Release No. 33-7607

Release No. 34-40633

Release No. IC-23520

63 Fed. Reg. 67331 - Dec. 4, 1998

Regulation of Takeovers and Security Holder Communications
Sections III. - VI.

ACTION: Proposed Rules

Table of Contents

III. General Request For Comments

If you would like to submit written comments on the proposals, to suggest additional changes, or to submit comments on other matters that might have an impact on the proposals, we encourage you to do so. Besides the specific questions we asked in this release, we also solicit comment on the usefulness of the proposals to security holders, issuers, and the marketplace at large. We would like comments from the point of view of both bidders and targets, as well as security holders and market professionals involved in the mergers and acquisitions area. We also encourage the submission of written comments on any aspect of the initial regulatory flexibility analysis. We will consider any written comments we receive in preparing the final regulatory flexibility analysis if the proposed rules are adopted.

We believe that the proposals, if adopted, would promote efficiency, competition, and capital formation. However, we solicit comment on whether the proposals would promote efficiency, competition, and capital formation. We also request comment on whether the proposals, if adopted, would have an adverse effect on competition or would impose a burden on competition that is neither necessary nor appropriate in furthering the purposes of the Securities Act and the Exchange Act. We will consider these comments in complying with our responsibilities under Section 23(a)(2) of the Exchange Act. ²⁶⁴

Please send three copies of your comments to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. You may also submit your comments electronically at the following E-mail address: rule-comments@sec.gov. All comment letters should refer to File No. S7-28-98; this file number should be included in the subject line if E-mail is used. Comment letters can be inspected and copied in the public reference room at 450 Fifth Street, N.W., Washington, D.C. We will post electronically submitted comments on our Internet Web site (http://www.sec.gov/).

IV. Cost-Benefit Analysis

The proposed new rules, schedules, and amendments would update and simplify the rules and regulations that apply to takeover transactions, including tender offers, mergers, and similar extraordinary transactions. We propose to enhance communications between public companies and investors before companies file registration statements involving takeover transactions, proxy statements or tender offer statements. We also propose to put cash and stock tender offers on a more equal regulatory footing; integrate the forms and disclosure requirements applicable to issuer tender offers, third-party tender offers and going private transactions; and consolidate the disclosure requirements in one location. We propose to allow security holders to tender their shares during a limited period after the successful completion of a tender offer; more closely align the merger and tender offer requirements; and update the tender offer rules to clarify certain requirements and reduce compliance burdens where consistent with investor protection. In this section, we examine the benefits and costs associated with the proposed revisions, focusing on the groups that might be affected. We request that commenters provide their views and supporting data as to the benefits and costs of the proposals.

A. Communications

We anticipate the proposals would enhance price discovery and market efficiency by permitting companies to communicate more freely with investors in business combination transactions. Today, the provisions of the Securities Act and Exchange Act, including the Williams Act, restrict the type of information that can be disseminated before a bidder files a registration, proxy or tender offer statement. The proposals would allow companies to communicate with security holders both before and after they file their registration, proxy, and tender offer statements. ²⁶⁵ The proposed rules also would allow companies that are the target of a tender offer to communicate more freely with security holders.

We believe this increased flow of information would help security holders make more informed tender or voting decisions, despite the possibility that some deal participants might attempt to "condition the market" with false, misleading or confusing information. We believe security holders would benefit overall because they would receive issuers registration, tender offer or proxy statements before having to tender or vote their shares. Therefore, security holders would have the opportunity to consider the statements in the disclosure document together with any other information disseminated by parties to business combination transactions. In addition, such information would be subject to high liability standards. Issuer communications made before filing with the Commission and during the waiting period would be subject to the anti-fraud provisions of Rule 10b-5 under the Exchange Act, as well as to the anti-fraud provisions of Rule 14a-9 and Section 14(e) if a transaction involves the proxy or tender offer rules, respectively. If the Securities Act is applicable, these communications also would be subject to the provisions of Section 12(a)(2) under the Securities Act. We have requested comment on whether these communications also should be deemed part of the registration statement and therefore subject to Section 11 of the Securities Act. We believe these standards of liability are sufficiently high to encourage parties to provide investors with fair and accurate information about transactions.

