Revisions to the Cross-Border Tender Offer, Exchange Offer, and Business Combination Rules and Beneficial Ownership Reporting Rules for Certain Foreign Institutions, 26876-26921 [E8-10388]
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Federal Register / Vol. 73, No. 91 / Friday, May 9, 2008 / Proposed Rules
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 230, 232, 239, 240, and
249
[Release Nos. 33–8917; 34–57781; File No.
S7–10–08]
RIN 3235–AK10
Revisions to the Cross-Border Tender
Offer, Exchange Offer, and Business
Combination Rules and Beneficial
Ownership Reporting Rules for Certain
Foreign Institutions
Securities and Exchange
Commission.
ACTION: Proposed rule.
AGENCY:
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SUMMARY: After eight years of
experience with the current cross-border
exemptions adopted in 1999, the
Commission is proposing changes to
expand and enhance the utility of these
exemptions for business combination
transactions. Our goal continues to be to
encourage offerors and issuers in crossborder business combinations, and
rights offerings by foreign private
issuers, to permit U.S. security holders
to participate in these transactions in
the same manner as other holders. Many
of the rule changes we propose today
would codify existing interpretive
positions and exemptive orders in the
cross-border area. In several instances,
we request comment about whether the
rule changes we propose also should
apply to tender offers for U.S.
companies. In this release, we also
address certain interpretive issues of
concern for U.S. and other offerors
engaged in cross-border business
combinations. We hope that this
guidance will prove useful in
structuring and facilitating these
transactions in a manner consistent with
U.S. investor protection.
DATES: Comments should be received on
or before June 23, 2008.
ADDRESSES: Comments may be
submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/proposed.shtml);
• Send an e-mail to rulecomments@sec.gov. Please include File
Number S7–10–08 on the subject line;
or
• Use the Federal Rulemaking Portal
(https://www.regulations.gov). Follow the
instructions for submitting comments.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary, U.S.
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Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number S7–10–08. This file number
should be included on the subject line
if e-mail is used. To help us process and
review your comments more efficiently,
please use only one method. The
Commission will post all comments on
the Commission’s Internet Web site
(https://www.sec.gov/rules/
proposed.shtml). Comments also are
available for public inspection and
copying in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. All comments received
will be posted without change; we do
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT:
Christina Chalk, Senior Special Counsel,
or Tamara Brightwell, Senior Special
Counsel, at (202) 551–3440, in the
Division of Corporation Finance, and
Elizabeth Sandoe, Branch Chief, at (202)
551–5720, in the Division of Trading
and Markets (for questions relating to
the proposed changes to Rule 14e–5),
U.S. Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549–3628.
SUPPLEMENTARY INFORMATION: We
propose to amend Rules 162,1 800 2 and
802 3 under the Securities Act of 1933 4
and Rule 101 5 of Regulation S–T.6 We
also propose to amend Rules 13d–1,7
13e–3,8 13e–4,9 14d–1,10 and 14e–5 11
under the Securities Exchange Act of
1934.12 We also propose changes to
Form S–4,13 Form F–4,14 Form F–X,15
Form CB,16 Schedule 13G 17 and
Schedule TO.18
Table of Contents
I. Background
A. Introduction
1 17
CFR 230.162.
CFR 230.800.
3 17 CFR 230.802.
4 15 U.S.C. 77a et seq.
5 17 CFR 232.101.
6 17 CFR 232.10 et seq.
7 17 CFR 240.13d–1.
8 17 CFR 240.13e–3.
9 17 CFR 240.13e–4.
10 17 CFR 240.14d–1.
11 17 CFR 240.14e–5.
12 15 U.S.C. 78a et seq.
13 17 CFR 239.25.
14 17 CFR 239.34.
15 17 CFR 239.42.
16 17 CFR 239.800.
17 17 CFR 240.13d–102.
18 17 CFR 240.14d–100.
2 17
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1. Treatment of U.S. target security holders
before the adoption of the cross-border
exemptions
2. Overview of the cross-border exemptions
B. Summary of the rule proposals and
interpretive guidance
II. Discussion
A. Eligibility threshold—determining U.S.
ownership
1. Methods for determining U.S. ownership
under the existing cross-border
exemptions
a. Negotiated transactions
b. Non-negotiated transactions
2. Current eligibility test for negotiated
transactions
a. Concerns
b. Proposed changes to the eligibility
standard for negotiated transactions
3. The current test for non-negotiated or
hostile tender offers
a. Concerns
b. Proposed changes to the presumption for
non-negotiated transactions
4. Possible new eligibility standards for
negotiated and hostile transactions
B. Proposed changes to Tier I exemptions
1. Expanded exemption from Rule 13e–3
2. Technical changes to Rule 802
C. Proposed changes to Tier II exemptions
1. Extend Tier II relief where target
securities are not subject to Rule 13e–4
or Regulation 14D
2. Expand Tier II relief for dual or multiple
offers
a. Offeror may make more than one nonU.S. offer
b. U.S. offer may include non-U.S. persons
and foreign offer(s) may include U.S.
persons
c. Proration and the use of the dual or
multiple offer structure
3. Termination of withdrawal rights while
tendered securities are counted
4. Expanded relief for subsequent offering
periods
a. Proposed revisions to prompt payment
rule
b. Prompt payment and ‘‘mix and match’’
offers
5. Additional guidance with respect to
terminating withdrawal rights after
reduction or waiver of a minimum
acceptance condition
6. Early termination of the initial offering
period or a voluntary extension of the
initial offer period
7. Codification of Rule 14e–5 cross-border
exemptions
D. Expanded availability of early
commencement for exchange offers
E. Proposed changes to schedules and
forms
1. Form CB
2. Proposed changes to Schedule TO, Form
F–4 and Form S–4
F. Beneficial ownership reporting by
foreign institutions
1. Background
2. Proposed rules
G. Interpretive Guidance
1. Application of the all-holders rule to
foreign target security holders
2. Ability of bidders to exclude U.S. target
security holders
3. Vendor placements
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III. General Request for Comment
IV. Paperwork Reduction Act
V. Cost-Benefit Analysis
VI. Consideration of Impact on Economy,
Burden on Competition and Promotion
of Efficiency, Competition and CAPITAL
FORMATION
VII. Initial Regulatory Flexibility Analysis
VIII. Small Business Regulatory Enforcement
Fairness Act
IX. Statutory Basis and Text of Proposal
I. Background
A. Introduction
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Securities markets today are
characterized by increasing
globalization. Advances in information
technology, the increased use of ADR 19
facilities giving U.S. investors an
ownership interest in the securities of
foreign companies, and other factors
have increased significantly the number
of U.S. and foreign companies engaged
in cross-border business combination
transactions.20 Computerization and the
advent of the Internet age have fueled a
revolution in investor participation in
global capital markets. With increasing
globalization of worldwide securities
markets, U.S. investors frequently
purchase securities issued by foreign
companies, including foreign private
issuers.
The Commission has undertaken
several recent rulemaking initiatives
that impact foreign private issuer
reporting and registration requirements.
For example, we recently revised our
rules to make the U.S. capital markets
more attractive to foreign private issuers
by allowing the use of financial
statements prepared in accordance with
International Financial Reporting
Standards (or IFRS) as issued by the
International Accounting Standards
Board (or IASB), without a
reconciliation to U.S. GAAP.21 In
addition, we amended the deregistration
rules for exiting the U.S. regulatory
system when the level of U.S. interest in
a foreign private issuer’s securities has
decreased, such that continued
registration is no longer justified.22 We
19 ‘‘ADRs’’ refer to American Depositary Receipts.
We use this term synonymously with American
Depositary Shares, or ADSs.
20 See Jessica Hall, Cross-Border Mergers Defy
U.S. Slump, REUTERS (October 18, 2007)(noting
that cross-border deals reached record highs
through mid-October 2007, and were up 82 percent
over levels for the same period in 2006, according
to figures compiled by the research firm Dealogic).
21 Acceptance From Foreign Private Issuers of
Financial Statements Prepared in Accordance With
International Financial Reporting Standards
Without Reconciliation to U.S. GAAP, Release No.
33–8879 (December 21, 2007) [73 FR 986].
22 Termination of a Foreign Private Issuer’s
Registration of a Class of Securities Under Section
12(g) and Duty to File Reports Under Section 13(a)
or 15(d) of the Securities Exchange Act of 1934,
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also have proposed a change to the
manner of determining the availability
of the Rule 12g3–2(b) exemption from
Exchange Act registration.23 Further, we
have proposed rule revisions applicable
to foreign issuers, intended to improve
the accessibility of the U.S. public
capital markets and enhance the
information available to investors.24
We believe these changes benefit
investors and issuers. U.S. investors
benefit from additional investment
opportunities in securities of foreign
companies, while issuers benefit from
the potential for increased investor
interest and a reduction in the cost of
regulatory compliance. Consistent with
these recent efforts to enhance our
regulatory system applicable to foreign
private issuers, we are proposing
enhancements to our rules governing
cross-border business combination
transactions.
The rule revisions we propose today
are based on our experiences in the
cross-border area during the eight years
since the current cross-border
exemptions were adopted. The revisions
are intended to address the areas of
conflict or inconsistency with foreign
regulations and practice that acquirors
frequently encounter in cross-border
business combination transactions.25
Whether non-U.S. issuers list their
securities on a U.S. market or U.S.
investors access overseas trading
markets to purchase their securities,
cross-border business combination
transactions frequently present conflicts
between U.S. and foreign regulatory
systems.26 The cross-border exemptions
Release No. 34–55540 (March 27, 2007) [72 FR
16934] (‘‘Deregistration Release’’).
23 Exemption from Registration Under Section
12(g) of the Securities Exchange Act of 1934 for
Foreign Private Issuers, Release No. 34–57350
(February 19, 2008) [73 FR 10102] (‘‘Rule 12g3–2(b)
Release’’).
24 Foreign Issuer Reporting Enhancements,
Release No. 33–8900 (February 29, 2008) [73 FR
13404].
25 The proposed revisions are, with a few
exceptions, limited to cross-border business
combination transactions. ‘‘Cross-border’’ refers to
business combinations in which the target company
is a ‘‘foreign private issuer’’ as defined in Exchange
Act Rule 3b–4(c) [17 CFR 240.3b–4(c)], and rights
offerings where the issuer is a foreign private issuer,
as so defined. In the past under very limited
circumstances, offerors have obtained no-action and
exemptive relief for business combinations in
which the target company was a foreign issuer but
did not meet the definition of foreign private issuer
in Rule 3b–4. Such relief continues to be considered
only in special circumstances and will be as
narrowly tailored as practicable.
26 ‘‘Business combination’’ is defined in
Securities Act Rule 800(a) as any ‘‘statutory
amalgamation, merger, arrangement or
reorganization requiring the vote of security holders
of one or more participating companies. It also
includes a statutory short form merger that does not
require a vote of security holders.’’ In this release,
we use the term more broadly to include those
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are premised on the status of the target
company in a business combination, or
the issuer in a rights offering, as a
foreign private issuer as defined in our
rules.
We believe the revisions we propose
today represent an appropriate balance
between the need to protect U.S.
investors through application of the
protections afforded by U.S. law, and
the desirability of facilitating and
enabling transactions that may benefit
all security holders, including those in
the United States. We also believe
expanding the availability of the crossborder exemptions will serve the public
interest by encouraging bidders to
include U.S. holders in cross-border
business combination transactions from
which they otherwise might be
excluded, thereby extending the benefits
of those transactions to U.S. investors.
1. Treatment of U.S. Target Security
Holders Before the Adoption of the
Cross-Border Exemptions
Before the cross-border exemptions
became effective in January 2000, U.S.
holders 27 of a foreign issuer or foreign
target company frequently were
excluded from cross-border business
combination transactions or rights
offerings because of actual or perceived
conflicts between U.S. and foreign law.
Where U.S. security holders held a
relatively small percentage of a foreign
target’s securities, their participation
was not necessary to the successful
completion of the business combination
transaction and acquirors frequently
excluded them.28 Even where the
percentage of securities held in the
United States was significant, acquirors
and issuers in business combination
transactions and rights offerings
kinds of transactions, as well as tender and
exchange offers. See Securities Act Rule 165(f)(1)
[17 CFR 230.165(f)(1)] (defining the term more
broadly, to include the types of transactions listed
in Rule 145(a) [17 CFR 230.145(a)], as well as
exchange offers).
27 See, e.g., Instruction 2 to Exchange Act Rules
14d–1(c) and 14d–1(d) (defining ‘‘U.S. holder’’ as
‘‘any security holder resident in the United States’’).
28 See Cross-Border Tender Offers, Business
Combinations and Rights Offerings, Release No. 33–
7611 (November 13, 1998) [63 FR 69136] (‘‘1998
Cross-Border Proposing Release’’), Section II.A. The
U.K. Takeover Panel (the entity that regulates
tender offers in the United Kingdom) provided us
with information it compiled in 1997 based on a
random sample of 31 tender offers (out of 171
possible mergers or tender offers). When the U.S.
ownership of the target was less than 15 percent (30
offers), the bidders excluded U.S. persons in all of
the offers. When the U.S. ownership was more
significant, such as 38 percent (one offer), the
bidders included U.S. persons. In the 30 offers that
excluded U.S. persons, the ownership percentage
was as follows: in 27 offers, U.S. persons held less
than 5 percent; in the remaining three offers, U.S.
persons held 7 percent, 8 percent and 10–15
percent, respectively.
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sometimes avoided extending the offer
into the United States because of
perceived litigation risks or conflicts in
rules or practice, or the desire not to
engage in the process of preparing and
filing a Securities Act registration
statement.29 Exclusion deprived U.S.
investors of some or all of the benefits
of such cross-border transactions.
2. Overview of the Cross-Border
Exemptions
In an effort to facilitate the inclusion
of U.S. security holders in primarily
foreign transactions, we adopted the
cross-border exemptions on October 26,
1999.30 These exemptions represented
the culmination of efforts since 1991,
when we issued two proposing releases
addressing cross-border issues.31
Between 1991 and 1999, the staff gained
valuable experience addressing
numerous individual requests for noaction and exemptive relief in the crossborder area.32 The cross-border
exemptions addressed areas of frequent
regulatory conflict or differences in
practice encountered by the staff during
those years.
Generally speaking, the cross-border
exemptions are structured as a two-tier
system based broadly on the level of
U.S. interest in a transaction, measured
by the percentage of target securities of
a foreign private issuer held by U.S.
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29 Id.
30 Cross-Border Tender and Exchange Offers,
Business Combinations and Rights Offerings,
Release No. 33–7759, 34–42054 (October 22, 1999)
[64 FR 61382] (‘‘Cross-Border Adopting Release’’).
In this release, we refer to the cross-border
exemptions adopted in the Cross-Border Adopting
Release as the ‘‘cross-border exemptions.’’ The
cross-border exemptions may be found in Securities
Act Rules 800–802 [17 CFR 230.800–802] and
Exchange Act Rules 13e–3(g)(6) [17 CFR 240.13e–
3(g)(6)], 13e–4(h)(8) [17 CFR 240.13e–4(h)(8)], 13e–
4(i) [17 CFR 240.13e–4(i)], 14d–1(c) [17 CFR
240.14d–1(c)], 14d–1(d) [17 CFR 240.14d–1(d)], and
14e–2(d) [17 CFR 240.14e–2(d)].
31 See International Tender and Exchange Offers,
Release No. 33–6897 (June 5, 1991) [56 FR 27582]
and Cross-Border Rights Offers; Amendments to
Form F–3, Release No. 33–6896 (June 4, 1991) [56
FR 27564]. Additionally, we addressed a number of
issues presented in the cross-border context in a
concept release in 1990. See Concept Release
Multinational Tender and Exchange Offers, Release
No. 33–6866 (June 6, 1990) [55 FR 23751].
32 Where we refer in this release to ‘‘relief,’’ we
mean exemptive or no-action relief provided by
letter in the context of an individual transaction,
unless otherwise indicated. See footnote 49 below
referring to the staff’s delegated authority to provide
exemptive relief from U.S. rule provisions for
specific cross-border transactions. Where we refer
to ‘‘interpretive guidance,’’ we mean oral positions
taken by the staff or written interpretations
promulgated by the Division of Corporation Finance
in the Manual of Publicly Available Telephone
Interpretations available on our Web site. We refer
to ‘‘Commission guidance’’ or ‘‘Commission
interpretive guidance’’ to mean positions expressed
by the Commission in releases.
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investors.33 Where no more than ten
percent of the subject securities are held
in the United States (Tier I and Rules
801 and 802), a qualifying cross-border
transaction will be exempt from most
U.S. tender offer rules 34 and from the
registration requirements of Section 5 of
the Securities Act of 1933.35 Tier I
provides a broad exemption from the
filing, dissemination and procedural
requirements of the U.S. tender offer
rules and the heightened disclosure
requirements applicable to going private
transactions as defined in Rule 13e–3.36
Tier I also exempts the subject company
of a tender offer from the obligation to
express and support a position with
respect to that tender offer.37 At the
same level of U.S. ownership, Rules 801
and 802 also provide relief from the
registration requirements of Securities
Act Section 5 for securities issued in
rights offerings and business
combination transactions.
Issuers relying on Rule 801, offerors
relying on Rule 802, and third-party
bidders and issuers relying on the Tier
I cross-border exemption must furnish a
Form CB to the Commission.38 Form CB
is a cover sheet for an English
translation of the disclosure document
used in the foreign home jurisdiction
and disseminated to U.S. target security
holders.39 This form must be submitted
to the Commission by the next business
day after the disclosure document
attached and used in the foreign home
jurisdiction is published or otherwise
disseminated in accordance with home
country rules.40 The materials
submitted under cover of Form CB are
not deemed filed with the Commission,
and the filer is not subject to the
liability provisions of Section 18 of the
Exchange Act.41
33 Although the target (or issuer in a rights
offering) must be a foreign private issuer, the
acquiror relying on the cross-border exemptions
need not be a foreign private issuer and, in fact,
may be a U.S. company.
34 The U.S. anti-fraud and anti-manipulation rules
and civil liability provisions continue to apply to
these transactions. See Cross-Border Adopting
Release, Section I.A.
35 15 U.S.C. 77e.
36 Exchange Act Rules 13e–3(g)(6), 13e–4(h)(8)
and 14d–1(c).
37 Exchange Act Rule 14e–2(d).
38 Securities Act Rules 801(a)(4)(i) and
802(a)(3)(i), and Exchange Act Rules 13e–4(h)(8)(iii)
and 14d–1(c)(3)(iii).
39 Item 1 of Form CB [17 CFR 239.800].
40 Securities Act Rules 801(a)(4)(i) and 802(a)(3)(i)
and Exchange Act Rules 14d–1(c)(3)(iii) and 13e–
4(h)(8)(iii). If the bidder is a foreign company, it
must also file a Form F–X with the Commission
appointing an agent for service of process in the
United States. See, e.g., Exchange Act Rule 14d–
1(c)(3)(iii).
41 15 U.S.C. 78r. See also, the Cross-Border
Adopting Release, Section II.A.2. However, an
acquiror or other person submitting Form CB is
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A bidder relying on the Tier I
exemption must submit a Form CB only
if the tender offer would have been
subject to Regulation 14D 42 or Rule
13e–4, but for the Tier I exemption. No
filing requirement exists for a tender
offer subject only to Exchange Act
Section 14(e) and Regulation 14E;
accordingly, furnishing a Form CB is not
necessary.43
Where U.S. holders own more than
ten percent but no more than 40 percent
of the target securities (Tier II), the
cross-border exemptions provide
targeted relief from some U.S. tender
offer rules to address certain recurring
areas of regulatory conflict. The Tier II
exemptions encompass narrowlytailored relief from certain U.S. tender
offer rules, such as the prompt payment,
extension and notice of extension
requirements in Regulation 14E. The
Tier II exemptions do not provide relief
from the registration requirements of
Securities Act Section 5, nor do they
include an exemption from the
additional disclosure requirements
applicable to going private transactions
by issuers or affiliates.
The scope of the Tier I and Tier II
cross-border exemptions and the
exemptions from the Securities Act
registration requirements provided in
Rules 801 and 802 are based broadly on
the level of U.S. interest in a given
transaction, as illustrated by the
percentage of shares held by U.S.
persons. In addition to these U.S.
ownership thresholds, the cross-border
exemptions are conditioned on other
requirements, such as the principle that
U.S. target security holders be permitted
to participate in the offer on terms at
least as favorable as those afforded other
target holders.44 This approach differs
from our approach in adopting revisions
to the deregistration rules applicable to
foreign private issuers in 2007 45 and
more recently, in our proposed revisions
to Rule 12g3–2(b) recommending the
subject to U.S. anti-fraud provisions. See footnote
34 above.
42 Exchange Act Rules 14d–1 through 14d–11.
43 See Cross-Border Adopting Release, Section
II.A.2. Regulation 14E applies to all tender offers,
including those not subject to Section 13(e) or 14(d)
of the Exchange Act. These include tender offers for
non-equity securities and securities that are not
registered under Section 12 of the Exchange Act [15
U.S.C. 78l], as well as partial offers for less than all
of the subject class, where the bidder will not own,
based on purchases in the tender offer and
ownership in the target before the offer commences,
more than five percent of the subject class of equity
securities after the tender offer.
44 Securities Act Rules 801(a)(3) and 802(a)(2) [17
CFR 230.801(a)(3) and 230.802(a)(2)]; Exchange Act
Rules 13e–4(h)(8)(ii) and (i)(2)(ii); and 14d–1(c)(2)
and (d)(2)(ii).
45 See the Deregistration Release.
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use of an average daily trading volume
test (‘‘ADTV’’).46
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B. Summary of Rule Proposals and
Interpretive Guidance
We believe the existing cross-border
exemptions have facilitated the
inclusion of U.S. security holders in
foreign transactions in a manner
consistent with our investor protection
mandate.47 We recognize that in some
instances, however, the exemptions are
not operating as optimally as intended,
or do not address continuing and
recurring conflicts of law and practice
not anticipated when we adopted
them.48 As a result, companies
repeatedly call upon the Commission’s
staff to address particular areas of
conflict in the context of individual
cross-border transactions.49
The rule revisions we propose today
address recurring issues and unintended
consequences that have impeded the
usefulness of the cross-border
exemptions. We believe the proposed
changes will encourage more offers to be
extended into the United States.
Generally speaking, the proposed
revisions represent an expansion and
refinement of the current exemptions,
46 See the Rule 12g3–2(b) Release and the
discussion in Section II.A.4 below.
47 Another area in which we have modified our
rules in the foreign private issuer context is the
Multijurisdictional Disclosure System (‘‘MJDS’’)
with Canada. See Exchange Act Rule 14d–1(b). That
system allows a bidder in a cross-border tender
offer to conduct its offer in accordance with
Canadian rules and/or the rules of any applicable
Canadian province instead of U.S. tender offer
requirements, where the conditions in the rule are
met. These include the requirement that the target
company in the tender offer be a foreign private
issuer and not an investment company, and that
U.S. holders own less than 40 percent of the subject
securities. The bidder must file its offer materials,
prepared in accordance with Canadian
requirements, on Form 14D–1F [17 CFR 240.14d–
102] with the Commission. See Rule 14d–1(b)(1).
MJDS also specifies certain forms to be used by
Canadian companies issuing securities to U.S.
persons. See, e.g., Forms F–8 [17 CFR 239.38], F–
9 [17 CFR 239.39], F–10 [17 CFR 239.40], and F–
80 [17 CFR 239.41]. Except for limited solicitations
of comment below, this release does not propose
changes to MJDS.
48 For a general discussion of the cross-border
exemptions and a broad overview of how they
operate, see Steven Davidoff & Brett Carron,
‘‘Getting U.S. Security Holders to the Party: The
SEC’s Cross-Border Release Five Years On,’’ 26.3 U.
Pa. J. Int’l Econ. L. 455 (2005); and John Basnage,
William Curtin III & Jeffrey Rubin, ‘‘Cross-Border
Tender Offers and Other Business Combination
Transactions and the U.S. Federal Securities Laws:
An Overview,’’ 61.3 Business Lawyer 1071 (2006).
49 Pursuant to Rule 30–1 of the SEC’s Rules of
General Organization [17 CFR 200.30–1], the staff
has delegated authority to exempt individual
bidders and issuers from application of our rules.
No-action and exemptive letters issued by the staff
in connection with cross-border transactions may
be found on our Web site at https://www.sec.gov/
divisions/corpfin/cf-noaction.shtml and https://
www.sec.gov/divisions/marketreg/mrnoaction.shtml#rule14e5.
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and in some areas, would codify relief
previously granted only on an
individual basis. Our proposed
codification of various staff interpretive
positions would make such relief
available as a matter of right, thereby
reducing the burdens and costs for
bidders and issuers of extending crossborder offers to U.S. holders when
conducting cross-border transactions.
In some instances, the changes we
propose would address practical
problems that have limited the ability of
bidders and issuers to rely on the
exemptions. For example, we hope the
proposed changes relating to the
calculation of U.S. ownership of the
target foreign private issuer will provide
greater certainty and ease of use for
those seeking to rely on the exemptions.
In proposing these rule revisions, we
hope to better address the burdens on
bidders and issuers who must comply
with two or more regulatory systems in
the context of cross-border
transactions.50 As a result, we hope the
revisions we propose today will make
bidders more likely to extend offers to
U.S. holders.
In this release, we also provide
guidance on some of the interpretive
issues that have arisen during the years
since the cross-border exemptions were
adopted. In some instances, we propose
to codify existing staff interpretive
positions. We also discuss our views on
some of the interpretive matters
addressed in the 1998 Cross-Border
Proposing Release and the Cross-Border
Adopting Release. The rule changes we
propose today include:
• Refinement of the tests for
calculating U.S. ownership of the target
company for purposes of determining
eligibility to rely on the cross-border
exemptions in both negotiated and
hostile transactions, including changes
to:
Æ Use the date of public
announcement of the business
combination as the reference point for
calculating U.S. ownership;
Æ Permit the offeror to calculate
U.S. ownership as of a date within a 60day range before announcement;
50 Although the focus of the rule changes we
propose is cross-border business combinations, in
some instances, we solicit comment on whether
certain of these changes should also apply to
business combinations where the target company is
a U.S. issuer. We may adopt these changes at the
time we adopt changes to our cross-border business
combination rules. For example, we ask for
comments on whether domestic exchange offers not
subject to Rule 13e–4 or Regulation 14D should be
permitted to commence early. We also solicit
comment on whether the rule changes we propose
to facilitate ‘‘mix and match’’ tender offers and the
relaxation of the our rules relating to subsequent
offering periods also should apply to tender offers
for domestic companies.
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Æ Specify when the offeror has
reason to know certain information
about U.S. ownership that may affect its
ability to rely on the presumption of
eligibility in non-negotiated tender
offers;
• Expanding relief under Tier I for
affiliated transactions subject to Rule
13e–3 for transaction structures not
covered under our current cross-border
exemptions, such as schemes of
arrangement, cash mergers, or
compulsory acquisitions for cash;
• Extending the specific relief
afforded under Tier II to tender offers
not subject to Sections 13(e) or 14(d) of
the Exchange Act;
• Expanding the relief afforded under
Tier II in several ways to eliminate
recurring conflicts between U.S. and
foreign law and practice, including:
Æ Allowing more than one offer to be
made abroad in conjunction with a U.S.
offer;
Æ Permitting bidders to include
foreign security holders in the U.S. offer
and U.S. holders in the foreign offer(s);
Æ Allowing bidders to suspend backend withdrawal rights while tendered
securities are counted;
Æ Allowing subsequent offering
periods to extend beyond 20 U.S.
business days;
Æ Allowing securities tendered
during the subsequent offering period to
be purchased within 14 business days
from the date of tender;
Æ Allowing bidders to pay interest
on securities tendered during a
subsequent offering period;
Æ Allowing separate offset and
proration pools for securities tendered
during the initial and subsequent
offering periods;
• Codifying existing exemptive orders
with respect to the application of Rule
14e-5 for Tier II tender offers;
• Expanding the availability of early
commencement to offers not subject to
Section 13(e) or 14(d) of the Exchange
Act;
• Requiring that all Form CBs and the
Form F–Xs that accompany them be
filed electronically;
• Modifying the cover pages of
certain tender offer schedules and
registration statements to list any crossborder exemptions relied upon in
conducting the relevant transactions;
and
• Permitting foreign institutions to
report on Schedule 13G to the same
extent as their U.S. counterparts,
without individual no-action relief.
In addition to these proposed rule
changes, we provide guidance or solicit
commenters’ views on the following
issues:
• The ability of bidders to terminate
an initial offering period or any
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voluntary extension of that period
before a scheduled expiration date;
• The ability of bidders in tender
offers to waive or reduce the minimum
tender condition without providing
withdrawal rights;
• The application of the all-holders
provisions of our tender offer rules to
foreign target security holders;
• The ability of bidders to exclude
U.S. target security holders in crossborder tender offers; and
• The ability of bidders to use the
vendor placement procedure for
exchange offers subject to Section 13(e)
or 14(d) of the Exchange Act.
II. Discussion
1. Methods for Determining U.S.
Ownership Under the Existing CrossBorder Exemptions
A. Eligibility Threshold—Determining
U.S. Ownership
mstockstill on PROD1PC66 with PROPOSALS2
Business combination transactions are
extraordinary events for target
companies and their security holders.
When U.S. persons hold a significant
percentage of a target’s securities in a
cross-border business combination
transaction, we believe U.S. tender offer
and other rules should provide certain
basic protections in transactions that
will significantly impact their
ownership interest in that target
company.51 When U.S. persons do not
hold a significant stake in the subject
target class, we believe that by allowing
the acquiror to conduct the transaction
in accordance with the applicable
foreign law, while including U.S.
persons and treating them at least as
favorably as all other target holders, U.S.
persons are better protected than they
would be if the acquiror chose to
exclude them from the transaction so
that the transaction would not be
subject to U.S. regulations.
When we adopted the cross-border
exemptions, we established a threshold
eligibility test for use of the exemptions
based on the percentage of target shares
held by U.S. persons.52 The current test,
based on the level of U.S. ownership in
51 We believe these protections are even more
critical in cross-border tender offers, where home
country law may not allow acquirors to eliminate
minority security holders under the same
circumstances as in the United States. For example,
in some foreign jurisdictions, the ability of bidders
to ‘‘squeeze out’’ target security holders remaining
after a tender offer may be more limited than in the
United States, where this generally will be
accomplished whenever the bidder purchases a
majority of target shares. See discussion in footnote
155 below. Therefore, a decision whether to tender
into an offer and the procedural protections
associated with that offer may be even more critical,
because target security holders who remain after the
offer may not be cashed out in a back-end merger,
as would be typical in the United States.
52 For rights offerings, eligibility to rely on Rule
801 is determined by the percentage of subject
securities of the issuer held by U.S. persons. See
Securities Act Rule 800(h).
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the target company, has worked well
conceptually. However, we have
become aware of certain difficulties that
can make application of our threshold
eligibility test problematic in practice,
including issues that can arise when
conducting both the look-through
analysis for negotiated transactions and
the alternate test for non-negotiated
deals, as discussed below. We believe
the recommended changes will enhance
the utility of the cross-border
exemptions because they will make it
easier for bidders and issuers to
determine whether they are eligible to
rely on them.
a. Negotiated Transactions
As discussed above, under our current
rules, eligibility to rely on the crossborder exemptions is determined in part
by the percentage of U.S. beneficial
holders of the relevant class of target
securities.53 U.S. ownership of the target
company is determined by reference to
the target’s non-affiliated float 54 and
holders of greater than ten percent of the
subject class are excluded from the
calculation of U.S. ownership.55 Any
securities held by the acquiror in the
business combination transaction
similarly are excluded from the
calculation.56
The rules specify the manner in
which a bidder in a negotiated
transaction must determine which target
securities are held by persons resident
53 Note that in response to inquiries from U.S.
bidders regarding the availability of Securities Act
Rules 801 and 802 when there are no U.S. holders
in the issuer (in a rights offering) or subject
company (in an exchange offer or other business
combination), or when an offer is not extended to
U.S. holders, the Division of Corporation Finance
has taken the position that the cross-border
exemptions do not apply unless there is at least one
U.S. security holder of the subject class of
securities. See Section II.C. Question 1 in the Third
Supplement to the Division of Corporation
Finance’s Manual of Publicly Available Telephone
Interpretations (July 2001), at https://www.sec.gov/
interps/telephone/phonesupplement3.htm. This is
consistent with the intent of the exemptions: to
facilitate the inclusion of U.S. security holders of
foreign private issuers in business combinations
and rights offerings.
54 We use ‘‘float’’ to refer to the aggregate market
value of the subject securities held by non-affiliates.
See generally, the definition of ‘‘Small Business
Issuer’’ in Securities Act Rule 405 [17 CFR 230.405]
and the Note to that provision. We do not include
in that definition securities held by persons or
entities that individually own more than ten
percent of the subject securities.
55 See Instruction 2.ii. to Exchange Act Rules 13e–
4(h)(8) and (i), and 14d–1(c) and 14d–1(d). See also
Securities Act Rule 800(h)(2).
56 Id.
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in the United States.57 They require the
acquiror to ‘‘look through’’ securities
held of record by nominees in specified
jurisdictions to identify those held for
the accounts of persons located in the
United States.58 If after ‘‘reasonable
inquiry,’’ the acquiror is unable to
obtain information about the location of
the security holders for whom a
nominee holds, the rules allow the
acquiror to assume that the customers
are residents of the jurisdiction in
which the nominee has its principal
place of business.59 The relevant date
for determining U.S. ownership is the
30th day before a benchmark date that
varies with the type of transaction for
which the exemption is sought.60
b. Non-Negotiated Transactions
In adopting the eligibility standard for
negotiated transactions described in the
preceding section, we recognized that
the required look-through analysis
would be more difficult for third-party
offerors in non-negotiated transactions
because they would not have the
cooperation of the issuer.61 In
particular, obtaining information from
nominees who hold for the account of
others is difficult for third-party
acquirors and may have the effect of
alerting the market to a contemplated
offer before the acquiror wishes to make
57 See Instruction 2 to Exchange Act Rules 13e–
4(h)(8) and (i), and 14d–1(c) and (d); Securities Act
Rule 800(h).
