Seven New SEC Guidelines Provide Clarity Around Compliance and Disclosure Policies Surrounding Tender Offers

Although they are not strictly defined by statute, tender offers — solicitations by companies or third parties to purchase a substantial portion of another company’s outstanding debt or equity — are surrounded with more clarity and instructions as the result of seven new guidelines issued by the U.S. Securities and Exchange Commission (SEC) on November 18, 2016.

The new guidelines update certain provisions of the Williams Act, which added four new sections to the Securities Exchange Act of 1934 to ensure that disclosures about tender offers were fair to all parties, and that none of the involved parties were subjected to unfair selling pressure. The same act also includes antifraud provisions that prohibit those initiating a tender offer from making untrue statements or omitting information about the offer.

“The SEC has historically focused on whether an investor is being asked to make an investment decision and whether there is pressure to sell,” according to West Palm Beach attorney Laura Anthony, founding partner of Legal and Compliance LLC, author of the Securities Law Blog. “Once it is determined that a transaction involves a tender offer, the tender offer rules and regulations must be complied with.”

Tender offers typically fall into three categories: those intended as internal private transactions or as external offers intended to acquire or take control of a company; mini-tenders that will result in less than 5% of company ownership if successful; and abbreviated debt tender offers, which can be transacted in shorter time frames (five to 10 days) compared to the longer 20 days for traditional tender offers.

All forms of tender offers are subject to certain policies and procedures that cover terms of the offers, background of the companies or third parties making the offer, public disclosure requirements, the timing of offers and withdrawn offers, exemptions, filing requirements and other transactional details.

Because tender offers frequently involve the participation of investors and attorneys, the new SEC guidelines provide more clarity around key issues:

· Financial advisor involvement: Even if a financial advisor does not solicit or make recommendations to shareholders about a tender offer, information must be made available about any of the investor’s personal intervention or assets that are retained, employed, compensated or used in the tender process.

· Five Business Day Tender Offers: Covering certain non-convertible, investment grade debt offers, Five Business Day Offers — also called Abbreviated Debt Tender Offers — must be surrounded with same-day dissemination of information, including a press release, disclosure Form 8-K, and a hyperlink to an Internet address about the offer. The new guidelines allow foreign private issuers to file Form 6-K instead of Form 8-K, and although the offer must be made equally to all holders, new closing conditions are allowed if a minimum number of debt holders accept the tender.

Attorney Laura Anthony

Written by

The Official Medium of Securities Attorney Laura Anthony, Founding Partner of Legal & Compliance, LLC, a national corporate and securities law firm.