Release No. 33-6618

Release No. 34-22788

Release No. IC-14894

January 14, 1986

ACTION: Final rules.

SUMMARY: The Commission has adopted amendments to Rule 13e-4, which regulates cash tender offers and exchange offers by issuers for their equity securities.

The amendments require that an issuer tender offer subject to the rule remain open for a minimum period of 20 business days, and that securities be accepted on a pro rata basis from among securities tendered throughout the offer if a greater number of securities is tendered than the number the issuer is willing to accept. The amendments require an initial minimum 15 business day period during which tendered securities can be withdrawn and require an issuer to extend withdrawal rights on the date, and until the expiration of ten business days following the date, of commencement by a third party tender offer for the issuers securities. In addition, the amendments require that an issuer tender offer remain open for a minimum period of ten business days from the date of an increase in the consideration offered or the price paid to dealers to solicit shareholders to tender their shares to the issuer. The amendments also revise the definition of the term business day, and specify that the time periods shall run concurrently, not consecutively. Companion amendments have been adopted to Rule 14e-1.

EFFECTIVE DATE: March 1, 1986.

FOR FURTHER INFORMATION CONTACT: Nancy J. Burke at (202) 272-2848, or Deren E. Manasevit at (202) 272-7494, Office of Legal Policy and Trading Practices, Division of Market Regulation, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. BACKGROUND

In August 1979, the Commission adopted Rule 13e-4 ¹("Rule"), and a related Schedule 13E-4, ² under the Securities Exchange Act of 1934 ("Exchange Act") ³ regulating cash tender offers and exchange offers by issuers for the equity securities. ⁴ The Rule and Schedule are patterned substantially on the regulatory scheme established by Sections 14(d) and 14(e) of the Exchange Act ⁵ and the rules promulgated thereunder relating to tender offers made by third parties for an issuers equity securities.

On July 1, 1985, the Commission proposed amendments ⁶ to Rules 13e-4 and 14e-1 ⁷ under the Exchange Act together with publication of proposed Rule 14d-10 under the Exchange Act. ⁸ In this release, the Commission is adopting the proposed amendments to Rules 13e-4 and 14e-1 solely as they relate to the time periods applicable to tender offers by issuers for their own securities. ⁹

II. AMENDMENTS TO THE TIME PERIODS

In the Proposing Release, the Commission proposed several amendments to the time periods specified for issuer tender offers whose purpose was primarily to bring those time periods into conformity with the time periods specified for third party offers. Sixteen comment letters were submitted on the proposed amendments to the time periods. ¹⁰

As discussed extensively in the Proposing Release, the minimum offering, withdrawal, and proration periods specified by the Rule for issuer tender offers are generally shorter than those specified for third party offers by Rules 14d-7, 14d-8, and 14e-1 under the Exchange Act. ¹¹ The disparity between the time periods may create confusion detrimental to shareholders, and may give issuers making defensive issuer tender offers unfair advantages over competing third party offers. In addition, tender offer practices have changed substantially since the Rule was adopted. Issuer tender offers more frequently are being made as defenses to hostile third party offers, and the consideration being offered by the issuer to its security holders has become increasingly more complicated and difficult to evaluate. The Commission believes that bringing the minimum offering, withdrawal, and proration periods into conformity with those governing third party offers will reduce the confusion inherent in disparate time periods, will reform the Rule to account for changes in tender offer practices, and will remove any unfair advantages that the shorter periods may afford issuers making tender offers in competition with third party tender offers.

A. Offering Periods

Currently, paragraph (f)(1) of the Rule requires an issuer tender offer to remain open for at least 15 business days from its commencement. ¹² Rule 14e-1(a) requires an issuer tender offer to remain open for a minimum of 20 business days (the same period required by Rule 14e-1(a) for third party offers) if the issuer tender offer is made "in anticipation of or in response to" a third party offer. ¹³ As the Commission discussed in the Proposing Release, ¹⁴ recent developments in tender offer practices, such as large issuer tender offers involving complicated packages of debt and equity securities, suggest that the minimum offering periods required by the Rule should be the same as those required by the third party rules to allow investors to make the kind of well-informed, unpressured investment decision that the Williams Act ¹⁵ and the Rule were designed to facilitate. In addition, the disparities in the offering periods for issuer, defensive issuer, and third party tender offers can create confusion for security holders, and may present the difficult factual question whether an issuer tender offer was made "in anticipation of or in response to" a third party offer.