Does the benefit of greater freedom in communications outweigh the cost to security holders of obtaining and analyzing the additional information to determine its currency and accuracy and the cost to companies of filing such information? We do not believe that permitting offerors to communicate with security holders before filing their registration statements and during the waiting period would present a significant burden to investors or offerors. We request comment on the type and magnitude of burden this filing requirement would represent to deal participants.

In addition, we believe the proposed communication rules would reduce the current regulatory uncertainty for companies. As discussed above, the provisions of the Securities Act and Exchange Act, including the Williams Act, restrict communications before companies file their registration, proxy or tender offer statements. Companies have told us that they are uncertain whether and in what circumstances these restrictions conflict with their duties to make full and fair disclosure under Rule 10b-5 of the Exchange Act. Consequently, many companies are unsure how to balance their duty to disclose with their duty to be silent before the filing of a disclosure document. By relaxing restrictions on communications, the proposed revisions would minimize this regulatory tension. This clarification would benefit offerors and security holders alike.

One potential cost of the proposals is that some security holders may make investment decisions based on information received before the filing of a disclosure statement. ²⁶⁶ To the extent that such activity could occur under the proposals, it also could occur today. The current rules limit companies from communicating with investors before they file their statements. By allowing companies to publicly announce transactions before the filing of a mandated disclosure document and requiring companies to file their written communications on first use, we believe investors would be more likely to make informed investment decisions than under the current rules. We request comment on the accuracy of this view.

To further protect investors, we propose new Rule 14e-8 that would make it clear that it is unlawful to announce a tender offer without the intention of beginning and completing it with the intention of manipulating the market price of the bidder or target. It also would clarify that it is unlawful to announce a tender offer without the reasonable belief that the bidder has the means to purchase the securities in the offer. We believe such actions should be unlawful because it could cause investors to base their investment decisions on false or misleading information. We believe the proposed rule would help stem these activities, but request your comments on this viewpoint.

In addition to permitting increased communications between companies and investors, the proposed revisions would reduce the differential in information available to investors by requiring companies to file their written communications upon first use. This proposal would help assure that communications are immediately available to many more investors than currently is the case. The proposals also would increase the uniformity and timeliness of information received by investors.

We also propose to permit bidders to begin their exchange offers as soon as they file their registration statements; that is, they would no longer have to wait for the registration statements effectiveness. We believe the ability to begin an exchange offer on filing would encourage issuers to file quickly with the Commission, thereby creating incentives for companies to publicly disseminate information rather than selectively communicate with only a few security holders.

We recognize that our proposals to liberalize oral communications, which would not need to be filed, may encourage companies to use oral communications rather than written communications, which would have to be filed. On balance, however, we believe the proposals will reduce the selective disclosure of information to the market. We request comment on whether the benefits to security holders of greater access to written information would outweigh any potential costs from deregulating oral communications.

In proxy solicitations, whether or not they involve a business combination, we propose to permit companies to more freely communicate with security holders. Under the proposed rules, companies would be able to communicate freely with security holders without first furnishing a written proxy statement. ²⁶⁷ The proposal would allow security holders to receive more information on upcoming votes than they do today.

We also propose to require companies to provide a short "plain English" summary term sheet in all cash mergers, cash tender offers, and going-private transactions. ²⁶⁸ We believe that this would facilitate investors understanding of the basic terms of transactions, and thus allow them to make better-informed choices. We do not anticipate that companies would incur significant costs in writing plain English term sheets because they need to generate the same information to comply with other disclosure requirements and many should have experience writing plain English disclosures in connection with the Securities Act requirements. We request comment on the accuracy of this view.