58 See, e.g., Instruction 2.iii. to Exchange Act
Rules 14d–1(c) and 14d–1(d) (instructing the bidder
to limit its inquiry as to securities held in nominee
form to nominees located in the United States, the
subject company’s jurisdiction of incorporation and
the jurisdiction that is the primary trading market
for the subject securities, if different from the
target’s jurisdiction of incorporation). We recently
revised the rule pertaining to termination of
registration to include a definition of ‘‘primary
trading market’’ that may include trading in more
than one foreign market. See Exchange Act Rule
12h–6(f)(5) [17 CFR 240.12h–6(f)(5)]. This does not
change the meaning of ‘‘primary trading market’’ as
used in the cross-border exemptions and in the
instruction to the definition of foreign private issuer
in Exchange Act Rule 3b–4 and Securities Act Rule
405 [17 CFR 230.405]. An acquiror’s or issuer’s
obligation to look through nominees in calculating
U.S. ownership continues to be limited to the
jurisdiction of the single, principal foreign trading
market for the target’s securities, if different from
the target’s jurisdiction of incorporation.
59 See Securities Act Rule 800(h)(3) and
Instruction 2.iv. to Exchange Act Rules 13e–4(h)(8)
and (i), and 14d–1(c) and (d).
60 See Instruction 2.i. to Exchange Act Rules 13e–
4(h)(8) and (i), and 14d–1(c) and (d) (specifying that
U.S. ownership must be calculated as of the 30th
day before commencement of a tender offer). For
the Securities Act Rule 801 and 802 exemptions,
see Rule 800(h) (stating that U.S. ownership must
be calculated as of the record date for a rights
offering or as of the 30th day before the
commencement of an exchange offer or the
solicitation for a business combination other than
a tender offer).
61 See discussion in the Cross-Border Adopting
Release, Section II.F.3.
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its intentions known. For that reason,
the cross-border exemptions include a
presumption available for nonnegotiated or ‘‘hostile’’ transactions.62
The ‘‘hostile presumption’’ allows a
third-party bidder in a non-negotiated
tender or exchange offer to assume that
U.S. ownership in the target company is
no more than ten percent or 40 percent,
the thresholds for Tier I and Rule 802,
and Tier II respectively, so long as
average daily trading volume in the
United States does not exceed ten
percent or 40 percent of the average
daily trading volume worldwide over a
twelve-month period ending 30 days
before commencement, and the bidder
has no reason to know that actual U.S.
ownership is inconsistent with that
figure (either based on the issuer’s
informational filings with the
Commission or foreign regulators or
based on the bidder’s actual or imputed
knowledge from other sources).63
2. Current Eligibility Test for Negotiated
Transactions
mstockstill on PROD1PC66 with PROPOSALS2
a. Concerns
Although we believe the current tests
for determining eligibility to rely on the
cross-border exemptions generally have
worked well, changes in several areas
would be appropriate to address timing
and informational restrictions that have
impeded the application of the current
exemptions. Many of these problems
relate to the threshold eligibility
determination for negotiated
transactions.
In particular, the requirement that
U.S. ownership be calculated as of the
30th day before the commencement of a
tender offer or exchange offer, or before
the solicitation for other kinds of
business combination transactions 64
62 We distinguish a ‘‘hostile’’ tender offer from
one made pursuant to an agreement with the target
company, which we refer to as a negotiated or
recommended transaction.
63 See, e.g., Instruction 3.i.-iv. to Exchange Act
Rules 14d–1(c) and 14d–1(d) (stating that the
presumption is available unless the aggregate
trading volume in the U.S. exceeds certain levels,
or the bidder knows or should know that actual
levels of U.S ownership exceed the ceiling for the
applicable exemption). The instruction, as currently
written, refers to the Nasdaq market and the trading
volume of securities on the over-the-counter (OTC)
market as reported to the NASD, but since the
adoption of Exchange Act Rules 14d–1(c) and 14d–
1(d) and the corresponding instruction, the Nasdaq
market has become an exchange, the NASDAQ
OMX Group, Inc. Additionally, the trading volume
of securities on the OTC market is now reported to
the Financial Industry Regulatory Authority, Inc., or
FINRA, which was created through the
consolidation of the NASD and the member
regulation, enforcement and arbitration functions of
the NYSE. We therefore propose a technical change
to the rules to reflect these changes.
64 See Securities Act Rule 800(h)(1), Instruction
2.i. to Exchange Act Rules 13e–4(h)(8) and 13e–4(i),
and Instruction 2.i. to Rules 14d–1(c) and 14d–1(d).
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presents practical difficulties for
acquirors in certain jurisdictions. In
some countries, the look-through
analysis we require for negotiated
transactions takes longer than 30 days to
perform.65 Numerous acquirors have
advised us that in some jurisdictions, it
is not possible to calculate U.S.
ownership as of a set date in the past.
In others, information about the location
of target security holders is only
published at fixed intervals.66
Additionally, the exact date of
commencement is not within the
control of the acquiror in some
jurisdictions.67 In recognition of these
problems, issuers have sought guidance
from the staff regarding the date of
calculating U.S. ownership for purposes
of determining eligibility to rely on the
cross-border exemptions. The staff has
stated that, where the 30th day before
commencement is impracticable for
reasons outside of the acquiror’s control
the acquiror may use the date within the
30-day period before commencement
that is as close as possible to the 30th
day.68 However, the staff continues to
receive inquiries from acquirors who
cannot definitively use a date within the
30 days before commencement because
of logistical problems in the time
needed to conduct the mandated lookthrough analysis, or because of the
regulatory review process.69 In the case
of an exchange offer where the acquiror
will issue securities in exchange for
target securities, more than 30 days may
65 See, e.g., Serono S.A. (September 12, 2002)
(‘‘Serono S.A.’’) (stating that approximately six to
eight weeks is necessary to complete a look-through
analysis to obtain information about the level of
U.S. beneficial ownership of a French company).
66 See Section II.E. Question 8 in the Third
Supplement to the Division of Corporation Finance
Manual of Publicly Available Telephone
Interpretations (July 2001), at https://www.sec.gov/
interps/telephone/phonesupplement3.htm.
67 In some foreign jurisdictions, for example, a
bidder is obligated to commence an offer within a
certain number of days of receiving home country
regulatory approval of its offer materials. As noted
above, bidders cannot always obtain information
about U.S. ownership as of a date in the past; rather,
they can request that information only as of a
current date going forward 30 days to the
anticipated date of commencement. When the date
of commencement is uncertain, it becomes difficult
for offerors to comply with our rules.
68 See Section II.E. Question 7 in the Third
Supplement to the Division of Corporation Finance
Manual of Publicly Available Telephone
Interpretations (July 2001), at https://www.sec.gov/
interps/telephone/phonesupplement3.htm.
69 For example, shares of listed French companies
are not certificated and the majority of such shares
are held in bearer form, meaning that the only
ownership records for such shares are maintained
by Euroclear France, the French clearing system. It
generally takes more than 30 days to request and
analyze the position listing known as a ‘‘TPI
report.’’ See, e.g., Alcan, Inc. (October 7, 2003)
(‘‘Alcan’’) and Equant N.V. (April 18, 2005)
(‘‘Equant N.V.’’) and footnote 65 above.
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26881
be needed to prepare offering materials
and complete the regulatory review
process.
The reference date for assessing U.S.
ownership under the cross-border
exemptions also creates logistical
problems in certain cases. The current
exemptions key the determination of
U.S. ownership to the date of
commencement of the tender offer or
the commencement of the solicitation
for other types of business
combinations, or to the record date for
a rights offering.70 If the announcement
of the transaction predates the
commencement by more than 30 days,
an acquiror will not know with certainty
when it announces a transaction
whether it will be eligible to rely on the
cross-border exemptions at all, or
whether it will be eligible for Tier I/Rule
802 or Tier II. The staff has been advised
that this is problematic in some foreign
jurisdictions because by law, the
announcement must provide detailed
information about the transaction,
including information about how U.S.
target security holders will be treated.71
Even where such information is not
legally required at the time of
announcement, issuers may wish to
inform target security holders and the
market at large of this information.
In addition, keying the look-through
analysis to commencement creates a
discrepancy for purposes of the
exemption from Rule 14e–5. Rule 14e–
5 generally prohibits purchases of target
securities outside of a tender offer from
the date of announcement of that offer
through its expiration.72 Tender offers
conducted in reliance on the Tier I
exemption are exempt from the
application of Rule 14e–5.73 However,
because Rule 14e–5 applies from the
date of announcement of the tender
offer, a bidder will not necessarily know
at the time of announcement whether it
will qualify for the cross-border
exemptions as of the 30th date before
commencement.
Finally, from time to time the
suggestion is made that excluding
holders of greater than ten percent of the
70 See Securities Act Rule 800(h)(1), Instruction
2.i. to Exchange Act Rules 13e–4(h)(8) and (i), and
Instruction 2 to Exchange Act Rules 14d–1(c) and
(d).
71 The staff has been contacted by counsel for
bidders in certain European countries with
concerns about calculating U.S. ownership as of the
date specified under current rules, where an
announcement of the transaction must be made
more than 30 days before commencement and
under home country regulation the announcement
must include detailed information about the
treatment of U.S. target holders.
72 Exchange Act Rule 14e–5 [17 CFR 240.14e–5].
We propose to extend this exemption to encompass
Tier II-eligible tender offers.
73 Exchange Act Rule 14e–5(b)(10)(i).
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subject securities disproportionately
elevates the levels of U.S. ownership in
target companies. In the 1998 CrossBorder Proposing Release, we proposed
to exclude from the calculation of U.S.
ownership securities owned by non-U.S.
target holders who individually held
more than ten percent of the subject
class, on the grounds that such large
investors were affiliates and the
securities they held were not part of the
target’s public float.74 When the
exemptions were adopted, they
excluded securities held by both U.S.
and non-U.S. persons holding greater
than ten percent of the target company’s
securities because of commenters’
concerns that excluding only large nonU.S. holders, as originally proposed,
would skew the U.S. ownership
percentages upward.75 We continue to
receive feedback from various
constituencies, however, that exclusion
of large holders results in reduced
eligibility to rely on the cross-border
exemptions. We would be interested in
commenters’ views on this requirement
under our current rules and whether it
should be modified or eliminated.
mstockstill on PROD1PC66 with PROPOSALS2
Request for Comment
• Should we continue to exclude
from the calculation of U.S. ownership
target securities held by the acquiror in
the contemplated transaction?
• Should we eliminate the
requirement to exclude subject
securities held by greater than ten
percent holders in calculating U.S.
ownership of the target company?
Would U.S. interest in a transaction
more appropriately be measured by
considering all of the outstanding
securities, without excluding large
holders? Would changing the rule in
this manner result in extending the
exemptions to circumstances where U.S.
investors could be adversely affected?
• Should we eliminate greater than
ten percent holders only where such
holders are otherwise affiliated with the
issuer?
• Are there problems in determining
who is a greater than ten percent holder
that should be addressed in revised
rules?
• If the requirement to exclude large
holders is retained, is a greater than ten
percent holding the appropriate level for
exclusion? Should the percentage be
higher, such as 15 or 20 percent?
• Is there any reason to eliminate the
exclusion of greater than ten percent
holders only for non-U.S. holders and
74 See 1998 Cross-Border Proposing Release,
Section II.H.2.
75 See Cross-Border Adopting Release, Section
II.F.2.
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not for U.S. holders, or vice-versa? What
would the impact of such change be on
the number of companies eligible for
Tier I or Tier II?
• Should we maintain the same tests,
with the revisions proposed, but raise
the maximum U.S. ownership level for
Tier I and Rules 801 and 802 to 15
percent? What effect would this have on
the number of cross-border transactions
eligible to be conducted under these
exemptions? Would expanding the
availability of Tier I and Rules 801 and
802 be in the interests of U.S. investors?
b. Proposed Changes to the Eligibility
Standard for Negotiated Transactions
We believe that by revising the
eligibility tests for negotiated crossborder business combination
transactions as proposed, we would
eliminate many of the issues that have
arisen. As discussed above, the first
problem with the current test is the
requirement that U.S. ownership be
calculated as of a single, specified date.
Accordingly, we propose that acquirors
be permitted to calculate U.S.
ownership within a specified 60-day
range rather than using a single date.76
This approach is consistent with the
position taken by the staff interpretively
in considering timing issues in the
cross-border context.77 It also would
provide greater flexibility where the
timing of a transaction is driven by
market forces or a regulatory process
that is, to some extent, outside the
control of the acquiror.
While we propose to provide greater
flexibility as to the date on which U.S.
ownership in the target company may
be assessed, we remain concerned about
the possibility that a date for calculation
would intentionally be chosen to
present less than a representative
picture of the target security holder
base. The instructions to the crossborder exemptions make it clear that the
exemptions are not available for any
transaction or series of transactions that
technically comply with our rules but
are, in fact, part of a plan or scheme to
evade them in practice.78
76 As discussed below, we also propose to change
the reference point for calculation of U.S.
ownership from commencement to announcement.
We are not currently proposing a change to the
requirement to calculate as of the record date for
rights offerings. See Rule 800(h)(1).
77 See, e.g., Section II.E. Questions 6, 7 and 8 in
the Third Supplement to the Division of
Corporation Finance Manual of Publicly Available
Telephone Interpretations (July 2001), at https://
www.sec.gov/interps/telephone/
phonesupplement3.htm.
78 See General Note 2 to Securities Act Rules 800,
801 and 802, Instruction 4 to Exchange Act Rules
13e–4(h)(8) and 13e–4(i), and Instruction 5 to
Exchange Act Rules 14d–1(c) and 14d–1(d).
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As discussed above, another logistical
problem with the cross-border
exemptions centers on the use of
commencement as the triggering event
for the calculation of U.S. ownership.
We now propose to require that U.S.
ownership be calculated within a 60day period before the public
announcement of the cross-border
tender offer or business combination
transaction.79 For these purposes,
public announcement generally means
the same as in Instruction 5 to Rule
14d–2(b)(2).80 By using announcement
instead of commencement as the
triggering event for purposes of the
calculation, we hope to enable acquirors
planning cross-border transactions to
determine at an earlier point how they
will treat U.S. holders.
This change also would allow the
application of the exemptions to be
based on the characteristics of the target
security holder base before it is
influenced by the announcement of the
transaction.81 Further, it would permit
acquirors to meet home country
requirements, which may mandate that
the acquiror include information about
the treatment of U.S. holders in the
announcement of the transaction. In
addition, it would encourage bidders to
provide the markets and target security
holders with valuable information at an
earlier stage in the transaction process,
including alerting investors who may
acquire the target company’s securities
after the announcement whether they
will have the full protections of
Regulations 14D and 14E.
Where U.S. ownership levels do not
permit the acquiror to rely on the Tier
I exemption or Rule 802, calculating the
level before announcement would
provide more time to plan and put
together the necessary offering
materials. For those who plan to rely on
the Tier II exemption, the proposed
change would afford more time to
determine and seek any necessary
79 See proposed revisions to Securities Act Rule
80 0(h)(1), Instruction 2.i. to Exchange Act Rules
13e–4(h)(8) and (i), and Instruction 2.i. to Exchange
Act Rules 14d–1(c) and (d).
80 Instruction 5 to Exchange Act Rule 14d–2(b)(2)
[17 CFR 240.14d–2(b)(2)] states that ‘‘ ‘public
announcement’ is 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.’’
81 See Section II.E. Question 6 in the Third
Supplement to the Division of Corporation Finance
Manual of Publicly Available Telephone
Interpretations (July 2001), at https://www.sec.gov/
interps/telephone/phonesupplement3.htm
(discussing the rationale for why the staff has
permitted announcement to be used as the reference
point for calculating U.S. ownership in ‘‘preconditional offers’’ conducted under U.K. or Irish
law).
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exemptive or no-action relief. In
addition, because announcement also is
the triggering event for application of
Rule 14e–5, this change would further
harmonize Tier I and Tier II relief as it
relates to that provision. However, we
are aware that for some business
combination transactions, several weeks
or months may elapse between the time
of announcement and commencement
of the transaction, because of home
country regulatory review or other
reasons. The target security holder base,
including the percentage of those
securities held by U.S. persons, may
change significantly between
announcement and commencement. We
do not propose to change the relevant
date for calculation of U.S. ownership
for rights offerings. Issuers will continue
to calculate U.S. ownership as of the
record date for a rights offering.82
Because issuers control the record date
for rights offerings and generally have
greater access to information about their
own security holders, the test for
calculating U.S ownership for rights
offerings has not been the subject of
requests for relief. Therefore, we do not
propose to change that test today.
The existing cross-border exemptions
provide that where one acquiror is
eligible to rely on a particular crossborder exemption based on the level of
U.S. ownership in the target, a second
acquiror who makes an offer for the
same target company may rely on the
same exemption.83 We do not propose
to change this result with the rule
modifications we propose today. We
believe it provides an important
safeguard to place competing
transactions on an equal footing with
respect to calculation of U.S. ownership
and eligibility to rely on applicable
cross-border exemptions.
mstockstill on PROD1PC66 with PROPOSALS2
Request for Comment
• Should we revise the date as of
which U.S. ownership is calculated for
purposes of determining eligibility to
rely on the cross-border exemptions for
business combination transactions, as
proposed?
Æ Should we revise the rules to
provide for a range of dates as proposed,
or should we continue to specify a date
certain for the calculation? If we
continue to specify a date certain,
should we specify a date earlier than the
30th day before commencement? For
example, should we specify the 30th
day before announcement?
82 See
Securities Act Rule 800(h)(1).
e.g., Exchange Act Rule 14d–1(d)(1)(ii).
The second bidder may choose not to rely on the
same exemption as the first bidder. See also CrossBorder Adopting Release, Section II.F.1.
83 See,
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• Is a range of 60 days before
announcement sufficient time to allow
bidders and issuers maximum flexibility
while avoiding the potential for
manipulation of the calculation of U.S.
ownership? Or would 75 or 90 days be
more appropriate?
• Is announcement the appropriate
reference point for determining
eligibility to rely on the cross-border
exemptions? Or should we retain
commencement as the reference point?
Are there other alternative reference
points we should consider?
• Should we keep commencement as
a reference point, but use a range, such
as within 60 days before
commencement?
• Is it appropriate to use
announcement as the reference point,
even where a significant period of time
may elapse between announcement and
commencement, and the makeup of the
target security holder base may change
in response to announcement or because
of the lapse of time? Should we
establish a limit on the period of time
which may elapse between the reference
point for calculation of U.S. ownership
and the commencement of the business
combination transaction?
• Should we change the date as of
which U.S. ownership is calculated for
rights offerings in the same or in a
similar manner? If so, please explain
what issues may arise under the current
test and what changes should be made.
• If we adopt the proposed rule
changes allowing bidders and offerors to
choose a date within a range for
purposes of the calculation of U.S.
ownership, should we provide guidance
on what dates may not be chosen
because of an event or events
significantly affecting the target security
holder base? For example, if an event
occurs that the bidder or offeror knows
significantly impacted the U.S.
ownership of the target securities within
the relevant sixty-day range, but the
bidder or offeror did not cause or
contribute to such event, should the
bidder or offeror be prohibited from
using that date as the reference point for
the calculation of U.S. ownership?
3. The Current Test for Non-Negotiated
or Hostile Tender Offers
a. Concerns
Where a third-party tender offer is not
made pursuant to an agreement between
the bidder and the target company, the
current cross-border exemptions allow a
bidder to presume eligibility to rely on
the exemptions based on a test outlined
in our rules, which focuses on
information readily available to the
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bidder.84 The hostile presumption was
adopted in recognition of the difficulties
third parties face in obtaining
information about U.S. ownership
without the cooperation of the target
company.85 Because issuers have greater
access to information about their own
security holders, the hostile
presumption is not available for issuer
tender offers.
The eligibility standard for hostile
transactions is based in part on the
trading volume of the target’s securities
in the United States, as compared to
worldwide trading volume, over a 12month period.86 However, the
presumption of U.S. ownership derived
under the trading volume element of the
test is qualified by information about
U.S. ownership reported in the target’s
most recent annual report filed with the
Commission or its home country
regulators.87 In addition, the bidder
cannot rely on the hostile presumption
if it knows or has reason to know that
the actual level of U.S. ownership of the
subject securities exceeds the relevant
thresholds for Tier I and Tier II.88
Knowledge or ‘‘reason to know’’ may
come from sources other than reports
filed with the Commission or the
target’s home country regulator and
disqualifies the bidder from being able
to rely on the cross-border exemptions.
These elements of the hostile
presumption have resulted in certain
issues in practice. First, acquirors
appear to be uncertain about what
constitutes ‘‘reason to know’’ with
respect to the level of U.S. ownership of
the target, other than information
reported in filings with the Commission
or the home country regulators.
Acquirors have expressed uncertainty
about whether they have any obligation,
and if so, the extent of their obligation
to seek out information about U.S.
ownership levels. Questions also arise
as to the timing of that knowledge. For
example, because average daily trading
84 See Securities Act Rule 802(c) and Instruction
3 to Exchange Act Rules 14d–1(c) and 14d–1(d).
85 See Cross-Border Adopting Release, Section
II.F.3.
86 Securities Act Rule 802(c)(2) and Instruction
3.ii. to Exchange Act Rules 14d–1(c) and 14d–1(d).
Trading volume in the hostile presumption is not
calculated in the same way as the average daily
trading volume used for purposes of deregistration
and the threshold proposed for Rule 12g3–2(b). The
trading volume in the hostile presumption is
calculated using a 12-calendar-month period ending
30 days before commencement of the offer,
although we propose to change this calculation to
a 12-calendar-month period ending no later than 60
days before announcement of the offer, as discussed
below.
87 Securities Act Rule 802(c)(3) and Instruction
3.iii. to Exchange Act Rules 14d–1(c) and 14d–1(d).
88 Securities Act Rule 802(c)(4) and Instruction
3.iv. to Exchange Act Rules 14d–1(c) and 14d–1(d).
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volume is calculated as of the 12calendar-month period ending 30 days
before commencement,89 acquirors
often are unsure of whether their actual
or imputed knowledge of U.S.
ownership similarly should be as of that
date.
It also is possible that targets may use
the reporting and knowledge elements
of the hostile presumption defensively.
For example, targets that learn of a
possible hostile offer could file reports
preemptively with the Commission
stating a percentage of U.S. ownership
that precludes the hostile bidder’s
reliance on certain exemptions, or they
may contact the bidder’s counsel
directly to assert levels of U.S.
ownership that disqualify the bidder
from relying on Tier I and Rule 802 in
particular.90 In the latter case, bidders
have asked whether such an assertion as
to U.S. ownership must be substantiated
(and if so, how) in order to preclude
reliance on the hostile presumption.
Even when a target has filed a periodic
report with the Commission indicating
a certain percentage of U.S. ownership
as a defensive measure, we have seen
targets reduce those ownership figures
when the transaction becomes
recommended. These types of situations
create a level of uncertainty for
unsolicited bidders that may make it
difficult to apply the presumption of
U.S. ownership in unsolicited offers.
mstockstill on PROD1PC66 with PROPOSALS2
b. Proposed Changes to the Presumption
for Non-Negotiated Transactions
Today we propose changes to the
hostile presumption for determining
eligibility to rely on the cross-border
exemptions. First, we propose to clarify
the ‘‘reason to know’’ element of that
test.91 In the years since the adoption of
the cross-border exemptions, bidders
frequently have asked what constitutes
‘‘reason to know’’ information about
U.S. ownership for purposes of the
hostile presumption. We propose to
amend our rules to specify that an
acquiror has reason to know information
that is publicly available. This would
include information appearing in
reports compiled by independent
information service providers that
generally are available to the public.
However, neither our current rules nor
the changes we propose today
89 Securities Act Rule 802(c)(2) and Instruction
3.ii. to Exchange Act Rules 14d–1(c) and 14d–1(d).
90 It also is possible that a target may attempt to
provide information preemptively before
announcement of a hostile bid, but we believe this
may happen less frequently when the determination
of U.S. ownership is made as of a date before
announcement, because the negotiations may begin
in a friendly manner.
91 Securities Act Rule 802(c)(4) and Instruction
3.iv. to Exchange Act Rules 14d–1(c) and 14d–1(d).
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affirmatively would require an acquiror
seeking to rely on the hostile
presumption to engage such a thirdparty service at its own expense.
The proposed rule also would make it
clear that acquirors are presumed to
know information about beneficial
ownership reflected in filings by third
parties with the Commission, such as
beneficial ownership reports on
Schedule 13D, 13F 92 or 13G. Similarly,
acquirors are presumed to know about
similar reports filed by third parties in
the target’s home country and in the
country of its primary trading market, if
different. Acquirors may not ignore
credible information about target
securities held by U.S. persons from
non-public sources, such as from
investment bankers or other market
participants, including the target
company, from whom they receive
information. As discussed below,
however, such information would have
to be available before announcement to
disqualify the acquiror from relying on
the hostile presumption.
We also propose to specify the time
periods applicable to the hostile
presumption. For purposes of the
element of that test relating to the
average daily trading volume
calculation, we propose to modify the
instruction to our rules to mandate a
calculation over a twelve-calendar
month period ending no later than 60
days before announcement.93 This time
period for calculation is the same as the
period we are proposing for negotiated
transactions. We believe it is
appropriate that the time periods for
measuring levels of U.S. ownership be
comparable for both hostile and
negotiated transactions.
We also propose to add a timing
element to the other components of the
hostile presumption test. These changes
to the instructions and to the rules
would provide that the acquiror’s
knowledge or ‘‘reason to know’’ refers to
knowledge as of the date of
announcement. As proposed, our rules
would allow an acquiror to ignore
conflicting information received after
announcement.94 These changes are
intended to address our concern that
some target companies may be
manipulating their disclosure of U.S.
ownership with respect to unsolicited
offers. They also would eliminate
uncertainties created by changes in the
target’s security holder base that may be
92 17
CFR 249.325.
proposed revisions to Securities Act Rule
802(c)(2) and Instruction 2.ii. to Exchange Act Rules
14d–1(c) and (d).
94 See proposed Securities Act Rule 802(c)(3) and
(4) and Instructions 3.iii. and iv. to Exchange Act
Rules 14d–1(c) and (d).
93 See
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caused by the announcement of the
offer.
Request for Comment
• Is it helpful to specify in the rule,
as proposed, examples of information
that the acquiror has reason to know, or
should the rule remain more general?
• Would the clarifications we propose
to the reason to know element of the test
prevent the abuse of U.S. ownership
information by targets? Are there
currently sufficient safeguards to
prevent misuse of this information?
• For purposes of the hostile
presumption, should we change the date
for comparison of the average daily
trading volume of the target securities to
a twelve-month period ending no later
than 60 days before announcement, as
proposed?
Æ Should we limit the knowledge
or reason to know element of the test to
the same time, as proposed, so that
acquirors will not be disqualified from
relying on the presumption if they learn
of conflicting U.S. ownership
information after the date of
announcement? Or should we require
acquirors to take into account any
information they learn at any time
before commencement?
Æ Would the proposed cut-off date
for the actual knowledge test be
disadvantageous for U.S. investors in
the target company?
Æ Where the target asserts levels of
U.S. ownership that are inconsistent
with reliance on an applicable
presumption in the context of a hostile
transaction, should the rules provide
any guidance on the extent to which
such assertions must be substantiated?
Should we allow acquirors to ignore
such assertions by the target, absent
adequate substantiation or in the face of
conflicting information known to the
acquiror?
Æ If the rule changes are adopted as
proposed, should we make
corresponding changes to the date of
comparison in the ‘‘actual knowledge’’
element of the test for the MJDS with
Canada? 95
• Should we decline to make any
changes in the reason to know element
of the hostile presumption, leaving
acquirors to assess the facts and
circumstances in a specific situation on
a case-by-case basis?
4. Possible New Eligibility Standards for
Negotiated and Hostile Transactions
Instead of adopting the proposed
changes to our current eligibility
standards for hostile and negotiated
cross-border business combinations
95 See
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discussed above, we could adopt a
different approach based on different
measures of U.S. investor interest in
target securities. For example, for
negotiated transactions, we could
consider a test based on twelve-month
ADTV in the United States as compared
to worldwide trading volume over the
same period. Alternatively, we could
consider a test based on the percentage
of shares that are held in the form of
ADRs. It is possible that there are other,
more suitable tests that we have yet to
identify. We could adopt an alternate
test for business combination
transactions only, or we could adopt it
for both business combinations and
rights offerings.
As discussed above, the existing
hostile presumption available for nonnegotiated business combination
transactions contains an element based
on a comparison of U.S. and worldwide
ADTV,96 and we have recently used this
test as a reference in other areas.97
Based on an analysis performed by the
staff comparing U.S. beneficial
ownership figures yielded by the lookthrough analysis mandated by our
current rules to the figures that would
result by using an ADTV-based measure,
it appears that trading volume may not
reflect beneficial holdings of U.S.
investors in a target company. To
perform this analysis, the staff
considered negotiated business
combination transactions conducted
under the existing cross-border
exemptions using the current lookthrough analysis and compared the
resulting percentages of U.S. beneficial
ownership with the figures that would
have resulted using the ratio of U.S. to
worldwide ADTV. Based upon the
transactions considered, the analysis
suggests that the correlation between the
ADTV-based measure and the
percentage of target securities
beneficially held by U.S. persons is low.
Using such a test may result in target
companies with significant U.S.
ownership qualifying for the Tier I and
Rules 801 and 802 exemptions. Where
a bidder, including a U.S. company, is
eligible to rely on the Tier I cross-border
exemptions, it may issue securities
without registration under Securities
Act Rule 802. We are concerned that use
of an ADTV test for eligibility to rely on
the cross-border exemptions would
allow bidders, including U.S. bidders, to
issue significant amounts of bidder
securities to U.S. holders, without the
protections of registration. For cash
tender offers and other kinds of business
combination transactions, we do not
believe the requirements of the U.S.
tender offer and other rules applicable
to business combinations are onerous.
Unlike continuing Exchange Act
registration and reporting requirements,
these rules apply to a single, discrete
transaction and, in many instances, are
specifically tailored to address potential
conflicts with foreign law and practice.
We are concerned that extraordinary
events in the life of a corporation, such
as tender or exchange offers or other
kinds of business combination
transactions, may pose unique
opportunities and risks to security
holders that are not present in the
context of deregistration, where we have
adopted an ADTV test for measuring
U.S. interest in a transaction, or
exemption from Exchange Act Section
12(g) registration under Rule 12g3–2(b),
where we have proposed an ADTV test.
In a tender or exchange offer, where the
bidder may present its offer directly to
target security holders even where the
target company itself does not support
the offer, the disclosure and procedural
protections of our rules provide critical
safeguards for U.S. investors. Unlike
capital-raising transactions, the interests
of all target security holders, including
U.S. holders, are affected by business
combinations, whether or not they are
permitted to participate in them. As
noted above, the requirement to comply
with U.S. rules for a business
combination transaction is generally
less burdensome than the continuous
reporting requirements under the
Exchange Act. For these reasons, we
have historically viewed a test based on
U.S. beneficial ownership of target
securities as the approach that best
aligns U.S. investor interests with
application of our rules. Therefore, we
are not proposing the use of an ADTV
test to determine eligibility to rely on
the cross-border exemptions.
Similarly, we are not currently
proposing a test based solely on a
measure of the percentage of target
securities held in ADR form. When the
current cross-border exemptions were
proposed, we considered an eligibility
standard that presumed that target
securities held in ADR form were
beneficially held by U.S. persons.98
Commenters were critical of any
presumption that securities held in ADR
form were held only by U.S. persons.99
An ADR-based test need not rest on a
presumption that securities held in ADR
96 See Securities Act Rule 802(c) and Instructions
3.i.–iv. to Exchange Act Rules 14d–1(c) and 14d–
1(d).
97 See footnotes 45 and 46 above.
98 See 1998 Cross-Border Proposing Release,
Section II.H.1.
99 See Cross-Border Adopting Release, Section
II.F.1.
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form are held by U.S. persons; rather,
ADRs could, in general, be considered a
proxy for U.S. beneficial ownership, or
for a component (e.g., direct retail) of
U.S. beneficial ownership. Since some
foreign target securities are traded in
direct share form in the United States,
any test based on securities held in ADR
form would be inapplicable to those
companies.
We believe that information about the
percentage of target shares held in ADR
form is not currently readily accessible
to third-party bidders in non-negotiated
offers. The information might become
available through the introduction of
registrant disclosure requirements,
however. In the case of such disclosure,
an ADR-based test could provide a
solution for both hostile and negotiated
transactions. A weakness of the ADRbased measure is that, as discussed
above, because some foreign target
securities are traded in direct share form
in the United States, any test based on
securities held in ADR form would be
inapplicable to those companies. We
also would need to consider the relevant
time period for which we would look at
the percentage of target securities held
in ADR form if such a test were to be
considered, and whether ADRs held by
the acquiror and large holders would
continue to be excluded from the
calculation of U.S. ownership under
such a test. If we did not exclude ADRs
held by the bidder, the bidder could
potentially influence the percentage of
such securities held by U.S. persons by
changing the form of its securities held
from ADRs into the underlying
securities. We are interested in
obtaining comments as to whether an
ADTV test or a test based on target
securities held in ADR form would be
appropriate.
Request for Comment
• Is our continued focus on the
percentage of target securities
beneficially held by U.S. persons as the
relevant test for measuring U.S. interest
appropriate and in the best interests of
U.S. investors?
Æ If we change the rules as proposed,
would this alleviate sufficiently the
practical difficulties with the
calculation of U.S. ownership, so that
our rules will be more workable and
will better encourage and facilitate the
inclusion of U.S. security holders in
cross-border transactions? Or would
there still be a reason to move from the
current focus on the percentage of
securities held by U.S. investors to
another standard?
Æ Are there other practical difficulties
involving the beneficial ownership
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standard that we have not addressed
and that it would be helpful to address?
• Should we propose a different test
for Tier I and Tier II eligibility, based on
U.S. ADTV compared to worldwide
ADTV over a twelve-month period?
Æ Using U.S. ADTV compared to
worldwide ADTV would likely result in
many more transactions being eligible
for Tier I, and some additional
transactions being eligible for Tier II if
we maintain the existing ten percent
and 40 percent thresholds. Should the
thresholds be adjusted so that the
transactions eligible for the cross-border
exemptions are equivalent, in terms of
number of transactions eligible, before
and after changing the eligibility test? If
ADTV levels in the United States are
very low even where beneficial
ownership is high, should we adjust the
thresholds to account for this situation?
For example, should we lower the Tier
I threshold to five percent? One percent?