To remedy these problems, under the amendments to Rules 13e-4 and 14e-1, all issuer tender offers will be required to remain open for a minimum period of 20 business days. In addition, paragraph (f)(1) of the Rule will require an issuer tender offer to remain open for a minimum period of ten business days following an increase in the consideration offered or the fee paid to a dealer to solicit security holders to tender their shares to the issuer. ¹⁶ These additional requirements will parallel what is currently required by Rule 14e-1(b) for third party offers and for defensive issuer tender offers. As more fully discussed in the Proposing Release, ¹⁷ the Commission believes that security holders need a minimum period of time in which to consider these increases since they represent material changes in the terms of the tender offer, and can increase the pressure on security holders to tender their shares to the issuer. ¹⁸

The amendments will also remove the provisions from paragraphs (a) and (b) of Rule 14e-1, which make those paragraphs applicable only to defensive issuer tender offers. The amendments will therefore remove the troubling factual problem of determining whether an issuer tender offer was made "in anticipation of or in response to" a third party offer. As a result, all issuer tender offers, whether or not subject to Rule 13e-4, will be subject to the minimum offering periods specified by Rule 14e-1(a) and (b). ¹⁹

B. Withdrawal Periods

Currently, paragraph (f)(2) of the Rule ²⁰ requires that an issuer afford security holders withdrawal rights for a minimum period of ten business days following the commencement of the issuer tender offer and, if securities have not yet been accepted for payment, for a minimum period of seven business days following the commencement of a tender offer by a third party for the same class of securities, and after 40 business days after the commencement of the issuer tender offer.

As the Commission stated more fully in the Proposing Release, ²¹ the purpose behind extending the minimum offering periods applicable to issuer tender offers to bring them into conformity with those applicable to third party offers apply with equal force in the context of the issuers shorter withdrawal period. Therefore, the amendment extending the minimum withdrawal period from ten business days to 15 business days to match Rule 14d-7(a)(2) ²² governing the minimum withdrawal period in third party offers has been adopted as proposed.

Upon the commencement of a third party tender offer, a preceding third party offeror must grant security holders withdrawal rights for a minimum period of ten business days, ²³ while a preceding issuer tender offeror must grant additional withdrawal rights for a minimum period of only seven business days. ²⁴ The amendments to Rule 13e-4 extend the minimum seven business day period to ten business days. The amendments give security holders who have tendered to the issuer a reasonable amount of time in which to assess the new third party offer, and will eliminate any advantage that the shorter period may afford issuers over third parties.

Rule 14d-7(a)(2) requires a third party offeror to grant additional withdrawal rights as specified by that rule upon the commencement of another bidders tender offer. Since Rule 14d-1(b)(1) ²⁵ defines "bidder" as not including an issuer who makes a tender offer for its own securities, the commencement of an issuer tender offer does not trigger additional withdrawal rights in a preceding third party tender offer. Although some commentators suggested that the commencement of an issuer tender offer should trigger additional withdrawal rights in preceding third party offers for the issuers securities, the Commission is not now proposing to amend Rule 14d-1(b)(1) in this respect. The Commission continues to believe that the possible abuses (such as defensive issuer tender offers for a de minimis number of shares, or highly conditional defensive issuer tender offers) outweigh any disadvantages presented by the difference in treatment. ²⁶ In addition, the Commission notes that, unlike third parties, who must commence a tender offer within five business days of the public announcement of the offer, ²⁷ issuers are not required to commence an issuer tender offer within a specified period after announcing the offer. Therefore, an issuer contemplating a defensive issuer tender offer can announce its intention to make a tender offer at an early point within the initial withdrawal period in the third party tender offer even if the issuer is unable to commence the issuer tender offer until after the expiration of that period. ²⁸ Security holders would not be disadvantaged if they withdrew their shares from the third party offer in expectation of the issuers defensive tender offer, since they could re-tender them to the third party if the issuer tender offer did not materialize or was not as attractive as the third party offer, and Rule 14d-8 ²⁹ requires a third party to purchase securities on a pro rata basis from among all securities tendered throughout the period that a partial tender offer remains open. ³⁰