B. Filings

We anticipate that the proposals would lower the costs of complying with the business combination disclosure and other regulatory requirements for many offerors. The proposals would integrate and streamline the disclosure requirements for business combinations, thereby reducing compliance costs. Specifically, the proposals would harmonize and integrate the disclosure requirements for tender offer, merger proxy, and going-private transaction statements. The proposals would allow issuers to file one schedule, rather than two, to satisfy the tender offer and going-private disclosure requirements when both apply to the transaction.

The proposals would reduce the burden of complying with the merger proxy requirements by, ²⁶⁹ among other things:

• clarifying the disclosure requirements;

   

• clarifying that financial statements are required for an acquiror in a cash transaction only if an acquiror has not demonstrated the financial ability to satisfy the terms of the offer or the information is otherwise material;

   

• eliminating the requirement for financial statements of the target in a cash merger when the acquirors security holders are not voting on the transaction;

   

• reducing the financial statement requirements for non-reporting target companies (when security holders of the acquiring company are not voting on the transaction) to be only those financial statements the target previously furnished to its security holders (with a minimum of U.S. GAAP financial statements provided for the latest fiscal year) instead of financial statements for three years; ²⁷⁰ and

   

• reducing the financial statements needed for acquiring companies in cash mergers and third-party cash tender offers from three years to two years.

In addition, we propose one offsetting cost. We would require that a bidder in a two-tier transaction, where security holders are offered cash in a tender offer and securities in a back-end merger, provide security holders with pro forma financial statements and other related information for the combined entity at the time of the cash tender offer. Rather than being an additional requirement, this proposal would accelerate the time at which bidders are required to disclose the information.

For the purposes of the Paperwork Reduction Act, Table 2 in Section VI summarizes our preliminary estimates of the internal burden hours that parties would spend to comply with the proposals. These estimates include the burden hours incurred by companies from filing pre-filing communications. We base these estimates on current burden hour estimates and the staffs experience with these filings. The estimates in the table indicate that parties would expend approximately 234,759 internal burden hours/year complying with the proposals. If we assume that 70% of these burden hours would be expended by persons that cost the affected parties $85/hour and 30% of these burden hours would be expended by persons that cost $10/hour, then the proposals would cost approximately $14,691,250/year in internal staff time. For the purposes of the Paperwork Reduction Act, we also estimate that parties would spend approximately $122,929,990/year on outside professional help to comply with the proposals. Thus we estimate that affected parties would spend approximately $137,621,240/year to comply with the proposals. Applying the same cost estimates to the burden imposed by the current rules, we estimate that companies and affected parties spend approximately $163,268,490/year. ²⁷¹ Note that these estimates do not attempt to quantify the proposals intangible benefits, such as the benefits to issuers and investors of enhanced communications and possible improvements in price discovery, nor its intangible costs, such as the cost to security holders of identifying misleading or incomplete pre-filing information. We request comment on the reasonableness of our estimates and our analysis of other costs and benefits.

We propose to eliminate confidential treatment of merger proxy statements. Today, many of the filings we accord confidential treatment are preceded by public announcements of the transactions. Consequently, we question whether eliminating confidential treatment of merger proxy statements would impose a burden or cost on companies. We solicit comment on the possible impact on companies of this proposal.

C. Tender Offers

We propose to reduce a regulatory bias against using securities as consideration in tender offers by allowing third-party bidders to begin an exchange offer upon filing and dissemination of their Form C or SB-3 registration statement (like bidders offering cash). This proposal would give bidders more flexibility in determining whether to offer cash or securities as consideration in transactions. Under the proposals, a bidder could not purchase tendered securities until its registration statement was declared effective and the mandatory 20-business day tender offer period had elapsed. Security holders could withdraw their securities at any time until purchased by the bidder. This proposal would likely shorten the period of time to complete stock tender offers relative to today, putting them on a more equal footing with cash tender offers. Of course, it may also increase the risk that bidders offering securities would have to disseminate supplements to the tender offer materials after their offers begin due to changes in material information. If so, they would have to provide sufficient time for security holders to receive the supplements and reconsider their investment decisions. This risk, however, would not be unique to exchange offers; issuers run the same risk today with cash offers. We solicit comment on this analysis and on any other costs and benefits that may arise from bidders commencing their exchange offers earlier than today.