Less than one percent? If we do this,
should we also adjust the thresholds in
the hostile presumption
correspondingly? What would be the
appropriate adjustments for Tier II?
Æ Are there reasons for or against
adopting an ADTV test? For example,
would an ADTV test be an adequate
measure for gauging U.S. retail versus
institutional ownership of the target
securities?
Æ Should we qualify the ADTV test
based on other factors, such as an
acquiror’s actual knowledge or U.S.
ownership as reported by the target?
Æ If we adopt an ADTV test, should
we adopt the concept of ‘‘primary
trading market’’ as defined in Exchange
Act Rule 12h–6(f)(5)?100 That is, should
we establish the requirement that the
issuer maintain a listing for the subject
securities on one or no more than two
exchanges in a foreign jurisdiction that,
alone or together, constitute 55 percent
of the trading in the subject securities
over a specified period as a comparison
point for U.S. trading volume? Should
we adopt the concept that the ‘‘primary
trading market’’ for the subject
securities may encompass one or no
more than two foreign markets, and if
more than one market, the requirement
that the aggregate trading volume in one
of those two foreign markets must be
greater than the trading volume in the
U.S., as specified in Rule 12h–6(f)(5)?
• Should we propose a different test
for Tier I and Tier II eligibility, based on
the percentage of shares held in ADR
form?
Æ Is the percentage of shares held in
ADR form an effective proxy for U.S.
investor ownership? For U.S.
100 See
footnote 58 above.
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institutional ownership? For U.S. direct
retail investor ownership?
Æ Are there reasons why U.S. persons
may choose to hold target securities in
direct share form instead of holding
ADRs?
Æ Under a test based on the
percentage of shares held in ADR form,
should Tier I and Tier II eligibility
thresholds remain constant at their
current values (10 percent and 40
percent), or should they change? What
criteria should we use, and what
evidence should we consult in
establishing eligibility thresholds for
Tier I and Tier II?
Æ If we adopt such a test, as of what
date should we measure the securities
held in ADR form? Should we exclude
from the calculation ADRs held by
certain persons, such as the bidder, as
we do under our current test for some
kinds of business combination
transactions?
Æ How should we handle securities of
foreign private issuers that trade in
direct share form?
Æ If we adopt a test based on the
percentage of shares held in ADR form,
should we amend Form 20–F to require
reporting of sponsored ADRs
outstanding, so that targets, acquirors
and their investors understand
eligibility status? How costly or difficult
would it be for the issuer to obtain
information about the number of
sponsored ADRs outstanding? If this
information were reported only once
each year in the Form 20–F, would the
information be current enough for use in
cross-border transactions that might
occur months later?
Æ Are there reasons for or against
adopting a test based on the percentage
of shares held in ADR form?
• ADTV- and ADR-based standards
may effectively place companies with
no U.S.-traded securities in Tier I. What
implications would this have for
investor protection?
Æ If we move toward a different
standard for determining U.S. interest,
should this new standard apply only to
companies with securities traded in the
U.S., with the beneficial ownership
standard continuing to apply to
companies with no securities traded in
the U.S.? Alternatively, for securities
not traded in U.S. markets, do U.S.
investors adequately understand the
distinct risks of ownership?
• If we make any changes to the
standard for determining Tier I and Tier
II eligibility, should we also change the
standard for the hostile presumption?
Should we adopt this alternative
standard for business combination
transactions only, or should we adopt it
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for both business combinations and
rights offerings?
• If we change the standard, should
we also change the standard for the
tender offer rules in Rule 14d–1(b)
under the MJDS with Canada?
• Should we propose a different
eligibility test(s) for determining
eligibility to rely on the cross-border
exemptions? What general criteria are
important in selecting a measure for
U.S. investor interest, for the purposes
of this rule? Several potential criteria
are (i) the ease of public access to
information related to the measure; (ii)
the difficulty of manipulation of the
measure; and (iii) the alignment of the
measure with the percentage of target
securities beneficially held by U.S.
investors. Are these criteria appropriate?
Are there others we should consider?
B. Proposed Changes to Tier I
Exemptions
1. Expanded Exemption From Rule 13e–
3
Rule 13e–3 establishes specific filing
and disclosure requirements for certain
kinds of affiliated transactions, because
of the conflicts of interest inherent in
such situations.101 Rule 13e–3 applies to
these kinds of transactions by issuers or
their affiliates, where the transactions
would have a ‘‘going private’’ effect.102
Cross-border transactions conducted
by the issuer or its affiliates under
Exchange Act Rules 13e–4(h)(8), 14d–
1(c) and Securities Act Rule 802 are
exempt from the requirements of Rule
13e–3.103 The scope of the current Tier
I exemption from Rule 13e–3 does not
apply to some transaction structures
commonly used abroad. These include
schemes of arrangement,104 cash
mergers, compulsory acquisitions for
101 The kinds of transactions covered by Exchange
Act Rule 13e–3 include tender offers, purchases of
securities, mergers, reorganizations,
reclassifications and sales of substantially all the
assets of a company. See Rule 13e–3(a)(3)(i)(A)–(C).
Rule 13e–3 requires that a Schedule 13E–3 be filed
for these kinds of transactions. See Exchange Act
Rule 13e–3(d)(1).
102 Exchange Act Rule 13e–3(a)(3)(ii) lists the
effects that will cause the rule to apply to a
specified transaction: (A) Causing any class of
equity securities of an issuer which is subject to
section 12(g) or section 15(d) of the Act to be held
of record by less than 300 persons; or (B) causing
any class of equity securities of the issuer which is
listed on an exchange or quoted on an interdealer
quotation system to no longer be so listed or quoted.
For foreign private issuers engaged in transactions
that would have a going private effect under our
rules, we interpret Rule 13e–3 to apply where the
transaction results in fewer than 300 security
holders of record in the United States. See Foreign
Issuer Reporting Enhancements, Release No. 33–
8900 (February 29, 2008).
103 Exchange Act Rule 13e–3(g)(6).
104 We use this term to refer to a court-approved
business combination transaction. See, e.g., U.K.
Companies Act, Parts 26 and 27.
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cash,105 and other types of transactions.
We do not believe there is a reason for
excluding these kinds of transactions
from the exemption from Rule 13e–3,
assuming they would otherwise qualify
for Tier I. We believe the form of the
transaction structure should not prevent
an otherwise–eligible issuer or affiliate
from relying on the Tier I exemption
from Rule 13e–3. We therefore propose
to expand the scope of the Tier I
exemption from Rule 13e–3 to remove
any restriction on the category of
transactions covered.
The heightened disclosure
requirements of Rule 13e–3 may
represent a significant disincentive for
acquirors to include U.S. security
holders in cross-border transactions that
do not currently fit within the Rule 13e–
3(g)(6) exemption, particularly where
U.S. holders make up no more than ten
percent of the target shareholder base. In
several instances, the staff has granted
individual no-action requests for
transaction structures not covered
within the scope of current Rule 13e–
3(g)(6), but which otherwise met the
conditions for reliance on that
exemption.106 The revised rule we
propose today is consistent with the
staff’s approach in these no-action
letters.
We believe exempting acquirors from
the application of Rule 13e–3 in Tier Ieligible transactions is consistent with
our goal of facilitating the inclusion of
U.S. investors in primarily foreign
transactions. Therefore, we propose to
eliminate the restriction on the kinds of
cross-border transactions that qualify for
the Tier I exemption from Rule 13e–3.
The proposed rule would include
within the exemption any kind of
transaction that would otherwise meet
the conditions for Tier I or Rule 802
eligibility.107 By omitting reference to
105 By ‘‘compulsory acquisition,’’ we mean a
transaction where an acquiror purchases the
specified minimum percentage of target securities
set by applicable law or the governing instruments
of the target company, thereby allowing it to acquire
any remaining target securities it does not own
without the consent of the holders. A compulsory
acquisition may occur after a tender offer for all
target securities. A compulsory acquisition of target
securities remaining after a tender offer will
sometimes be exempt from the application of
Exchange Act Rule 13e–3 under existing rules. See
Exchange Act Rule 13e–3(g)(1).
106 See, e.g., SUNDAY Communications Ltd.
(November 1, 2006) (involving a scheme of
arrangement); SUNDAY Communications Ltd.
(November 7, 2005) (involving a privatization
scheme); and Equant N.V. (involving a synthetic
merger).
107 In order to qualify for the Tier I exemption,
an offer must meet the following requirements of
Exchange Act Rules 13e–4(h)(8) and 14d–1(c): (i)
The acquiree must be a foreign private issuer as
defined in Rule 3b–4 of the Exchange Act; (ii) U.S.
holders of the acquiree must hold ten percent or
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specific kinds of transaction structures,
we hope the revised exemption will
focus on substance rather than form.
Request for Comment
• Should the proposed expansion of
the Tier I exemption from Rule 13e–3
specify the particular types of affiliated
transaction structures that will be
exempt from Rule 13e–3, as the current
rule does?
• If so, what kinds of transactions
should be covered?
• Is it preferable to phrase the
exemption more generally, as proposed,
to avoid limiting the focus on the
transaction structure? Are there any
kinds of affiliated transactions that
should not be included in the
exemption?
2. Technical Changes to Rule 802
We are proposing a technical change
to Rule 802 to clarify the application of
Rules 802(a)(2) and (3). When read in
context, it is clear that the term ‘‘issuer’’
in those rules is intended to refer to the
‘‘offeror’’ in an exchange offer. We
believe it is appropriate to revise those
rules to use the term ‘‘offeror’’ instead.
This is consistent with the reference to
‘‘offeror’’ in Rule 802(c)(4). These
revisions are not intended to change the
scope or operation of the existing rule.
In some foreign jurisdictions, local
rule or practice dictates that the offeror
and the target company jointly prepare
a single offer document that is
disseminated to target holders. In other
jurisdictions, the offeror may prepare
the offer materials but they are
disseminated by the target company.
Our rule change is not intended to
change the obligation of the offeror to
submit the Form CB with attached offer
materials, even where the offer
document is technically distributed by
another party to the transaction on its
behalf.
C. Proposed Changes to Tier II
Exemptions
As discussed above, the Tier II crossborder exemptions currently provide
targeted relief from specific U.S. tender
offer rules, where U.S. persons hold
more than ten percent but no more than
less of the securities subject to the offer; (iii) the
acquiror must submit an English language
translation of the offering materials to the SEC
under cover of Form CB and, in the case of an
acquiror who is a foreign private issuer, submit to
service of process on Form F–X; (iv) U.S. holders
must be treated on terms at least as favorable as
those offered to any other security holders of the
acquiree; and (v) U.S. holders of the acquiree must
be provided the offering circular or other offering
materials, in English, on a comparable basis as nonU.S. acquiree security holders. See also Securities
Act Rule 802(a).
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40 percent of the relevant class of target
securities.108 The Tier II exemptions
address certain common procedural and
practical problems associated with
conducting offers in accordance with
two or more different regulatory
regimes. This relief is limited in scope,
in recognition of the substantial U.S.
interest in such transactions.
Unlike the Tier I exemptions and the
Rule 801 and 802 exemptions, the Tier
II exemptions do not exempt third-party
bidders or issuers from applicable U.S.
filing, disclosure, dissemination and
procedural requirements for tender
offers or going-private transactions
subject to Rule 13e–3. In addition, no
exemption is provided from the filing
and disclosure requirements of
Schedules TO and 13E–3. Accordingly,
no Form CB is required for Tier II crossborder tender offers. Unlike Securities
Act Rules 801 and 802, the Tier II
exemptions do not provide relief from
the registration requirements of Section
5 of the Securities Act.
Since the adoption of the cross-border
exemptions, we have become aware of
specific areas in which the Tier II
exemptions do not function as smoothly
as intended. We also have identified
other instances of conflict between U.S.
and foreign regulation or practice which
we believe warrant expanded relief. The
no-action and exemptive letters issued
for Tier II cross-border transactions
since the adoption of the exemptions
reveal a number of common areas in
which further regulatory relief may be
appropriate. By broadening the relief
provided for Tier II-eligible transactions
as we propose today, we hope to obviate
the need for many of these individual
requests for relief in the future. This
expanded relief is specifically targeted
and narrowly tailored, and as a result,
we believe it maintains an appropriate
balance between investor protection and
the promotion of cross-border
transactions, particularly in transactions
involving target companies with
significant levels of U.S. ownership.
Request for Comment
• In addition to the proposed
revisions described below, are there
other areas in which Tier II should be
expanded to better address the needs of
bidders and U.S. target security holders
in cross-border tender offers?
• Are there areas in which the
existing Tier II exemptions or the
revisions we propose should be limited
or modified?
108 Exchange
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1. Extend Tier II Relief Where Target
Securities Are Not Subject to Rule 13e–
4 or Regulation 14D
The Tier II exemptions apply to
transactions governed by Regulation
14D and Rule 13e–4 under the Exchange
Act.109 As currently written, it is
unclear whether the Tier II exemptions
are available when a tender offer is not
subject to those rules, i.e., when the
tender offer is governed by Regulation
14E 110 only. We believe the Tier II
exemptions should be available if the
conditions specified in our rules are
satisfied, and therefore we propose to
amend the rules accordingly to clarify
that the Tier II exemptions are available
regardless of whether the target
securities are subject to Rule 13e–4 or
Regulation 14D.
Since the adoption of the Tier II crossborder exemptions, the staff has
periodically received inquiries from
offerors in tender offers that would have
qualified for the Tier II cross-border
exemptions, but for the fact that the
tender offer was not subject to Rule 13e–
4 or Regulation 14D. The staff has taken
the position that bidders otherwise
meeting the conditions for reliance on
the Tier II cross-border exemptions may
rely on that relief in making tender
offers for a subject class of securities not
subject to Rule 13e–4 or Regulation 14D,
to the extent applicable. Today we
propose to codify this position by
changing the language of the Tier II
exemptions to specifically expand the
scope of the exemptions to these kinds
of offers.111
Some of the relief afforded under the
Tier II exemptions will not be necessary
in the case of offers not subject to Rule
13e–4 or Regulation 14D. For example,
because our ‘‘all-holders’’
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109 Rule
13e–4 and Regulation 14D apply only to
tender offers for equity securities. Regulation 14D
applies only where the equity security that is the
subject of the tender offer is registered under
Section 12 of the Exchange Act, and where the
bidder makes a partial offer for less than all of the
outstanding securities of the subject class, where
the bidder could own more than 5 percent of those
securities when purchases in the tender offer are
aggregated with its existing ownership of those
securities. Rule 13e–4 applies to an issuer tender
offer where the subject securities are not themselves
registered under Section 12, but where the issuer
has another class of securities that are so registered.
110 Exchange Act Rule 14d–1(a) defines the scope
of Regulation 14E and currently includes within the
scope of that regulation only Exchange Act Rules
14e–1 and 14e–2. Exchange Act Rule 14d–1(a) was
not amended to reflect the increased scope of
Regulation 14E, beginning with the adoption of
Exchange Act Rule 14e–3 in 1980. See Tender
Offers, Release No. 34–17120 (September 4, 1980)
[45 FR 60410]. Today we propose a change to the
definition of Regulation 14E in Rule 14d–1(a), to
encompass Exchange Act Rules 14e–1 through 14e–
8.
111 See proposed Exchange Act Rules 13e–4(i) and
14d–1(d).
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requirement 112 does not apply to such
offers, the Tier II provision permitting
the use of the dual offer structure 113
may be unnecessary. However, where
the relief provided in Tier II is needed,
we see no reason to restrict its
application only to tender offers subject
to Rule 13e–4 or Regulation 14D.
Request for Comment
• Is the proposed expansion of the
application of the Tier II exemptions to
tender offers not subject to Rule 13e–4
or Regulation 14D appropriate?
• Should we condition the proposed
extension of the relief provided under
Tier II on any other factors besides
general eligibility to rely on the Tier II
exemptions?
• Are there other areas in which we
should provide targeted relief (other
than those currently proposed for Tier II
offers) for tender offers not subject to
Rule 13e–4 or Regulation 14D?
2. Expand Tier II Relief for Dual or
Multiple Offers
a. Offeror May Make More Than One
Non-U.S. Offer
U.S. tender offer rules require that
when a bidder makes a tender offer that
is subject to Section 13(e) or 14(d) of the
Exchange Act, that tender offer must be
open to all target security holders of that
class.114 The Tier II cross-border
exemptions currently contain a
provision permitting a bidder
conducting a tender offer to separate
that offer into two separate offers—one
U.S. and one foreign—for the same class
of securities.115 This exemption for dual
offers provides bidders with maximum
flexibility to comply with two sets of
regulatory regimes and to accommodate
frequent conflicts in tender offer
practice between U.S. and foreign
jurisdictions. By permitting the use of
two separate but concurrent offers—one
made in compliance with U.S. rules and
the other conducted in accordance with
foreign law or practice—the dual offer
provision facilitates cross-border tender
offers.
In practice, however, issues have
arisen because of the language of the
dual offer provision contained in the
Tier II exemptions. First, the text of the
exemption specifically permits only two
offers for the target class of securities.116
Bidders may be required to (or may
112 See Exchange Act Rules 13e–4(f)(8) and 14d–
10(a) [17 CFR 240.14d–10(a)].
113 Exchange Act Rules 13e–4(i)(2)(ii) and 14d–
1(d)(2)(ii).
114 Exchange Act Rules 13e–4(f)(8) and 14d–
10(a)(1).
115 Exchange Act Rules 13e–4(i)(2)(ii) and 14d–
1(d)(2)(ii).
116 Id.
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wish to) make more than one offer
outside of the United States. This may
be the case, for example, where the
primary trading market for the target’s
securities differs from the target’s
country of incorporation.117
We see no reason to limit a bidder to
only two offers for target securities.
Where a bidder is subject to more than
one foreign regulatory scheme, greater
potential for regulatory conflicts may
exist. We note that companies have,
upon request, received relief permitting
multiple foreign offers.118 We propose
to eliminate the restriction on the
number of non-U.S. offers a bidder may
make in a cross-border tender offer by
changing the references to ‘‘dual offers’’
to refer instead to ‘‘multiple offers.’’ 119
b. U.S. Offer May Include Non-U.S.
Persons and Foreign Offer(s) May
Include U.S. Persons
The existing Tier II dual offer
exemption provides that the U.S. offer
can be open only to security holders
resident in the United States.120 This
limitation creates a problem because
bidders frequently seek to include all
holders of ADRs, not only U.S. holders,
in the U.S. offer. In many instances, the
target’s home country regulations do not
apply, by their terms, to ADRs.121
Similarly, the existing Tier II dual offer
provision mandates that the foreign
offer be available only to non-U.S.
holders.122 The prohibition against
permitting U.S. holders from
participating in the foreign offer may
conflict with the law of the target’s
home country if those rules do not
permit the exclusion of any security
holders, including those in the United
States.123
117 See, e.g., Mittal Steel Company N.V. (June 22,
2006) (‘‘Mittal’’). This letter states that it may be
relied upon by any similarly-situated offeror or
affiliate meeting the conditions outlined in the
letter.
118 See, e.g., Alcan; Asia Satellite
Telecommunications Holdings Limited (May 25,
2007); BCP Crystal Acquisition GmbH & Co
(February 3, 2004) (‘‘BCP’’) and Mittal (providing
relief for purchases outside of a U.S. offer for a
tender offer that included more than one offer
conducted outside of the United States).
119 See proposed Exchange Act Rules 13e–
4(i)(2)(ii) and 14d–1(d)(2)(ii).
120 Exchange Act Rules 13e–4(i)(2)(ii) and 14d–
1(d)(2)(ii).
121 See, e.g., Portugal Telecom, SGPS, S.A.
(December 19, 2006) (‘‘Portugal Telecom’’) (noting
that the provisions of the Portuguese Securities
Code and the rules and regulations of the
˜
Portuguese Comissao de Mercado de Valores
´
Mobiliarios did not apply to the offer for ADSs of
the target company listed on the New York Stock
Exchange).
122 Exchange Act Rules 13e–4(i)(2)(ii) and 14d–
1(d)(2)(ii).
123 See, e.g., Gas Natural SDG, S.A. (March 6,
2006) (involving Spanish law).
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Companies frequently are forced to
seek individual relief from the staff to
address these issues.124 The staff often
has granted relief to permit a U.S. offer
in a dual offer structure to include all
holders of ADRs, including foreign
holders.125 We propose to change our
rules so that acquirors will no longer
need to seek individual relief to
structure their offers in this manner. We
are not aware of a transaction for which
acquirors have sought to extend the U.S.
offer to foreign target holders who do
not hold in ADR form. Therefore, we are
not proposing to allow these holders to
participate in U.S. offers.
We also propose to change our rules
to allow U.S. holders to participate in
non-U.S. offers where required under
foreign law and where U.S. holders are
provided with adequate disclosure
about the implications of participating
in the foreign offer. When relief has
been granted to permit the inclusion of
U.S. persons in a non-U.S. offer, it has
been conditioned on appropriate
disclosure in the offer materials
concerning the risks for U.S. holders of
participating in the foreign offer.126
Relief also has been conditioned on the
existence of an express legal
requirement in the foreign target
company’s home jurisdiction to include
U.S. target holders.127
Today we propose to change our rules
to address these issues by revising the
equal treatment provisions in Exchange
Act Rules 13e–4(i)(2)(ii) and 14d–
1(d)(2)(ii) to allow a U.S. offer to be
made to U.S. target holders and all
holders of American Depositary
Receipts representing interests in the
subject securities. The U.S. offer must
be made on terms at least as favorable
as those offered any other holder of the
subject securities. We note that the
proposed changes are not intended to
enable an offer to be made only to
holders of ADRs or only to holders of
the underlying securities, where the
target shares are registered under
Section 12 or where Rule 13e–4
otherwise applies. We view ADRs and
the underlying securities as a single
class for purposes of our tender offer
124 See Harmony Gold Mining Company Limited
(November 19, 2004) (‘‘Harmony Gold 2004’’);
Discount Investment Corporation Ltd. (June 14,
2004); Alcan; Serono S.A.; and Southern Cross
(March 5, 2002).
125 See e.g., Royal Bank of Scotland Group plc
(July 23, 2007) (‘‘Royal Bank’’); E.ON
Aktiengesellschaft (December 6, 2006) (‘‘E.ON’’);
Koninklijke Ahold N.V. (September 10, 2002).
126 See, e.g., Endesa, S.A. (July 3, 2007)
(‘‘Endesa’’).
127 Id.
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and beneficial ownership reporting
rules.128
In addition, revised Rules 13e–
4(i)(2)(ii) and 14d–1(d)(2)(ii) would
provide that one or more foreign offers
may be conducted in conjunction with
a U.S. offer for the same subject
securities. U.S. persons may be included
in the foreign offer(s) only where the
laws of the jurisdiction governing such
foreign offer(s) expressly preclude the
exclusion of U.S. persons from the
foreign offer(s) and where the offer
materials distributed to U.S. persons
fully and adequately disclose the risks
of participating in the foreign offer(s).
c. Proration and the Use of the Dual or
Multiple Offer Structure
When a bidder makes a partial tender
offer 129 subject to Section 13(e) or 14(d)
of the Exchange Act, our rules require
tendered securities to be purchased on
a pro rata basis if the offer is
oversubscribed.130 This is to assure
equal treatment of security holders who
have tendered their securities.
We are not proposing a change to this
requirement. We are clarifying that
bidders relying on the dual offer
provision in the Tier II exemptions to
conduct separate U.S. and non-U.S.
offers for less than all of a class of target
securities must use a single proration
‘‘pool,’’ in accordance with the existing
requirements of our rules.131 This is not
a change in how the staff has interpreted
existing proration rules; however, it has
come to our attention that in the past,
certain bidders may have separately pro
rated tenders made into the U.S. and
foreign offers.132 In this release, we
clarify that where a bidder makes a
partial tender offer for less than all
outstanding target securities of a given
class, and relies on the provision in Tier
II allowing the use of a dual or multiple
(as proposed) offer structure, the
securities tendered into the U.S. and
non-U.S. offers must be pro rated on an
aggregate basis in order to comply with
proration rules. Otherwise, if different
proration factors were used, U.S.
128 See American Depositary Receipts, Release
No. 33–6894 (May 23, 1991) [56 FR 24420], Section
II.D.2 (explaining that, for purposes of determining
beneficial ownership reporting requirements under
Section 13 of the Exchange Act, ADRs and the
underlying securities are to be considered a single
class). The staff takes the same view that they are
one class for purposes of the tender offer rules.
129 A ‘‘partial tender offer’’ is a tender offer where
the bidder is offering to purchase less than all of
the outstanding securities of that the subject class.
130 See Section 14(d)(6) of the Exchange Act [15
U.S.C. 78n(d)(6)], and Rules 13e–4(f)(3) and 14d–8
[17 CFR 240.14d–8].
131 Id.
132 See AES Corporation (October 22, 2001)
(advising against this practice in the context of a
partial cross-border tender offer).
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security holders could be disadvantaged
as compared to target holders tendering
into a foreign offer.
Request for Comment
• Should we permit the use of
multiple offers outside of the United
States for Tier-II eligible tender offers?
• Should we allow all non-U.S.
holders to be included in a U.S. offer,
or only non-U.S. holders of ADRs, as
proposed?
• Should we allow U.S. holders to be
included in the foreign offer(s) open to
target security holders outside of the
United States?
Æ Should we permit this, as
proposed, only when applicable foreign
law does not allow exclusion of U.S.
holders from the foreign offer, even
where a concurrent U.S. offer is
available to them?
Æ Is the requirement that the
implications of participating in the
foreign offer(s) be disclosed in the U.S.
offering materials adequate to protect
U.S. investors?
Æ Should we impose additional
conditions on the ability of offerors to
include U.S. target holders in the
foreign offer(s)?
• Are there situations where bidders
in cross-border tender offers should be
permitted to separately pro rate
securities tendered into U.S. and foreign
offers?
3. Termination of Withdrawal Rights
While Tendered Securities Are Counted
We are proposing rule revisions to
eliminate issues relating to the ‘‘backend’’ withdrawal rights required under
Section 14(d)(5) of the Exchange Act
and Rule 13e–4(f)(2)(ii) for tender offers
conducted under the Tier II cross-border
exemptions. Under today’s proposed
changes, new provisions would be
added to the Tier II exemptions
permitting the suspension of back-end
withdrawal rights during the time after
the initial offering period, when
tendered securities are being counted
and before they are accepted for
payment.133 Both of the back-end
withdrawal rights provisions require
bidders to provide withdrawal rights
after a set date, measured from the
commencement of a tender offer.134
133 See proposed Exchange Act Rules 13e–
4(i)(2)(v) and 14d–1(d)(2)(viii).
134 Section 14(d)(5) of the Exchange Act [15 U.S.C
78n(d)(5)] states that ‘‘[s]ecurities deposited
pursuant to a tender offer * * * may be withdrawn
by or on behalf of the depositor at any time until
the expiration of seven days after the time definitive
copies of the offer * * * are first published or sent
or given to security holders, and at any time after
sixty days from the date of the original tender offer
* * *, except as the Commission may otherwise
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Thus, even where a tender offer has
technically closed and tenders are no
longer being accepted, back-end
withdrawal rights may exist until the
offeror accepts tendered shares for
payment.135
Section 14(d)(5) of the Exchange Act
grants us the authority to modify the
back-end withdrawal rights afforded
under that provision.136 We exercised
this authority in adopting Rule 14d–11,
which permits the use of a ‘‘subsequent
offering period’’ during which securities
may be tendered but not withdrawn.137
Practical considerations influenced our
willingness to modify the withdrawal
rights provisions of Section 14(d)(5) for
subsequent offering periods. Permitting
withdrawal rights during a subsequent
offering period, when tendered shares
are required to be purchased on a
‘‘rolling’’ or as tendered basis,138 would
interfere with the payment process.
The Tier II cross-border exemptions
provide that a bidder need not extend
withdrawal rights from the close of the
initial offering period and before the
commencement of the subsequent
offering period, where the bidder
announces the results of the initial
offering period and pays for tendered
securities in accordance with home
country law or practice, so long as the
subsequent offering period begins
immediately thereafter.139 Due to
similar practical considerations, we
propose to extend this suspension of the
back-end withdrawal rights provisions
for all tender offers conducted under
Tier II during the counting of tendered
securities. This would allow withdrawal
rights to be terminated at the end of an
offer and during the counting process
for bidders that do not provide a
subsequent offering period.140
prescribe by rules, regulations, or order as necessary
or appropriate in the public interest or for the
protection of investors.’’ Exchange Act Rule 13e–
4(f)(2)(ii) includes a similar mandate for issuer
tender offers: ‘‘The issuer or affiliate making the
issuer tender offer shall permit securities tendered
pursuant to the issuer tender offer to be withdrawn
* * * if not yet accepted for payment, after the
expiration of forty business days from the
commencement of the issuer tender offer.’’ Where
the tender offer is subject to Rule 13e–4 and
Regulation 14D, bidders also must provide
withdrawal rights during the ‘‘initial offering
period.’’ We do not propose to modify this
requirement.
135 Whether back-end withdrawal rights arise also
will depend on the length of the tender offer period;
if the initial offering period and the payment
process are completed before such rights arise,
back-end withdrawal rights will not be triggered.
136 See footnote 134 above.
137 Exchange Act Rule 14d–7(a)(2) [17 CFR
240.14d–7(a)(2)].
138 Exchange Act Rule 14d–11(c) [17 CFR
240.14d–11(c)].
139 Exchange Act Rule 14d–1(d)(2)(v).
140 For example, the subsequent offering period
structure is available for third-party offerors subject
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Differences in the tender, acceptance
and payment procedures between U.S.
and foreign offers necessitate this relief.
In a U.S. offer, tendering security
holders generally tender their shares to
a single exchange agent employed by
the bidder.141 Thus, bidders generally
are in a position to know at any point
in the offering period the number of
securities tendered. Because bidders
know how many target securities have
been tendered into the offer at the
expiration, acceptance of tendered
securities in a U.S. offer can occur
almost immediately after the expiration
of an offer.142 Therefore, bidders in
domestic offers are able to terminate the
back-end withdrawal rights almost
immediately after expiration by
accepting securities tendered (assuming
all offer conditions have been satisfied
or waived). Bidders can begin the
payment process promptly after
expiration of the offer, consistent with
their obligations under U.S. law to pay
promptly.143
The mechanics of the tender process
in non-U.S. tender offers are generally
very different. Tenders often are made
through many different financial
institutions instead of through a single
tender agent, as in the United States.144
The process of centralizing and
counting tendered securities therefore
may take an extended period of time.145
In some countries, entities other than
the bidder or its agents undertake the
counting process and the announcement
of the result of the tender offer.146
Because of these differences in
procedure, the bidder in a cross-border
tender offer may not know whether the
minimum tender condition has been
satisfied immediately after the end of
the initial offering period. The bidder
cannot accept tendered securities until
all offer conditions, including the
minimum tender condition, have been
satisfied or waived and the counting
process is completed.147 We already
have recognized that the mechanics of
the tendering and counting regimes in
other countries justifies different
treatment under our rules,148 and for the
same reasons, we believe it is
appropriate to provide an exemption in
this area.
Bidders previously have sought relief
from the back-end withdrawal rights
provisions for Tier II cross-border tender
offers, during the period in which
tendered securities are being counted
and until the announcement of the
results of the offer, where no subsequent
offering period is provided.149 The relief
requested generally is premised on the
following factors:
• The initial offering period of at least
20 business days has expired, and
withdrawal rights were provided during
that period;
• All offer conditions, other than the
minimum tender condition, are satisfied
or waived as of the expiration of the
initial offering period; 150 and
• Back-end withdrawal rights are
suspended only during the period
to Regulation 14D, but not for issuer tender offers
subject to Exchange Act Rule 13e–4. Applicable
foreign law may also impact a third-party offeror’s
ability to provide a subsequent offering period.
141 Tenders may be made through nominees, such
as broker-dealers, who hold the target securities in
‘‘street name,’’ or directly by the ultimate beneficial
holder of the target securities.
142 See Exchange Act Rule 14e–1 [17 CFR
240.14e–1] (stating that a bidder must promptly pay
for or return tendered securities after the expiration
or withdrawal of a tender offer). According to Rule
14e–1(d), in a U.S. offer, the bidder has only until
9:00 a.m. Eastern time on the next business day
after the expiration of the tender offer to announce
the extension of the offer.
143 ‘‘Prompt payment’’ in U.S. offers is generally
understood to mean payment within three days of
expiration. See Guidance on Mini-Tender Offers
and Limited Partnership Tender Offers, Release No.
34–43069 (July 24, 2000) [65 FR 46581].
144 See, e.g., Technip, S.A. (August 30, 2001)
(describing the tender process through banks, and
other financial institutions and intermediaries) and
Vodafone AirTouch Plc (December 22, 1999)
(noting that under German law, tenders of target
securities could be made through any branch of
over 300 depositary banks through which such
securities were held).
145 See, e.g., Business Object S.A. (December 5,
2007).
146 Id. (The letter states that once the French Offer
has expired, securities tendered in the French Offer
are ‘‘centralized’’ at Euronext, which then counts
the total number of securities tendered. The
Autorite des Marches Financiers (the French
regulator) then announces the results of the offer).
147 While a bidder technically could accept
tendered securities immediately after the expiration
of a cross-border tender offer by waiving the
minimum tender condition, we believe this would
be a significant hardship for bidders and would
negatively impact bidders’ ability to conduct crossborder tender offers.
148 See Exchange Act Rules 13e–4(i)(2)(iv) and
14d–1(d)(iv). As a result of the differences in
process between the U.S. and various foreign
jurisdictions, Tier II currently includes prompt
payment relief to allow a bidder meeting the
conditions of that exemption to pay for tendered
securities in accordance with home country law or
practice.
149 See, e.g., Barclays PLC tender offer for ABN
AMRO Holding N.V. (August 7, 2007) (‘‘Barclays’’)
(period of no longer than five Dutch trading days);
Endesa, S.A. (when the tendered shares are being
counted and until payment occurs, in accordance
with Spanish law and practice); Portugal Telecom
(three Portuguese business days after the special
session of Euronext Lisbon); E.ON (when the
tendered shares are being counted and until
payment occurs, in accordance with Spanish law
and practice); and Bayer AG (April 28, 2006).
150 If a bidder counts the number of securities
tendered as of the expiration date in determining
whether the minimum acceptance condition has
been satisfied, we view this condition as having
been satisfied as of expiration. This is the case even
though the counting process may, as a logistical
matter, take some period of time after expiration to
be completed.