C. Proration Periods

Paragraph (f)(3) of Rule 13e-4 ³¹ requires an issuer to accept securities on a pro rata basis from among securities tendered during a minimum period of ten business days from the commencement of the issuer tender offer if the number of securities tendered during that period is greater than the number the issuer is willing to accept. Since the withdrawal period in issuer tender offers is also currently ten business days from commencement (prior to the amendment adopted today to increase the period to 15 business days), an issuer can purchase securities after ten business days.

In contrast, Rule 14d-8 requires a third party offeror, in a partial tender offer, to accept securities on a pro rata basis from among securities tendered throughout the period that the third party offer remains open. Since the minimum offering period required of third party offers by Rule 14e-1(a) is 20 business days, a third party offeror making a partial offer cannot purchase securities tendered to it for at least 20 business days.

In the Proposing Release, the Commission noted that the Advisory Committee believed that the issuers shorter proration period caused security holders to lose the protections afforded by the minimum offering period, and, therefore by the minimum proration period, required of third party offers. ³² Since the issuer can purchase securities pursuant to the issuer offer before a competing third party offeror can purchase pursuant to the third party offer, security holders are pressured to tender quickly into the issuers offer. Moreover, the third party bidder has very little time to consider changing its offer in response to the issuer tender offer. The Advisory Committee therefore recommended: "Once a third party tender offer has commenced, the target company should not be permitted to initiate a self tender with a proration date earlier than that of any tender offer commenced prior to the self-tender." ³³

The Commission agreed with the Advisory Committee, and in the Proposing Release proposed an amendment to Rule 13e-4(f)(3) that would require an issuer to accept tendered securities on a pro rata basis from among securities tendered throughout the period that the issuer tender offer remains open. Combined with the amendment requiring an issuer tender offer to remain open for a minimum period of 20 business days, an issuer would not be able to purchase shares pursuant to its offer for at least 20 business days after the commencement of the issuer tender offer.

Several commentators objected to the proposed prorationing amendment. They generally asserted that the effect of the amendment would be to shift the current advantage from the issuer to the third party bidder. They maintained that the Commission should either leave the proration period at ten business days, or, if necessary, amend the Rule so that the proration date in the issuer tender offer would be the same as the proration date in a preceding third party offer, as long as the issuer commenced its tender offer within ten business days of the commencement of the third party offer.

As discussed in the Proposing Release, ³⁴ the Commission continues to believe that the expiration of the proration period represents a crucial point in the tender offer for security holders who might be foreclosed from participating in the tender offer at all if they fail to tender within the proration period. The requirement that the tender offer remain open for a minimum period after commencement or after material developments in the terms of the tender offer loses meaning if the termination of the proration period has occurred or is imminent. ³⁵ In addition, the rules providing for additional withdrawal rights in ongoing offers upon the commencement of new offers are designed to give security holders the opportunity to evaluate all of their options before becoming committed to one particular offer. These additional withdrawal rights may also lose meaning if the proration period in the issuer tender offer has expired.

Finally, the Commission remains unconvinced that, in a contest among several parties for the securities of an issuer, the rules as amended would afford any offeror an advantage over any other offeror. A second tender offer is generally at a disadvantage vis a vis a preceding tender offer. On balance, the tender offer regulatory scheme does not place the issuer at any greater disadvantage than any third party offeror commencing a tender offer subsequent to an initial tender offer by a third party. ³⁶ As a result, the Commission is adopting the amendment as proposed. ³⁷

III. OTHER AMENDMENTS

A. Definition of "Business Day"

The amendments also revise the definition of the term "business day" in Rule 13e-4(a)(3) ³⁸ to conform it to the definition of that term in Rule 14d-1(b)(6). ³⁹ The amendment reflects current interpretations by the Division of Market Regulation.