We also propose to permit bidders to purchase (at the stated offer price) securities from holders who did not tender their shares during the offer in a "subsequent offering period." We believe the proposal would minimize the delay that security holders encounter in liquidating their investments in a targets securities when a bidder is successful in purchasing a significant or controlling interest in the target. Under the proposal, however, security holders might wait to tender their shares in the subsequent offering period. We solicit comment on whether this would be likely to occur and whether it would outweigh the benefits of the proposal. We note that bidders would not be under any obligation to offer to purchase securities in a subsequent offering period.

We propose to eliminate the requirement for financial statements of the target in cash mergers when acquirors security holders are not voting on the transaction, and require two, rather than three years of financial statements when they are material in third-party cash tender offers. If the security holders of the acquiror are not making a voting decision on the transaction, they do not need three years of historical financial statements. The reduction from three to two years of historical financial statements would thus lower acquirors costs of complying with our rules, while continuing to protect security holders.

Finally, we propose to allow bidders greater access to security holders in tender offers by enabling them to contact non-objecting beneficial owners if the target company maintains a list of these persons. The proposed amendment would give bidders the same ability as target companies to communicate directly with the beneficial owners of securities similar to that provided under the proxy rules. We believe this proposal would benefit bidders and security holders because communications would be more efficient than today. We request your comments on the benefits and costs of this proposal.

For purposes of the Small Business Regulatory Enforcement Fairness Act of 1996 ("SBREFA"), ²⁷² a rule is "major" if it has resulted, or is likely to result in:

• an annual effect on the economy of $100 million or more;

   

• a major increase in costs or prices for consumers or individual industries; or

   

• significant adverse effects on competition, investment or innovation.

We request information on the potential impact of the proposed rules, schedules, and amendments on the economy on an annual basis. Commenters should provide empirical data on: (i) the annual effect on the economy; (ii) any increase in costs or prices for consumers or individual industries; and (iii) any effect on competition, investment or innovation. We note that U.S. merger and acquisition activity in 1997 was valued at over $790 billion. ²⁷³

In adopting rules under the Exchange Act, Section 23(a) requires the Commission to consider the impact that rules would have on competition and to not adopt any rule that would impose a burden on competition not necessary or appropriate in the public interest. Section 3(f) of the Exchange Act requires the Commission, when engaged in rulemaking, to consider or determine whether the action is necessary or appropriate in the public interest, and also to consider in addition to the protection of investors, whether the action would promote efficiency, competition, and capital formation. ²⁷⁴

V. Initial Regulatory Flexibility Analysis

A. Reasons for Proposed Action

We prepared this Initial Regulatory Flexibility Analysis under 5 U.S.C. §603 concerning the new rules, schedules, and amendments proposed today. We will consider your written comments in the preparation of the final analysis. The primary purposes of the proposed new rules, schedules, and amendments are to enhance communications with security holders; harmonize the regulations affecting cash and stock tender offers; facilitate compliance with the rules and regulations associated with takeover and similar extraordinary transactions; and promote investor protection.

B. Objectives and Legal Basis

The resulting reduction in compliance costs for all persons subject to our rules and regulations would benefit small and large business entities alike. The proposals should result in security holders receiving more information on a timely basis. In addition, the proposals would give persons subject to our rules greater flexibility in structuring and completing tender offers, mergers, and other extraordinary transactions. We propose the new rules, schedules, and amendments under Sections 2(3), 5, 7, 8, 10, 12, 19, and 28 of the Securities Act, as amended, and Sections 3(b), 4(e), 10(b), 13, 14, 18, 23(a), 24, and 36 of the Exchange Act, as amended.

