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Release No. 33-7759 Release No. 34-42054 Release No. 39-2378 International Series Rel. No. 1208 64 Fed. Reg. 61382 - Nov. 10, 1999
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Section II.A. Next |
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Summary: The Securities and Exchange Commission today is adopting tender offer and Securities Act registration exemptive rules for cross-border tender and exchange offers, business combinations, and rights offerings relating to the securities of foreign companies. The purpose of the exemptions is to facilitate U.S. investor participation in these types of transactions.
Effective Date: January 24, 2000, except 200.30-1(e)(16) and 200.30-3(a)(68) will be effective November 10, 1999.
For Further Information Contact: Dennis O. Garris, Chief, or Laura Badian, Special Counsel, Office of Mergers and Acquisitions, Division of Corporation Finance at (202) 942-2920; James Brigagliano, Florence Harmon, Irene Halpin, or Michael Trocchio, Office of Risk Management and Control, Division of Market Regulation, at (202) 942-0772; at Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Supplementary Information: We are adopting new Rules 800, 801 and 802 under the Securities Act of 1933 ("Securities Act"),1 Rule 4d-10 under the Trust Indenture Act of 1939 ("Trust Indenture Act"),2 revisions to Form F-X and Rule 144 under the Securities Act,3 revisions to Rules 13e-3, 13e-4, 14d-1, 14d-9, and 14e-24 under the Securities Exchange Act of 1934 ("Exchange Act"),5 portions of new Rule 14e-56 under the Exchange Act, and Rules 30-1 and 30-37 of the Commission's Rules Delegating Authority to the Directors of the Division of Corporation Finance and Market Regulation, respectively. We are also adopting new Form CB under the Securities Act and the Exchange Act.
 Table of Contents
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I. Executive Summary
A. Summary of Amendments
U.S. security holders are often excluded from tender and exchange offers, business combinations and rights offerings involving foreign private issuers. It is very common for bidders to exclude U.S. security holders from these transactions to avoid the application of the U.S. securities laws, particularly when U.S. security holders own a small amount of the securities of the foreign private issuer. 8 When bidders exclude U.S. security holders from tender or exchange offers, they deny U.S. security holders the opportunity to receive a premium for their securities and to participate in an investment opportunity. Similarly, when issuers exclude U.S. security holders from participation in rights offerings, U.S. security holders lose the opportunity to purchase shares at a possible discount from market price. U.S. investors must react to these transactions, which may significantly affect their existing investment in the foreign private issuer, without the disclosure or other protections afforded by U.S. or foreign law.
Today, the Commission is adopting exemptive rules that are intended to encourage issuers and bidders to extend tender and exchange offers, rights offerings and business combinations to the U.S. security holders of foreign private issuers. The purpose of the exemptions adopted today is to allow U.S. holders to participate on an equal basis with foreign security holders. In the past, some jurisdictions have permitted exclusion of U.S. holders despite domestic requirements to treat all holders equally on the basis that it would be impracticable to require the bidder to include U.S. holders. The rules adopted today are intended to eliminate the need for such disadvantageous treatment of U.S. investors.
The exemptions balance the need to provide U.S. security holders with the protections of the U.S. securities laws against the need to promote the inclusion of U.S. security holders in these types of cross-border transactions. The specific exemptions are:
Tender offers for the securities of foreign private issuers will be exempt from most provisions of the Exchange Act and rules governing tender offers9 when U.S. security holders hold 10 percent or less of the subject securities. In addition to bidders, the subject company, or any officer, director or other person who otherwise would have an obligation to file Schedule 14D-9 also may rely on the exemption. We refer to this exemptive relief in this release as the "Tier I" exemption.
When U.S. security holders hold 40 percent or less of the class of securities of the foreign private issuer sought in the offer, limited tender offer exemptive relief will be available to bidders to eliminate frequent areas of conflict between U.S. and foreign regulatory requirements. We refer to this exemptive relief in this release as the "Tier II" exemption. The Tier II exemption represents a codification of current exemptive and interpretive positions.
Under new Securities Act exemptive Rule 801, equity securities issued in rights offerings by foreign private issuers will be exempt from the registration requirements of the Securities Act, if U.S. security holders own 10 percent or less of the issuer's securities that are the subject of the rights offering.