B. New Paragraph (f)(7)

New paragraph (f)(7), which mirrors Rule 14d-7(b), ⁴⁰ provides that the time periods for the minimum offering and withdrawal rights periods shall be computed on a concurrent, as opposed to a consecutive, basis. The amendment furthers the Rules objective of providing an adequate period of time for shareholder action following a significant development in an issuer tender offer, but will not necessarily require that the minimum offering or withdrawal rights period be extended if the additional specified time periods expire on or before the expiration of the original offering and withdrawal rights periods. ⁴¹

IV. FINAL REGULATORY FLEXIBILITY ANALYSIS

This final regulatory flexibility analysis has been prepared in accordance with the provisions of the Regulatory Flexibility Act (5 U.S.C. 604), and concerns the effects on small entities of the amendments to Rules 13e-4 and 14e-1 under the Exchange Act. The corresponding Initial Regulatory Flexibility Analysis is contained in the Proposing Release.

1. Reasons for the Amendments

Rule 13e-4 specifies certain minimum time periods applicable to issuer tender offers or exchange offers for their equity securities. These time periods are different from the minimum time periods required of third party tender offers by Regulations 14D and 14E under the Exchange Act. These differences complicate the calculation of time periods in competing tender offers and may confuse investors. In addition, the differences give issuers who make defensive issuer tender offers advantages over competing third party bidders. Also, Rule 14e-1 under the Exchange Act specifies certain other time periods for issuer tender offers when made "in anticipation of or in response to" third party offers. The amendments to Rule 14e-1 eliminate the provisos that make paragraphs (a) and (b) applicable to issuer tender offers only when made "in anticipation of or in response to" third party offers. As a result, the amendments to Rule 14e-1 eliminate the difficult factual question whether an issuer tender offer was made in anticipation of or in response to a third party offer.

2. Issues Raised by Public Comment

No commentators referred to the Initial Regulatory Flexibility Analysis in commenting on the proposed timing amendments to Rule 13e-4 and 14e-1 in the Proposing Release. One commentator noted that the amendments to Rule 14e-1 would extend that rules coverage to all issuer tender offers, not just defensive issuer tender offers, and wished to raise the question whether the benefits of such an extension outweighed the burdens that might be imposed on certain issuers. However, for the reasons stated in the Initial Regulatory Flexibility Analysis, the Commission continues to believe that the amendments will not have a significant economic impact on a substantial number of small entities as defined by Rule 0-10(a) under the Exchange Act.

3. Significant Alternatives

The Regulatory Flexibility Act directs the Commission to consider significant alternatives to the proposals that would accomplish the stated objectives while minimizing any significant adverse economic impact on small entities. The Commission considered imposing fewer requirements on tender offers by small issuers, such as making the amendments applicable only to defensive issuer tender offers, or exempting affected small entities from Rules 13e-4 and 14e-1. The Commission also considered exempting from Rule 14e-1 any issuer tender offer exempt from Rule 13e-4. However, the Commission does not believe that such alternative proposals would be consistent with the fundamental policies of the Williams Act, including investor protection and full disclosure.

Lists of Subjects in 17 CFR Part 240

Reporting and recordkeeping requirements Securities

Tender offers

Issues

V. STATUTORY BASIS AND TEXT OF AMENDMENTS

Pursuant to Section 3(b), 9(a)(6), 10(b), 13(e), 14(e) and 23(a) of the Act, 15 U.S.C. 78c(b), 78i(a)(6), 78j(b), 78m(e), 78n(e) and 78w(a), and 23(c) of the Investment Company Act of 1940, 15 U.S.C. 80a-23(c), the Commission amends §240.13e-4 and §240.14e-1 of Chapter II of Title 17 of the Code of Federal Regulations to read as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934