C. Small Entities Subject to the Rules

The proposals would affect small entities that are required to file registration statements, proxy statements, tender offer statements and other reports under the Securities Act, Exchange Act, and the Investment Company Act. For the purposes of the Regulatory Flexibility Act, the Securities Act and Exchange Act define a "small business" issuer, other than an investment company, to be an issuer that, on the last day of its most recent fiscal year, had total assets of $5 million or less. ²⁷⁵ When used with respect to an issuer that is an investment company, the term is defined as an investment company and any related investment company with aggregate net assets of $50 million or less as of the end of its most recent fiscal year. ²⁷⁶

We currently are aware of approximately 1,100 reporting companies that are not investment companies with assets of $5 million or less. There are approximately 400 investment companies that satisfy the "small entity" definition. All of these companies would be subject to at least some of the proposed rules, schedules, and amendments and could be affected either as acquiring or as acquired companies. We have no reliable way, however, to determine how many reporting or non-reporting small businesses may actually rely on the proposed rules, or may otherwise be affected by the rule proposals. Nevertheless, we believe that the proposals would substantially benefit both small and large entities to the extent the proposals substantially reduce current restrictions on communications and facilitate compliance with existing rules and regulations.

D. Reporting, Recordkeeping, and Other Compliance Requirements

For the most part, the proposals are deregulatory in nature, significantly expanding the ability of businesses to structure and time their business combination transactions and communicate with security holders. Under the proposed rules, small businesses would report and file essentially the same information as today. One exception to this generalization is that offerors, both large and small, would be required to file pre-filing communications in business combination transactions with the Commission. This requirement arises, however, from the proposed deregulation of voluntary pre-filing communications. The proposed rules, schedules, and amendments in this release would treat all persons and entities alike, and would not distinguish among them based on size.

E. Significant Alternatives

The Regulatory Flexibility Act directs the Commission to consider significant alternatives that would accomplish the stated objectives, while minimizing any significant adverse impact on small issuers. In connection with the proposed rules, schedules, and amendments, we considered several alternatives, including:

• establishing different compliance and reporting requirements or timetables that take into account the resources of small businesses;

   

• clarifying, consolidating or simplifying compliance and reporting requirements under the rule for small businesses;

   

• using performance rather than design standards; and

   

• exempting small businesses from all or part of the requirements.

For the most part, the proposals are deregulatory in nature. They significantly expand the ability of businesses to structure and time their business combination transactions and communicate with security holders, while maintaining investor protections. Although we considered whether it would be appropriate to exclude smaller entities, we determined that the proposals should apply to all businesses regardless of their size; that is, we should not limit the rules and the corresponding benefits to large, seasoned issuers.

As a preliminary matter, we believe that there are no less restrictive alternatives to the proposed rules, schedules, and amendments that would serve the purposes of the proxy, tender offer, going-private, and registration requirements of the federal securities laws. We were unable to identify less burdensome alternatives to our proposals that would be consistent with our statutory mandate to require issuers to disclose material information fully and fairly to investors. We believe the proposed rules, schedules, and amendments should apply equally to all entities required to disclose information to enhance the protection of all investors. For these reasons, we also believe there would be no benefit in providing separate requirements for small issuers based on the use of performance rather than design standards.

F. Overlapping or Conflicting Federal Rules

We do not believe any current federal rules duplicate, overlap or conflict with the rules, schedules, and amendments that we propose to amend.

We request your written comments on any aspect of this Initial Regulatory Flexibility Analysis. We particularly seek comment on:

• the number of small entities that would be affected by the proposed rules, schedules, and amendments;

   

• the expected impact of the proposals as discussed above; and

   

• how to quantify the number of small entities that would be affected by, and how to quantify the impact of, the proposed rules, schedules, and amendments.

We ask commenters to describe the nature of any impact and provide empirical data supporting the extent of the impact.

