offer.

For policy reasons, however, the staff will not object to purchases by the SPAC sponsor or its affiliates outside of the redemption offer as long as the following conditions are satisfied:

• the Securities Act registration statement or proxy statement filed for the business combination transaction discloses the possibility that the SPAC sponsor or its affiliates will purchase the SPAC securities outside the redemption process, along with the purpose of such purchases;
• the SPAC sponsor or its affiliates will purchase the SPAC securities at a price no higher than the price offered through the SPAC redemption process;
• the Securities Act registration statement or proxy statement filed for the business combination transaction includes a representation that any SPAC securities purchased by the SPAC sponsor or its affiliates would not be voted in favor of approving the business combination transaction;
• the SPAC sponsor and its affiliates do not possess any redemption rights with respect to the SPAC securities or, if they possess redemption rights, they waive such rights; and
• the SPAC discloses in a Form 8-K, prior to the security holder meeting to approve the business combination transaction, the following:
  • the amount of SPAC securities purchased outside of the redemption offer by the SPAC sponsor or its affiliates, along with the purchase price;
  • the purpose of the purchases by the SPAC sponsor or its affiliates;
  • the impact, if any, of the purchases by the SPAC sponsor or its affiliates on the likelihood that the business combination transaction will be approved;
  • the identities of SPAC security holders who sold to the SPAC sponsor or its affiliates (if not purchased on the open market) or the nature of SPAC security holders (e.g., 5% security holders) who sold to the SPAC sponsor or its affiliates; and
  • the number of SPAC securities for which the SPAC has received redemption requests pursuant to its redemption offer. [March 22, 2022]

Question: Is an arrangement whereby directors of an acquired company become directors of the acquiring company without an election subject to Rule 14f-1?

Answer: No, Rule 14f-1 would apply only in the converse situation where there is an arrangement for the acquiring company to appoint directors of the acquired company without an election. [March 17, 2023]