Under new Securities Act exemptive Rule 802, securities issued in exchange offers for foreign private issuers' securities and securities issued in business combinations involving foreign private issuers will be exempt from the registration requirements of the Securities Act and the qualification requirements of the Trust Indenture Act, if U.S. security holders hold 10 percent or less of the subject class of securities.
Tender offers for the securities of foreign private issuers will be exempt from new Rule 14e-5 10 (formerly Rule 10b-13) of the Exchange Act, which prohibits a bidder from purchasing securities otherwise than pursuant to the tender offer. This exemption will allow purchases outside the tender offer during the offer when U.S. security holders hold 10 percent or less of the subject securities.
The U.S. anti-fraud and anti-manipulation rules and civil liability provisions will, however, continue to apply to these transactions. Certain commenters believed that this liability will remain a hurdle to including U.S. security holders, particularly in view of the amount of litigation in the United States and the ability of subject companies to institute litigation as a defensive measure. However, in a transaction eligible for the exemptions adopted today, many of the disclosure and procedural protections of the federal securities laws will not be available. Therefore, it is necessary that the anti-fraud provisions continue to provide a basic level of protection for U.S. security holders participating in these transactions. The application of these provisions, however, may be different in the context of foreign disclosure requirements and practices. The Commission considers the information that is required to be disclosed by a form or schedule generally to be important in investment decisions. However, the omission of the information called for by U.S. forms in the context of foreign disclosure requirements and practices would not necessarily violate the U.S. disclosure requirements. An antifraud action could be brought by the Commission and investors if the omitted information is material in the context of the transaction and the disclosure provided is misleading as a result of the omission of the information.
In addition to the above exemptions, we are adopting amendments to the Commission's general organization rules. These amendments delegate to the Directors of the Divisions of Corporation Finance and Market Regulation authority to exempt tender offers from specific tender offer requirements. The delegation of authority is intended to conserve Commission resources by permitting the staff to review and act on exemptive applications under Sections 14(d) and 36(a)11 of the Exchange Act when appropriate. Nevertheless, the staff may submit matters to the Commission for consideration as it deems appropriate. In addition, under Section 4A(b)12 of the Exchange Act, the Commission retains discretionary authority to review, upon its own initiative or upon application by a party adversely affected, any exemption granted or denied by the Division pursuant to delegated authority.13
B. Changes from the 1998 Proposals
The rules adopted today differ from those contained in the November 1998 proposing release 14 in significant respects. These modifications are being made in response to comments we received on the proposals.15 The following is a list of the most important changes from the proposals:
Offerors may offer cash to U.S. persons and securities to non-U.S. persons in a Tier I tender offer without violating the equal treatment requirements of that exemption.
The Tier II exemption has been revised to harmonize it with the amendments to the tender offer rules ("Regulation M-A") that also are being adopted today in a separate release.16
The U.S. ownership limitations for the exemptions from the Securities Act registration requirements for exchange offers, business combinations and rights offerings have been increased from five to 10 percent.
Securities held by all persons owning 10 percent or more of the outstanding securities, as well as the securities held by the offeror, are excluded from the calculation of the percentage of the class held by U.S. owners, rather than securities owned by just foreign 10 percent holders, as proposed.
Securities purchased in a rights offering conducted under Rule 801 will only be restricted to the extent that the securities held by the U.S. holder at the time of the offering were restricted.
We have modified the method of determining U.S. ownership. An offeror must "look through" the record ownership of certain brokers, dealers, banks or nominees holding securities of the subject company for the accounts of their customers to determine the percentage of the securities held in nominee accounts that have U.S. addresses. We are adopting, with minor changes, the proposal that a third-party bidder in an unsolicited or "hostile" tender offer may rely upon a presumption that the U.S. ownership percentage limitations of the Tier I, Tier II and Rule 802 exemptions are not exceeded based on the relative level of trading volume in the United States. We are not adopting the proposed rebuttable presumption that persons holding through ADR facilities are U.S. holders.