VI. Paperwork Reduction Act

The proposed rules, schedules, and amendments affect several regulations and forms that contain "collection of information requirements" within the meaning of the Paperwork Reduction Act of 1995. ²⁷⁷ We have submitted proposed revisions to those rules, schedules, and amendments to the Office of Management and Budget ("OMB") for review in accordance with 44 U.S.C. §3507(d) and 5 CFR 1320.11. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. Table 1 below includes the titles for the affected collections of information under the Exchange Act, current OMB control numbers, if applicable, a summary of the collection of information, and a description of the likely respondents to each collection of information. ²⁷⁸

Table 1: Collections of Information under the Securities Act and Exchange Act

Title

The proposed new rules, schedules, and amendments would update and simplify the rules and regulations for business combinations. The information is needed so that security holders may make informed tender and voting decisions in tender offers, mergers, acquisitions, and other extraordinary transactions. We propose to enhance communications between public companies and investors before companies file registration statements involving takeover transactions, proxy statements, and tender offer statements. We also propose to put cash and stock tender offers on a more equal regulatory footing; integrate the forms and disclosure requirements in issuer tender offers, third-party tender offers and going-private transactions; and consolidate the disclosure requirements in one location. We propose to allow security holders to tender their shares during a limited period after the completion of a tender offer; more closely align merger and tender offer requirements; and update the tender offer rules to clarify certain requirements and reduce compliance burdens where consistent with investor protection.

The affected schedules and regulations set forth the disclosures that the Commission would require offerors to make about business combination transactions and about themselves to the public. The requirements of the above schedules would largely be the same as today, except for a few changes. Specifically, under the proposals, Schedules 14A, 14C, 13E-3, 14D-9, and TO would require a short "plain English" summary term sheet, not currently required, in all cash mergers, cash tender offers, and going-private transactions. ²⁷⁹ The proposed rules would reduce the number of years of financial statements required by Schedules 14A and 14C for acquiring companies in cash mergers and cash tender offers from three years to two years. Under the proposals, Schedules 14A and 14C would no longer require the financial statements of the target in a cash merger when the acquirors security holders are not voting on the transaction. ²⁸⁰ Proposed Schedule TO would replace current Schedules 13E-4 and 14D-1, harmonizing and clarifying their requirements. Under the proposals, Schedule TO would require a bidder in a two-tier transaction, where security holders are offered cash in a tender offer and securities in a back-end merger, provide security holders with pro forma financial statements and other related information for the combined entity at the time of the cash tender offer. The proposals would allow issuers to file one schedule, rather than two, to satisfy the tender offer and going-private disclosure requirements when both apply to the transaction.

The information collection requirements imposed by the schedules and regulations are mandatory to the extent that companies are publicly owned and undertake business combination transactions. There are no mandatory retention periods for the information disclosed. The information gathered is made publicly available, ²⁸¹ unless granted confidential treatment. However, the release proposes to eliminate the confidential treatment of preliminary proxy statements.

As discussed in detail in Section IV, the proposals, if adopted, would reduce the burden of complying with the business combination disclosure and transaction requirements for many issuers. Public companies would expend approximately 988,986 burden hours/year to comply with the proposed rules, schedules, and amendments, cumulatively saving at least 191,592 burden hours/year. Table 1 of Section IV shows the estimated burden hours for the proposed forms and the approximate number of filings of each schedule under the proposed rules, schedules, and amendments.

The proposals would integrate and streamline the disclosure requirements for business combinations, thereby reducing issuers compliance costs. For the purposes of the Paperwork Reduction Act, Table 2 below summarizes our preliminary estimates of the burden hours that parties would spend to comply with the proposals. These estimates include the burden hours incurred by companies from filing pre-filing communications. We base these estimates on current burden hour estimates and the staffs experience with these filings. The estimates in the table indicate that parties would expend approximately 234,759 burden hours/year to comply with the proposals. In addition, as discussed in more detail below, we estimate that parties would spend approximately $122,929,990/year on outside professional help to comply with the proposals. Note that these estimates do not attempt to quantify the proposals intangible benefits, such as the benefits to issuers and investors of enhanced communications and possible improvements in price discovery. We discuss our preliminary estimates in greater detail below. We request comment on the reasonableness of our estimates.