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necessary to centralize and count the
tendered securities, and are reinstated
immediately at the end of that process,
to the extent they are not terminated by
acceptance of tendered securities
immediately afterwards.151
As proposed, both third-party bidders
for securities of a foreign private issuer
and foreign private issuers repurchasing
their own securities would be permitted
to suspend back-end withdrawal rights
while tendered securities are being
counted, even where no subsequent
offering period is provided. The revised
rules would be conditioned on the
following factors:
• The Tier II exemption must be
available;
• The offer must include an offering
period, including withdrawal rights, of
at least 20 U.S. business days;
• At the time withdrawal rights are
suspended, all offer conditions have
been satisfied or waived, except to the
extent that the bidder is still counting
tendered securities to determine if the
minimum acceptance condition has
been satisfied; and
• Withdrawal rights are suspended
only during the necessary centralization
and counting process period and are
reinstated immediately thereafter,
except to the extent that they are
terminated by the acceptance of
tendered securities.
Request for Comment
• Is it appropriate and in the best
interests of U.S. investors to permit the
suspension of back-end withdrawal
rights, as proposed?
• Do the proposed conditions address
bidders’ practical concerns while still
protecting tendering security holders?
• Should we permit back-end
withdrawal rights to be suspended only
during the counting process? Or should
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151 See
the letters listed in footnote 149 above.
Note that the only conditions that may survive the
expiration of the initial offering period are
regulatory approvals necessary to consummate the
tender offer. We believe that the existence of the
back-end withdrawal rights provided in Exchange
Act Rule 13e–4(f)(2)(ii) and Section 14(d)(5) of the
Exchange Act provide a critical safeguard where a
regulatory condition survives the expiration of the
initial offering period. These provisions allow
tendering security holders to withdraw their
tendered securities after a certain period of time.
Certain regulatory approval processes, such as antitrust approvals, may be lengthy and back-end
withdrawal rights may provide an important
safeguard in such cases. See generally,
ProSiebenSat.1 Media AG (January 30, 2007) (in
granting no-action relief from the prompt payment
requirements of Exchange Act Rule 14e–1(c) where
a regulatory condition was expected to survive the
expiration of a tender offer, the staff explicitly
noted that tendering target holders would have
withdrawal rights through the date of receipt of
such regulatory approvals). The staff will continue
to consider limited relief under those circumstances
only where a compelling reason exists.
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this relief be provided through the
announcement of the results of the
tender offer?
4. Expanded Relief for Subsequent
Offering Periods
Since the adoption of the cross-border
exemptions, foreign requirements and
practices relating to tender offers have
frequently led to conflicts with the
Commission’s rule on subsequent
offering periods.152 Today we propose
to address some of the more common
areas of conflict. The most frequent area
of conflict relates to the maximum limit
on the length of the subsequent offering
period of 20 U.S. business days imposed
by our rules.153 In some instances,
foreign law mandates a subsequent
offering period of longer than 20 U.S.
business days.154 In other non-U.S.
jurisdictions, market practice dictates a
subsequent offering period of longer
than 20 business days.155 In these
152 Exchange Act Rule 14d–11. At the same time
we adopted the existing cross-border exemptions,
we also changed our rules for domestic tender offers
to permit the use of subsequent offering periods.
See Regulation of Takeovers and Security Holder
Communications, Release No. 33–7760 (October 22,
1999) [64 FR 61408] (‘‘Regulation M–A Adopting
Release’’). We made this change in part because of
years of experience with the subsequent offering
period in cross-border tender offers.
153 Our rules permit (but do not require) a bidder
in a third-party tender offer to provide a subsequent
offering period of between three and 20 U.S.
business days, under certain conditions. The
conditions outlined in Exchange Act Rule 14d–11
are: (a) The initial offering period of at least 20
business days has expired; (b) the offer is for all
outstanding securities of the class, and if the bidder
offers security holders a choice of different forms
of consideration, there is not a ceiling on any form
of consideration offered; (c) the bidder immediately
accepts and promptly pays for all securities
tendered during the initial offering period; (d) the
bidder announces the results of the tender offer by
9 a.m. Eastern standard time on the morning after
expiration of the initial offering period and
immediately begins the subsequent offering period;
(e) the bidder immediately accepts and promptly
pays for all securities as they are tendered in the
subsequent offering period; and (f) the bidder offers
the same form and amount of consideration in both
the initial and subsequent offering periods.
154 See, e.g., Embratel Particpacoes S.A.
(December 6, 2006) (‘‘Embratel’’); and Barrick Gold
Corp. (January 19, 2006).
155 See RWE Aktiengesellschaft (March 22, 2002)
(‘‘RWE’’) (noting that subsequent offering periods
lasting significantly longer than 20 business days
are the custom in Great Britain and are permitted
under The City Code on Takeovers); Serono S.A.
(noting that French law does not set a maximum for
the number of days in a subsequent offering and
requesting relief for a 30 trading day subsequent
offering period, with immediate acceptance of
tendered shares on an ‘‘as tendered’’ basis); Rio
Tinto plc (July 24, 2007) (‘‘Rio Tinto’’) (noting that
Canadian law sets no maximum period for
subsequent offering periods); STATs ChipPAC Ltd.
(March 15, 2007) (relief for a subsequent offering
period of up to four months from the
commencement date); and Harmony Gold 2004
(requesting relief for a subsequent offering of longer
than 20 U.S. business days, as permitted under
South African law and as is customary market
practice in that jurisdiction).
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jurisdictions bidders must seek relief to
extend the permissible time period of
their subsequent offering periods to
reconcile U.S. rules with foreign law or
customary practice.156
We believe establishing a maximum
time period for subsequent offering
periods in cross-border tender offers is
no longer necessary, in part because it
creates unnecessary conflict between
U.S. and foreign law or practice.
Therefore, we propose to eliminate this
time limit for cross-border tender offers
eligible to rely on the Tier II exemptions
by adding a new provision specifically
allowing Tier II cross-border tender
offers to include subsequent offering
periods longer than 20 U.S. business
days. Allowing subsequent offering
periods in cross-border tender offers to
extend beyond the current 20-day
maximum period is consistent with one
of the primary reasons we revised our
rules to permit subsequent offering
periods generally: To enable bidders to
reach the necessary thresholds for
acquiring the remaining target securities
not tendered in an initial offering period
and to pay tendering security holders
before they would receive payment in a
second-step ‘‘squeeze out’’ process.157
In some foreign jurisdictions, the ability
of a bidder to acquire securities of the
target that remain outstanding after a
tender offer is more limited than in the
United States.158 We believe the ability
to extend the subsequent offering period
for longer than 20 U.S. business days
will provide an opportunity for
remaining target security holders to
tender into a successfully-consummated
offer, after which the market for their
securities may be very limited.159 The
subsequent offering period allows target
security holders to be paid before a
compulsory acquisition can be
156 Id.
157 See Regulation M–A Adopting Release,
Section II.G.1. (‘‘The purpose of the subsequent
offering period is two-fold. First, the period will
assist bidders in reaching the statutory state law
minimum necessary to engage in a short-form, backend merger with the target. Second, the period will
provide security holders who remain after the offer
one last opportunity to tender into an offer that is
otherwise complete in order to avoid the delay and
illiquid market that can result after a tender offer
and before a back-end merger.’’).
158 Where an acquiror obtains more than 50
percent of the target securities of a domestic
company, it generally can acquire the remaining
target shares through a back-end merger. In some
foreign jurisdictions, the bidder’s ability to
‘‘squeeze out’’ remaining target shareholders is
more limited. See, e.g., In the Matter of Texas
Utilities Company (March 27, 1998) (‘‘Texas
Utilities’’) (noting that under U.K. law, the
compulsory acquisition process is available only
when the bidder owns at least 90 percent of the
subject securities and this process is the only means
to acquire 100 percent of the subject class).
159 See Regulation M–A Adopting Release,
Section II.G.1. and footnote 157 above.
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completed, in a circumstance where an
offer has become unconditional and will
certainly be consummated.160
Request for Comment
• Are there any other conflicts
between U.S. and foreign laws or
practice arising out of the subsequent
offering period structure that should be
addressed through additional rule
revisions?
• Is it appropriate, as proposed, to
eliminate the 20 U.S. business day limit
on the length of the subsequent offering
period for Tier II cross-border tender
offers?
• Should we eliminate the 20 U.S.
business day limit on the length of the
subsequent offering period for all tender
offers generally, including those for
domestic issuers?
Æ Do bidders for U.S. companies face
any practical difficulties because of the
20 U.S. business day limit?
• Is the limit on the length of the
subsequent offering period necessary for
investor protection, either in the U.S. or
in cross-border offers? Should we retain
a limit but increase it, for example, to
30 or 60 U.S. business days?
a. Proposed Revisions To Prompt
Payment Rule
Another area of conflict in subsequent
offering period practice that we address
today relates to the requirement under
U.S. rules that bidders must
immediately accept and promptly pay
for all securities ‘‘as they are tendered
during the subsequent offering
period.’’ 161 The requirement to
purchase securities tendered during the
subsequent offering period on a rolling
basis exists because, in the absence of
withdrawal rights, which need not be
provided during a subsequent offering
period,162 tendering security holders
should receive the offer consideration as
quickly as possible. Bidders in crossborder tender offers often are required
to, or for practical reasons need to,
follow local practices when paying for
securities tendered in a subsequent
offering period.163 We have been
advised, however, that the requirement
that securities be paid for on an as
160 See
footnote 157 above.
Act Rule 14d–11(e).
162 See Note to Exchange Act Rule 14d–11.
163 See Barclays (relief granted to permit payment
for securities tendered in the subsequent offering
period within five Dutch trading days after the end
of that period); Rio Tinto plc (shares tendered
during a subsequent offering period may be taken
up and paid for within ten calendar days of the date
of tender, in accordance with Canadian law);
Aventis (June 10, 2004)(relief granted to permit
payment for securities tendered into a French offer
to be made within 12–18 French trading days after
the expiration of that period).
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161 Exchange
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tendered basis in the same manner as in
the United States may conflict with
market practice in certain non-U.S.
jurisdictions, and is in many instances
practicably unworkable there.164
Today we propose to allow, under
certain circumstances, securities
tendered during the subsequent offering
period for a Tier II cross-border tender
offer to be purchased on a modified
rolling basis. We do this by including
language in proposed new Rule 14d–
1(d)(2)(iv) that defines ‘‘prompt
payment’’ for purposes of the
requirement under Rule 14d–11(e) to
purchase on an as tendered basis.
Instead of requiring daily aggregation of
securities tendered during the
subsequent offering period, the
proposed rule would permit such
securities to be ‘‘bundled’’ and paid for
within 14 business days from the date
of tender. We chose 14 business days as
the time period because, in our
experience, that amount of time is
sufficient to cover the subsequent
offering periods used in most foreign
jurisdictions.165 Depending on the
length of the subsequent offering period
and the payment practice in the
applicable foreign jurisdiction, this may
allow payment for securities tendered
during the subsequent offering period to
be made at the end of that period. We
understand that this is market practice
in some foreign jurisdictions.166
Another practical difficulty involving
subsequent offering periods arises
because, in certain foreign jurisdictions,
bidders are legally required to pay
interest on securities tendered during
the subsequent offering period.
Generally, the rate of interest is set by
law and is calculated from the date on
which securities are tendered.167
164 See Barrick Gold Corporation (October 10,
2006) (discussing multiple ‘‘take-up’’ dates required
under Canadian rules). See also Singapore
Technologies Semiconductors Pte Ltd. (March 15,
2007) and BCP.
165 In this context, we propose to define ‘‘business
day’’ without reference to a business day in the
United States. A business day as used in proposed
Rule 14d–1(d)(2)(iv) is determined with reference to
the relevant foreign jurisdiction. By not defining
business day in accordance with the U.S. calendar,
we hope to make this rule modification more useful
because U.S. and non-U.S. holidays will vary.
166 See Barclays (Dutch practice requires payment
for securities tendered during a subsequent offering
period to be made within five Dutch trading days
after the end of that period); Alcan (noting that
French practice is to pay for securities tendered in
the subsequent offering period at the end of that
period); and Smith & Nephew Group plc (April 4,
2003) (payment within ten Swiss trading days after
the end of the subsequent offering period is
required under Swiss law).
167 For example, in Brazil, bidders must pay
interest at a statutory rate on securities ‘‘put’’ to the
bidder after the termination of a successful
voluntary offer. We consider such a put right to be
a tender offer or to constitute the subsequent
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Sometimes interest is calculated as of a
set reference point not directly tied to
the tender offer timetable.168
Under either scenario, paying interest
on securities tendered during a
subsequent offering period conflicts
with U.S. tender offer rules in several
respects. U.S. rules specify that for
offers subject to Regulation 14D, a
bidder must pay the same form and
amount of consideration for securities
tendered during the subsequent offering
period as it pays for those tendered into
the initial offering period.169 For those
types of offers, it is also impermissible
to pay different amounts of
consideration for securities tendered
within either the initial or the
subsequent offering periods.170
Companies have addressed this conflict
by seeking exemptive relief.171
We propose to revise our rules to
permit the payment of interest for
securities tendered during a subsequent
offering period in a Tier II cross-border
tender offer where required under
foreign law.172 The proposed new
provision explicitly notes that paying
interest on securities tendered during
the subsequent offering period would
not be deemed to violate the equal
treatment principles in Rule 14d–
10(a)(2).173 As discussed above, under
the equal treatment and all-holders
provisions of the tender offer rules,174 a
bidder could not pay interest only on
securities tendered into a foreign offer.
Request for Comment
• Is it appropriate to permit payment
for securities tendered during the
subsequent offering period in crossborder tender offers to be made up to 14
business days after the date of tender?
Æ Is 14 business days a sufficient
period to make this relief useful for
cross-border tender offers that include a
subsequent offering period? Would a
shorter (five, seven or 10 business days)
offering period in a voluntary offer. See the
description of this feature of Brazilian law in
Embratel and ‘‘Telemar Participacoes S.A. (October
9, 2007) (‘‘Telemar’’). See also, Bayer AG
(September 26, 2006) (‘‘Bayer 2006’’) (describing a
similar requirement under German law).
168 Under German law, for example, we have been
advised that if a bidder acquires a sufficient
percentage of a target’s shares in a voluntary tender
offer, it may enter into a ‘‘domination agreement’’
with the target. The bidder is then required to pay
interest at a rate set by German law on all securities
tendered during the subsequent offering period,
from the date that such domination agreement
becomes effective. See Blackstone Entities
(December 16, 2004) (‘‘Blackstone’’).
169 Exchange Act Rule 14d–11(f).
170 Exchange Act Rule 14d–10(a)(2).
171 See e.g., Telemar; Embratel; and Blackstone.
172 See proposed Exchange Act Rule 14d–
1(d)(2)(vii).
173 See proposed Exchange Act Rule 14d–1(d)(2).
174 Exchange Act Rule 14d–10.
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mstockstill on PROD1PC66 with PROPOSALS2
or longer period (15, 20 or 30 business
days) of time better serve the interests
of bidders or tendering security holders?
Æ Should we permit payment for
securities tendered during the
subsequent offering period to be made
within a certain number of days after
the end of that period, such as within
five, 10 or 14 business days, even if we
eliminate the time limit on the length of
the subsequent offering period? Or
would this disadvantage tendering
security holders?
• Should we revise our rules to
permit the payment of interest on target
securities tendered during the
subsequent offering period, as
proposed?
• Should we expand the proposed
relief to encompass interest paid on
securities tendered during the initial
offering period?
• Should we provide this relief only
where interest is required to be paid
under foreign law, as proposed?
• Should the proposed amendment
only permit de minimis interest
payments? If so, what limits are
appropriate?
b. Prompt Payment and ‘‘Mix and
Match’’ Offers
The final issue we address with
respect to subsequent offering periods
involves ‘‘mix and match’’ offers. The
requirement to pay for shares on an as
tendered basis during the subsequent
offering period is particularly
problematic in cross-border tender
offers that include a mix and match
election feature. In this offer structure,
target security holders are offered a set
mix of cash and securities of the
bidder—often referred to as the
‘‘standard entitlement’’—with the
option to elect a different proportion of
cash and securities, to the extent that
other tendering security holders make
opposite elections.175 The bidder
typically sets a maximum amount of
cash or securities that it will issue in the
offer; to the extent that more tendering
target security holders elect cash or
bidder securities, their elections are
prorated to the extent they cannot be
satisfied through ‘‘offsetting elections’’
made by other target security holders.176
Mix and match offers often conflict
with U.S. requirements applicable to the
subsequent offering period. First, those
rules provide that a bidder may offer a
choice of different forms of
consideration in the subsequent offering
175 See Barclays and SERENA Software Inc. (April
13, 2004) (setting a cap on the number of bidder
shares and cash that would be issued in a mix and
match election, with elections for more cash or
shares being offset against one another).
176 Id.
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period, but only if there is no ceiling on
any form of consideration offered.177 In
addition, the rules require a bidder to
offer the same form and amount of
consideration to tendering security
holders in both the initial and
subsequent offering periods.178 Both
requirements present difficulties in the
context of mix and match offers. In
these kinds of offers, bidders want to
impose a maximum limit on either (or
both) the number of securities or the
amount of cash they will be obligated to
deliver if the offer is successful.179 In
addition, the offset feature characteristic
of mix and match offers is inconsistent
with the prohibition on offering
different forms and amounts of
consideration in the initial and
subsequent offering periods.
Because of the prompt payment and
other requirements of U.S. rules and the
requirements of foreign law or practice
in cross-border offers, bidders in mix
and match offers often request relief to
use two different proration and offset
pools in their offers: one for securities
tendered during the initial offering
period and another for those tendered in
the subsequent offering period.180 That
is, bidders match elections made during
the initial offering period against each
other to determine offsets and proration
and begin the payment process for those
securities as promptly as practicable
after the end of the initial offering
period.181 Similarly, securities tendered
during the subsequent offering period
are matched against each other, not
against those tendered during the initial
offering period, so as not to delay the
payment process. As a result, the mix of
consideration provided to tendering
security holders may be different in the
initial and subsequent offering periods.
Today we propose to revise our rules
to specifically allow separate offset and
proration pools for securities tendered
during the initial and the subsequent
offering periods.182 We view these
changes as necessary and appropriate to
facilitate the prompt payment for
securities tendered during these offer
periods, and to permit the use of the
mix and match offer structure generally.
Because of the same practical
considerations, we also propose to
177 Exchange
Act Rule 14d–11(b).
Act Rule 14d–11(f).
179 See letters cited in footnote 175 above.
180 Id.
181 This is necessitated by foreign rules, which
typically require those securities to be accepted and
paid for while the subsequent offering period is
ongoing. U.S. rules also require that securities
tendered in an initial offering period be accepted
and promptly paid for at the end of that period.
Exchange Act Rule 14d–11(c).
182 See proposed Exchange Act Rule 14d–
1(d)(2)(ix).
178 Exchange
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26893
eliminate the prohibition on a ‘‘ceiling’’
for the form of consideration offered in
the subsequent offering period, where
target security holders are given the
ability to elect between two or more
different forms of offer consideration.
These changes would be accomplished
by adding a provision in Rule 14d–
1(d)(2) that specifies that such practices
are permissible for Tier II cross-border
offers.183
Request for Comment
• Would these proposed rule changes
address the practical needs of crossborder offerors? Would there be any
disadvantages for target security
holders?
• Should we extend these changes to
all tender offers, including tender offers
for U.S. issuers? Would bidders for U.S.
issuers use the ability to make mix and
match offers? Would such a structure be
workable in the U.S. and in the best
interests of U.S. investors?
5. Additional Guidance With Respect to
Terminating Withdrawal Rights After
Reduction or Waiver of a Minimum
Acceptance Condition
U.S. tender offer rules generally
provide that a bidder must allow an
offer to remain open for a certain period
of time after a material change in its
terms is communicated to target security
holders.184 The minimum time periods
established allow target security holders
time to learn of and react to information
about material changes. Some target
holders may want to tender in response
to the new information, while others
who already have tendered may seek to
withdraw their securities. For this
reason, U.S. rules mandate that, for
183 See
id.
184 Exchange
Act Rule 14d–4(d)(2)(i)–(iv) sets
forth the minimum time periods for which an offer
must remain open after certain specified types of
changes in the terms of that offer are communicated
to target security holders. The Rule states that an
offer must remain open for: (1) Ten business days
after dissemination of a prospectus supplement
containing a change in price, the amount of
securities sought, the dealer’s soliciting fee or other
similarly significant change; (2) ten business days
for a prospectus supplement included as part of a
post-effective amendment; (3) twenty business days
for a prospectus supplement when the initial
prospectus was materially deficient; and (4) five
business days for a material change other than price
or share levels. Exchange Act Rule 14d–4(d)(2) by
its terms applies only to third-party tender offers for
Exchange Act registered securities. However, we
have stated that we view the time periods
established in that rule as general guidelines
applicable to all tender offers, including those
subject only to Regulation 14E. See the discussion
in the Regulation M–A Adopting Release, Section
II.E.2. In addition, Rule 14e–1(b), applicable to all
tender offers, specifies that a tender offer must be
kept open for a minimum of ten business days after
an increase or decrease in the amount of securities
sought or the consideration offered or a change in
the dealer’s soliciting fee.
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tender offers subject to Section 13(e) or
14(d) of the Exchange Act, in addition
to keeping the offer open for a set period
of time after providing notice of a
material change, the bidder must
provide withdrawal rights during such
period.185
In the years leading up to the
adoption of the existing cross-border
exemptions in 1999, we found that in
practice, this U.S. withdrawal rights
requirement created a conflict with
foreign practice in cross-border tender
offers. We discussed in the 1998 CrossBorder Proposing Release how the U.S.
requirement to provide withdrawal
rights for a set period after the waiver
or reduction in a minimum acceptance
condition created a conflict with U.K.
practice, the jurisdiction with which we
had the most experience at that time.186
We noted that the staff had granted
relief to bidders to address this conflict
in individual cases.187
In adopting the cross-border
exemptions, we affirmed the staff’s
interpretive position that a bidder
meeting the conditions of the Tier II
exemptions may waive or reduce the
minimum acceptance condition without
providing withdrawal rights during the
time remaining in the tender offer after
the waiver or reduction.188 We
conditioned a bidder’s ability to rely on
this guidance on the following:
• The bidder must announce that it
may reduce or waive the minimum
condition at least five business days
before it reduces or waives it; 189
• The bidder must disseminate this
announcement through a press release
and other methods reasonably designed
to inform U.S. security holders, which
may include placing an advertisement
in a newspaper of national circulation
in the United States; 190
• The press release must state the
exact percentage to which the condition
may be reduced. The bidder must
announce its actual intentions once it is
185 Id.
mstockstill on PROD1PC66 with PROPOSALS2
186 See
1998 Cross-Border Proposing Release,
Section II.C.2.f.
187 See id. citing e.g., In the Matter of Pacificorp
and The Energy Group, Exchange Act Release No.
38776 (June 25, 1997).
188 Cross-Border Adopting Release, Section II.B.
189 A statement at the commencement of the offer
that the bidder may reduce or waive the minimum
acceptance condition is insufficient to satisfy this
element. See Cross-Border Adopting Release,
Section II.B.
190 Some bidders have asked for the elimination
of the requirement that the notice of a potential
waiver or reduction in the minimum acceptance
condition be placed in a newspaper of national
circulation in the United States. We continue to
believe that this requirement serves an important
function in notifying target security holders about
a possible change in the terms of the offer, and
therefore we are retaining it.
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required to do so under the target’s
home country rules;
• During the five-day period after the
announcement of a possible waiver or
reduction, security holders who have
tendered into the offer must be afforded
the right to withdraw tendered
securities;
• The announcement must advise
security holders to withdraw their
tendered securities immediately if their
willingness to tender into the offer
would be affected by the reduction or
waiver of the minimum acceptance
condition;
• The procedure for reducing or
waiving the minimum acceptance
condition must be described in the
offering document; and
• The bidder must hold the offer open
for acceptances for at least five business
days after the reduction or waiver of the
minimum acceptance condition.
When the bidder terminates
withdrawal rights pursuant to this
interpretive position, all offer
conditions must be satisfied or waived
so that the offer is wholly unconditional
when withdrawal rights terminate.191 A
bidder may not terminate withdrawal
rights where an extension is otherwise
required under our rules because of
another material change in the terms of
the offer.192
While we continue to recognize that
bidders in cross-border tender offers
may need the flexibility afforded by this
interpretive position, we are aware of
certain issues arising from its
application. When we adopted the
interpretive position regarding waiver or
reduction of a minimum acceptance
condition, we did so primarily on the
basis of the staff’s experience with U.K.
law and practice.193 The regulatory
accommodation was necessitated by
U.K. practice and the particular
circumstances common to the U.K.
markets. The vast majority of the
transactions for which the staff had
granted this relief before we adopted the
191 We note that this is consistent with the
interpretive position previously expressed by the
staff. See Section II.A. Question 1 in the Third
Supplement to the Division of Corporation
Finance’s Manual of Publicly Available Telephone
Interpretations (July 2001), at https://www.sec.gov/
interps/telephone/phonesupplement3.htm.
192 See, e.g., STATS ChipPAC Ltd. (March 15,
2007) (‘‘STATS ChipPAC’’) (noting that a bidder
may not terminate withdrawal rights or close an
offer during any extension mandated under
Regulations 14D or 14E). In addition to the
extension requirements in Rule 14e–1(b), we note
that the Commission has expressed the view that
the minimum time periods set forth in Rule 14d–
4(d)(2) represent ‘‘general guidelines that should be
applied uniformly to all tender offers, including
those subject only to Regulation 14E.’’ See
Regulation M–A Adopting Release, Section II.E.2.
193 See Cross-Border Adopting Release, Section
II.B.
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interpretive position involved cash
tender offers.194
In the years since the Commission
adopted the interpretive position, we
have become aware of the unintended
consequences of this position in the
context of certain kinds of offers,
including exchange offers and competed
offers. We believe it is necessary to
provide additional guidance on the
circumstances under which bidders may
rely upon this interpretive position in
cross-border tender offers to waive or
reduce a minimum acceptance
condition without providing withdrawal
rights after such waiver. For these
reasons, today we are limiting the
interpretive position adopted in the
Cross-Border Adopting Release.
The interpretation originally was
premised on bidders’ need to reduce the
minimum acceptance condition in order
to declare the offer wholly
unconditional, thereby permitting the
participation of certain institutional
holders that were prevented by charter
from tendering into conditional
offers.195 The interpretive guidance
about the ability to waive or reduce the
minimum acceptance condition was and
continues to be limited to instances
where it is necessary because of specific
features of home country law or practice
that make it impossible or unnecessarily
burdensome to comply with the
extension requirements of U.S. law.
We also think it is important to note
that, where bidders may seek to waive
or reduce a minimum acceptance
condition in a Tier II-eligible tender
offer without extending withdrawal
rights after the waiver or reduction, the
initial offering materials or a
supplement must fully discuss the
implications of the waiver or
reduction.196 We note that this
necessary disclosure may be challenging
to provide in the context of an exchange
offer, but we believe security holders
need this disclosure to make an
informed investment decision about the
194 See,
e.g., Texas Utilities.
e.g., Willis Corroon Group plc (July 22,
1998) and Thorn plc (June 30, 1998). For example,
we were advised that certain U.K. institutional
holders are prohibited from tendering into an offer
until all offer conditions have been satisfied or
waived. For that reason, it is critical that the bidder
reduce the minimum tender condition in an effort
to induce these institutions to tender, which in turn
may allow the bidder to reach the 90 percent
ownership level necessary to effect a compulsory
acquisition under U.K. law.
196 This is a general requirement under the tender
offer rules. See, e.g., Item 1 of Schedule TO and
Item 101 of Regulation M–A (requiring the filer to
describe the essential terms and to describe the
significance of the transaction for target security
holders). See also, footnote 254 below for
transactions subject to the registration requirements
of Section 5 of the Securities Act.
195 See,
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potential impact of the bidder accepting
a lesser percentage of securities than
originally proposed as the minimum
acceptance condition.
In addition to the potential need to
provide alternate sets of pro forma
financial statements under our existing
disclosure rules,197 we believe reducing
the minimum acceptance condition
significantly below the level at which it
is initially set may fundamentally
change the nature of the transaction and
the relationship between the offeror and
the target company going forward. For
example, an offeror could go from
potentially holding a majority interest in
the target to a minority stakeholder with
limited ability to influence the
management of the target. This change
has implications for both the target
holders who choose to tender into the
offer and receive bidder shares, as well
as those who elect not to tender and
remain as target security holders. It also
has implications with respect to the
acquiror’s ability to consolidate the
financial statements of the target.
Consequently, even for cash tender
offers, the staff has conditioned the
granting of no-action relief in the crossborder context on bidders adequately
disclosing in the initial offer materials
the impact of a potential waiver or
reduction.198 For example, where a
bidder initially includes an 80 percent
minimum acceptance condition in its
offer, but seeks the flexibility to reduce
this condition to 51 percent and
purchase tendered securities
immediately without affording
withdrawal rights, the staff has noted
that the disclosure document must fully
and fairly present the potential impact
of both outcomes for target
shareholders. In addition, the staff also
has encouraged bidders to consider the
disclosures necessary with regard to the
ability to govern or otherwise integrate
the target company after any acquisition
at a lower level.
The difficulty in providing the
necessary disclosure is heightened
where there are two or more competing
bids, creating an even greater level of
uncertainty. In that circumstance, a
bidder that waives or reduces its
minimum acceptance condition to
purchase a minority stake in the target
may nevertheless be able to thwart the
minimum acceptance condition of a
197 See Item 5 of Forms S–4 and F–4 and
Exchange Act Rule 11–02(b)(8) of Regulation S–X
[17 CFR 210.11–02(b)(8)]. Rule 11–02(b)(8)
mandates that where a transaction is structured in
such a way that significantly different results may
occur, additional pro forma presentation must be
provided which give effect to the range of possible
results.
198 See, e.g., Royal Bank.
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competing bidder, thereby defeating the
competing bid. Under these
circumstances, target security holders
are disadvantaged because they have no
opportunity to react to the change in the
terms of the offer by withdrawing their
securities and accepting the competing
bid. As noted above, this may also affect
the success of the competing bid.
Today we are refining our prior
guidance to clarify that, in addition to
the conditions outlined in the CrossBorder Adopting Release and the
general disclosure obligations discussed
above, the relief from the extension
requirements of Rule 14d–4(d)(2)
adopted in the Cross-Border Adopting
Release may not be relied upon unless
the bidder is eligible to rely on the Tier
II exemptions and the bidder undertakes
not to waive or reduce the minimum
acceptance condition below a
majority.199 This will limit the impact
on target security holders of allowing
this type of change without providing
withdrawal rights, while balancing the
needs of bidders to meet the
requirements of foreign home country
law or practice. In addition, this
interpretive position is limited to
circumstances where there exists a
requirement of law or practice in the
foreign home country justifying a
bidder’s inability to extend the offer
after a waiver or reduction in the
minimum offer condition. Furthermore,
it does not apply to mandatory
extensions for changes related to the
offer consideration, the amount of target
securities sought in the offer, and a
change to the dealer’s soliciting fee.200
Bidders seeking to rely on this
guidance, as modified, must fully
disclose and discuss all of the
implications of the potential waiver or
reduction, including at the specific
levels contemplated, in its offering
materials. For example, in some foreign
jurisdictions, the ability to operate and
fully integrate the target company as a
subsidiary of the bidder after a tender
offer depends on the bidder’s ability to
purchase a percentage of target
securities higher than a simple
majority.201 In those jurisdictions, the
199 By a majority, we mean more than 50 percent
of the outstanding target securities that are the
subject of the tender offer.
200 See Exchange Act Rules 13e–4(e)(3)(ii), 14d–
4(d)(2)(ii) and 14e–1(b).
201 We have been advised that Germany is one
such foreign jurisdiction. Under German law, 75
percent of a target’s security holders must approve
a ‘‘domination agreement’’ between the target and
the bidder in order for the bidder to effectively
exercise control of the target company after a tender
offer. Therefore, unless the bidder can obtain at
least 75 percent of the target’s securities in the
tender offer, it cannot be assured of the ability to
fully integrate the target company. See, e.g., Bayer
2006 and Blackstone.
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26895
impact of waiving or reducing the
minimum acceptance condition below
the levels necessary to operate and fully
integrate the target as a subsidiary must
be fully explained in the initial offering
materials disseminated to target security
holders. Where such disclosure is not
provided, the bidder may not rely on the
interpretive guidance set forth in the
Cross-Border Adopting Release, as
modified today. In those circumstances,
the bidder must disseminate additional
disclosure and also must allow adequate
time in the offer period, including
extension of withdrawal rights, as
mandated by our rules.202
Request for Comment
• Should we continue to allow
bidders in Tier II-eligible offers to waive
or reduce the minimum acceptance
condition without providing withdrawal
rights?
• Are the conditions set forth in the
Cross-Border Adopting Release
adequate? Or overly burdensome?
• Is it appropriate to modify such
relief, as discussed above?
• Should we condition the ability to
waive or reduce the minimum
acceptance condition without providing
withdrawal rights on the undertaking by
the bidder not to waive below a
majority, as proposed? What should
constitute a ‘‘majority’’ for these
purposes?
• Should we continue to require
bidders seeking to rely on the
interpretation to place an advertisement
in a newspaper of national circulation
in the United States? Does this serve a
useful function under current market
practice? Does it constitute an undue
burden?
• Is the guidance, as modified above,
clear? Should it be codified in rules?
6. Early Termination of the Initial
Offering Period or a Voluntary
Extension of the Initial Offering Period
Under U.S. tender offer rules, the
initial offering period in a tender offer
must remain open for specified
minimum time periods after a material
change in the terms of an offer.203 The
minimum time periods vary with the
202 See
footnote 197 above.
Act Rules 13e–4(e)(3) and 14d–
4(d)(2) set forth the minimum required time periods
for ‘‘registered securities offers,’’ where the bidder
is offering registered securities and commences an
offer before the effectiveness of its registration
statement. See footnote 184 above with respect to
the Commission’s statement concerning the broader
applicability of those time periods for other kinds
of tender offers. In addition, Rule 14e–1(b) also sets
forth timing requirements with respect to certain
kinds of changes in the terms of the offer.
