3.8 Acquisition of Control and Tender Offers

• Library: Corporations and Partnerships in Virginia (Virginia CLE) (2016 Ed.)

3.8 ACQUISITION OF CONTROL AND TENDER OFFERS

3.801 In General. Nowhere in the Exchange Act or the Rules of the SEC is the term "tender offer" defined, but in 1979, the SEC proposed an amendment to Rule 14d-1 that would define tender offer. ³¹² Release No. 34-16385 sets forth an eight-factor test, but a transaction need not meet all eight criteria to be considered a tender offer. ³¹³ In general, a tender offer is understood to mean a cash offer at a fixed price for a specified period to acquire a specified amount of securities. However, systematic market purchases at varying prices may constitute a tender offer, and the consideration for the purchases may be securities rather than cash. ³¹⁴ In addition, a large one-day block trade may be a tender offer. ³¹⁵

Under the mandate of section 14(d)(1) of the Exchange Act, ³¹⁶ the SEC has prescribed a rule that whenever a person intends to make a tender offer or make a request or invitation for tenders of any class of any equity security registered under the Exchange Act, the person must file all written communication relating to the tender offer from and including the first "public announcement." ³¹⁷ "Public announcement" is defined as "any oral or written communication by the bidder, or any person authorized to act on the bidder's behalf, that is reasonably designed to, or has the effect of, informing the public or security holders in general about the tender offer." ³¹⁸

A. Exceptions. There are prescribed exceptions to Rule 14d-1. Specifically excluded from the disclosure requirements applicable to tender

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offers is any offer for, or request or invitation for tenders of, any security where the acquisition of the security, together with all other acquisitions by the same person of securities of the same class during the preceding 12 months, will not exceed two percent of that class. ³¹⁹ Also exempted from the disclosure provisions are offers for, or requests or invitations for tenders of, any security by the issuer of the security. ³²⁰ The Exchange Act also permits the SEC, by rules, regulation, or order, to exempt from the disclosure provisions any tender offer not entered into for the purpose of, and not having the effect of, changing or influencing the control of the issuer, or otherwise not contemplated within the purposes of the disclosure provisions of the Act. ³²¹

B. Recommendations Regarding Offers. As authorized in section 14(d)(4) of the Exchange Act, ³²² the SEC has adopted Rule 14d-9. ³²³ This Rule requires filing with the SEC of a Tender Offer Solicitation/Recommendation Statement on Schedule 14d-9 ³²⁴ by anyone intending to solicit or recommend to holders of a security the acceptance or rejection of a tender offer. The filing must be made on or before the day the solicitation or recommendation begins. Where any material change occurs in facts set forth in the statement, an amendment must be filed with the SEC disclosing the change.

A complete Schedule 14d-9 is not required until after commencement by a bidder under Rule 14d-2, ³²⁵ but precommencement communication must be filed under cover of Schedule 14d-9. ³²⁶

C. Change in Terms. Section 14(d)(7) of the Exchange Act ³²⁷ provides that, where any person varies the terms of a tender offer or request or invitation for tenders before the expiration of the offer by increasing the consideration offered to the security holders, that person must also pay the increased consideration to each security holder whose securities have already been taken up and paid for. This applies whether the securities were taken up before or after the variation of the tender offer or request or invitation.

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In addition, Rule 14d-7 ³²⁸ requires that any security holder may withdraw deposited securities during the period the tender offer request or invitation remains open.

D. Prohibition Against Issuer Purchasers. Rule 13e-1 provides that where a tender offer is made for a class of equity securities by a person other than the issuer, and the issuer has received notice that the tender offer has commenced under Rule 14d-2, the issuer may not purchase any of its equity securities during the period of the tender offer unless it has first filed with the SEC a statement containing certain specified information. Persons controlling, controlled by, or under common control with the issuer are likewise prohibited from making such purchases. Rule 13e-1 does not apply to periodic repurchases in connection with an employee benefit plan or similar plan so long as the purchases are made in the ordinary course and not in response to the tender offer. ³²⁹

E. Unlawful Tender Offer Practice. Regulation 14E provides that no person who makes a tender offer shall (i) hold the tender offer open less than 20 business days; (ii) increase the offered consideration or dealer's soliciting fee without keeping the tender offer open an additional 10 business days; (iii) fail to pay promptly the...