Table 2: Burden Hour Estimates²⁸²

Estimated Burden Hours

SEC_CODE_REF_0090001192884

We anticipate the proposals would reduce the number of hours required to file a full Schedule 14A from 87 hours today to 70 hours under the proposals. ²⁸³ Of the 70 hours, we estimate that 25% (17.5 internal burden hours) would be provided by corporate staff, and 75% (52.5 hours) by external professional help. Based on filings in fiscal year 1998, we anticipate that companies and other parties would file approximately 9,892 full Schedule 14As/year. Under the proposed rules, companies and other parties also would be required to file under cover of Schedule 14A any pre-filing written communications (in addition to the required proxy statement) concerning business combinations for cash. ²⁸⁴ The rule would require filers to attach their written communications and would have few specific information requirements. For fiscal year 1998, we estimate 34% of the 9,892 full Schedule 14As filed involved cash rather than securities. ²⁸⁵ We estimate that parties, on average, would file one written communication (in addition to the required proxy statement) for each cash transaction. We estimate that a firms corporate staff would expend approximately 15 burden minutes (0.25 internal burden hours) to file a written communication under the proposed rules. ²⁸⁶ Thus, we estimate parties would file 9,892 full Schedule 14As/year (expending 17.5 internal burden hours/filing) and 3,363 written communications/year (expending 0.25 internal burden hours/filing).On average, filers would require approximately 13.12 internal burden hours to file 13,255 full Schedule 14As and written communications. In addition, we anticipate filers would spend, at an estimated $175/hour, approximately $9,188/filing in professional labor costs to file a full Schedule 14A. ²⁸⁷ We request your comments and supporting empirical information on the reasonableness of these estimates.

We anticipate the proposals would reduce the number of hours required to file a full Schedule 14C from 87 hours today to 70 hours under the proposals. Of the 70 hours, we estimate that 25% (17.5 internal burden hours) would be provided by corporate staff, and 75% (52.5 hours) by external professional help. Based on filings in fiscal year 1998, we anticipate that companies and other parties would file approximately 253 full Schedule 14Cs/year. Under the proposed rules, companies and other parties also would be required to file under cover of Schedule 14C any pre-filing written communications (in addition to the required proxy statement) concerning business combinations for cash. ²⁸⁸ The rule would require filers to attach their written communications and would have few specific information requirements. For fiscal year 1998, we estimate 34% of the 253 full Schedule 14Cs filed involved cash rather than securities. ²⁸⁹ We estimate that parties, on average, would file one written communication (in addition to the required information statement) for each cash transaction. We estimate that a firms corporate staff would expend approximately 15 burden minutes (0.25 internal burden hours) to file a written communication under the proposed rules. Thus, we estimate parties would file 253 full Schedule 14Cs/year (expending 52.50 burden hours/filing) and 86 written communications/year (expending 0.25 internal burden hours/filing). On average, filers would require approximately 13.12 internal burden hours to file 339 full Schedule 14Cs and written communications. In addition, we anticipate filers would spend, at an estimated $175/hour, approximately $9,188/filing in professional labor costs to file a full Schedule 14C. ²⁹⁰ We request your comments and supporting empirical information on the reasonableness of these estimates.

The proposals would clarify and make several technical changes to Schedule 13E-3. We anticipate a savings of two hours, from 139.25 hours/filing to 137.25 hours/filing, to file Schedule 13E-3 under the proposals. Of the 137.25 hours, we estimate that 25% (34.31 internal burden hours) would be provided by corporate staff, and 75% (102.94 hours) by external professional help. Based on filings in fiscal year 1998, we estimate parties would file 96 Schedule 13E-3s/year. In addition, we anticipate filers would spend, at an estimated $175/hour, approximately $18,015/filing in professional labor costs to file a full Schedule 13E-3. ²⁹¹ We request your comments and supporting empirical information on the reasonableness of these estimates.