1. The authority citation for Part 240 is amended by adding the following cite:

Authority: Sec. 23, 48 Stat.901, as amended; 15 U.S.C. 78w, * * * §§240.13e-4 to 240.13e-101 also issued under secs. 3(b), 9(a)(6), 10(b), 13(e), 14(e), 15(c)(1), 48 Stat.882, 889, 891, 894, 895, 901, sec. 8,49 Stat.1379, sec.5,78 Stat. 569,570, secs. 2,3, 82 Stat. 454, 455, secs. 1, 2, 3-5, 84 Stat. 1497, secs. 3, 18, 89 Stat. 97, 155; 15 U.S.C. 78c(b), 78i(a)(6), 78j(b), 78m(e), 78n(e), 780(c); sec. 23(c) of the Investment Company Act of 1940; 54 Stat. 825; 15 U.S.C. 80a-23(c).

2. By revising paragraphs (a)(3), (f)(1), (f)(2), (f)(2)(i), (f)(2)(ii), (f)(3) introductory text, and by adding new paragraph (f)(7), of §240.13e-4, to read as follows:

§240.13e-4 Tender offers by issuers.

(a) * * *

(3) As used in this section and in Schedule 13E-4 §240.13e-101, the term "business day" means any day, other than Saturday, Sunday, or a federal holiday, and shall consist of the time period from 12:01 a.m. through 12:00 midnight Eastern Time. In computing any time period under this Rule or Schedule 13E-4, the date of the event that begins the running of such time period shall be included except that if such event occurs on other than a business day such period shall begin to run on and shall include the first business day thereafter.

* * * * *

(f) * * *

(1) The issuer tender offer, unless withdrawn, shall remain open until the expiration of:

(i) at least twenty business days from its commencement; and

(ii) at least ten business days from the date that notice of an increase in the consideration offered or the dealers soliciting fee to be given is first published, sent or given to security holders.

(2) The issuer or affiliate making the issuer tender offer shall permit securities tendered pursuant to the issuer tender offer to be withdrawn:

(i) at any time until the expiration of fifteen business days from the commencement of the issuer tender offer; and

(ii) if not yet accepted for payment, on the date and until the expiration of ten business days following the date of commencement of another bidders tender offer other than pursuant to Rule 14d-2(b) §240.14d-2(b) for securities of the same class;

* * * * *

(3) If the issuer or affiliate makes a tender offer for less than all of the outstanding equity securities of a class, and if a greater number of securities is tendered pursuant thereto than the issuer or affiliate is bound or willing to take up and pay for, the securities taken up and paid for shall be taken up and paid for as nearly as may be pro rata, disregarding fractions, according to the number of securities tendered by each security holder during the period such offer remains open; Provided, however, That this provision shall not prohibit the issuer or affiliate making the issuer tender offer from:

* * * * *

(7) The time periods for the minimum offering periods and withdrawal rights pursuant to this section shall be computed on a concurrent, as opposed to a consecutive, basis.

* * * * *

3. By revising paragraphs (a) and (b) of §240.14e-1 as follows:

§240.14e-1 Unlawful tender offer practices.

* * * * *

(a) Hold such tender offer open for less than twenty business days from the date such tender offer is first published or sent or given to security holders;

(b) Increase the consideration offered or the dealers soliciting fee to be given in a tender offer unless such tender offer remains open for at least ten business days from the date that notice of such increase is first published or sent or given to security holders;

* * * * *

By the Commission.

¹ 17 CFR 240.13e-4.

² 17 CFR 240.13e-101.

³ 15 U.S.C. 78a et seq.

⁴ Securities Exchange Act Release No. 16112 (August 16, 1979), 44 FR 49406 (August 22, 1979). The Rule was proposed for public comment in Securities Exchange Act Release No. 14234 (December 7, 1977), 42 FR 63066 (December 14, 1977).

⁵ 15 U.S.C. 78n(d) and (e).

⁶ Securities Exchange Act Release No. 22199 (July 1, 1985), 50 FR 28210 (July 11, 1985), 33 SEC Docket 898 (July 16, 1985) ("Proposing Release").

⁷ 17 CFR 240.14e-1.

⁸ Securities Exchange Act Release No. 22198 (July 1, 1985), 50 FR 27976 (July 9, 1985), 33 SEC Docket 894 (July 16, 1985) ("Release No. 34-22198").