203 Exchange
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materiality of the change.204 For a
change other than one related to the
tender price or the number of securities
sought in the offer, five business days
may be sufficient to allow security
holders time to learn of, and react to,
new information.205 We believe that
where the expiration of a tender offer
has been set, whether at the outset of the
offer or through a voluntary extension,
a change in that expiration date
constitutes a material change requiring
an offer to remain open within the time
periods established by our rules. These
minimum time periods are important
because they allow security holders who
have already tendered into the offer to
react to the change by withdrawing their
tendered securities; similarly, those who
have not tendered may choose to do so
in response to the change.
The minimum time periods
established by our rules for changes to
the terms of a tender offer may conflict
with foreign law or practice, where
bidders may be required to terminate an
offer and withdrawal rights immediately
after all offer conditions are satisfied.206
Thus, in some foreign jurisdictions,
bidders must accept tendered securities
and begin the payment process as soon
as all offer conditions are satisfied, even
if this occurs before the scheduled
expiration date of the initial offering
period or any voluntary extension of
that period.207 In other foreign
jurisdictions, longstanding practice
dictates early termination of a voluntary
extension of the initial offering period
when an offer becomes wholly
unconditional.208 These jurisdictions
take the view that once the offer is
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204 See
Exchange Act Rules 13e–4(e)(3)(i) through
(iv) and 14d–4(d)(2)(i) through (iv) and 14e–1(b).
205 See Exchange Act Rules 13e–4(e)(3) and 14d–
4(d)(2)(i). Of course, additional time may be needed
for specific types of new information that is of
particular importance to target security holders. See
Exchange Act Rules 13e–4(e)(3)(ii) and 14d–4(d)(ii)
(stating that ten business days is the required period
for a change ‘‘similarly significant’’ to a change in
price or the number of securities sought).
206 We refer to the time when all offer conditions
have been satisfied or waived as the time when the
offer becomes ‘‘wholly unconditional.’’
207 See STATS ChipPAC (stating that under the
Singapore Code, payment for securities tendered in
a tender offer must be made within 21 calendar
days after such offer is declared unconditional or
after the relevant holder accepts the offer,
whichever is later); Jilin Chemical Industrial
Company Limited (December 21, 2005)(’’Jilin
Chemical’’) (stating that under the Hong Kong Code,
once a tender offer becomes wholly unconditional,
the bidder must pay for tendered securities within
ten days of that date); and Harmony Gold Mining
Ltd. (March 10, 2005) (’’Harmony Gold 2005’’)
(describing South African legal requirements for
prompt payment that are triggered by the offer going
unconditional, which may occur before the
scheduled expiration of the initial offering period
or any voluntary extension of that period).
208 This is the case in the United Kingdom. See,
e.g., RWE.
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wholly unconditional and is therefore
certain to be consummated, the initial
offering period should close
immediately and tendering security
holders should receive the offer
consideration as soon as possible.
Security holders who did not tender
before the end of the initial offering
period can tender into the subsequent
offering.
In the Cross-Border Adopting Release,
we adopted a staff interpretive position
relating to a change in a specific type of
offer condition, the minimum
acceptance condition.209 Such a change
represents a modification of the original
conditions of the tender offer, not the
satisfaction of an existing offer
condition. However, we did not provide
similar guidance with respect to early
termination of the initial offering
period, or any extension of that period,
for changes other than to the minimum
acceptance condition.
Both before and after the adoption of
the cross-border exemptions, bidders in
cross-border tender offers frequently
have sought additional relief from the
staff to terminate the initial offering
period before its scheduled expiration,
thereby terminating withdrawal rights,
upon the satisfaction of all offer
conditions.210 In connection with early
termination, some bidders also have
concurrently requested relief from the
requirement under our rules to
promptly ‘‘publish, send or give’’ to
target security holders information
concerning any material change in the
terms of a tender offer.211
Under specified circumstances,
bidders have been given relief to permit
the early termination of the initial
offering period (or any voluntary
extension of that period).212 A voluntary
extension is an extension that is not
required under U.S. tender offer rules.
Early termination of the initial offering
period is not permitted, however, where
U.S. rules require mandatory offer
extensions for certain changes to the
terms of an offer, including those arising
from changes in the offer consideration,
the dealer’s soliciting fee, or the
percentage of target securities for which
the offer is made, or other material
209 See Cross-Border Adopting Release, Section
II.B. Today, as discussed above in Section II.C.5, we
are modifying our guidance with respect to the
bidder’s ability to waive or reduce the minimum
acceptance condition in a Tier-II tender offer
without providing withdrawal rights.
210 See AstraZeneca PLC (May 23, 2006);
Harmony Gold 2005; and In the Matter of Central
and South West Corp. (September 27, 1995).
211 See Exchange Act Rule 14d–4(d). See Jilin
Chemical (requesting no-action relief under
Exchange Act Rules 14d–4(d) and 14d–6(c)).
212 See footnote 210 above.
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changes.213 Thus, bidders making any of
these kinds of changes to the terms of
a tender offer may not terminate an
initial offering period (or any of that
period) before the scheduled expiration
of the mandatory extension.
The relief granted by the staff in this
area is contingent on several conditions
similar to those we established for
bidders wishing to waive or reduce a
minimum acceptance condition.214
Bidders seeking to terminate the initial
offering period before its scheduled
expiration may do so only if, at the time
the initial offering period expires and
withdrawal rights terminate:
• The initial offering period has been
open for at least 20 U.S. business days
and all offer conditions have been
satisfied; 215
• The bidder has adequately
discussed the possibility of and the
impact of the early termination in the
original offer materials;
• The bidder provides a subsequent
offering period after early termination of
the initial offering period;
• All offer conditions have been
satisfied when the initial offering period
terminates; 216 and
• The bidder does not terminate the
initial offering period during any
mandatory extension of the initial
offering period required under U.S.
tender offer rules.217
At this time, we are not codifying the
guidelines set forth in staff no-action
precedent for cross-border tender offers
regarding the ability to terminate an
initial offering period or a voluntary
extension of that period early.
213 See Exchange Act Rules 13e–4(f)(1)(ii) and
14e–1(b).
214 See, e.g., RWE.
215 Id.
216 A bidder may not waive an offer condition
without providing withdrawal rights after the
waiver to allow security holders who have already
tendered into the offer the opportunity to react to
information about the waiver. Because a waiver is
entirely within the control of the bidder and
represents a change in the terms of the offer, the
bidder must afford tendering security holders the
right to withdraw their securities in response to the
change. To the extent that foreign law would permit
a waiver of the offer conditions to trigger a
requirement to immediately terminate the initial
offering period or any voluntary extension of that
period, requests for relief will be considered on a
case-by-case basis. As noted above, we address the
specific circumstance of a bidder that seeks to
waive the minimum acceptance condition in a
tender offer in another section of this release. See
Section II.C.5. above. However, the ability of a
bidder to waive an offer condition in a cross-border
tender offer may be more limited than in a domestic
offer, because in some foreign jurisdictions, the
waiver of an offer condition is permitted only with
the permission of the home country regulator. In
addition, foreign rules may limit the type of
conditions that may be included in a cross-border
tender offer.
217 See discussion above for the definition of
‘‘mandatory extension’’ as we use that term here.
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Considering the responses we receive to
our requests for comment below, we
will determine whether to revise our
rules to codify this relief, under the
conditions specified.
Request for Comment
• Is this relief necessary to alleviate
practical difficulties? If so, should the
relief be codified in rules?
• Should we allow a bidder in a Tier
II-eligible cross-border tender offer to
terminate the initial offering period or
any voluntary extension of that period
upon the satisfaction of all offer
conditions? Or should the rules limit
this relief only to early termination of
the initial offering period or only to
early termination of a voluntary
extension of the initial offering period?
• Should we allow early termination
only where it is specifically required
under the law of the target’s home
jurisdiction? Or should this be
permitted when customary under
foreign practice as well?
• Should we condition this relief on
any other conditions besides those
listed above? For example, should we
require the same kind of advance notice
as we propose for a waiver of the
minimum acceptance condition in a
tender offer?
mstockstill on PROD1PC66 with PROPOSALS2
7. Codification of Rule 14e–5 CrossBorder Exemptions
We propose to modernize and
enhance the utility of Exchange Act
Rule 14e–5 by codifying exemptive
relief issued in the context of crossborder tender offers.218 Rule 14e–5
safeguards the interests of persons who
sell their securities in response to a
tender offer. As we noted in 1999, the
rule protects investors by preventing an
offeror from extending greater or
different consideration to some security
holders by offering to purchase their
shares outside the offer, while other
security holders are limited to the offer’s
terms.219 The rule prohibits the
disparate treatment of security holders,
prevents the avoidance of proration
requirements, and guards against the
dangers posed by a bidder’s purchases
outside an offer that may involve fraud,
deception and manipulation.220
Specifically, Rule 14e–5 prohibits
purchasing or arranging to purchase any
subject securities or any related
securities except as part of the tender
218 See
footnotes 231 through 233 below.
Adopting Release [64 FR 61382
at 61387].
220 Regulation of Takeovers and Security Holder
Communications, Release No. 34–40633 (November
3, 1998) [63 FR 67331 at 67359].
219 Cross-Border
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offer.221 The rule’s prohibitions apply
from the time of public announcement
of the tender offer until the offer
expires.222 The rule applies to ‘‘covered
persons’’ 223 as that term is defined in
the rule. Covered persons include the
offeror and its affiliates,224 the offeror’s
dealer-manager and its affiliates,225 any
advisor to the offeror and its affiliates or
the offeror’s dealer-manager and its
affiliates whose compensation is
dependent on the completion of the
offer,226 as well as any person acting,
directly or indirectly, in concert with
the abovementioned persons in
connection with any purchase or
arrangement to purchase any subject
securities or any related securities.227
In the Cross-Border Adopting Release,
we adopted an exception to allow
purchases or arrangements to purchase
made outside of, but during, Tier I
tender offers.228 As limited to Tier I
tender offers, the exception extends
only to tender offers for the securities of
foreign private issuers ‘‘where U.S.
persons hold of record ten percent or
less of the class of securities sought in
the offer.’’ 229 We determined to
‘‘continue to review requests for relief
from Rule 14e–5 for offers other than
Tier I eligible offers on a case-by-case
basis.’’230 Since that time, we have
received numerous requests for relief to
allow purchases outside of tender offers
conducted under the Tier II exemptions.
Over the past several years in the
cross border context, frequent
exemptions from Rule 14e–5’s
prohibition have been granted for Tier II
tender offers in three recurring areas:
Purchases and arrangements to purchase
securities of a foreign private issuer (1)
pursuant to the non-U.S. tender offer for
a cross-border tender offer where there
are separate U.S. and non-U.S. offers; 231
(2) by offerors and their affiliates
outside of a tender offer; 232 and (3) by
221 ‘‘Subject
securities’’ means the securities or
class of securities that are sought to be acquired in
the transaction or that are otherwise the subject of
the transaction. 17 CFR 229.1000(g). ‘‘Related
securities’’ means securities that are immediately
convertible into, exchangeable for, or exercisable for
subject securities. See Exchange Act Rule 14e–
5(c)(6).
222 Exchange Act Rule 14e–5(a).
223 Exchange Act Rule 14e–5(c)(3).
224 Exchange Act Rule 14e–5(c)(3)(i).
225 Exchange Act Rule 14e–5(c)(3)(ii).
226 Exchange Act Rule 14e–5(c)(3)(iii).
227 Exchange Act Rule 14e–5(c)(3)(iv).
228 Exchange Act Rule 14e–5(b)(10).
229 Cross-Border Adopting Release [64 FR 61382
at 61388].
230 Id.
231 See, e.g., Mittal (providing class relief for
similarly situated parties, under the conditions
specified).
232 See, e.g., Cash Tender Offer by Sulzer AG for
the Ordinary Shares of Bodycote International plc
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26897
financial advisor’s affiliates outside of a
tender offer.233 In 2006 and 2007, three
class exemptive letters were issued in
these areas.234 The rule changes we
propose today are intended to codify
this exemptive relief.
As discussed above, a Tier II tender
offer for a foreign target company may
be structured as two concurrent but
separate tender offers: One made to U.S.
security holders and another made to
target security holders outside the
U.S.235 If purchases pursuant to the
foreign offer are made during the Rule
14e–5 prohibited period,236 those
purchases would run afoul of the rule
because they technically constitute
purchases outside the U.S. tender offer.
Exemptive relief has been commonly
provided in connection with Tier II
offers to allow purchases or
arrangements to purchase in the foreign
offer where there are safeguards to
protect the interests of U.S. tendering
security holders. This relief facilitates
cross-border tender offers and
encourages the inclusion of U.S.
security holders in such offers. We
propose to change Rule 14e–5 to codify
that relief today, to allow purchases or
arrangements to purchase the subject
securities pursuant to a foreign offer (or
multiple foreign offers) 237 and during a
U.S. tender offer.
Proposed Rule 14e–5(b)(11) would
permit purchases or arrangements to
purchase pursuant to a foreign tender
offer (or in more than one foreign offer)
during the Rule 14e–5 prohibited period
if certain conditions are satisfied. This
proposed exception would permit
purchases in a foreign offer or offers
made concurrently or substantially
concurrently with a U.S. offer under
Rule 14d–1(d)(2)(ii). The tender offer
must qualify as a Tier II tender offer
under Rule 14d–1(d).238 Thus, the
(March 2, 2007) (’’Sulzer’’) (providing class relief to
similarly situated parties, under the conditions
specified).
233 See, e.g., Rule 14e–5 Relief for Certain Trading
Activities of Financial Advisors (April 4, 2007)
(’’Financial Advisors’’) (providing class relief for
similarly situated parties, under the conditions
specified).
234 See notes 231 through 233 above. As noted
there, the class exemptive letters indicate that they
may be relied upon by all similarly-situated parties.
235 Exchange Act Rule 14d–1(d)(2)(ii).
236 The Rule 14e–5 prohibited period is the
period of time from public announcement of the
tender offer until expiration.
237 As discussed above, we propose to allow
bidders eligible to rely on the Tier II exemption to
separate their offer into a U.S. offer and multiple
non-U.S. offers. We also propose to extend relief
from Exchange Act Rule 14e–5 for purchases in
more than one non-U.S. offer during the term of the
U.S. offer.
238 Consistent with Mittal, the proposed
exception is limited to tender offers that qualify as
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subject company must be a foreign
private issuer.
The proposed exception is
conditioned on the existence of certain
safeguards to help protect U.S. security
holders. These conditions address the
economic terms, consideration, and
procedural terms of the tender offer. The
conditions require that U.S. security
holders are treated at least as favorably
as non-U.S. tendering security holders.
The proposal also permits any cash
consideration to be paid to U.S. security
holders to be converted from the
currency paid in the foreign offer to U.S.
dollars at the exchange rate disclosed in
the U.S. offering documents. In
addition, the conditions require
transparency regarding the offeror’s
intent to make purchases pursuant to a
foreign offer in the U.S. offering
documents. As the activity that the
proposed exception covers is quite
narrow, the exception is limited to
purchases in foreign tender offers and
does not apply to open market
transactions, private transactions, or
other transactions outside the tender
offer.
The second and third recurring relief
requests under Rule 14e–5 for crossborder tender offers concern purchases
and arrangements to purchase by an
offeror and its affiliates, as well as by a
financial advisor’s affiliates.239 Some
cross-border tender offers are structured
as a single global offer made in the U.S.
and other jurisdictions. Purchases and
arrangements to purchase the subject
securities outside the tender offer,
including open market purchases and
privately negotiated purchases, very
often are permitted under foreign law.
The staff has granted relief to allow
purchases outside a tender offer when
this activity is permissible under the
laws of the target’s foreign home
jurisdiction if certain conditions
designed to promote the fair treatment
of tendering security holders are met.
We propose to change Rule 14e–5 to
codify that relief.240
Tier II tender offers under Rule 14d–1(d). Tender
offers that do not qualify as Tier II tender offers,
such as issuer tender offers, would not meet the
requirements of this proposed exception.
239 An affiliate of a financial advisor includes a
separately identifiable department of the financial
advisor.
240 The proposed Rule 14e–5(b)(12) exception
does not impose any additional conditions to those
provided in the Sulzer and Financial Advisors
letters. However, some conditions from those letters
are not incorporated into the proposal in an effort
to streamline the rule text in a manner that would
not compromise the fair treatment of security
holders. For example, condition number ten in the
Financial Advisors letter concerns voluntary
compliance with the United Kingdom’s City Code
and condition numbers three and five in Sulzer
concerns compliance with the laws of the target’s
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Proposed Rule 14e–5(b)(12) would
permit purchases or arrangements to
purchase outside of a Tier II tender offer
by (i) an offeror and its affiliates; and (ii)
an affiliate of a financial advisor if
certain conditions are satisfied. This
rule revision is intended to address
situations where the subject company is
a non-U.S. company, the majority of
whose shareholders reside outside the
U.S. Thus, the subject company must be
a foreign private issuer, and the covered
person must reasonably expect that the
tender offer qualifies as Tier II.241 The
proposal prohibits any purchases or
arrangements to purchase in the U.S.
otherwise than pursuant to the tender
offer. Further, it contains conditions to
enhance the transparency of the
excepted activity. For example, the
proposal would require that the U.S.
offering materials prominently disclose
the possibility of or the intention to
make purchases or arrangements to
purchase outside the tender offer. The
proposal also would require disclosure
in the U.S. of purchases made outside
the tender offer to the extent that such
information is made public in the home
jurisdiction.
Where an offeror or its affiliate
purchases or arranges to purchase
outside of a tender offer, the proposed
exception would impose one additional
condition regarding consideration. In
order to safeguard against the disparate
treatment of security holders, the
proposed exception would require that
the tender offer price be raised to equal
any higher price paid outside of the
tender offer.
Where an affiliate of a financial
advisor purchases or arranges to
purchase outside of a tender offer, our
proposed exception would impose
additional conditions. In order to
prevent the flow of information that
may result in a violation of U.S.
securities laws, these conditions relate
to information barriers and common
officers or employees. Specifically, the
proposal would require that the
financial advisor and affiliate maintain
and enforce written policies and
procedures designed to prevent the flow
of information among the financial
advisor and the affiliate that might
result in a violation of the federal
securities laws and regulations. It also
would require that the affiliate have no
officers (or persons performing similar
functions) or employees (other than
home jurisdiction and bilateral or multilateral
memorandum of understanding are not included in
the proposal.
241 We would modify the reasonable expectation
condition if the proposal to change the timing of the
Tier II calculation to a date no earlier than 60 days
before the tender offer announcement is adopted.
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clerical, ministerial, or support
personnel) in common with the
financial advisor that directly effect or
recommend transactions in the subject
securities or related securities who also
will be involved in providing the offeror
or subject company with financial
advisory services or dealer-manager
services. The proposed exception also
would require that the financial advisor
have a registered broker-dealer affiliate
under Section 15(a) of the Exchange
Act.242 As the exception is premised on
the affiliate of the financial advisor
carrying out its normal business activity
when purchasing outside a tender offer,
it would not permit purchases or
arrangements to purchase to be made to
facilitate the tender offer. Accordingly,
purchasing activity effected in reliance
on the proposed exception should be
consistent with the affiliate’s prior
levels of activity. We note that risk
arbitrage is excluded from the exception
applicable to the financial advisor’s
affiliate.243 Risk arbitrage is so closely
related to the tender offer that the
incentive for abusive behavior is
significant. Finally, we propose to add
definitions of subject company244 and
home jurisdiction245 to Rule 14e–5,
consistent with existing definitions.
Request for Comment
• We solicit comment on all aspects
of the proposed exceptions, including
each of the enumerated conditions.
• We solicit specific comments on
each of the conditions in the Rule 14e–
5(b)(11) proposal concerning Tier II
status, economic terms, consideration,
currency conversion, procedural terms,
disclosure and purchases being made
solely pursuant to the foreign tender
offer.
• We solicit specific comments on
each of the conditions in the Rule 14e–
5(b)(12) proposal concerning foreign
private issuer and Tier II status, no
purchases or arrangements to purchase
in the U.S. other than pursuant to the
tender offer, and disclosure. We also
solicit comment on the price matching
condition applicable to the offeror and
its affiliates, as well as each of the
additional conditions applicable to a
financial advisor’s affiliate, including
the financial advisor having an affiliate
that is registered as a broker or dealer
242 15
U.S.C. 78o.
arbitrage may involve the purchase of the
subject security and the sale of stock in the
proposed acquirer. See Financial Advisors and the
attached request dated April 3, 2007 regarding
Blanket Exemptive Relief Request under Rule 14e–
5 excepting risk arbitrage from the list of trading
activities at page 3.
244 17 CFR 229.1000.
245 Exchange Act Rule 14d–1.
243 Risk
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under Section 15(a) of the Exchange
Act.
• Are there additional means besides
analyzing prior purchasing activity by
the financial advisor’s affiliate to assure
that routine trading activity outside the
tender offer is not conducted with the
intent to affect the tender offer?
• Are there additional conditions that
should be added to the proposed
exceptions to safeguard the interests of
persons who sell their securities in
response to a tender offer? In particular,
should conditions number ten from the
Financial Advisors letter 246 and
numbers three and five from the Sulzer
letter 247 be incorporated into the Rule
14e–5(b)(12) proposal?
• Are there other alternatives that
would better protect the interests of
security holders?
• We solicit comment on suggested
definitions of risk arbitrage.
• In addition to risk arbitrage, is there
any other purchasing activity that
should be excluded from the proposed
Rule 14e–5(b)(12) exception?
mstockstill on PROD1PC66 with PROPOSALS2
D. Expanded Availability of Early
Commencement for Exchange Offers
In 1999, we adopted rule revisions
intended to minimize the regulatory
disparity between cash and stock tender
offers.248 Before those changes,
exchange offers in which the bidder
offered its shares as part or all of the
offer consideration were at a
disadvantage compared to cash offers
because of the regulatory review process
associated with the filing of a Securities
Act registration statement.249 Cash
246 Condition number ten states: ‘‘The Financial
Advisor, through its Affiliates and Departments,
conduct the Trading Activities voluntarily in
compliance with the pertinent provisions of the
United Kingdom’s City Code on Takeovers and
mergers and Rules Governing Substantial
Acquisitions of Shares (the ‘‘City Code’’), and the
Affiliates and Departments conduct themselves as
if they were connected exempt principal traders as
defined in the City Code, including complying with
regulations with respect to the establishment and
maintenance of information barriers, conflict of
interest provisions and other requirements, other
than with respect to the notification of relevant
trades to the Panel * * *’’. Financial Advisors at p.
3.
247 Condition number three states: ‘‘The
Prospective Purchasers comply with the applicable
laws and regulations of the ‘home jurisdiction’ as
defined in Rule 14d–1.’’ Sulzer at p. 2. Condition
number five states: ‘‘The Commission and the home
jurisdiction are parties to a bilateral or multilateral
memorandum of understanding (MOU) as to the
consultation and cooperation in the administration
and enforcement of securities laws.’’ Sulzer at p. 3.
248 See Regulation M–A Adopting Release,
Section II.3.A.
249 See Regulation M–A Proposing Release,
Section I. (‘‘In some cases, where the staff
undertakes to review and comment during the
waiting period, the delay of effectiveness can be
quite lengthy. This delay is particularly
troublesome for bidders in exchange offers. In
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tender offers could commence on the
date of the filing of a tender offer
statement with the Commission. Before
the 1999 rule revisions, exchange offers,
by contrast, could not begin until the
staff completed its review of the
registration statement filed by the
bidder and it had been declared
effective. This disparity was of
particular concern in the tender offer
context, where multiple bidders may
make contemporaneous offers for the
same target company through competing
offers.
To address this disparity in the
regulatory process for cash tender offers
and exchange offers, we adopted rule
changes permitting exchange offers to
commence upon the date of the filing of
a registration statement under specified
conditions.250 However, bidders
exercising the option to ‘‘early
commence’’ an exchange offer may not
terminate that offer and purchase
tendered shares until the registration
statement has been declared effective by
the Commission.251 We recognized in
proposing the early commencement
option that a regulatory disparity in the
treatment of cash and stock tender offers
could continue to exist because the staff
review process might delay the
effectiveness of the registration
statement in an exchange offer and thus
could delay the bidder’s ability to close
the exchange offer.252 In adopting the
early commencement option, however,
the staff undertook to expedite the
review of such exchange offers so that
they could compete on an equal footing
with cash tender offers.253 We believe
the staff generally has been successful in
meeting this commitment.
Since we made early commencement
available, we have recognized that a
regulatory disparity continues to exist
because the early commencement
option is not available for exchange
offers that are not subject to Rule 13e–
4 or Regulation 14D.254 In certain
contrast, cash offers, which may compete with
exchange offers, can commence as soon as the
required information is filed with the Commission
and disseminated to security holders. The delay in
commencing an exchange offer can place the bidder
at risk that a competing all-cash bid will commence
and close before the exchange offer can even
commence.’’).
250 See Regulation M–A Adopting Release,
Section II.E.1.
251 See Securities Act Rule 162(a) [17 CFR
230.162(a)].
252 See Regulation M–A Proposing Release,
Section II.A.3.A.
253 See Regulation M–A Adopting Release,
Section II.E.1.
254 Securities Act Rule 162(a) provides an
exemption from the registration requirements of
Section 5(a) of the Securities Act only for exchange
offers subject to Rule 13e–4(e) or 14d–4(b). Since
those rules apply only to tender offers for target
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26899
foreign jurisdictions, the staff has been
advised that applicable non-U.S. tender
offer rules provide that, where a bidder
makes a tender offer for one class of
target securities, it also must make an
offer or offers for any other class or
classes of securities issued by the same
target and convertible into the subject
securities. Because these offers are made
contemporaneously and through a
single offer document, if one class of
target securities is not subject to Rule
13e–4(e) or Rule 14d–4(b), the bidder
effectively loses the ability to commence
early under our existing rules. This may
create an undue burden for bidders,
where the offer for each class of target
securities is made in accordance with
the requirements of Regulation 14D or
Rule 13e–4, as modified by the Tier II
cross-border exemptions.
We believe that all exchange offers
eligible for the Tier II cross-border
exemptions should be able to take
advantage of the early commencement
procedure, regardless of whether the
exchange offer is subject to the
provisions of Regulation 14E only,
where the offeror voluntarily provides
protections required in an offer subject
to Rule 13e–4 or Regulation 14D. Since
its adoption, the early commencement
procedure has worked well in
facilitating exchange offers and we
believe extending the procedure to all
Tier II offers would be appropriate.
Under the expanded rules we propose
today, bidders for foreign securities that
are not registered under the Exchange
Act would be able to take advantage of
the early commencement option, subject
to the conditions discussed below.
Today we propose to expand the
availability of early commencement for
cross-border exchange offers not subject
to Rule 13e–4 or Regulation 14D under
the conditions outlined in our proposed
rules. 255 A new provision in the Tier II
exemptions would permit early
commencement, where the exchange
offer meets the conditions of the
exemptions. We also propose a
corresponding change to Securities Act
Rule 162 to extend the exemption from
Section 5(a) in that rule for exchange
offers not subject to Rule 13e–4 or
Regulation 14D that otherwise meet the
conditions for the Tier II exemptions.
Initially, the Commission did not
make this option available because we
were concerned that such offers were
securities registered under Section 12 of the
Exchange Act and in limited other circumstances,
early commencement is not currently available for
all exchange offers. See footnote 109 above for a
discussion of when Exchange Act Rule 13e–4 and
Regulation 14D apply.
255 Proposed Exchange Act Rules 13e–4(i)(2)(vi)
and 14d–1(d)(2)(x).
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not subject to all of the disclosure and
procedural protections applicable to
registered offers.256 In particular, the
absence of the requirement to provide
withdrawal rights in offerings for
unregistered classes of securities caused
us to retain the requirement that a
bidder could not commence such offers
before the registration statement filed to
register the share issuance had been
declared effective by the
Commission.257 The proposed rules
would address these concerns by
permitting early commencement for
exchange offers for unregistered
securities only where the bidder
provides withdrawal rights in the offer
to the same extent as would be required
under Regulation 14D or Rule 13e–4.258
In addition, the proposed rule would
require the same minimum time periods
after the occurrence of specified changes
as are required for other ‘‘early
commencement’’ offers.259
Request for Comment
mstockstill on PROD1PC66 with PROPOSALS2
• Should the expanded eligibility to
commence early be limited, as
proposed, to cross-border exchange
offers eligible to rely on the Tier II
exemptions only?
• Should the expanded eligibility be
conditioned on the bidder providing
withdrawal rights and keeping the offer
open for certain minimum time periods
after information about material changes
is disseminated to security holders, as
proposed? Are there any other
procedural protections applicable to
offers subject to Regulation 14D or Rule
13e–4 besides withdrawal rights that
should be required in an early
commencement offer not subject to
Regulation 14D or Rule 13e–4?
• Should the early commencement
option be made available for all
exchange offers, including those for
domestic target companies not within
the scope of current Rule 162? For
example, would this be useful in the
case of tender offers for debt securities,
256 See Section I.E. Question 4 in the Third
Supplement to the Division of Corporation Finance
Manual of Publicly Available Telephone
Interpretations (July 2001), at https://www.sec.gov/
interps/telephone/phonesupplement3.htm (noting
that the early commencement option is not
available for debt restructurings under existing
rules, because Regulation 14D and Rule 13e–4
apply to tenders for equity securities only).
257 Securities Act Rule 162(a) states that an
exchange offer subject to Exchange Act Rule 13e–
4(e) or 14d–4(b) may commence upon the filing of
a registration statement ‘‘so long as no securities are
purchased until the registration statement has been
declared effective and the tender offer has expired
in accordance with the tender offer rules.’’
258 Proposed Exchange Act Rules 13e–4(i)(2)(vi)
and 14d–1(d)(2)(x).
259 Proposed Securities Act Rule 162(a).
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which are not covered by Regulation
14D or Rule 13e–4?
• Are there certain types of exchange
offers for which early commencement
should not be permitted, whether in the
cross-border context or otherwise? For
example, should transactions in which
an issuer privately places securities and,
shortly thereafter, conducts an exchange
offer to exchange them for registered
securities 260 be permitted to commence
early, where such offers are not subject
to Rule 13e–4?
• What have been bidders’
experiences with the usefulness of the
early commencement option in our
current rules, in light of the staff review
and comment process?
E. Proposed Changes to Schedules and
Forms
1. Form CB
When an offeror or issuer relies on the
Tier I cross-border exemptions in
connection with a cross-border business
combination transaction or rights
offering, it may be required to furnish to
the Commission an English translation
of the offer materials, submitted under
cover of Form CB. 261 When we adopted
Form CB in 1999, we specified that the
form could be submitted in paper form
only. In 2002, however, the Commission
adopted rule changes mandating
electronic filing for persons already
reporting under Section 13(a) 262 or
15(d) 263 of the Exchange Act.264 If the
person furnishing the Form CB is not an
Exchange Act reporting entity, it may
currently submit the Form CB in paper
or via the Commission’s Electronic Data
Gathering, Analysis, and Retrieval
system, or EDGAR.265
As a result of advances in technology
and its widespread use, we believe it
would be appropriate to require all
Form CBs to be filed electronically via
our EDGAR system. We therefore
260 See the no-action letter issued to Exxon
Capital Holdings Corp. (April 1988). These offers
are commonly known as ‘‘Exxon Capital exchange
offers.’’
261 Exchange Act Rules 14d–1(c)(3)(iii) and 13e–
4(h)(8)(iii). Form CB must be furnished to the
Commission by the first business day after
publication or dissemination of the attached
disclosure document in the applicable foreign
jurisdiction(s). See Securities Act Rules 801(a)(4)(i)
and 802(a)(4)(i), and Exchange Act Rules 13e–
4(h)(8)(iii) and 14d–1(c)(3)(iii). The obligation to
furnish a Form CB arises only when the bidder in
a tender offer otherwise would have been required
to file a Schedule TO or a registration statement for
an exchange offer; thus, no Form CB is required for
cash tender offers subject only to Regulation 14E.
262 15 U.S.C. 78m.
263 15 U.S.C. 78o(d).
264 See Rule 101(a)(1)(vi) of Regulation S–T [17
CFR 232.101(a)(1)(vi)].
265 See Rule 101(b)(7) of Regulation S–T [17 CFR
232.101(b)(7)].
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propose to amend Item 101(a) of
Regulation S–T to require that all Form
CBs be submitted electronically.266 For
the same reasons, we also propose to
require the electronic filing of the form
for appointment of an agent in the
United States for service of process,
which must be filed by all foreign
companies that furnish a Form CB to the
Commission.267 For purposes of the
current cross-border exemptions, our
rules require Form F–X 268 to be filed
electronically only when the Form CB
must be so filed, i.e., when the foreign
company filing it is already subject to
the reporting requirements of Section 13
or Section 15(d) of the Exchange Act.269
We note that, in order to file
electronically, an offeror or issuer that is
not already doing so would need to
obtain filing codes required to file on
EDGAR. An offeror or issuer that does
not already have EDGAR filing codes,
and to which the Commission has not
previously assigned a user identification
number, which we call a ‘‘Central Index
Key (CIK)’’ code, would obtain the
codes by filing electronically a Form
ID 270 at https://www/
filermanagement.edgarfiling.sec.gov and
filing, in paper by fax within two
business days before or after filing the
Form ID, a notarized authenticating
document. The authenticating
document would need to be manually
signed by the applicant over the
applicant’s typed signature, include the
information contained in the Form ID,
and confirm the authenticity of the
Form ID.271 If the authenticating
document is filed after electronically
filing the Form ID, it would need to
include the accession number assigned
to the electronically filed Form ID as a
result of its filing.272
Electronic filing in all cases would
benefit investors by enabling them to
more easily access these forms through
the Commission’s website. If adopted,
this requirement would have no impact
266 See
proposed Rule 101(a)(1)(vi) of Regulation
S–T.
267 See
proposed Rule 101(a)(1)(vii) of Regulation
S–T.
268 Form F–X is a form for appointing an agent
in the United States for service of process. It must
be filed by foreign filers only.
269 See Rules 101(a)(vii) and 101(b)(8)(i) of
Regulation S–T.
270 17 CFR 239.63, 249.446, 269.7 and 274.402.
271 An offeror or issuer could confirm the
authenticity of a Form ID by, for example, stating
that ‘‘[name of offeror or issuer] hereby confirms the
authenticity of the Form ID [filed] [to be filed] on
[specify date] containing the information contained
in this document.’’
272 17 CFR 232.10(b). An ‘‘accession number’’ is
a unique number generated by EDGAR for each
electronic submission. Assignment of an accession
number does not mean that EDGAR has accepted
a submission.