The proposals would clarify and make several technical changes to Schedule 14D-9. We anticipate a savings of two hours, from 354.25 hours/filing to 352.25 hours/filing, to file a full Schedule 14D-9 under the proposals. Of the 352.25 hours, we estimate that 25% (88.06 internal burden hours) would be provided by corporate staff, and 75% (264.19 hours) by external professional help. Based on filings in fiscal year 1998, we anticipate that companies and other parties would file approximately 258 full Schedule 14D-9s/year. Under the proposed rules, companies and other parties also would be required to file under cover of Schedule 14D-9 any pre-filing written communications (in addition to the required proxy statement) concerning business combinations for cash. ²⁹² The rule would require filers to attach their written communications and would have few specific information requirements. For fiscal year 1998, we estimate 37% of the 258 full Schedule 14D-9s filed involved cash rather than securities. ²⁹³ We estimate that parties, on average, would file one written communication (in addition to the required information statement) for each cash transaction. We estimate that a firms corporate staff would expend approximately 15 burden minutes (0.25 internal burden hours) to file a written communication under the proposed rules. Thus, we estimate parties would file 258 full Schedule 14D-9s/year (expending 88.06 internal burden hours/filing) and 95 written communications/year (expending 0.25 internal burden hours/filing). On average, filers would require approximately 64.43 internal burden hours to file 353 full Schedule 14D-9s and written communications. In addition, we anticipate filers would spend, at an estimated $175/hour, approximately $46,233/filing in professional labor costs to file a full Schedule 14D-9. ²⁹⁴ We request your comments and supporting empirical information on the reasonableness of these estimates.

The proposals also would replace Schedules 13E-4 and 14D-1 with a new tender offer schedule, Schedule TO. Schedule TO would harmonize and clarify the requirements in current Schedules 13E-4 and 14D-1. Based on the number of Schedule 13E-4 and Schedule 14D-1s filed in fiscal year 1998, and the number of hours required to complete them, we estimate that bidders would require approximately 309 hours to file a full Schedule TO under the proposed rules. ²⁹⁵ Of the 309 hours, we estimate that 25% (77.25 internal burden hours) would be provided by corporate staff, and 75% (231.75 hours) by external professional help. Based on filings in fiscal year 1998, we anticipate that companies and other parties would file approximately 396 full Schedule TOs/year. Under the proposed rules, companies and other parties also would be required to file under Schedule TO written communications (in addition to the required tender offer statement) concerning business combinations for cash. ²⁹⁶ The rule would require filers to attach their written communications and would have few specific information requirements. We estimate that parties, on average, would file one written communication (in addition to the required information statement) for each cash transaction. We estimate that a firms corporate staff would expend approximately 15 burden minutes (0.25 internal burden hours) to file a written communication under the proposed rules. Based on data from fiscal year 1998, we estimate parties would file 396 full Schedule TOs/year (expending 77.25 internal burden hours/filing) and 309 written communications/year (expending 0.25 internal burden hours/filing). ²⁹⁷ On average, filers would require approximately 43.50 internal burden hours to file 705 full Schedule TOs and written communications. In addition, we anticipate filers would spend, at an estimated $175/hour, approximately $40,556/filing in professional labor costs to file a full Schedule TO. ²⁹⁸ We request your comments and supporting empirical information on the reasonableness of these estimates.

In accordance with 44 U.S.C. §3506c(2)(B), we solicit comment on the following:

• whether the proposed changes in each collection of information are necessary for the proper performance of the function of the agency;

   

• the accuracy of our estimate of the burden of the proposed changes to each collection of information;

   

• the quality, utility, and clarity of the information to be collected; and

   

• whether there are ways to minimize the burden of any of the collections of information on those who are required to respond, including through the use of automated collection techniques or other forms of information technology.

Anyone desiring to submit comments on any or all of the collection of information requirements should direct them to the Office of Management and Budget, Attention: Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Washington, D.C. 20503, and should also send a copy of their comments to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, with reference to File No. S7-28-98. The Office of Management and Budget is required to make a decision concerning the collection of information between 30 and 60 days after publication, so a comment to OMB is best assured of having its full effect if OMB receives it within 30 days of publication.

FOOTNOTES