Chapter 16 - § 16.17 • TENDER OFFER REGULATION AND RISK OF LIABILITY

• Jurisdiction: Colorado

§ 16.17 • TENDER OFFER REGULATION AND RISK OF LIABILITY

The Williams Act was adopted by Congress in 1968 to add §§ 14(d) and 14(e) to the 1934 Act for the regulation of tender offers. The purpose of the amendments was to require full and fair disclosure for the benefit of stockholders, while at the same time providing the offeror and management equal opportunity to fairly present their cases. The law also imposes miscellaneous substantive restrictions on the mechanics of a cash tender offer, and it imposes a broad prohibition against the use of false, misleading, or incomplete statements in connection with a tender offer. The Williams Act gives the SEC the authority to institute enforcement lawsuits. Generally § 14(d) and Regulation 14D set forth the requirements where an offeror is making an offer for shares of a company with securities registered under the 1934 Act, while § 14(e) and Regulation 14E set forth "unlawful tender offer practices," which applies whenever a tender offer is involved, and whether or not the company has securities registered under the 1934 Act.

The first question when considering the application of Regulation 14D or 14E is whether a tender offer is involved. The term "tender offer" has never been formally defined by the SEC. The SEC proposed a definition of the term in 1979,⁴¹⁸ but this definition was never adopted although it still serves as the basis for analysis. As stated by a commentator,⁴¹⁹ the SEC has not adopted such a definition, preferring "to leave the concept fluid, and to give content to the concept through case by case determinations." Numerous briefs filed by the SEC as amicus curiae have identified eight factors that must be considered in determining whether a tender offer exists. In SEC v. Carter Hawley Hale Stores, Inc.,⁴²⁰ the Ninth Circuit stated that the term "tender offer" implies

1) Active and widespread solicitation of public shareholders for the shares of an issuer;
2) That the solicitation is made for a substantial percentage of the issuer's stock;
3) That the offer to purchase is made at a premium over the prevailing market price;
4) That the terms of the offer are firm, rather than negotiable;
5) That the offer is contingent on the tender of a fixed number of shares;
6) That the offer is open only for a limited period of time;
7) That the offeree is subjected to pressure to sell; and
8) A public announcement of an acquisition program prior to the accumulation of stock by a purchaser.

The 1979 release was broader than the eight factors and established an inflexible test of an offer directed to more than 10 persons to acquire more than 5 percent of the securities during a 45-day period.

In 2000, the staff issued a report entitled Current Issues and Rulemaking Projects,⁴²¹ in which it provided guidance on how to determine the bidder in a tender offer. It concludes (in § II.D.2.) that a number of factors are relevant in determining the bidder, including the role played in initiating, structuring, and negotiating the tender offer. The determination of the identity of the bidder depends on the "particular facts and circumstances" of each transaction.

The cases follow a broad range in determining whether a tender offer exists. In In re Paine Webber Jackson & Curtis, Inc.,⁴²² the SEC held that a purchase of 9.9 percent in one day at a premium price was a tender offer. Purchase of substantial position through a single negotiated deal and a series of open market transactions was not a tender offer since the acquisition did not force the other shareholders to make rushed decisions.⁴²³

If a tender offer does exist, then the offeror and the target company must each comply with a broad range of specific rules that govern process and procedure set forth in Regulations 14D and 14E.⁴²⁴ Regulation 14D requires the preparation, filing, and dissemination of a tender offer statement at the commencement of a tender offer. Regulation 14D also requires that any tender offer grant the offerees withdrawal rights during a specified period of time, requires that the offer be made to "all holders" of the securities, and requires that each holder be offered the opportunity to sell the shares at the highest price paid to any holder. Specific disclosure must be made to all offerees and to the target company. Any response made by the target company must...