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on the liability of the persons furnishing
their offer materials under cover of
Form CB.273 Additionally, it would not
change the circumstances under which
a Form CB or Form F–X must be filed.
We are not currently proposing, but
we solicit comment on, whether we
should change the cover page of the
Form CB to make it easier for the staff
to monitor the application of the crossborder exemptions. We could amend the
cover page of the Form CB to include a
space where persons furnishing the
form would specify the U.S. ownership
interest in the foreign target company or
in the issuer for rights offerings
supporting reliance on the exemptions.
This would help us monitor the
application and effectiveness of the
cross-border exemptions. This
information already would be available
to the person furnishing the Form CB,
since it is required for the Tier I
calculation.274
Request for Comment
• Should we require all Form CBs to
be furnished to the Commission in
electronic form via our EDGAR system,
as proposed? Would this requirement
present a hardship for non-reporting
entities submitting the form? For
example, would the process for
procuring a notarized authenticating
document in a foreign jurisdiction for
purposes of obtaining a Form ID present
a hardship for non-reporting entities?
• If we change our rules to require the
electronic submission of all Form CBs,
should we adopt the same requirements
for electronic filing of Form F–Xs, as
proposed, when required to be
submitted with the Form CB?
• Are there reasons why electronic
filing would not be desirable?
• Should we require the filing person
to fill in a box on the cover page of the
Form CB specifying the level of U.S.
ownership of the target or issuer that
permits reliance on the cross-border
exemptions?
mstockstill on PROD1PC66 with PROPOSALS2
2. Proposed Changes to Schedule TO,
Form F–4 and Form S–4
We also propose to add a box on the
cover page of the Schedule TO and
Forms F–4 and S–4 that a filing person
would be required to check to indicate
reliance on one of the applicable crossborder exemptions.275 This would be
273 We note that persons furnishing Form CB are
not subject to Section 18 liability with respect to the
information provided.
274 For bidders relying on the hostile presumption
available for non-negotiated transactions, the Form
CB would list the percentage of U.S. ownership of
the target yielded by the ADTV calculation, unless
the bidder had reason to know a different level of
U.S ownership.
275 Existing Form CB contains such a box.
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helpful to the staff as well as to filing
persons. For example, the inclusion of
this information on the cover page of a
tender offer statement or registration
statement, filed in connection with a
cross-border transaction in which the
filer is seeking to rely on an applicable
cross-border exemption, would enable
the staff to perform the review process
more efficiently. The availability of this
information would eliminate staff
comments that are based on
misperceptions about which exemption
the filer is seeking and which U.S. rules
apply to the transaction, thereby
reducing the time and cost involved for
the filer in responding to staff
comments. Currently, there is often no
way to tell from reading the tender offer
materials whether filers are relying on
the cross-border exemptions.
We also solicit comment on whether
we should include a space or box on the
cover page of these schedules and forms
requiring the filer to specify the U.S.
ownership percentage that permits
reliance on the exemption claimed. We
do not propose this change today, but
we believe it could be helpful in certain
circumstances and are interested in
commenters’ views on whether this
would present an undue burden or
liability risk for filers. If we were to
require this, it would be required only
if one or more of the cross-border
exemptions is being relied upon. As
with Form CB, filers already would
possess this information in determining
eligibility to rely on the applicable
cross-border exemption.
Request for Comment
• Would the proposed requirement to
check a box identifying the cross-border
exemption relied upon be a burden for
filers? Would the information be useful
to the public?
• Should we also add a box or blank
space on the cover page of Schedule TO
and Forms S–4 and F–4 where filers
would list the percentage of the target
securities held by U.S. persons that
permits reliance on the applicable crossborder exemption? Would this
requirement represent an undue
hardship or liability for filers?
• Would investors or others find this
information useful in connection with
their consideration of the transaction?
F. Beneficial Ownership Reporting by
Foreign Institutions
1. Background
The beneficial ownership reporting
requirements in Sections 13(d) 276 and
276 15
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26901
13(g) 277 of the Exchange Act 278 and the
corresponding regulations 279 provide
investors and the issuer with
information about accumulations of
securities that may have the potential to
change or influence control of the
issuer. This statutory and regulatory
framework establishes a comprehensive
reporting system for gathering and
disseminating information about the
ownership of equity securities.
The beneficial ownership reporting
provisions require, subject to
exceptions, that any person who
acquires more than five percent of a
class of equity securities registered
under Section 12 of the Exchange
Act 280 and other specified equity
securities report the acquisition on
Schedule 13D within ten days. Persons
holding more than five percent of a class
of such securities at the end of the
calendar year, but not required to report
on Schedule 13D, must file a short-form
Schedule 13G within 45 days after
December 31. These Schedule 13G filers
include persons exempt from the
requirements of Section 13(d),281 as well
as specified institutional investors
holding securities in the ordinary course
of business and not with a control
purpose.282 As specified in Rule 13d–
1(b)(1)(ii), the types of institutional
investors that may file on Schedule 13G
under that rule include a broker or
dealer registered under Section 15(a) of
the Exchange Act,283 a bank as defined
in Section 3(a)(6) of the Exchange
Act,284 an insurance company as
defined in Section 3(a)(9) of the
Exchange Act,285 an investment
company registered under Section 8 of
the Investment Company Act of 1940,286
an investment adviser registered under
Section 203 of the Investment Advisers
Act of 1940,287 an employee benefit
plan or pension fund that is subject to
the provisions of the Employee
Retirement Income Security Act,288 and
related holding companies and groups.
The list of institutional investors in Rule
13d–1(b)(1)(ii) currently does not
include non-domestic institutions
generally, and is limited to institutions
277 15
U.S.C. 78m(g).
U.S.C. 78a et seq.
279 Regulation 13D–G, Exchange Act Rule 13d–1
et seq. [17 CFR 240.13d–1 et seq.].
280 15 U.S.C. 78l.
281 This category consists of persons filing on
Schedule 13G because their acquisitions are
statutorily or administratively exempt from
reporting on Schedule 13D.
282 Exchange Act Rule 13d–1(b)(1)(ii).
283 15 U.S.C. 78o(b).
284 15 U.S.C. 78c(a)(6).
285 15 U.S.C. 78c(a)(9).
286 15 U.S.C. 80a–8.
287 15 U.S.C. 80b–1 et seq.
288 Codified principally in 29 U.S.C. 1001–1461.
278 15
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such as brokers, dealers, investment
advisers and investment companies
registered with the Commission, or
regulated banks, pension funds or
insurance companies.
In 1977, we proposed an amendment
to the precursor to Rule 13d–
1(b)(1)(ii) 289 which would have allowed
non-domestic entities similar to
domestic brokers, dealers, banks,
investment companies, investment
advisers, employee benefit plans, and
parents and groups of these persons to
use the short form Schedule 13G to
report beneficial ownership, provided
that such persons agreed to make
available to the Commission the same
information they would be required to
furnish in responding to the disclosure
requirements of Schedule 13D.290 When
we adopted final rules in 1978,
however, we declined to amend the rule
to allow foreign entities, who otherwise
qualified, to use the short form available
to U.S. institutions.291
The 1978 adopting release indicated
that applications for exemptive orders
by foreign entities would be entertained
to enable them to report on Schedule
13G. The release discussed several
conditions to the availability of such
exemptive orders, and stated that the
Commission would entertain
applications when the acquisitions are
in the ordinary course of business and
not with the purpose nor with the effect
of changing or influencing control of the
issuer, nor in connection with or as a
participant in any transaction having
such purpose or effect. It stated that the
Commission may consider any further
conditions that may be appropriate
when granting exemptive orders.
Historically, use of the Schedule 13G
by foreign institutions filing as qualified
institutions under Rule 13d–1(b)(i)(ii)
has been limited to institutions that
have obtained an exemptive order from
the Commission 292 or, under the
current practice, a no-action position
from the Division of Corporation
Finance based upon the requester’s
undertaking to grant the Commission or
the staff access to information that
would otherwise be disclosed in a
Schedule 13D and the comparability of
289 Exchange Act Rule 13d–5 was the precursor to
Exchange Act Rule 13d–1(b).
290 See Beneficial Ownership Disclosure
Requirements, Release No. 34–13292 (February 24,
1977) [42 FR 44964].
291 The release stated that we determined not to
adopt the amendment ‘‘in view of the substantial
enforcement difficulties encountered in seeking to
assure compliance by foreign persons with the
provisions of Section 13(d).’’ See Filing and
Disclosure Requirements Relating to Beneficial
Ownership, Release No. 34–14692 (April 21, 1978)
[43 FR 18484].
292 Id.
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the foreign regulatory scheme applicable
to the particular category of institutional
investor.293 In connection with the
amendments to the beneficial
ownership reporting requirements
proposed in 1996, we noted that we
‘‘believe[d] that a non-U.S. institution
seeking relief to file pursuant to Rule
13d–1(b)(1) should be subject to a
regulatory scheme in its country
comparable to the U.S. regulatory
scheme for the particular category of
institution and that such institutions
should undertake to grant the
Commission access to information that
would otherwise be disclosed on
Schedule 13D.’’ 294 We stated that no
change to the practice of issuing
exemptive orders or staff no-action
positions was proposed.295 We
requested comment regarding whether
the rules should be amended to
expressly allow foreign institutional
investors that are the functional
equivalent of our domestic institutions
to file on Schedule 13G.296
When we adopted amendments to the
beneficial ownership reporting rules in
1998, we stated that we were not
expanding the list of qualified
institutional investors in Rule 13d–
1(b)(1)(ii) to include foreign
institutions.297 Further, we stated that
the use of Schedule 13G pursuant to the
provisions of Rule 13d–1(b)(1) would
continue to be limited to institutions
such as brokers, dealers, investment
companies, and investment advisers
registered with the Commission, or
regulated banks, pension funds, or
insurance companies, and its
availability would not be extended to
foreign institutions generally.298 The
adopting release noted that foreign
293 See, e.g., Canada Pension Plan Investment
Board (May 5, 2006) (granting relief for the Canada
Pension Plan (CPP) Investment Board to file on
Schedule 13G where the Board represented that the
Canadian Pension Plan was the functional
equivalent of a U.S. private pension fund and the
regulatory regime governing the CPP Investment
Board was substantially similar to the regulations
applicable to U.S. pension funds under the
Employee Retirement Income Security Act of 1974)
and Citigroup Inc. (May 27, 2004) (granting relief for
certain qualifying subsidiaries of Citigroup
organized under the laws of England and Wales; the
subsidiaries conducted investment banking
business, including market-making, through trading
in their own accounts and for their customers and
represented that they were subject to regulation in
the United Kingdom that was comparable to U.S.
regulations).
294 See Amendments to Beneficial Ownership
Reporting Requirements, Release No. 34–37403
(July 3, 1996) [61 FR 36521] (the ‘‘Reproposing
Release’’).
295 Id.
296 Id.
297 See Amendments to Beneficial Ownership
Reporting Requirements, Release No. 34–39538
(January 12, 1998) [63 FR 2854].
298 Id.
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institutional investors that do not have
a disqualifying purpose or effect would
be able to rely on the passive investor
provisions of Rule 13d–1(c) to file a
Schedule 13G.299 To the extent that any
foreign institutional investor sought to
report on Schedule 13G as a qualified
institutional investor, the institution
would be required to obtain an
exemptive order or no-action position.
We continue to receive and grant
requests from foreign institutions
seeking to file on Schedule 13G as
qualified institutional investors.300
2. Proposed Rules
The past ten years have brought
tremendous change to our capital
markets. As the capital markets become
increasingly global, we believe we need
to continually re-evaluate our regulatory
scheme to determine whether it is
efficiently and effectively protecting
investors and not imposing unnecessary
burdens. We recognize that the burden
imposed on foreign institutions that
must file a Schedule 13D (or obtain an
individual no-action letter) is more
extensive than the filing requirements
applicable to comparable U.S.
institutions that are able to report
beneficial ownership on Schedule 13G.
We also recognize that foreign
institutions filing as passive investors
pursuant to Rule 13d–1(c) are subject to
more stringent requirements than
institutions eligible to rely on Rule 13d–
1(b).301 We weigh these burdens against
299 The passive investor provision was adopted in
1998 to expand the class of investors eligible to file
on the short form Schedule 13G. See Release No.
34–39538. Under Exchange Act Rule 13d–1(c), a
passive investor choosing to file a Schedule 13G
must file within ten calendar days after acquiring
beneficial ownership and must certify that it does
not have a disqualifying purpose or effect. Qualified
institutional investors filing on Schedule 13G
pursuant to Exchange Act Rule 13d–1(b) must file
the form within 45 calendar days after the calendar
year end of the year in which, on the last day of
the year, its beneficial ownership of the subject
class exceeds 5 percent. Under the amendments we
propose today and discussed below, a foreign
institution would be permitted to file on Schedule
13G as a qualified institutional investor if it meets
the specified conditions.
300 See footnote 293 above.
301 Currently, a difference exists for passive
investors and qualified institutional investors in the
timing requirements for filing an initial Schedule
13G, as discussed above, and filing amendments to
Schedule 13G. Passive investors amend Schedule
13G in a manner similar to qualified institutional
investors, but more promptly. Another difference in
the filing requirements for passive investors and
qualified institutional investors is the applicable
certification. Finally, an investor beneficially
owning more than 20 percent of a class of securities
may not file as a passive investor. A qualified
institutional investor is not subject to the 20 percent
limit. These differences present a significant burden
for institutions that do a significant amount of
trading or engage in securities transactions on
behalf of clients. Allowing foreign institutions to
file as qualified institutional investors would
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mstockstill on PROD1PC66 with PROPOSALS2
the important safeguards that the
provisions of Rule 13d–1(b) provide. We
believe that it may be possible to extend
Schedule 13G filing eligibility pursuant
to Rule 13d–1(b) to foreign institutions,
while maintaining the protections of the
rule.302
Accordingly, we propose to amend
Rule 13d–1(b)(1)(ii) to include foreign
institutions that are substantially
comparable to the U.S. institutions
listed in subparagraphs (A)–(J) of the
current rule. In this regard, to be eligible
to file on Schedule 13G, the foreign
institution would be required to
determine,303 and certify on Schedule
13G, that it is subject to a regulatory
scheme comparable to the regulatory
scheme applicable to its U.S.
counterparts.304 Additionally, in its
reduce the filing burden for those foreign
institutions and decrease the disparities in the way
U.S. and foreign institutions are treated under the
rules.
302 We note that in 2004, the Commission adopted
a rule that remedied disparate treatment of
domestic and foreign banks. See Foreign Bank
Exemption from the Insider Lending Prohibition of
the Exchange Act Section 13(k), Release No. 34–
49616 (April 26, 2004) [69 FR 24016].
303 Similar to a domestic institution, a foreign
institution would need to determine whether it
qualified to use the short-form Schedule 13G at the
time it exceeded the beneficial ownership
threshold. This initial determination as to form
eligibility would require a foreign institution to
determine, at the time it exceeds the beneficial
ownership threshold, whether it is subject to a
foreign regulatory scheme applicable to the
particular category of institutional investor
comparable to the applicable U.S. regulatory
scheme. If the foreign institution made such a
determination, it would be eligible to file on
Schedule 13G as a qualified institutional investor,
as long as it could provide the certification required
by Schedule 13G. If at any time before filing a
Schedule 13G pursuant to proposed Rule 13d–
1(b)(1)(ii)(K) the foreign institution determined that
it was no longer able to rely on the provision, it
would be required to file a Schedule 13D in
accordance with the rules.
304 When determining whether the foreign
regulatory scheme is comparable to the U.S.
regulatory scheme, the foreign institution should
consider a number of factors, including whether the
institution is engaged in a business similar to the
business engaged in by the qualified institutional
investors listed in Rule 13d–1(b)(1)(ii), and whether
the institution affords protections similar to those
offered by domestic institutions (such as minimum
capital requirements, deposit guarantees, licensing
requirements, periodic reporting of information in
the home country, power of inspection by home
country regulators, etc.). See, e.g., Natixis S.A.,
´ ´
Banque Federale des Banqes Populaires and Caisse
National des Caisses d’Epargne (October 9, 2007)
(granting relief where the requestor and its
subsidiaries represented they were engaged in
businesses similar to those engaged in by one or
more qualified institutional investors listed in
Rule13d–1(b)(1)(ii) and that they were subject to
regulation in France that was substantially
comparable to the U.S. regulatory scheme) and DnB
NOR ASA and Qualifying Subsidiaries (January 9,
2008) (granting relief where DnB NOR and its
qualifying subsidiaries represented that they were
engaged in businesses similar to those engaged in
by one or more classes of persons identified in Rule
13d–1(b)(1)(ii) and that they were subject to
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certification on Schedule 13G, the
foreign institution would need to
undertake to furnish to the Commission
staff, upon request, the information it
otherwise would be required to provide
in a Schedule 13D. If these proposed
rule changes are adopted, Rule 13d–1(b)
would continue to be available only to
institutions that acquired and held the
equity securities in the ordinary course
of business and not with the purpose or
effect of influencing or changing control
of the issuer.305
Under Rule 13d–1(e), when a passive
investor or qualified institutional
investor determines that it holds subject
securities with a disqualifying purpose
or effect, it must file a Schedule 13D no
later than 10 calendar days after the
change in investment purpose.306
Therefore, in the event that an
institution—foreign or domestic—
determines that it holds subject
securities with a disqualifying purpose
or effect, it would be required to file a
Schedule 13D. In addition, the
institution would be subject to a
‘‘cooling-off period.’’ 307 During the
cooling-off period, the reporting person
is prohibited from voting or directing
the voting of the subject securities or
acquiring additional beneficial
ownership of any equity securities of
the issuer or any person controlling the
issuer. We believe the cooling-off period
provides an important safeguard for the
market and investors and allows them
time to react to the information in the
Schedule 13D filing.
As noted above, in the past we
expressed concern regarding possible
difficulties with enforcement in the
event that we sought additional
information from a foreign institution.
We believe that such difficulties are
mitigated by various factors. First, we
are proposing that any foreign
institution availing itself of Schedule
13G certify that it is subject to a
comparable regulatory scheme and that
it will provide Schedule 13D-type
information upon request. Second,
much of the additional Schedule 13Dtype information already may be
provided to the primary home country
regulator and may be publicly available
or available in the event of a formal
request.
extensive regulation in the jurisdictions in which
they operate analogous to U.S. regulations).
305 See Exchange Act Rule 13d–1(b).
306 Exchange Act Rule 13d–1(e).
307 We adopted the cooling-off period in 1998,
and it applies to both passive investors and
qualified institutional investors; therefore, it would
apply to a foreign institution filing under proposed
Exchange Act Rule 13d–1(b). The cooling-off period
begins with the change in investment purpose and
lasts until the expiration of the tenth calendar day
from the date the investor filed a Schedule 13D.
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26903
Request for Comment
• Would the proposed amendments
alleviate practical difficulties for foreign
beneficial owners without affecting the
quality of information available to U.S.
investors?
• Should a foreign institution be
required, as proposed, to certify on
Schedule 13G that it is subject to a
regulatory scheme comparable to the
U.S. regulatory scheme for the particular
category of institution?
Æ Would foreign institutions find it
difficult to certify that they are subject
to comparable regulation? How should
we alleviate any difficulty?
Æ Should the certification be different
or include any other information?
Should the certification language
include a statement that the foreign
institution is subject to comprehensive
supervision or regulation in its home
jurisdiction,308 rather than the language
we proposed? Why or why not?
• Should filing on Schedule 13G only
be available, as proposed, to non-U.S.
persons who undertake on Schedule
13G to furnish the staff with
information, at its request, that would
otherwise be disclosed in a Schedule
13D?
• Should a foreign institution that
seeks to use a Schedule 13G also be
required to file a Form F–X? Should the
Form F–X, like Schedule 13G, be
required to be filed electronically?
• Should a foreign institution that
intends to rely on proposed new Rule
13d–1(b)(1)(ii)(K) be required to file a
public notice of such intent? If such a
notice was required to be filed, when
should the notice be filed and should
the filer be required to make the
proposed certification at the time the
notice is filed?
• Should we also require foreign
institutions filing as passive investors
under Rule 13d–1(c) to file a Form F–
X?
• Should the use of Schedule 13G by
foreign institutions relying on the
proposed rule be limited to institutions
from jurisdictions that have a bilateral
enforcement memorandum of
understanding (MOU) with the SEC or
institutions that are signatories to the
IOSCO Multilateral Memorandum of
Understanding concerning consultation,
cooperation and the exchange of
information?
308 Similar language is used in Exchange Act Rule
13k–1, which provides an exemption for foreign
banks from the insider lending prohibition of
Section 13(k). The rule provides a definition of a
foreign bank and includes conditions that foreign
banks must meet, such as being required to insure
deposits or being subject to a deposit guarantee.
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G. Interpretive Guidance
1. Application of the All-Holders Rule
to Foreign Target Security Holders
mstockstill on PROD1PC66 with PROPOSALS2
Most of this release deals with crossborder business combination
transactions where the target is a foreign
private issuer. In this section, however,
we address an issue involving the
treatment of foreign target security
holders in tender offers generally,
including those for U.S. target
companies. The issue of bidders’ ability
to exclude foreign target security
holders is addressed here because it
closely relates to the issue of the
exclusion of U.S. target security holders
in cross-border tender offers, which we
discuss in the next section below. As we
continue to encourage our fellow
international securities and takeover
regulators to minimize the ability of
bidders to exclude U.S. holders from
business combination transactions, we
recognize the need to take similar steps
with regard to the ability of bidders to
exclude non-U.S. holders pursuant to
our rules.
In 1986, we adopted Rule 14d–10 and
amended Rule 13e–4(f) to require that
all target security holders in a tender
offer subject to either of those rules be
included in the tender offer and treated
equally.309 These rules require that
third-party tender offers subject to
Section 14(d) of the Exchange Act, as
well as issuer tender offers subject to
Section 13(e) of the Exchange Act, be
open to all holders of the subject class
of securities.310 This equal treatment
provision does not prohibit tender offers
for less than all outstanding securities of
a subject class, but it does require that
all security holders be able to accept the
tender offer if they choose.311
The all-holders provisions in Rules
14d–10 and 13e–4(f) apply equally to
U.S. as well as non-U.S. target
309 See Amendments to Tender Offer Rules: AllHolders and Best-Price, Release No. 34–23421 (July
11, 1986) [51 FR 25873] (‘‘All-Holders and Best
Price Adopting Release’’).
310 Pursuant to these provisions, the bidder may
not restrict the offer to target holders as of a
particular record date only. See footnote 35 in AllHolders and Best Price Adopting Release. While as
a practical matter, the bidder will look to beneficial
holders as of a recent date in distributing the offer
materials, the offer must be open to all target
security holders, including those who purchase
after the tender offer commences. See In the Matter
of Application of WHX Corp., Exchange Act Release
No. 47980 (June 4, 2003), vacated on other grounds,
WHX Corp. v. SEC, 362 F.3d 854 (D.C. Cir. 2004).
311 If the tender offer is for less than all of the
securities of the subject class and the offer is
oversubscribed, the bidder must purchase tendered
securities on a pro rata basis. See Section 14(d)(6)
of the Exchange Act and Exchange Act Rules 13e–
4(f)(3) and 14d–8.
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holders.312 However, we are aware that
certain bidders are purporting to
exclude foreign target security holders
in tender offers subject to these rules.
Therefore, we wish to reiterate our
position that the all-holders requirement
does not allow the exclusion of any
foreign or U.S. target holder in tender
offers subject to those rules. We believe
it is in the interests of U.S. investors to
enforce U.S. equal treatment principles
for the benefit of non-U.S. target
security holders. This is particularly
true today, where comparable foreign
all-holders requirements may protect
U.S. investors by preventing their
exclusion from cross-border offers.
We recognize, however, that the
requirement to make an offer available
to all foreign target holders, particularly
for registered exchange offers, may
present a burden for bidders that may
need to comply with both foreign and
U.S. rules. We are soliciting comment
on whether any amendments to the U.S.
equal treatment provisions are necessary
or advisable to allow certain target
security holders to be excluded from the
offer. In this regard, we note the
exception in Rule 14d–10(b), which
states that the all-holders rule will not
‘‘prohibit a bidder from making a tender
offer excluding all security holders in a
state where the bidder is prohibited
from making the tender offer by
administrative or judicial action
pursuant to a state statute after a good
faith effort by the bidder to comply with
such statute.’’313 We are soliciting
comment as to whether this rule should
be amended to include a similar
provision with respect to target holders
in foreign jurisdictions. We are also
soliciting comment as to whether we
should specifically define what a ‘‘good
faith effort’’ means.
Notwithstanding the requirements of
Rule 14d–10 and Rule 13e–4(f) to
extend an offer to all holders of a target
company’s securities, these provisions
have not been interpreted to require that
offering materials be mailed into foreign
jurisdictions.314 We recognize that
disseminating a U.S. offer document in
312 See All-Holders and Best-Price Adopting
Release, Section III.A.2., which stated ‘‘While a
tender offer subject to Sections 13(e) and 14(d) of
the Williams Act must be held open to all holders
of the subject class of securities, including foreign
persons, Rules 14d–10(b)(1) and 13e–4(f)(9)(i) make
clear that the all-holders requirement does not
affect the required dissemination of tender offers.
* * * The Commission has not interpreted these
provisions as requiring dissemination of tender
offer materials outside of the United States, and the
adoption of the all-holders requirement is not
intended to impose any additional requirements in
this regard.’’ (emphasis added; footnotes omitted).
313 Exchange Act Rule 13e–4(e)(9) contains a
comparable provision for issuer tender offers.
314 See footnote 312 above.
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non-U.S. jurisdictions may implicate
applicable foreign laws. Certain foreign
jurisdictions allow bidders not to mail
offer materials into certain foreign
jurisdictions. For instance, the U.K.
Takeover Panel has adopted a ‘‘de
minimis’’ exception permitting bidders
not to mail offer materials to target
holders in jurisdictions where few target
securities are held. Under that rule,
bidders for U.K. target companies may
choose not to mail offer materials to
target security holders outside the U.K.
and outside the European Economic
Area (the ‘‘EEA’’) when a particular
jurisdiction presents significant risks of
civil, regulatory or criminal liability to
the bidder and less than three percent
of the securities of the target are held of
record in that jurisdiction.315 We note
that even when the U.K. Code does not
require the dissemination of offer
materials into a particular foreign
jurisdiction pursuant to this provision,
it does not sanction a prohibition on
tenders from security holders located
there.
We further note that certain bidders
have required target holders to certify
that tendering their securities complies
with local laws or that an exemption
applies that allows such tenders without
further action by the bidder to register
or qualify its offer. We do not believe it
is appropriate to shift this burden of
assuring compliance with the relevant
jurisdiction’s laws to target security
holders because target security holders
may not be in possession of relevant
facts regarding the bidder’s action and
the provisions of local law in their home
315 The City Code on Takeovers and Mergers, Rule
30.3. The note to Rule 30.3 provides an exception
to the UK’s dissemination requirement with respect
to shareholders outside of the EEA. The note states:
Where local laws or regulations of a particular
non-EEA jurisdiction may result in a significant risk
of civil, regulatory or, particularly, criminal
exposure for the offeror or the offeree company if
the information or documentation is sent or made
available to shareholders in that jurisdiction
without any amendment, and unless they can avoid
such exposure by making minor amendments to the
information being provided or documents being
sent or made available either:
(a) The offeror or the offeree company need not
provide such information or send or make such
information or documents available to registered
shareholders of the offeree company who are
located in that jurisdiction if less than 3% of the
shares of the offeree company are held by registered
shareholders located there at the date on which the
information is to be provided or the information or
documents are to be sent or made available * * *;
or
(b) In all other cases, the Panel may grant a
dispensation where it would be proportionate in the
circumstances to do so having regard, notably, to
the cost involved, any resulting delay to the
transaction timetable, the number of registered
shareholders in the relevant jurisdiction, the
number of shares involved and any other factors
invoked by the offeror or the offeree company.
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jurisdiction necessary to make this
determination.
Request for Comment
• Is it necessary or appropriate for
bidders in tender offers for U.S. target
companies to exclude foreign target
security holders in certain non-U.S.
jurisdictions? Why? Is the answer
different for cash tender offers versus
exchange offers?
• Should bidders be allowed to
condition tendering into an offer on the
subject security holder certifying to
compliance with the securities law
requirements of its jurisdiction?
• Would permitting exclusion of
some foreign target holders result in
decreased protections for U.S. holders
in cross-border tender offers?
• Should Rule 14d–10 and Rule 13e–
4 be amended to include a provision
expressly stating that those rules will
not prohibit a bidder from excluding
shareholders in a particular foreign
jurisdiction, where the bidder is
prohibited from making the tender offer
by foreign law after a good faith effort
by the bidder to comply with the law?
Æ What should be considered a
‘‘good faith effort’’ for purposes of such
a rule change?
Æ Should the number or percentage
of security holders in a particular
jurisdiction or the cost or additional
timing requirements of complying with
a particular jurisdiction’s rules impact
the good faith determination?
• Should our rules be revised to
permit exclusion of foreign target
security holders in any jurisdiction
where a minimal number of target
holders are located? If so, what would
be an appropriate de minimis threshold?
Three percent? Five percent?
Æ If the rules should be amended as
described, should such a provision be
expanded to specifically include
situations where a bidder is unable to
determine the beneficial ownership of
the securities in a foreign jurisdiction?
Æ If we were to adopt a de minimis
exclusion, should we permit exclusion
only where the bidder also establishes a
significant risk of civil or criminal
liability by extending the offer into that
jurisdiction?
• Should we require dissemination of
offering materials to all holders of a
target’s securities, whether or not they
are located in the United States? If we
adopted such a requirement, should
there be exceptions? If so, what should
they be?
2. Ability of Bidders To Exclude U.S.
Target Security Holders
As discussed above, one of the
primary motivations of the Commission
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in adopting the cross-border exemptions
was to facilitate the inclusion of U.S.
security holders in cross-border
business combination transactions. We
believe those exemptions have been
successful generally in encouraging
offerors in cross-border business
combination transactions to include
U.S. security holders in those
transactions. At the request of
commenters, the Cross-Border Adopting
Release also provided guidance on
whether and under what circumstances
offer materials for offshore tender and
exchange offers may be posted on the
Internet without triggering U.S. tender
offer and registration rules.316 This
followed earlier Commission guidance
on the use of Internet Web sites to
solicit securities transactions and to
offer securities.317 The issue of using
Internet Web sites in offshore tender
and exchange offers is part of a broader
question as to whether and how bidders
in cross-border business combination
transactions legitimately may avoid the
application of U.S. registration and
tender offer rules. Based on our
experience with these matters since
1999, we believe it may be helpful to
provide additional guidance on issues
specific to cross-border tender offers.
Whether U.S tender offer rules apply
in the context of a cross-border tender
offer depends on whether the bidder
triggers U.S. jurisdictional means in
making a tender offer.318 Today foreign
jurisdictions commonly require
information about a tender offer or
business combination transaction to be
posted on a publicly-available and
unrestricted Web site.319 In addition, it
is common for both bidders and target
316 See
Cross-Border Adopting Release, Section
II.G.
317 See Statement of the Commission regarding
use of Internet Web sites to offer securities, solicit
securities transactions or advertise investment
securities offshore, Release No. 33–7516 (March 23,
1998) [63 FR 14806] (‘‘1998 Internet Release’’).
318 Section 14(d)(1) of the Exchange Act reads in
relevant part: ‘‘It shall be unlawful for any person,
directly or indirectly, by use of the mails or by any
means or instrumentality of interstate commerce or
of any facility of a national securities exchange or
otherwise, to make a tender offer for, or a request
or invitation for tenders of, any class of any equity
security which is registered pursuant to section 12
of this title * * * if, after consummation thereof,
such person would, directly or indirectly, be the
beneficial owner of more than 5 per centum of such
class, unless at the time copies of the offer or
request or invitation are first published or sent or
given to security holders such person has filed with
the Commission a statement containing such
information as the Commission may by rules or
regulations prescribe. * * *.’’
319 See, e.g., ProSiebenSat.1 Media AG
(September 12, 2005)(describing the procedure in
Germany of posting the offer documents on an
Internet web site). Such foreign provisions may
include a requirement to post the offer documents
themselves, or notice of the offer with instructions
on how to obtain the offer materials.
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26905
companies in business combination
transactions to post information about
the transactions on their own Internet
Web sites, whether or not they are
required by the law of the foreign home
jurisdiction to do so.
As discussed above, the Commission
has provided guidance on measures
acquirors may take to avoid triggering
U.S. jurisdictional means.320 We have
recognized that bidders who are not
U.S. persons 321 may structure a tender
offer to avoid the use of the means or
instrumentalities of interstate commerce
or any facility of a national securities
exchange in making its offer and, thus
avoid triggering application of our
rules.322 A bidder making a tender offer
for target securities of a foreign private
issuer may exclude U.S. target security
holders if the offer is conducted outside
the United States and U.S. jurisdictional
means are not implicated.323 However,
a bidder may implicate U.S.
jurisdictional means if it fails to take
adequate measures to prevent tenders by
U.S. target holders while purporting to
exclude them. While we encourage
bidders to allow U.S. target security
holders to participate in cross-border
tender offers, when a bidder permits
them to participate in a tender offer, it
must follow U.S. rules unless an
exemption applies. The relevant
question thus becomes how bidders may
conduct exclusionary offers that are
limited to non-U.S. holders 324 without
implicating U.S. tender offer rules,
particularly where those offers are
subject to the equal treatment principles
in Section 13(e) or 14(d) of the Exchange
Act.325
320 See generally, the 1998 Internet Release and
the Cross-Border Adopting Release.
321 In our view, it generally is inappropriate for
a U.S. bidder to exclude U.S. target security holders
when making a tender offer for a foreign private
issuer target company. We continue to believe that,
in light of the cross-border exemptions adopted in
1999, a U.S. bidder generally would not have reason
to exclude U.S. target security holders in making an
offer for the securities of a foreign private issuer.
See Cross-Border Adopting Release, Section II.G.4.
The rule revisions proposed today, if adopted,
would reinforce this view.
322 See All-Holders and Best Price Adopting
Release, Section III.A.3. (finding that amendments
to the all-holders and best price provisions
specifically exempting offshore exclusionary offers
from those provisions were unnecessary, given the
application of the jurisdictional means test).