⁹ In Securities Exchange Act Release No. 22791 (January 14, 1986) ("Release 34-22791"), the Commission is reproposing an amendment to Rule 13e-4 and to proposed Rule 14d-10 that would require a tender offeror to pay to any security holder who tenders pursuant to the offer the highest consideration paid to any other security holder during the tender offer ("best price" provision). In the Proposing Release and Release 34-22198, the Commission proposed amendments to Rules 13e-4 and 14e-1 that would have required a tender offer to remain open for a minimum period of ten business days following an increase in the number of shares sought in the tender offer. The Commission is not adopting those amendments. Instead, in Release 34-22791, the Commission is proposing amendments to Rules 13e-4 and 14e-1 that would require a tender offeror to keep the tender offer open for a minimum period of ten business days after a decrease or an increase in the consideration offered or the percentage of shares sought in the offer. Companion amendments to Rules 13e-4 and 14d-7 are proposed to require an issuer or third party offeror to grant security holders additional withdrawal rights for the same minimum period after a decrease in the consideration offered or the percentage of shares sought in the tender offer.

¹⁰ The letters of comment, as well as a copy of the summary of the comment letters prepared by the staff, are available for public inspection and copying at the Commissions Public Reference Room (See File No. S7-35-85).

¹¹ 17 CFR 240.14d-7, 240.14d-8, 240.14e-1.

¹² 17 CFR 240.13e-4(f)(1). The term "commencement" is defined in paragraph (a)(4) of the Rule as "the date an issuer tender offer is first published, sent or given to security holders."

¹³ Issuer tender offers made "in anticipation of or in response to" third party offers will be referred to as "defensive issuer tender offers."

¹⁴ 50 FR at 28211-12.

¹⁵ The Williams Act added new Sections 13(d), 13(e), 14(d), 14(e), and 14(f) to the Exchange Act, 15 U.S.C. 78m(d)-(e) and 78n(d)-(f).

¹⁶ In Release 34-22791, as mentioned above, the Commission is proposing amendments to Rules 13e-4 and 14e-1 that would require a tender offer to remain open for a minimum period of ten business days following a decrease, as well as an increase, in the percentage of shares sought.

¹⁷ 50 FR at 28214.

¹⁸ The SEC Advisory Committee on Tender Offers ("Advisory Committee") recommended that "to further the goal of equal opportunity to participate in the offer the Committee recommends extension of the minimum offering period... in the event of an announcement of an increase in the... price for the shares." SEC Advisory Committee on Tender Offers, Report of Recommendations at 28 (1983) ("Advisory Committee Report"). The Commission agrees with the Advisory Committees suggestion although the Commission has not followed the Advisory Committees specific recommendation on this point. Id., Recommendation 18 at 28.

The use of a uniformly applied, market-based formula to determine the price to be paid to a particular security holder is permitted in the context of issuer tender offers made in accordance with Rule 13e-4(g)(5) solely to security holders holding an aggregate of 99 or fewer shares ("odd-lot offer"). See, e.g., Letter regarding Great American Industries, Inc. (letter dated April 6, 1983). An increase in the consideration offered in an odd-lot offer that is due solely to fluctuations in the market prices used in such a formula will not trigger paragraph (b) of Rule 14e-1.

¹⁹ The Commission is not proposing to except any issuer tender offers from Rule 14e-1. As a result, odd-lot offers and other issuer tender offers excepted from Rule 13e-4 will nevertheless be subject to Rule 14e-1. However, the minimum offering periods required by Rule 14e-1 should not place any significant burdens on issuers making tender offers that are excepted from Rule 13e-4.

Removing the provisions from paragraphs (a) and (b) of Rule 14e-1 would also result in Rule 14e-1 and Rule 13e-4 each specifying minimum offering periods for issuer tender offers. Some commentators suggested that such a result would be undesirable because it might suggest that there were differences between the minimum offering periods specified by Rule 14e-1(a) and (b) and those specified by Rule 13e-4(f)(1). The Commission believes it is beneficial to have all the requirements for issuer tender offers set forth in one rule, and emphasizes that paragraph (f)(1) of Rule 13e-4 will be interpreted in the same manner as Rule 14e-1(a) and (b).

