Tender Offers

Summary

Tender offer

Broad solicitation to purchase a substantial percentage of
a company's securities for a limited period of time
Offer is typically:

At a fixed price
At a premium over the current market price
Contingent on holders tendering a minimum or
fixed amount of their securities

Regulated by SEC pursuant to the Williams Act

Relevant statutory provisions are

Exchange Act § 14(d)
Exchange Act § 14(e)
Exchange Act § 14(f)

Relevant SEC rules are

Regulation 14D
Regulation 14E

Regulation 14D applies to any tender offer
subject to Exchange Act §14(d)(1)

Per Rule 14d-1(a)
Applies if bidder would own more than 5% of a class of the company's securities after making the tender offer
Bidder must file Schedule TO with the SEC
Target company must file Schedule 14D-9 with the SEC
in response to a third party tender offer
Other rules address substantive and procedural requirements for tender offers
Doesn't apply to issuer tender offers

Regulation 14E applies to any tender offer

Other than exempted securities
Per Rule 14d-1(a)
Includes anti-fraud rules applicable to any tender offer
Set time limits for the tender offer and
provide other protections to shareholders
Covers issuer tender offers

Tender Offer Defined

Tender offer was left undefined by the Williams Act

Clearly covers traditional tender offers
Can also apply to open market and
privately negotiated purchases

A creeping tender offer
See Schedule 13D Precedent

Courts have used two tests:

Eight factor test (Wellman test)

Active and widespread solicitation of public shareholders
Solicitation for a substantial percentage of target's stock
Offer made at a premium to prevailing market price
Terms are firm, rather than negotiable
Offer is conditioned on the tender of a minimum number of shares
Offer is open for a limited period of time
Shareholders are pressured to sell their stock
Public announcements precede or accompany rapid accumulation of large amounts of the target's stock

No single factor is dispositive
Need not have all eight factors

Wellman v Dickson (SDNY 1979)

Totality of circumstances test

Whether, without compliance with §14(d),there'd be a substantial risk that shareholders will lack information needed to make a carefully considered appraisal of the bidder's offer
See Hanson Trust PLC v SCM(2nd Cir 1985)

Which looked to several of the eight factors
in making its analysis

Types of Tender Offers

Issuer tender offer

Used by the company to repurchase its own securities

See Share Repurchases
See Debt Repurchases
See Dutch Auctions
See Odd-Lot tender Offers

If enough securities are acquired, can be used by the company to recapitalize itself or to go private

See Recapitalizations
See Going Private
See Minority Buy-Ins

Two-step merger

A first-step tender offer is used to obtain voting control
Followed by a second-step back-end merger
to acquire any shares still outstanding
Can be a quick way to execute a negotiated acquisition

See Two-Step Mergers

Exchange offer

Some or all of the consideration offered is bidder securities, rather than cash

Unsolicited (hostile) offer

Offer is made directly to shareholders,
without target board approval

Mini-Tender offers

Offers that result in less than 5% ownership are only lightly regulated by the SEC
Subject to Regulation 14E, but not Regulation 14D

See Mini-Tender Offers

Tender Offer Sub-Topics

Timing

Minimum offering period
Amendments to tender offer / Extensions

Disclosure

Pre-commencement communications
Schedule TO
Subject company response / Schedule 14D-9

Mechanics

Filing / Dissemination
Treatment of Exchange Offers (Rule 162)
Mailing materials / Shareholder list
Withdrawal rights
Proration
"All holders" rule
"Best price" rule
Subsequent offering period

Section 14(e) anti-fraud provisions

Regulation M-A

Statutory Quick Finder

§ 14(d)(1)

Statute
General requirements where bidder would own more than 5% of a class of the company's securities after making the tender offer
Requires filing with the SEC
Requires copies to be sent to the subject company
Authorizes SEC to promulgate rules

§ 14(d)(2)

Statute
Partnerships, syndicates or groups are aggregated
Considered a single person

§ 14(d)(3)

Statute
Only outstanding securities count when determining %'s
Stock held by issuer or a subsidiary isn't counted

§ 14(d)(4)

Statute
Authorizes SEC to adopt rules covering
recommendations to tender

§ 14(d)(5)

Statute
Covers withdrawal rights
Authorizes SEC to adopt overriding rules

§ 14(d)(6)

Statute
Requires proration for oversubscribed offers

§ 14(d)(7)

Statute
Requires best price be paid

§ 14(d)(8)

Statute
Excludes less than 2% acquisitions
Excludes tenders by issuers

Which are regulated by SEC per §14(e)

Authorizes SEC to adopt other exclusions

§ 14(e)

Statute
Prohibits untrue statements with respect to a tender offer
Prohibits deceptive or manipulative practices
Authorizes the SEC to adopt rules

Authority used by SEC to regulate issuer tender offers

§ 14(f)

Statute
Requires dissemination of an information statement
if there will be a change in a majority of directors
other than from a meeting of security holders

Regulation 14D Quick Finder

Rule 14d-1(a) Scope of Regulations 14D and 14E