323 See footnote 319 above.
324 We use the term ‘‘exclusionary offer’’ to mean
tender offers that exclude U.S. target holders of the
subject class of securities for which the offer is
made.
325 For tender offers not subject to Sections 13(e)
or 14(d) of the Exchange Act, such as third-party
offers for a target class of securities that is not
registered under Section 12 of the Exchange Act, no
all-holders requirement exists. Therefore, U.S.
target security holders technically may be excluded
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The Commission has recognized, and
we reaffirm today, that business
combination transactions present
special considerations not common to
capital-raising issuances.326 Because of
their pre-existing investment in a target
company, target security holders,
including U.S. holders, are likely to seek
out any information about the target
company, the acquiror, and the
proposed transaction.327 U.S. security
holders also may have a greater
incentive and opportunity to find a
means to participate in transactions
involving the target securities they own.
Even where they are not able to do so,
U.S. holders’ interest in those securities
may be affected significantly by a
business combination transaction
involving the target company.328
For these reasons, bidders seeking to
avoid the application of U.S. law should
take special precautions to assure that
their offer is not made in the United
States. We have provided guidance on
how they may do so in the context of
cross-border tender offers.329 Perhaps
the most basic measure is to include
legends on the offer materials
themselves and on any Internet Web site
on which they are posted, indicating
that the offer is not being made in the
United States.330 In addition, the bidder
should take special precautions to
assure that tenders are not accepted
from nor sales of bidder securities made
(in the case of exchange offers) to target
security holders resident in the United
States.331 These may include, in
responding to inquiries and processing
from those offers even where the U.S. jurisdictional
means are triggered; however, these offers would
need to comply with the procedural and anti-fraud
requirements of applicable U.S. rules.
326 See Cross-Border Adopting Release, Section
II.G.2.
327 This is particularly true today, where
advances in technology permit investors to
establish online alert systems to inform them of any
news relating to a target company.
328 This is particularly the case in cross-border
tender offers, where bidders’ ability to ‘‘squeeze
out’’ target security holders remaining after a tender
offer may be more limited than in the United States.
For example, in some countries, bidders must
achieve ownership levels significantly in excess of
51 percent of target securities to be able to
compulsorily acquire the remaining target
securities. Where target securities are delisted after
the tender offer, U.S. holders excluded from the
offer may be left with an illiquid security.
329 See Cross-Border Adopting Release, Section
II.G.2.
330 See 1998 Internet Release, Section III.B.
331 See Cross-Border Adopting Release, Section
II.G.2. We note that business combinations other
than tender offers, where the target company is
being merged out of existence, are different because
once such transactions are approved, all target
holders’ securities will be acquired. In business
combinations other than tender offers, we have
stated that we do not believe the acquiror should
avoid the payment of consideration to U.S. target
holders. Id.
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23:58 May 08, 2008
Jkt 214001
letters of transmittal, obtaining adequate
information to determine whether the
target security holder is a U.S.
investor.332 In addition, the bidder
could require representations by the
tendering security holder, or anyone
tendering on that person’s behalf, that
the tendering holder is not a U.S. holder
or someone tendering on behalf of a U.S.
holder.333
Several issues have come to light with
respect to these measures to keep a
tender offer outside of the United States.
First, we reiterate that a legend or
disclaimer stating that the offer is not
being made into the United States, or
that the offer materials may not be
distributed there, is not likely to be
sufficient in itself because, as discussed
in the preceding paragraph, if the bidder
wants to support a claim that the offer
has no jurisdictional connection to the
United States, it also will need to take
special precautions to prevent sales to
or tenders from U.S. target holders.334 In
some cases, bidders purporting to make
exclusionary tender offers offshore have
attempted to circumvent foreign allholders requirements by including
statements that the tender offer is not
‘‘being made into the United States.’’
We do not view such statements as
sufficient in themselves to avoid being
subject to the U.S. federal securities
laws if, as a practical matter, U.S.
holders are not and may not be
prevented from participating in the offer
using U.S. jurisdictional means.
Bidders may require a representation
or certification from tendering holders
that they are not U.S. holders to avoid
triggering U.S. law.335 We recognize the
possibility that target security holders
could misrepresent their status in order
to be permitted to tender into an
exclusionary offer. We have stated that
where this occurs, bidders will not be
viewed as having targeted U.S.
investors, thereby invoking U.S.
jurisdictional means.336 However, this
position is premised on the bidder
having taken adequate measures
reasonably designed to guard against
purchases from and sales to U.S.
holders.337 It is also premised on the
absence of indicia that would or should
put the bidder on notice that the
tendering holder is a U.S. investor.338
332 Id.
333 Id.
334 See Cross-Border Adopting Release, Section
II.G.2.
335 See Cross-Border Adopting Release, Section
II.G.2.
336 See 1998 Internet Release, Section III.C.
337 Id.
338 These would include receipt of payment
drawn on a U.S. bank, provision of a U.S. taxpayer
identification number or statements by the
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Where tenders in exclusionary offers are
made through offshore nominees,
bidders could require that these
nominees certify that tenders are not
being made on behalf of U.S. holders.
We recognize that this may be
problematic where the law of the
applicable foreign jurisdiction prevents
the nominee from knowing the identity
or location of beneficial holders on
whose behalf they hold.
While we encourage the participation
of U.S. target security holders in crossborder tender offers and other business
combination transactions, their
participation should be accomplished in
compliance with U.S. rules or through
applicable cross-border exemptions. In
the future, the staff will more closely
monitor exclusionary offers to
determine whether Commission action
is necessary to protect U.S. target
holders.
Request for Comment
• Should the Commission provide
additional guidance on the specific
measures an acquiror may or should
take to avoid triggering U.S.
jurisdictional means in the context of
cross-border business combination
transactions?
• What measures are reasonable and
effective, and in the best interests of
U.S. investors?
• Should we also consider further
rulemaking to address the situation
where a bidder seeks to avoid U.S.
jurisdictional means by excluding U.S.
target security holders, but is subject to
foreign home country rules mandating
that all target security holders must be
permitted to participate in the offer?
How would such rules balance the
practical needs of bidders with the
requirement to protect the interests of
U.S. investors?
3. Vendor Placements
In many business combination
transactions, the offer consideration
may include securities of the bidder. In
some transactions, cash may be offered
together with the bidders’ securities
and, in other transactions, no cash will
be offered and the bidder’s securities
will constitute the sole consideration
offered to tendering holders of the
target’s securities.
For Tier I-eligible tender offers, for
purposes of complying with the equal
tendering holder that notwithstanding a foreign
address, the tendering holder is a U.S. investor. We
have explicitly noted that if, after implementing
measures intended to safeguard against tenders by
U.S. persons, the bidder discovers it has purchased
securities from U.S holders, it should consider
other measures that may avoid this lapse in the
future. Id.
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treatment requirement, bidders are
permitted to offer cash consideration to
U.S. holders in lieu of offering securities
so long as the bidder has a reasonable
basis for believing that the amount of
cash is substantially equivalent to the
value of the consideration offered to
non-U.S. holders. In addition, most Tier
I-eligible offers should be eligible for the
exemption from Securities Act
registration provided by Rule 802. If
Rule 802 or another exemption from
registration is not available, then the
bidder is required to register the
securities being offered under the
Securities Act.
In certain cross-border exchange
offers, bidders may seek to avoid the
registration requirements under the
Securities Act by establishing a vendor
placement arrangement for the benefit of
U.S. target security holders who tender
into the offer. In a vendor placement,
the bidder generally employs a third
party to sell in offshore transactions the
securities to which tendering U.S.
security holders are entitled in the offer.
The bidder (or the third party) then
remits the proceeds of the resale (minus
expenses) to those U.S. target security
holders that tendered into the offer.
Where permissible, the vendor
placement process allows bidders in
cross-border exchange offers to extend
the offer into the United States but
avoid the Securities Act registration
requirements. In effect, the vendor
placement is an effort to convert an
exchange offer involving the offer and
sale of the bidder’s securities (which
would require Securities Act
registration) into an offer involving
solely cash (which does not require
registration) as it relates to tendering
U.S. security holders.
The staff often receives inquiries
about the use of the vendor placement
structure in cross-border offers and has
in the past issued no-action letters
permitting the use of the structure in
limited situations.339 Although
tendering holders receive cash in a
vendor placement, the amount of cash
received is largely dependent on the
market value of the underlying security.
The protections of the Securities Act are
intended to give investors access to
information when making an
investment decision with respect to the
purchase of a security. A vendor
placement does not in all circumstances
eliminate the requirement for Securities
339 See, e.g., Singapore Telecommunications Ltd
(May 15, 2001); Oldcastle, Inc. (July 3, 1986);
Electrocomponents PLC (September 23, 1982),
Equitable Life Mortgage and Realty Investors
(December 23, 1982); Getty Oil (Canadian
Operations) Ltd. (May 19, 1983) and Hudson Bay
Mining and Smelting Co., Ltd. (June 19, 1985).
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Act registration, because tendering U.S.
holders may be effectively making an
investment decision with respect to the
purchase of a security.
In the no-action letters issued by the
staff, there are a number of factors the
staff looks to in deciding whether the
vendor placement arrangement obviates
the need for Securities Act registration.
These factors include:
• The level of U.S. ownership in the
target company;
• The amount of bidder securities to
be issued overall in the business
combination as compared to the amount
of bidder securities outstanding before
the offer;
• The amount of bidder securities to
be issued to tendering U.S. holders and
subject to the vendor placement, as
compared to the amount of bidder
securities outstanding before the offer;
• The liquidity and general trading
market of the bidder’s securities;
• The likelihood that the vendor
placement can be effected within a very
short time after the termination of the
offer and the bidder’s acceptance of
shares tendered in the offer;
• The likelihood that the bidder plans
to disclose material information around
the time of the vendor placement sales;
and
• The process used to effect the
vendor placement sales.
We believe these factors are relevant
to whether registration is required. In
addition to the other factors listed
above, offerors should be particularly
cognizant of U.S. target ownership
levels.
We believe that a vendor placement
arrangement in cross-border exchange
offers would be subject to Securities Act
registration unless the market for the
bidder securities to be issued in the
exchange offer and sold pursuant to the
vendor placement procedure is highly
liquid and robust and the number of
bidder securities to be issued in the
exchange offer and for the benefit of
tendering U.S. holders is relatively
small compared to the total number of
bidder securities outstanding. We also
would consider:
• The timeliness of the vendor
placement process; that is, whether
sales of bidder securities through the
vendor placement process are effected
within a few business days of the
closing of the offer;
• Whether the bidder announces
material information, such as earnings
results, forecasts or other financial or
operating information, before that
process is complete; and
• Whether the vendor placement
involves special selling efforts by
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26907
brokers or others acting on behalf of the
bidder.
In tender offers subject to Section
14(d) of the Exchange Act, the allholders and best price requirements in
Rule 14d–10 also are implicated by the
use of the vendor placement structure
because U.S. target security holders
would receive different consideration
from their non-U.S. counterparts. We
generally believe that the parameters of
the Tier I cross-border exemptions
should represent the appropriate limits
under which a bidder in a tender offer
subject to Regulation 14D may offer cash
to U.S. security holders while issuing
shares to their counterparts outside the
United States.
Bidders making a cross-border
exchange offer sometimes ask whether
they may exclude some U.S. target
holders and include in the exchange
offer only those U.S. target holders
(such as accredited investors) for whom
an exemption from the registration
requirements of the Securities Act may
be available. We have stated that
exchange offers for securities subject to
Section 14(d) of the Exchange Act may
not be made in the United States on a
private offering basis, consistent with
the all-holders provisions of Rule 14d–
10.340 Thus, even where the bidder is
eligible to rely on an exemption from
Securities Act Section 5 for such offers,
it would violate the equal treatment
provisions applicable to such offers by
excluding target security holders for
whom an exemption was not available.
Similarly, as discussed above, offering
cash under a vendor placement
arrangement to some U.S. holders and
bidder securities to others (such as
institutions) is not permitted in tender
offers subject to the all-holders rule.
Bidders may continue to use vendor
placement arrangements in accordance
with the guidance set forth here. Where
a bidder seeks to use the vendor
placement structure for a tender offer
subject to Rule 14d–10 at U.S.
ownership levels above Tier I, it must
seek an exemption from those rules. As
noted above, such relief will be granted
only where it is in the interests of U.S.
investors.
III. General Request for Comment
We request and encourage any
interested person to submit comments
on any aspect of our proposals or
guidance and any of related matters that
might impact the proposed amendments
or guidance. We request comment from
investors, issuers, and other users of the
information that may be affected by the
340 See footnote 91 in the Cross-Border Adopting
Release.
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proposed rule changes and interpretive
guidance. We also request comment
from service professionals, such as law
and accounting firms. With respect to
any comments, we note that they are of
greatest assistance to our rulemaking
initiatives if accompanied by supporting
data and analysis of the issues
addressed in those comments.
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IV. Paperwork Reduction Act
Some provisions of the proposed rule
amendments require the ‘‘collection of
information’’ within the meaning of the
Paperwork Reduction Act of 1995 (the
‘‘PRA’’).341 We will submit our
proposed revisions to the Office of
Management and Budget (‘‘OMB’’) for
review in accordance with the PRA.342
The titles for the collections of
information are:
(1) ‘‘Form S–4’’ (OMB Control No.
3235–0065);
(2) ‘‘Form F–4’’ (OMB Control No.
3235–0325);
(3) ‘‘Form ID’’ (OMB Control No.
3235–0328);
(4) ‘‘Form CB’’ (OMB Control No.
3235–0518);
(5) ‘‘Form F–X’’ (OMB Control No.
3235–0379);
(6) ‘‘Schedule TO’’ (OMB Control No.
3235–0515); and
(7) ‘‘Securities Ownership—
Regulation 13D (Commission Rules
13d–1 through 13d–7 and Schedules
13D and 13G)’’ (OMB Control No. 3235–
0145).
We adopted these existing forms and
schedules pursuant to the Securities Act
and Exchange Act. Forms F–4 and S–4
contain disclosure requirements for
registration statements that are prepared
by issuers to provide investors
information to make informed
investment decisions in registered
offerings of securities. Form CB and
Schedule TO provide investors with
information to make informed
investment decisions regarding certain
business combination transactions and
rights offerings. Regulation 13D was
adopted pursuant to the Exchange Act
and sets forth the disclosure
requirements for securities ownership
reports filed by investors.
The hours and costs associated with
preparing and filing the disclosure,
filing the forms and schedules and
retaining records required by these
regulations constitute reporting and cost
burdens imposed by each collection of
information. An agency may not
conduct or sponsor, and a person is not
required to respond to, a collection of
341 44
342 44
U.S.C. 3501 et seq.
U.S.C. 3507(d); 5 CFR 1320.11.
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information unless it displays a
currently valid OMB control number.
A. Summary of Proposals
1. Proposed Amendments to the Tier I
Exemption and Form CB
The proposed rule amendments
would add to the types of affiliated
transactions that could be effected in
reliance on the Tier I exemption from
Rule 13e–3(g)(6). A Form CB would be
required when an issuer or acquiror
relies on the expanded Tier I exemption
proposed and publishes or otherwise
disseminates an informational
document to holders of the subject
securities. Because more transactions
would become eligible to rely on the
exemption from Rule 13e–3 for crossborder transactions, this rule change
may result in additional submissions of
Form CB. If the rule were not expanded,
however, the issuer or affiliate would be
required to comply with the more
burdensome filing requirements of
Schedule 13E–3 if the issuer or affiliate
sought to include U.S. security holders
in the transaction. We believe the
proposed rule and reduced filing
requirement would encourage issuers or
affiliates to include U.S. security
holders in transactions that otherwise
may have excluded them to avoid Rule
13e–3 and the corresponding Schedule
13E–3 filing requirements. Domestic or
foreign entities or persons engaged in
cross-border business combination
transactions would likely be the
respondents to the collection of
information requirements.
Unlike Schedule 13E–3, Form CB is a
notice filing that is little more than a
cover sheet that incorporates offer
documents sent to security holders
pursuant to applicable foreign rules in
the issuer’s or target’s home country.
The party furnishing the form must
attach an English translation of the offer
materials disseminated abroad. Form CB
must be submitted by the next U.S.
business day after that document is
disseminated under home country rules.
We propose to require all Form CBs
to be filed electronically. Under existing
rules, only persons who are already
subject to reporting obligations under
Section 13(a) or 15(d) of the Exchange
Act are required to submit Form CB
electronically and all others may submit
the form in paper. We also propose to
require that Form F–Xs filed in
connection with Form CBs to be filed
electronically. We do not expect these
amendments to affect the overall
collection of information burden of
these forms.
Form ID is filed by registrants,
individuals, transfer agents, third-party
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filers or their agents to request the
assignment of access codes that permit
the filing of securities documents on
EDGAR. This form enables the
Commission to assign an identification
number (CIK), confirmation code,
password and password modification
authorization code to each EDGAR filer,
each of which is designed to protect the
security of the EDGAR system. While
we do not expect that the proposed
amendments will affect the overall
collection of information burden of
Forms CB and F–X, we do expect that
it will cause additional respondents to
file a Form ID each year and, as a result,
will increase the annual collection of
information burden for that form. We
estimate that 65,700 respondents file
Form ID each year at an estimated
burden of .15 hours per response, all of
which is borne internally by the
respondent for a total annual burden of
9,855 hours. For fiscal year 2007, a total
of 189 Form CBs were filed with the
Commission. Of those 189 Form CBs,
100 were filed in paper. We expect the
proposed amendments will cause an
additional 100 respondents to file a
Form ID each year and, as a result, cause
an additional annual burden of 15 hours
(100 × .15). For purposes of the PRA, we
estimate that the additional burden cost
resulting from the proposed
amendments will be zero.
2. Proposed Amendments to Forms
S–4, F–4, and Schedule TO
We propose amendments to the cover
page of Forms S–4 and F–4 and
Schedule TO that would require the
filer to check a box specifying the
applicable cross-border exemption being
relied upon in connection with the
transaction. Domestic and foreign
persons or entities filing these
documents would be the respondents to
the collection of information
requirement. This change would not
affect the substantive obligation to file
the forms or schedule. This additional
information would allow the staff to
better process such filings and monitor
the application of the cross-border
exemptions. For our proposal regarding
Schedule TO and Forms S–4 and F–4,
the amount of information required to
be included in each schedule or form
would change minimally with the
addition of a check box. Accordingly,
for purposes of the PRA, our
preliminary estimate is that the amount
of time necessary to prepare each
schedule or form, and hence, the total
amount of burden hours, would not
change.
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3. Proposed Amendments to Schedule
13G
Exchange Act Schedule 13G is a
short-form filing for persons to report
ownership of more than five percent of
a class of equity securities registered
under Section 12 of the Exchange Act.
Generally, the filer must certify that the
securities have not been acquired and
are not held for the purpose of, or with
the effect of, changing or influencing the
control of the issuer of the securities.
For purposes of the PRA, we currently
estimate that compliance with the
Schedule 13G requirements under
Regulation 13D requires 98,800 burden
hours in aggregate each year, broken
down into 24,700 hours (or 2.6 hours
per respondent) of respondent
personnel time and costs of $22,230,000
(or $2,340 per respondent) for the
services of outside professionals.343
The proposed amendment to Rule
13d–1 would expand the availability of
Schedule 13G to foreign institutions
governed by a regulatory system
substantially comparable to the U.S.
regulatory system for domestic
institutions. We propose to allow
specified foreign institutions to report
beneficial ownership of more than five
percent of a subject class of securities on
Schedule 13G instead of Schedule 13D.
Foreign institutions of the type specified
in amended Rule 13d–1(b) would be the
likely respondents to the collection of
information requirements. These
institutions either currently would be
filing on Schedule 13D as required by
existing rules, or would be required to
seek no-action letters from the staff to
permit them to file on Schedule 13G to
the same extent as their domestic
counterparts, so long as they satisfy
certain conditions. Amending the rule
would enable foreign institutions
meeting the conditions in the rule to file
the Schedule 13G without seeking a noaction letter. Therefore, the amended
rule may result in only a slight increase
in the number of Schedule 13G filers.344
343 These figures assume 9,500 respondents file
Schedule 13G with the Commission annually. We
estimate that 25 percent of the burden of
preparation is carried by the company internally
and that 75 percent of the burden of preparation is
carried by outside professionals retained by the
issuer. These figures assume an average cost of $300
per hour for the services of outside professionals.
We have increased the cost estimate to $400 since
our last estimate provided to OMB, based on our
consultations with several registrants and law firms
and other persons who regularly assist registrants
in preparing and filing with the Commission.
Therefore, the revised cost for the service of outside
professionals would be $29,640,000 ($400 × 74,100
hours) or $3,120 per respondent.
344 Based on the number of no-action requests in
this area in recent years, we believe that
approximately three filers per year would benefit
from this proposed change and would avoid the
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For purposes of the PRA, we estimate
that the proposed amendments to
Schedule 13G would create an
incremental burden of two hours per
response, which we would add to the
existing Schedule 13G burden resulting
in a total burden of 117,800 hours.345
We note that the burden associated with
the proposed amendments to Schedule
13G initially would be higher with an
estimated burden of five hours. Over
time, however, we believe that on
average the burden would lessen and
therefore estimate an incremental
burden of two hours per response. Each
additional filer would incur a burden of
approximately .50 hours of respondent
personnel time (25 percent of the total
burden) and costs of $450 for the
services of outside professionals (75
percent of the total burden). In sum, we
estimate that the amendments to
Schedule 13G would increase the
annual paperwork burden by
approximately 1.50 hours of respondent
personnel time 346 and a cost of
approximately $1,350 for the services of
outside professionals.347
We estimate that Schedule 13D has a
total burden of approximately 14.5
hours per response to prepare and is
filed by 3,000 respondents annually. For
purposes of the PRA, we currently
estimate that compliance with the
Schedule 13D requirements under
Regulation 13D requires 43,500 burden
hours in aggregate each year, broken
down into 10,875 hours (or 3.6 hours
per respondent) of respondent
personnel time and costs of $9,787,500
(or $3,263 per respondent) for the
services of outside professionals.348
Based upon these estimates, a foreign
institution currently filing a Schedule
13D that would be eligible to file a
Schedule 13G pursuant to the proposed
time and expense of submitting a no-action request
to the staff. In addition, foreign institutions
currently filing on Schedule 13D who have not
sought no-action relief to file on Schedule 13G
would also benefit by becoming eligible to use the
shorter Schedule 13G. See discussion above.
345 We currently estimate the burden for
preparing a Schedule 13G filing to be 10.4 hours,
resulting in a total of 98,800 burden hours in
aggregate each year. If each additional filer incurred
an additional two hours, the resulting burden
would be 117,800 total burden hours ((10.4 hours
+ two hours) × 9500 respondents).
346 Three additional filers × .50 hours of
respondent personnel time = 1.50 aggregate burden
hours.
347 Three additional filers × $450 = $1,350.
348 As noted above, we have increased the cost
estimate to $400 since our last estimate provided to
OMB, based on our consultations with several
registrants and law firms and other persons who
regularly assist registrants in preparing and filing
with the Commission. Therefore, the revised cost
for the service of outside professionals would be
$13,050,000 ($400 × 10,875 hours) or $4,350 per
respondent.
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26909
rule would benefit from a cost reduction
of $473 per respondent.349 As noted
above, however, for a number of years,
the staff has provided no-action relief to
foreign institutions seeking to file a
Schedule 13G rather than a Schedule
13D. For those institutions that are
already filing a Schedule 13G pursuant
to no-action relief, the proposed rules
should only increase the cost associated
with providing the required certification
in Schedule 13G and will not
significantly impact the cost of
complying with the requirements of
Regulation 13D.
B. Solicitation of Comments
We request comment on the accuracy
of our estimates. Pursuant to 44 U.S.C.
3506(c)(2)(B), the Commission solicits
comments to: (i) Evaluate whether the
proposed collection of information is
necessary for the proper performance of
the functions of the agency, including
whether the information would have
practical utility; (ii) evaluate the
accuracy of the Commission’s estimate
of burden of the proposed collection of
information; (iii) determine whether
there are ways to enhance the quality,
utility, and clarity of the information to
be collected; and (iv) evaluate whether
there are ways to minimize the burden
of the collection of information on those
who are to respond, including through
the use of automated collection
techniques or other forms of information
technology.
Persons submitting comments on the
collection of information requirements
should direct the comments to the
Office of Management and Budget,
Attention: Desk Officer for the
Securities and Exchange Commission,
Office of Information and Regulatory
Affairs, Washington, DC 20503, and
should send a copy to Nancy M. Morris,
Secretary, Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549–1090, with
reference to File No. S7–10–08.
Requests for materials submitted to
OMB by the Commission with regard to
these collections of information should
be in writing, refer to File No. S7–10–
08, and be submitted to the Securities
and Exchange Commission, Office of the
Secretary—Records Management
Branch, 100 F Street, NE., Office of
Filings and Information Services,
Washington, DC 20549. OMB is required
to make a decision concerning the
collection of information between 30
349 We calculate this figure in the following
manner: $3,263¥($2,340 + $450) = $473. The total
cost burden of Schedule 13G is estimated currently
at an aggregate burden of $22,230,000, or $2,340 per
respondent ($22,230,000/9,500 respondents =
$2,340).
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and 60 days after publication of this
release. Consequently, a comment to
OMB is assured of having its full effect
if OMB receives it within 30 days of
publication.
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V. Cost-Benefit Analysis
We are proposing amendments to our
rules that would reduce the overall cost
for issuers and acquirors engaged in
cross-border business combination
transactions. We also provide
interpretive guidance regarding the
application of certain rules. Under
current rules, where there are conflicts
between U.S. and foreign law or
practice, acquirors in cross-border
business combination transactions
frequently seek no-action or exemptive
letters from the staff. Under the
proposed rule amendments, much of the
relief sought in the past would be
available without the need for no-action
or exemptive letters. As a result, the
benefits of the rule amendments would
include an increase in regulatory
certainty about the U.S. rules governing
cross-border business combination
transactions and a substantial savings in
the cost of preparing letters requesting
no-action or exemptive relief.
Decreasing the burden on acquirors of
complying with U.S. rules governing
business combination transactions is
designed to encourage them to extend
more transactions to U.S. target holders;
therefore, we believe the proposed rule
revisions would be in the interests of
U.S. investors while continuing to
provide appropriate protections. In
order to more fully characterize these
benefits, we seek comments on the
average cost of preparing such letters
and the amount of time spent working
through concerns raised during the
staff’s review of such letters. We also
solicit comments on any incremental
costs of undertaking cross-border
transactions that might arise from the
proposed rule amendments. We request
any relevant data from commenters that
would help us quantify these costs and
related benefits.
In analyzing the costs and benefits of
the proposed rules, we compare
estimated future cross-border
transaction activity that would likely
occur under the proposed rules with
what would occur in a benchmark case
without the rules. Because the proposed
rules would assure parties of their
ability to engage in practices that are
permitted now only through the request
and issuance of a no-action or
exemptive letter, the benchmark case is
the level of transaction activity that
would occur if parties did not have
access to such regulatory relief.
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A. Proposed Changes to the Eligibility
Test for Determining Eligibility To Rely
on the Cross-Border Exemptions
1. Proposed Changes
The changes we propose to the test for
determining eligibility to rely on the
cross-border exemptions for business
combination transactions are limited in
nature and scope and do not represent
a significant departure from our current
rules. They are intended to address
specific problems acquirors have faced
in determining whether they can rely on
the cross-border exemptions. These
changes are not intended to expand or
reduce the number of parties eligible to
use the cross-border exemptions. The
changes will not materially affect the
cost of undertaking such transactions
relative to what would occur if parties
could not reliably obtain no-action or
exemptive letters, as currently is the
case.
We propose to allow acquirors to
calculate the required U.S. beneficial
ownership figure within a range of dates
that is no more than 60 days before a
specified reference date. Currently, our
rules require the calculation to be done
as of a set date. We also propose to
change the reference date for purposes
of the required calculation for business
combination transactions. Under current
rules, the calculation was required to be
done as of the 30th day before
commencement of a cross-border
business combination transaction. As
proposed, we would require the
calculation to be done no more than 60
days before the public announcement of
the cross-border business combination
transaction. We also propose limited
changes to the manner in which U.S.
ownership may be calculated for crossborder tender offers accomplished on a
non-negotiated or hostile basis. These
changes are intended to clarify certain
elements of the ‘‘hostile presumption’’
test for these kinds of offers that have
created uncertainty for acquirors in the
past. As discussed above, the reference
date for the negotiated transaction and
hostile presumption tests for business
combination transactions also would be
changed to key off of the public
announcement of the transaction.
Finally, in this release and the proposed
rules, we provide some guidance on the
‘‘reason to know’’ element of the hostile
presumption test, which we hope would
make the application of the test simpler
and more certain for acquirors.
2. Benefits
We anticipate that the enhanced
flexibility to choose a date within a
range may make it easier for acquirors
to accomplish the required calculation
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as specified under our rules, thereby
promoting use of the exemptions and
the inclusion of U.S. holders while
reducing the acquirors’ burden of
seeking no-action or exemptive letters in
this area. Changing the reference point
for the calculation of U.S. ownership to
the public announcement of the
transaction would mean that the
calculation would be done as of a date
when the target’s security holder base
may be unaffected (or less affected, if
there are some changes in response to
rumors in the market) by the
announcement of the transaction, which
would provide a more accurate picture
of the security holder base. This change
also would allow acquirors more
flexibility in planning cross-border
business combination transactions and
therefore, we expect bidders would be
encouraged to engage in these
transactions. It is unclear whether using
public announcement as the reference
point for the calculation would have the
effect of increasing or reducing U.S.
ownership in the target company.
3. Costs
Under the proposed amendments,
U.S. investors may lose certain
protections under the U.S. rules
governing cross-border business
combination transactions if the foreign
private issuer in which they own
securities becomes the subject of such a
transaction and the acquiror relies on
the cross-border exemptions. To the
extent that the applicable cross-border
exemptions would exempt the acquiror
from compliance with U.S. registration,
filing and disclosure requirements, U.S.
investors would lose these protections.
In such circumstances, however, we
believe that the benefit to U.S. investors
of being included in the transaction
rather than being excluded justifies the
cost of reduced protections under U.S.
law. Otherwise, we do not believe that
U.S. investors would be harmed by the
proposed flexibility in calculation of
U.S. ownership.
B. Changes to the Tier I Cross-Border
Exemptions
1. Expansion of the Tier I Exemption
From Rule 13e–3
We propose to expand the set of crossborder business combination
transactions that are exempt from the
requirements of Rule 13e–3. Currently,
the cross-border exemption from Rule
13e–3 applies only to tender or
exchange offers or business
combinations conducted under Tier I.350
350 As noted previously, the Tier I exemption is
available when U.S. holders beneficially own no
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We propose to expand the exemption to
encompass any kind of affiliated
transaction that otherwise meets the
conditions of the Tier I exemption,
including schemes of arrangement, cash
mergers, compulsory acquisitions for
cash, and other types of transactions.
a. Benefits
The expansion of the Tier I exemption
from Rule 13e–3 would likely result in
fewer filings of Schedule 13E–3, thus
reducing the costs for issuers and
affiliates in cross-border transactions
that would otherwise be subject to those
rules. Under the current rules, the
burden of complying with Rule 13e–3
and Schedule 13E–3 may be greater for
foreign filers than domestic filers.
Foreign filers may not have a
counterpart to these rule provisions in
their home jurisdiction and may not be
subject to the same fiduciary duty
standards that form the basis for this
heightened disclosure system for
affiliated transactions.
Currently, some entities engaged in
affiliated cross-border business
combination transactions that would
have been subject to Rule 13e–3 under
our current rules and cross-border
exemptions request individual
exemptive relief from the staff. The staff
has routinely granted these requests. To
the extent that these kinds of requests
would no longer be necessary, the rule
change we propose today would further
reduce the costs for these entities.
Issuers and affiliates may have excluded
U.S. holders from transactions where
they would have been required to file a
Schedule 13E–3. We have been told that
entities may have avoided making an
offer to U.S. holders to avoid
application of these rules, although it is
difficult to isolate the effect of this
provision on the number of entities that
chose not to include U.S. holders.
During 2007, approximately 110
Schedules 13E–3 were filed, 10 of
which were filed by foreign private
issuers. During that same period, no
requests for no-action relief on this issue
were granted. Therefore, we assume the
overall effect would not be significant,
although we are not able to estimate the
number of transactions that may have
been structured to avoid U.S.
jurisdictional means, thereby avoiding
the requirement to file a Schedule 13E–
3. We solicit comment regarding the
number of entities or persons that the
rule amendment would affect and the
increases or decreases in cost that are
likely to result. We believe the rule
amendment would result in a cost
more than ten percent of the foreign private issuer
target’s securities.
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reduction because it would lower the
costs and burdens associated with
extending these kinds of transactions
into the United States. This amendment
would be in the interests of U.S.
investors to the extent that the
expanded exemption from Rule 13e–3
motivates an acquiror to include U.S.
investors in the transaction. Since the
exemption applies only where U.S.
security holders make up no more than
ten percent of the subject security
holder base, and because the heightened
disclosure requirements of Schedule
13E–3 may be onerous for foreign filers,
we believe this exemption may result in
more cross-border transactions being
extended to U.S. investors.
b. Costs
U.S investors of foreign private issuer
targets in cross-border business
combination transactions that would
have been subject to Rule 13e–3 but for
our proposed rule amendment would
lose the benefits of the disclosure in
Schedule 13E–3, to the extent that such
disclosure is not required under
applicable foreign law.
We seek data regarding the number of
Schedules 13E–3 filed with respect to
the securities of foreign private issuers,
the number of entities or persons that
the rule amendment would affect, and
the increases or decreases in cost that
are likely to result, so we may be able
to estimate the costs and benefits
associated with any possible reduction
of Schedule 13E–3 filings.
2. Technical Change to Rule 802 of
Regulation C
We also propose technical changes to
the language of Rule 802. These changes
are not intended to substantively change
the filing obligations under the current
rule, and we do not believe they would
have any impact on the way that rule
currently functions, except to clarify
how it may be used. Therefore, the
proposed changes would likely confer
no significant costs or benefits.