In order to provide a level playing field in the case of competing offers, we have provided
that if an offeror commences a tender offer or a business combination during an ongoing tender offer or business combination for securities of the same class that is the subject of its offer, the second offeror will be eligible to use the same exemption (Tier I, Tier II, or Rule 802) as the prior offeror, so long as all the conditions of the exemption, other than the limitation on U.S. ownership, are satisfied by the second offeror. In light of this change, we are not adopting the proposal that if an offeror commences an offer during an ongoing tender or exchange offer for securities of the same class that is the subject of its offer, the offeror could calculate the percentage of subject securities held by U.S. holders as of the same date used by the initial offeror.We provide guidance regarding when bidders can provide information on the Internet about offshore tender and exchange offers without triggering U.S. requirements.
The Tier I and Tier II tender offer exemptions are available if the subject company is a closed-end investment company that is registered under the Investment Company Act of 1940 (the "Investment Company Act"). 17 As proposed, the Tier I and Tier II tender offer exemptions would not have been available if the subject company was any type of investment company registered or required to be registered under the Investment Company Act.
The registration exemptions for rights offerings, business combinations and exchange offers provided by Rules 801 and 802 are available for securities issued by closed-end investment companies that are registered under the Investment Company Act. As proposed, Rules 801 and 802 would not have been available for securities issued by any type of investment company, whether foreign or domestic, that is registered or required to be registered under the Investment Company Act.
1 15 U.S.C. 77a et seq.
2 15 U.S.C. 77aaa et seq.
3 17 CFR 239.42 and 17 CFR 230.144.
4 17 CFR 240.13e-3, 240.13e-4, 240.14d-1, 240.14d-9 and 240.14e-2.
5 15 U.S.C. 78a et seq.
6 The portion of the text of new Rule 14e-5 (formerly Rule 10b-13) that is being adopted today is contained in a separate release that updates and simplifies the rules and regulations applicable to takeover transactions. See Regulation of Takeovers and Security Holder Communications, Securities Act Release No. 7760 (October 22, 1999) ("Regulation M-A Release").
7 17 CFR 200.30-1 and 200.30-3.
8 As we noted in the proposing release, Cross-Border Tender Offers, Business Combinations and Rights Offerings, Securities Act Release No. 7611 (November 13, 1998) [63 FR 69136] (Section II.A.), because a large percentage of foreign companies have only a small number of U.S. security holders, it is quite common for bidders for the securities of those foreign companies to exclude U.S. holders. For example, based on a sample of 31 tender offers compiled in 1997 by the U.K. Takeover Panel (the entity that regulates tender offers in the United Kingdom), when the U.S. ownership of the target was less than 15% (30 offers), the bidders excluded U.S. persons in all of the offers. When the U.S. ownership was more significant, such as 38% (one offer), the bidders included U.S. persons. In the 30 offers that excluded U.S. persons, the ownership percentage was as follows: in 27 offers, U.S. persons held less than 5%; in the remaining three offers, U.S. persons held 7%, 8% and 10-15%, respectively.
9 15 U.S.C. 78m(e) and 78n(d); 17 CFR 240.13e-3, 240.13e-4, 240.14d-1 to
240.14d-10, 240.14e-1 and 240.14e-2.
10 Rule 10b-13 was revised and redesignated as new Rule 14e-5 in the Regulation M-A Release, supra note 6.
11 15 U.S.C. 78mm(a).
12 15 U.S.C. 78d-1(b).
13 Information concerning the filing of exemptive relief applications can be found in Release No. 34-39624; Rule 0-12 under the Exchange Act [17 CFR 240.0-12].
14 See the proposing release, supra note 8. Similar exemptions were originally proposed in International Tender and Exchange Offers, Securities Act Release No. 6897 (June 5, 1991)[56 FR 27582] and Cross-Border Rights Offers, Securities Act Release No. 6896 (June 4, 1991)[56 FR 27564].
15 We received 19 letters of comment on the 1998 proposals. Those letters can be obtained for public inspection and copying by requesting File No. S7-29-98 through our public reference room in Washington D.C. Electronically submitted comments are available on our Internet web site (http:/www.sec.gov).
16 Regulation M-A Release, supra note 6.
17 15 U.S.C. 80a-1 et seq.
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