²⁰ 17 CFR 240.13-4(f)(2).

²¹ 50 FR 28211-12.

²² 17 CFR 240.14d-7(a)(2). See also n.9 supra.

²³ 17 CFR 240.14d-7(a)(2).

²⁴ 17 CFR 240.13e-4(f)(2)(ii).

²⁵ 17 CFR 240.14d-1(b)(1).

²⁶See Proposing Release, 50 FR at 28215 n.45, and Securities Exchange Act Release No. 16384 (November 29, 1979), 44 FR 70362 (December 6, 1979).

²⁷ Exchange Act Rule 14d-2(b), 17 CFR 240.14d-2(b).

²⁸ Moreover, Rule 14e-2 under the Exchange Act, 17 CFR 240.14e-2, requires the target company to announce its position regarding the third party offer within ten business days from the date that the third party offer is first published or sent or given to security holders.

²⁹ 17 CFR 240.14d-8.

³⁰ Rule 13e-4(f)(2)(iii), 17 CFR 240.13e-4(f)(2)(iii), provides that, if not yet accepted for payment, an issuer must allow security holders to withdraw tendered securities after 40 business days after the commencement of the issuer tender offer. Section 14(d)(5) of the Exchange Act, 15 U.S.C. 78n(d)(5), requires withdrawal rights in a third party offer to be reopened after 60 calendar days after the commencement of the third party offer. The Commission is not proposing to adjust these periods. The 40 business and 60 calendar day periods are substantially equivalent, and all the other time periods specified by Rule 13e-4 are stated in terms of business rather than calendar days. Moreover, these backend withdrawal rights are rarely activated.

³¹ 17 CFR 240.13e-4(f)(3).

³² 50 FR at 28213; Advisory Committee Report at 41-42.

³³ Advisory Committee Report, Recommendation 39(b) at 42.

³⁴ 50 FR at 28213.

³⁵ Currently, the issuer is required to extend the proration period only upon an increase in the consideration offered. 17 CFR 240.13e-4(f)(3).

³⁶ In order to remain competitive, an initial third party bidder would have to adjust the terms of his offer in response to a subsequent issuer (or third party) offer that was considered to be superior to the initial offer. Such adjustments (i.e., in consideration offered) would trigger additional time periods in the initial offer and would reduce or eliminate the advantages of having made the first offer.

³⁷ Two commentators suggested that the Commission lacks authority to require an issuer to accept securities on a pro rata basis throughout the issuer tender offer. The Commission believes that its authority to adopt this amendment is clear. Section 13(e)(1) of the Exchange Act, 15 U.S.C. 78m(e)(1), in addition to giving the Commission the authority to prescribe means reasonably designed to prevent fraudulent, deceptive, or manipulative acts and practices, specifically empowers the Commission to adopt rules and regulations requiring comprehensive disclosure by issuers making issuer tender offers and other issuer repurchases. See Schreiber v. Burlington Northern, Inc. 105 S.Ct.2458 (1985), where the Supreme Court said that Section 13(e) "grants broad regulatory power to the Securities and Exchange Commission to regulate such issuer repurchases." The proration period is intimately related to the meaningfulness of the disclosure that is required by Rule 13e-4. As discussed above, and in the release proposing an extension of the length of the proration period in third party offers, Securities Exchange Act Release No. 18761 (May 25, 1982), 47 FR 24338 (June 4, 1982), 25 SEC Docket 591 (June 8, 1982), the length of the proration period is just as important as the length of the offering period in assuring that security holders have adequate time in which to evaluate a tender offer.

³⁸ 17 CFR 240.13e-4(a)(3).

³⁹ 17 CFR 240.14d-1(b)(6).

⁴⁰ 17 CFR 240.14d-7(b).

⁴¹ The amended Rules 13e-4 and 14e-1 apply to all issuer tender offers commenced on or after March 1, 1986.