Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

The SEC’s Division of Corporation Finance staff issued seven Tender Offers and Schedules C&DIs on November 18th in relation to aspects of the tender offer rules under Regulations 14D and 14E. As administered by the Division’s Office of Mergers and Acquisitions (OM&A), these interpretations shed additional light on certain discrete disclosure requirements under Schedule 14D-9 and provide clarification on the staff’s application of the positions expressed in the Abbreviated Tender or Exchange Offers for Non-Convertible Debt Securities no-action letter (issued January 23, 2015).

Schedule 14D-9 refers to the filing required to be filed by an issuer in response a tender offer in which the issuer provides its recommendation to shareholders of the subject securities as to whether they should accept, reject or take other action with respect to the tender offer. The specified disclosure requirements are derived from the applicable disclosures required under Regulation M-A.

In Question 159.01, the staff indicates that the required summary of material terms of employment or other compensation arrangements for parties making recommendations with respect to the tender offer applies to a financial advisor engaged by an issuer’s board or independent committee for the exclusive purpose of providing financial advice on the underlying transaction.

The interpretation provides that the disclosure, as triggered by Item 5 of Schedule 14D-9 and Item 1009(a) of Regulation M-A, is required for such a financial advisor whose analyses or conclusions are discussed in the issuer’s Schedule 14D-9 even if such party expressly states that it is not soliciting or making a recommendation to the shareholders.

The OM&A staff again focuses on the required disclosure of the “material terms” of employment arrangements for third party advisors in Question 159.02, effectively advising against generic references to “customary compensation” in response to the applicable disclosure requirement and providing some guidance on the types of information that may provide a sufficient summary of applicable compensation terms for third party advisors.

Although determinations as to the sufficiency of disclosure is always subject to the staff’s standard facts and circumstances analysis, the interpretation clearly suggests that the staff is seeking further specificity on this point to ensure that shareholders have sufficient information to evaluate “the merits of the solicitation or recommendation and the objectivity of the financial advisors’ analyses or conclusions.”  Moreover, the staff notes that this interpretation is consistent with the overall purposes of disclosure under Schedule 14D-9 which is to “assist security holders in making their investment decision and in evaluating the merits of a solicitation/recommendation.”

Question 159.02 further suggests some specific disclosures that, while not expressly required by the rules, could reflect a sufficient summary of material compensation elements including:

  • the types of fees payable to the financial advisors;
  • a sufficiently-detailed narrative disclosure of fees (if there is, otherwise, no quantification of the fees);
  • any contingencies to the payment of the financial advisors’ compensation; and
  • any other information about the compensatory arrangement that would be material (including any material incentives or conflicts).
  • The remaining interpretations released by the staff (Questions 162.01 – 162.05) are each aimed at providing clarification on the application of the staff’s determination in The Abbreviated Tender or Exchange Offers for Non-Convertible Debt Securities no-action letter.

As background, the no-action letter discusses the parameters in which the staff would not object to a “Five Business Day Tender Offer” for non-convertible debt that would otherwise violate rules Rule 14e-1(a) or Rule 14e-1(b) under the Exchange Act (which, respectively, require that a tender offer must be open for no less than twenty business days and require a 10-day extension of the open period for a tender offer following certain increases and decreases to the class of securities being sought, the consideration, or the soliciting fee).

The 2015 no-action letter was a further relaxation of the staff’s application of the tender offer rules for non-convertible debt tenders (e.g., allowing a shorter offering period – five business days instead of 7-10 calendar days and the exchange of qualified debt securities as part of the tender offer). Historically, the staff’s accommodations for tender offers for non-convertible debt securities reflect the view that such offerings may not be subject to same concerns as tender offers for equity securities (and, thus, may not require the same protections).

The related interpretations issued by the staff clarify the following:

  • A foreign private issuer relying on the no-action letter to conduct an abbreviated offer can satisfy the stated requirement thereunder to furnish a press release announcing the abbreviated offer on a Form 8-K (on the first business day of the offer) by instead filing such notice on Form 6-K, the applicable form for foreign private issuers (Question 162.01);
  • References in the no-action letter to the requirement that abbreviated offers must be made “for any and all” subject debt securities do not preclude such offers from including minimum tender conditions (Question 162.02);
  • Under the letter, abbreviated offers for consideration consisting of Qualified Debt Securities may be made to qualified institutional buyers (QIBs) and non-U.S. persons for a fixed amount of Qualified Debt Securities so long as a fixed amount of cash consideration is concurrently offered to persons other than QIBs and non-U.S. persons. The cash to be offered to persons other than QIBs and non-U.S. persons may be calculated with reference to a fixed spread to a benchmark (provided that the calculation is the same as the calculation used in determining the amount of Qualified Debt Securities) (Question 162.03);
  • An offeror can still rely on the letter to conduct an abbreviated offer if it issues “Qualified Debt Securities” to “Eligible Exchange Offer Participants” pursuant to Securities Act Section 3(a)(9) (instead of Section 4(a)(2) or Rule 144A, as required in the no-action letter) (Question 162.04); and
  • Offerors relying on the no-action letter may announce an abbreviated offer at any time but may not commence the offer prior to 5:01 p.m. on the tenth business day after the first public announcement of a purchase, sale or transfer of a material business or amount of assets described as further defined in the letter. (Question 162.05).