C. Proposed Changes to the Tier II
Cross-Border Exemptions
The rule changes we propose
represent an expansion of the current
cross-border exemptions available to
tender offers that meet the conditions
outlined in our rules. The Tier II
exemptions—which exempt certain
tender offers for foreign target
companies in which U.S. persons
beneficially own more than ten percent
but not more than 40 percent of the
target’s subject securities—currently
apply to tender offers conducted by
third parties, issuers or affiliates, where
those tender offers are subject to Rule
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26911
13e–4 or Regulation 14D. The rule
changes we propose would expand the
relief provided in the Tier II
exemptions, and clarify that the Tier II
exemptions also may be used for crossborder tender offers subject only to
Regulation 14E of the Exchange Act. We
also propose to expand Tier II relief for
dual offers by allowing offerors to make
more than one concurrent non-U.S.
offer, and to allow certain U.S. offers to
include non-U.S. persons and certain
foreign offers to include U.S. persons.
Additionally, we propose changes to
Rule 14e–5 to codify recent exemptive
relief for Tier II-eligible tender offers.
1. Benefits
These changes to the Tier II crossborder exemptions would expand the
relief provided for eligible cross-border
tender offers.351 The rule changes would
reduce the need for bidders to seek
individual no-action or exemptive relief
from the staff. Since they represent areas
in which relief is most frequently
requested and granted for these kinds of
transactions, the changes would reduce
the associated costs and burdens of
applying for relief. Where we already
have reduced the associated costs and
burdens of requesting and granting relief
through Rule 14e–5 class exemptive
letters, the codification of that relief in
rule text benefits market participants by
modernizing the rule and enhancing its
utility by providing one readilyaccessible location for exempted
activities. Because the proposed rule
changes will make it easier to make
purchases outside of a U.S. tender offer
in a manner consistent with relief
frequently granted by the staff in this
area, we believe the proposed changes
also would have the effect of
encouraging acquirors and bidders to
extend cross-border tender offers to U.S.
target holders on the same terms as all
other target security holders.
To the extent that some of these
proposed rule changes were not
contemplated in the 1999 Cross-Border
Adopting Release and came about only
as a result of the staff’s issuance of noaction and exemptive letters, we analyze
the benefits and costs of the proposed
revisions against the rules adopted in
1999 rather than against the perceived
state of the rules as created by the
issuance of no-action relief. When the
Tier II exemption was adopted in 1999,
by its terms it only applied to tender
offers subject to Rule 13e–4 or
Regulation 14D. However, we believe
the benefits of the Tier II exemption
351 See the discussion above regarding the
changes to the threshold eligibility determination
relating to the calculation of U.S. ownership.
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would apply equally to cross-border
tender offers governed by Regulation
14E only. By expanding the Tier II
exemption to cover such offers, the
changes we propose would allow more
acquirors to take advantage of the
exemption and thus allow more U.S.
investors to benefit from being included
in the offer. Expanding the category of
offers for which Tier II relief is granted
also would allow more flexibility in
structuring offers and encourage more
acquirors to take advantage of the
exemption. Similarly, the proposed
changes to the Tier II relief for dual
offers and the proposed changes to Rule
14e–5 are intended to address certain
foreign regulatory conflicts that were
not fully appreciated when the Tier II
exemption was adopted in 1999. By
revising our rules to address these
conflicts, we hope to enhance the
applicability of the Tier II exemption
and the exemptions to Rule 14e–5 and
therefore encourage more acquirors to
take advantage of the exemptions and
include U.S. holders in cross-border
transactions.
2. Costs
As with transactions governed by
Regulation 14D and Rule 13e–4, the cost
of reducing the protections of the
Williams Act may include reduced
procedural and informational safeguards
for U.S. investors; however, the
exemptions have been designed to
reduce such a possibility. We are not
aware of any other cost that would be
incurred by expanding Tier II relief to
tender offers governed by Regulation
14E only. In addition, because these
amendments would not change the
filing obligations of acquirors, investors
would not lose the benefits of any
required disclosure. Neither the existing
or proposed changes to Tier II affect the
registration requirements of Section 5 of
the Securities Act, which are not
covered by these exemptions.
The codification of Rule 14e–5 class
exemptive letters into rule text should
not increase costs to market
participants, as the substance of the
relief is not being altered. It is only a
mechanism for the relief that is being
changed from class exemptive letters to
propose rule exemptions. While
permitting purchases outside of a tender
offer might negatively impact U.S.
investors by weakening the equal
treatment and proration protections of
our rules, we believe that the conditions
imposed on the ability to purchase
outside of a Tier II tender offer under
the proposed rules should help to
safeguard the interests of U.S. security
holders. We solicit comment on any
increases or reductions in costs to
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security holders that may result from
the proposals.
offer early, before the staff comment
process (where applicable) is complete.
D. Expanded Availability of Early
Commencement
E. Proposed Changes to Forms and
Schedules
In this release, we propose changes to
the manner in which several forms and
schedules are filed. We propose that all
Form CBs, and Form F–Xs filed in
connection with a Form CB, be required
to be filed electronically. Currently,
Form CB must be filed electronically
only where the person furnishing it
already is subject to Exchange Act
Sections 13(a) or 15(d) reporting
requirements. A Form F–X filed in
connection with a Form CB must be
filed electronically under the same
circumstances.
In addition, we propose to add a box
to the cover page of Schedule TO and
Forms S–4 and F–4 where the filing
person would specify the applicable
cross-border exemption or exemptions
being relied upon to conduct the
applicable transaction. The cover page
of Form CB already requires disclosure
of this information. However, that form
needs to be filed only for some crossborder transactions, and only for those
conducted under Tier I or Rules 801 or
802. Under the rules proposed today,
filers relying on the Tier II cross-border
exemptions and filing a Schedule TO
also would be required to indicate
which, if any, cross-border exemption
they are relying on in conducting their
tender offer.
Similarly, filers of Form S–4 or F–4
that are conducting a cross-border
transaction under the Tier II exemptions
would be required to specify the crossborder exemption claimed on the cover
page of those forms. In some cases, they
also would be filing a Schedule TO,
where the exchange offer is subject to
Rule 13e–4 or Regulation 14D. However,
Form S–4 or F–4 may be filed before
Schedule TO, where an exchange offer
commences early, and it would be
helpful to have this information at the
earliest possible time in the offering
process (see discussion of benefits
below). In other cases, where the subject
class of securities is not subject to Rule
13e–4 or Regulation 14D, but the filer is
relying on the Tier II exemptions under
the expanded availability we propose
today, requiring this information on the
cover page of the Form S–4 or F–4
would be the only source of this
information. The changes we propose to
Schedule TO and Forms S–4 and F–4
would have no impact on the obligation
of an offeror to file those forms.
1. Proposed Change to Rule 162
The rules we propose today would
expand the ability to commence an
exchange offer before the registration
statement filed with respect to the
securities offered is declared effective
by the Commission. Our current rules
permit ‘‘early commencement’’ only
where an exchange offer is subject to
Rule 13e–4 or Regulation 14D. For
tender offers conducted under Tier II,
we propose to extend the option to all
exchange offers, so long as withdrawal
rights are provided to the same extent as
would be required under Rule 13e–4 or
Regulation 14D.
2. Benefits
The proposed rule change would
further harmonize the treatment of
exchange offers and cash tender offers.
It would not impact the filing and
disclosure obligations of the acquiror
under the Securities Act, or the
requirement to comply with the tender
offer rules in Regulation 14E. Because
foreign law may provide that a tender
offer for one class of securities will
trigger an obligation to make a
contemporaneous offer for a related
class, this rule change could enhance
the ability of such exchange offers to
commence early, and therefore could
enhance the speed with which such
offers may be effected. The proposed
rule change also could allow combined
offers to compete with cash bids.
The rule would provide the benefit to
investors of receiving withdrawal rights
when they otherwise would not have
been required under U.S. rules. It also
could cause offerors to extend an
exchange offer to U.S. target security
holders, where concerns about delays
arising from the U.S. registration
process might otherwise have caused
them to exclude U.S. investors.
3. Costs
As discussed above, allowing an early
commencement option for an exchange
offer may result in informational costs
for target security holders. Broadening
the availability of early commencement
may mean that investors may be more
likely to receive updates to the original
prospectus, to the extent that staff
review results in material changes to
that document. In addition, this may
present increased costs for offerors who
must recirculate in circumstances where
they have elected to commence their
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Requiring all Form CBs and related
Form F–Xs to be filed via the
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Commission’s electronic data gathering
and retrieval system, or EDGAR, would
make those forms more quickly and
easily accessible to the public, including
U.S. investors. Instead of having to
come in person or through an agent to
the Commission’s public reference room
to conduct a search for these paper
forms, investors would be able to access
them electronically through the
Commission’s Web site or through any
commercial service that links to
EDGAR. Requiring Form CB to be filed
electronically also would enable the
press and other market participants to
access these forms more easily and
quickly, thereby benefiting the market
participants and investors by possibly
making information about the
transaction more readily available.
Filers should further benefit from
increased efficiencies in the filing
process. Electronic filing avoids the
delays and uncertainties sometimes
associated with manual delivery of
paper filings. Not having to submit
multiple copies of paper documents to
the Commission may reduce burdens on
filers, especially if they are located
outside of the United States. In addition,
the longer filing hours for the direct
electronic submission of documents
(until 10 p.m., Eastern Standard Time or
Eastern Daylight Saving Time,
whichever is in effect) would allow
filers additional flexibility in meeting
their obligation to submit Form CB and
Form F–X (where required) on the next
business day after the attached
disclosure document is disseminated
pursuant to home country law.352
As to the information sought in Form
S–4 or F–4 or Schedule TO, we believe
this information would serve an
important function for purposes of the
staff review process and also would
benefit filers. Currently, the staff may
not be aware when reviewing a
registration statement or tender offer
statement that the filer is relying upon
an applicable cross-border exemption to
modify the terms of its offer.
Consequently, the staff may not know
352 Although filings are accepted until 10 p.m.
Eastern Standard Time or Eastern Daylight Savings
Time, whichever is currently in effect, Regulation
S–T Item 13(a)(2) states that except as otherwise
provided in the rule, ‘‘all filings submitted by direct
transmission commencing on or before 5:30 p.m.
Eastern Standard Time or Eastern Daylight Savings
Time, whichever is currently in effect, shall be
deemed filed on the same business day, and all
filings submitted by direct transmission
commencing after 5:30 p.m. Eastern Standard Time
or Eastern Daylight Savings Time, whichever is
currently in effect, shall be deemed filed as of the
next business day.’’ Therefore, offerors or issuers
would be able to submit documents after
Commission business hours on the day of
dissemination and have the filing date be the next
business day.
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whether non-compliance with all the
rules that would govern a particular
transaction is a matter that the staff
should pursue through the comment
process. Providing this information
when the Form S–4 or F–4 or Schedule
TO is initially filed would eliminate the
need for the staff to issue, and the
bidder to respond to, unnecessary
comments based on a lack of knowledge
about reliance on a cross-border
exemption.
2. Costs
There are costs associated with
requiring all Forms CBs and related
Form F–Xs to be filed electronically.
During the fiscal year ended October 1,
2007, 45 initial Form CBs and 57
amendments were filed in paper. Initial
costs of electronic filing include those
associated with purchasing compatible
computer equipment and software,
including EDGAR software if obtained
from a third-party vendor and not from
the Commission’s Web site. Initial costs
also include training of existing
employees to make the required EDGAR
filings, or engaging a third-party to make
them on the filer’s behalf. Additional
costs may be associated with the
formatting and transmission of a filer’s
document on EDGAR. However, today
financial printers and other information
technology specialists capable of
electronic document processing for the
EDGAR system are widely available in
the United States and abroad.
In addition, there would be initial
costs associated with filing a Form ID in
order to obtain the access codes needed
to file a Form CB and Form F–X
electronically.353 To file Form ID, an
offeror or issuer must learn the related
electronic filing requirements, obtain
access to a computer and the Internet,
use the computer to access the
Commission’s EDGAR Filer
Management Web site, respond to Form
ID’s information requirements and fax to
the Commission a notarized
authenticating document. We expect
that offerors or issuers would incur few,
if any, additional costs related to
obtaining computer and Internet access.
We believe the vast majority of offerors
353 Offerors and issuers that already have EDGAR
access codes would not need to file a Form ID. We
assume, however, that about 53 percent of Form CB
filers do not or would not already have codes.
Assuming a cost of $175 per hour for in-house
professional staff, we estimate the current Form ID
aggregate burden cost at $2,625 per year ($175 per
hour × 15 hours per year). The additional Form ID
burden cost resulting from the proposed
amendments and the total Form ID burden cost that
will result from adding the estimated additional
Form ID burden cost to the estimated current Form
ID burden cost will be $1,727,250 (9,855 hours per
year + 15 hours per year = 9,870 hours per year);
9,870 hours per year × $175 per hour = $1,727,250.
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and issuers already would have access
to a computer and the Internet.
Since a Form CB and the
accompanying Form F–X required for
foreign filers are not forms associated
with periodic reporting on a regular
basis and are required only for certain
specified kinds of extraordinary
transactions, we believe ongoing costs
associated with the proposed rule
amendments may not be significant. We
solicit comments regarding the initial
and ongoing costs that would be
incurred by filers submitting Form CB
and related Form F–X electronically.
We believe the costs associated with
our proposed changes to Schedule TO
and Forms S–4 and F–4 would be
minimal. As discussed above, these
changes would not impact the
obligation to file the schedule or form,
nor would they change the substantive
disclosure required. Filers would
already know whether, and if so, what
cross-border exemption they will rely
upon in conducting their transaction.
The proposed rule change would
require them only to specify that
information for the benefit of the staff
and others viewing the filings.
F. Changes to the Beneficial Ownership
Reporting Rules
We propose to amend our rules to
allow foreign institutions of the same
type as the domestic institutions listed
in Rule 13d–1(b)(1)(ii) to file on
Schedule 13G instead of Schedule 13D.
The proposed rule would permit filing
on Schedule 13G for certain specified
types of institutions, where they have
acquired securities in the ordinary
course of their business and not with
the purpose or effect of changing or
influencing control of the issuer of the
subject securities. In order to use
Schedule 13G to the same extent as their
U.S. counterparts, these foreign
‘‘qualified institutional’’ filers also
would have to meet certain conditions
currently set forth in the staff’s noaction letters. One such condition is the
requirement to certify that the
regulatory scheme applicable to that
type of institution in its home country
is comparable to the regulatory system
applicable to its U.S. counterpart.
Another such condition is an
undertaking to provide to the
Commission staff, upon request, the
information that would have been
required under Schedule 13D.
1. Benefits
Currently, the staff commonly grants
requests from foreign institutions
comparable to the types of institutions
listed in Rule 13d–1(b) to file on
Schedule 13G if they meet the
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conditions outlined in the no-action
letters. In the release adopting
amendments to the beneficial
ownership rules in 1998, the
Commission discussed the fact that in
the past, foreign institutional investors
requested exemptive and no-action
letters.354 The Commission also stated
that foreign institutions that wanted to
use Schedule 13G as a qualified
institutional investor should continue to
request no-action relief from the staff.
Because the staff’s issuance of no-action
letters was contemplated at the time of
the 1998 amendments to the beneficial
ownership rules, we only consider the
costs and benefits of the proposed rule
relevant to the staff’s current practice of
issuing no-action letters. From this
perspective, the proposed rule change
would eliminate the costs and burdens
on foreign institutions of seeking such
relief individually. For foreign
institutions that would otherwise have
been eligible to file on Schedule 13G as
passive investors under current rules,
filing under Rule 13d–1(b) reduces the
burden on those filers because the
initial filing obligation is less onerous
for qualified institutional filers. For
example, qualified institutions filing
under Rule 13d–1(b) are required to file
a Schedule 13G within 45 days after the
end of the calendar year in which they
own over five percent of the subject
class as of the last day of that year. By
contrast, passive investors reporting on
Schedule 13G pursuant to Rule 13d–1(c)
must file their initial report within ten
days of the acquisition of more than five
percent of the class. Unlike qualified
institutional filers, passive investors
may not file on Schedule 13G when
their ownership equals or exceeds 20
percent of the subject class. No such
limit exists for qualified institutional
filers.
2. Costs
Schedule 13D requires more extensive
disclosure than Schedule 13G.
Therefore, to the extent that a filer
taking advantage of the proposed rule
revisions otherwise would be required
to file a Schedule 13D (or a Schedule
13G as a passive investor), there may be
some information cost to U.S. investors
by permitting the filer to use Schedule
13G. For instance, Schedule 13D
requires information about the purpose
of the beneficial owner’s transaction in
the securities, investment intent, and
sources of funding. To the extent that
such information may be of value to
investors in making informed
354 See Amendments to Beneficial Ownership
Reporting Requirements, Release No. 34–39538
(January 12, 1998) [63 FR 2854].
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investment decisions, there would be a
cost in permitting these institutions to
file on Schedule 13G. We seek comment
on the usefulness to investors of
requiring these foreign institutions to
file on Schedule 13D.
Foreign institutions wishing to take
advantage of the proposed rule change
would incur certain costs to satisfy the
conditions for filing on Schedule 13G.
In particular, foreign institutions would
need to assess whether their home
country regulatory scheme is
comparable to the regulatory scheme
applicable to their U.S. counterparts.
This might involve seeking the advice of
home country or U.S. legal counsel.
However, we believe the incremental
costs of complying with the proposed
rule would be minimal because foreign
institutions are commonly granted noaction relief to file on Schedule 13G
under the same circumstances as we
propose to permit under the new rule.
Request for Comment
We are sensitive to the costs and
benefits imposed by our rules, and have
identified certain costs and benefits
related to these proposals. We request
comment on all aspects of this costbenefit analysis, including identification
of any additional costs and benefits. We
encourage commenters to identify and
supply relevant data concerning the
costs and benefits of the proposed
amendments.
VI. Consideration of Impact on
Economy, Burden on Competition and
Promotion of Efficiency, Competition
and Capital Formation
Section 2(b) of the Securities Act 355
and Section 3(f) of the Exchange Act 356
require us, when engaged in rulemaking
that requires us to consider or determine
whether an action is necessary or
appropriate in the public interest, to
consider whether the action will
promote efficiency, competition, and
capital formation. When adopting rules
under the Exchange Act, Section
23(a)(2) of the Exchange Act 357 requires
us to consider the impact that any new
rule would have on competition. In
addition, Section 23(a)(2) prohibits us
from adopting any rule that would
impose a burden on competition not
necessary or appropriate in furtherance
of the purposes of the Exchange Act. We
request comment on whether the
proposals, if adopted, would promote
efficiency, competition and capital
formation or have an impact or burden
355 15
U.S.C. 77b(b)
U.S.C. 78c(f).
357 15 U.S.C. 78w(a)(2).
356 15
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on competition. Commenters are
requested to provide empirical data and
other factual support for their view, if
possible.
The proposed changes to the test for
determining eligibility to rely on the
Tier I and Tier II cross-border
exemptions and Rule 802 under
Regulation C are intended to facilitate
the application of those exemptions.
When the exemptions were adopted in
1999, we determined that the crossborder exemptions are important tools
to promote the inclusion of U.S.
investors in transactions required to be
conducted in accordance with a foreign
regulatory system. Streamlining and
improving the eligibility standards for
the cross-border exemptions enhances
their utility by promoting their ease of
use, thereby encouraging the inclusion
of U.S. investors in cross-border
transactions.
The purpose of the proposed
amendment to Rule 13e–3(g)(6) is to
expand the exemption from Rule 13e–3
for cross-border transactions meeting
the conditions of Tier I. This proposed
amendment should reduce regulatory
compliance burdens for issuers and
affiliates engaged in affiliated crossborder transactions that would
otherwise be subject to Rule 13e–3. The
ability to avoid the application of Rule
13e–3 for certain cross-border
transactions is expected to benefit U.S.
investors, because an issuer or affiliate
may choose to exclude them if it is the
only means to avoid the heightened
disclosure burdens of Rule 13e–3.
The purpose of the proposed changes
to the Tier II tender offer exemptions in
Rules 13e–4(i), 14d–1(d) and 14e–5 is to
expand those exemptions to better
address areas of recurring regulatory
conflict. By codifying relief previously
granted by the staff for individual
transactions, the changes would reduce
compliance burdens on issuers and
bidders who would no longer need to
seek such relief for each individual
transaction. By enhancing the flexibility
of U.S. tender offer rules in cross-border
transactions, where those rules conflict
with common elements of foreign law or
practice, the changes would increase the
likelihood that bidders would include
U.S. investors in these transactions.
We do not anticipate that the
proposed changes to Rule 14e–5 will
have a significant impact, if any, on the
economy because they simply codify the
current scope of activities exempted
from that rule’s prohibitions through
existing class exemptive letters. We
believe that the proposed changes to
Rule 14e–5 should not place any burden
on competition as the proposed rule
changes apply equally to all market
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participants covered by the rule. We
believe that the Rule 14e–5 class
exemptive letters concerning Tier II
cross-border transactions have promoted
efficiency and capital formation by
eliminating the time and cost burdens
associated with individual grants of
relief. We believe that the codification
of those letters similarly should foster
efficiency and cross-border capital
formation.
The proposed amendment to Rule
162(a) expanding the ability of offerors
to commence an exchange offer early
where a tender offer is not subject to
Regulation 14D or Rule 13e–4 would
further equalize the regulatory burden
between cash tender offers and
exchange offers. Because foreign rules
often contain a mandatory offer
requirement, obligating an offeror to
make a tender offer for a given class of
securities, these rule changes would
place mandatory offers for unregistered
classes of securities on an equal footing
with offers for registered equity
securities.
The proposed changes to require that
Forms CB and F–X be filed
electronically on EDGAR could impose
additional compliance costs on filers.
Since Form F–X is filed only by foreign
companies, the proposed change to that
form would not impact U.S. companies.
Requiring these forms to be filed
electronically by all entities would level
the playing field, since the forms are
currently required to be filed
electronically only by entities subject to
a reporting obligation under Exchange
Act Section 13(a) or 15(d).
The proposed changes to Schedule
TO and Forms S–4 and F–4 would
result in negligible additional
compliance costs for filing persons.
Because the proposed changes would
require filers to publicly disclose
information that they would already
know if they are relying on the crossborder exemptions, we believe there
would be little cost in implementing
this change. Where the filer of a
Schedule TO or Form S–4 or Form F–
4 is not relying on the cross-border
exemptions, no action would be
required. In addition, this requirement
applies equally to domestic and foreign
filers. The proposed changes with
respect to this schedule and these forms
would not alter in any way the
circumstances under which an offeror
would incur a filing obligation under
our rules.
The proposed rule changes generally
would enhance efficiency in conducting
cross-border tender offers and business
combination transactions by
streamlining the application of U.S. and
foreign rules that may apply to those
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transactions. We expect that they would
promote capital formation by facilitating
cross-border business combination
transactions conducted under multiple
and possibly conflicting regulatory
systems. Some of the proposed rule
revisions, such as the changes that
would broaden the availability of early
commencement for exchange offers and
the applicability of the Tier II
exemptions for tender offers not subject
to Rule 13e–4 or Regulation 14D, may be
viewed as enhancing competition
between competing offers for the same
target securities, because they would
make these provisions available to
different kinds of offers. Furthermore,
the proposed rule changes would reduce
the regulatory burden on entities
engaging in cross-border business
combination transactions generally,
which may promote competition by
encouraging additional entities to
engage in these types of transactions.
We solicit comment on whether the
proposed rule changes would impose a
burden on competition or whether they
would promote efficiency, competition
and capital formation. For example,
would the proposals have an adverse
effect on competition that is neither
necessary nor appropriate in furtherance
of the purposes of the Exchange Act?
Would the proposals have an adverse
effect on U.S. or foreign issuers?
Commenters are requested to provide
empirical data and other factual support
for their views where possible.
VII. Initial Regulatory Flexibility
Analysis
This Initial Regulatory Flexibility
Analysis in accordance with 5 U.S.C.
603. It relates to proposed revisions to
the rules and forms.358
A. Reasons for, and Objectives of,
Proposed Action
The proposed rule changes are
intended primarily to facilitate the
inclusion of U.S. target security holders
in cross-border business combination
transactions. The rule changes would
result in further reductions in the cost
and burdens associated with including
U.S. target holders in those transactions.
U.S. target holders previously excluded
from such transactions would benefit by
having additional transactions extended
to them.
The proposed rule changes are
incremental in nature and would not be
a significant departure from the current
cross-border exemptions. The changes
358 Based on an analysis of the language and
legislative history of the Regulatory Flexibility Act,
Congress does not appear to have intended the Act
to apply to foreign issuers. Therefore, we are
analyzing the impact on small U.S. entities only.
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would further harmonize U.S. and
foreign law and practice, and to
facilitate greater inclusion of U.S. target
holders in cross-border transactions. In
many instances, the proposed changes
would codify existing staff
interpretations and exemptive relief. We
do not believe any less restrictive
alternative to the proposed rule
amendments exists that would serve the
purpose of the tender offer and
registration requirements of the federal
securities laws. We did not identify
alternatives to the proposed rules that
are consistent with their objectives and
our statutory authority. The proposed
rules would not duplicate or conflict
with any existing federal rule
provisions.
B. Legal Basis
We are proposing the amendments to
the forms and rules under the authority
set forth in Sections 3(b), 7, 8, 9, 10, 19,
and 28 of the Securities Act, and
Sections 12, 13, 14, 23, 35A, and 36 of
the Exchange Act.
C. Small Entities Subject to the
Proposed Rules
The Regulatory Flexibility Act defines
‘‘small entity’’ to mean ‘‘small
business,’’ ‘‘small organization,’’ or
‘‘small governmental jurisdiction.’’ 359
The Commission’s rules define ‘‘small
business’’ and ‘‘small organization’’ for
purposes of the Regulatory Flexibility
Act for each of the types of entities
regulated by the Commission.360 A
‘‘small business’’ and ‘‘small
organization,’’ when used with
reference to an issuer other than an
investment company, generally means
an issuer with total assets of $5 million
or less on the last day of its most recent
fiscal year. We estimate that there are
approximately 1,100 issuers that may be
considered reporting small entities.361
The proposed rules may affect each of
the approximately 1,100 issuers that
may be considered reporting small
entities. We have no data to determine
how many reporting or non-reporting
small businesses may actually rely on
the proposed rules, or may otherwise be
impacted by the rule proposals.
Acquirors relying on the exemptions
may or may not have reporting
obligations under the Exchange Act
prior to engaging in a cross-border
business combination transaction. An
359 5
U.S.C. 601(6).
Act Rule 157 (17 CFR 230.157) and
Exchange Act Rule 0–10 (17 CFR 240.0–10) contain
the applicable definitions.
361 The estimated number of reporting small
entities is based on 2007 data, including the
Commission’s EDGAR database and Thomson
Financial’s Worldscope database.
360 Securities
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acquiror’s ability to rely on the
exemptions is not determined by the
acquiror’s size or market capitalization.
However, we believe that small
businesses are not typically acquirors in
cross-border transactions. We believe
that the proposed amendments would
result in savings to entities (both small
and large) that qualify for the
exemptions. We request comment on
the number of small entities that would
be affected by our proposals, including
any available empirical data.
D. Reporting, Recordkeeping and Other
Compliance Requirements
The proposed amendments would not
impose any new reporting,
recordkeeping or other compliance
requirements on issuers that are small
entities.
E. Duplicative, Overlapping or
Conflicting Federal Rules
The Commission believes that there
are no rules that duplicate, overlap or
conflict with the proposed amendments.
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F. Significant Alternatives
The Regulatory Flexibility Act directs
the Commission to consider significant
alternatives that would accomplish the
stated objective, while minimizing any
significant adverse impact on small
entities. In connection with the
proposed amendments, the Commission
considered the following alternatives: (i)
The establishment of differing
compliance or reporting requirements or
timetables that take into account the
resources of small entities; (ii) the
clarification, consolidation or
simplification of compliance and
reporting requirements under the rule
for small entities; (iii) the use of
performance rather than design
standards; and (iv) an exemption from
coverage of the proposed amendment, or
any part thereof, for small entities.
The proposed amendments are
designed to expand and enhance the
usefulness of the current cross-border
exemptions. The Commission believes
that different compliance or reporting
requirements are not necessary because
the proposed amendments do not
establish any new reporting,
recordkeeping, or compliance
requirements for small entities.
Establishing a different standard for
small business entities would impose a
greater compliance burden on small
entities and would be inconsistent with
the benefits provided for all entities that
are able to avail themselves of the
exemptions.
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G. Solicitation of Comment
Text of Proposals
The Commission encourages the
submission of comments with respect to
any aspect of this Initial Regulatory
Flexibility Analysis. We will consider
any comments in preparing the Final
Regulatory Flexibility Analysis, if the
proposed amendments are adopted, and
the comments will be placed in the
same public file as comments on the
proposed amendments themselves. In
particular, we request comments
regarding:
• The number of small entities that
may be affected by the proposals;
• The existence or nature of the
potential impact of the proposals on
small entities discussed in the analysis;
and
• How to quantify the impact of the
proposed rules.
Commenters are asked to describe the
nature of any impact and provide
empirical data supporting the extent of
the impact.
In accordance with the foregoing, we
are proposing to amend Title 17,
Chapter II of the Code of Federal
Regulations as follows:
VIII. Small Business Regulatory
Enforcement Fairness Act
For purposes of the Small Business
Regulatory Enforcement Fairness Act of
1996 (the ‘‘SBREFA’’),362 a rule is
‘‘major’’ if it has resulted, or is likely to
result in:
• An annual effect on the economy of
$100 million or more;
• A major increase in costs or prices
for consumers or individual industries;
or
• Significant adverse effects on
competition, investment or innovation.
We request comment on whether our
proposals would be a ‘‘major rule’’ for
purposes of the SBREFA. We solicit
comment and empirical data on:
• The potential effect on the U.S.
economy on an annual basis;
• Any potential increase in costs or
prices for consumers or individual
industries; and
• Any potential effect on competition,
investment or innovation.
IX. Statutory Basis and Text of Proposal
We propose amendments to the forms
and rules under the authority set forth
in Sections 3(b), 7, 8, 9, 10, 19 and 28
of the Securities Act, and Sections 12,
13, 14, 23, 35A, and 36 of the Exchange
Act.
List of Subjects in 17 CFR Parts 230,
232, 239, 240, and 249
Reporting and recordkeeping
requirements, Securities.
362 Public
Law 104–121, Title II, 110 Stat. 857
(1996) (codified in various sections of 50 U.S.C., 15
U.S.C. and as a note to 5 U.S.C. 601).
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PART 230—GENERAL RULES AND
REGULATIONS, SECURITIES ACT OF
1933
1. The authority citation for Part 230
continues to read, in part, as follows:
Authority: 15 U.S.C. 77b, 77c, 77d, 77f,
77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 78c, 78d,
78j, 78l, 78m, 78n, 78o, 78t, 78w, 78ll(d),
78mm, 80a–8, 80a–24, 80a–28, 80a–29, 80a–
30, and 80a–37, unless otherwise noted.
*
*
*
*
*
2. Revise § 230.162(a) to read as
follows:
§ 230.162 Submission of tenders in
registered exchange offers.
(a) Notwithstanding section 5(a) of the
Act (15 U.S.C. 77e(a)), offerors may
solicit tenders of securities in an
exchange offer subject to § 240.13e–4(e)
or § 240.14d–4(b) of this chapter, and in
exchange offers conducted under
§ 240.13e–4(i) or § 240.14d–1(d) of this
chapter that are not subject to
§ 240.13e–4(e) or § 240.14d–4(b) of this
chapter to the extent permitted under
§ 240.13e–4(i)(2)(vi) and § 240.14d–
1(d)(2)(x) of this chapter, before a
registration statement is effective as to
the security offered, so long as no
securities are purchased until the
registration statement is effective and
the tender offer has expired in
accordance with the tender offer rules.
*
*
*
*
*
3. Revise § 230.800(h)(1) to read as
follows:
§ 230.800 Definitions for §§ 230.800,
230.801 and 230.802.
*
*
*
*
*
(h) * * *
(1) Calculate percentage of
outstanding securities held by U.S.
holders as of the record date for a rights
offering and as of a date no more than
60 days before the public announcement
of an exchange offer or a business
combination.
*
*
*
*
*
4. Amend § 230.802 by revising
paragraphs (a)(2), (a)(3), (c)(2), (c)(3) and
(c)(4) to read as follows:
§ 230.802 Exemption for offerings in
connection with an exchange offer or
business combination for the securities of
foreign private issuers.
*
*
*
*
*
(a) * * *
(2) Equal treatment. The offeror must
permit U.S. holders to participate in the
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exchange offer or business combination
on terms at least as favorable as those
offered any other holder of the subject
securities. The offeror, however, need
not extend the offer to security holders
in those states or jurisdictions that
require registration or qualification,
except that the offeror must offer the
same cash alternative to security holders
in any such state that it has offered to
security holders in any other state or
jurisdiction.
(3) Informational documents. (i) If the
offeror publishes or otherwise
disseminates an informational
document to the holders of the subject
securities in connection with the
exchange offer or business combination,
the offeror must furnish that
informational document, including any
amendments thereto, in English, to the
Commission on Form CB (§ 239.800 of
this chapter) by the first business day
after publication or dissemination. If the
offeror is a foreign company, it must
also file a Form F–X (§ 239.42 of this
chapter) with the Commission at the
same time as the submission of the
Form CB to appoint an agent for service
of process in the United States.
(ii) The offeror must disseminate the
informational document to U.S. holders,
including any amendments thereto, in
English, on a comparable basis to that
provided to security holders in the
foreign subject company’s home
jurisdiction.
(iii) If the offeror disseminates by
publication in its home jurisdiction, the
offeror must publish the information in
the United States in a manner
reasonably calculated to inform U.S.
holders of the offer.
*
*
*
*
*
(c) * * *
(2) The aggregate trading volume of
the subject class of securities on all
national securities exchanges in the
United States or on the OTC market, as
reported to the Financial Industry
Regulatory Authority Inc., over the 12calendar-month period ending on a date
no more than 60 days before public
announcement of the offer, exceeds 10
percent of the worldwide aggregate
trading volume of that class of securities
over the same period;
(3) The most recent annual report or
annual information filed or submitted
by the issuer with securities regulators
of the home jurisdiction or with the
Commission before the public
announcement of the offer indicates that
U.S. holders hold more than 10 percent
of the outstanding subject class of
securities; or
(4) The offeror knows, or has reason
to know, before the public
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23:58 May 08, 2008
Jkt 214001
announcement of the offer, that U.S.
ownership exceeds 10 percent of the
subject securities. As an example, for
purposes of this paragraph, an offeror is
deemed to have reason to know
information about U.S. ownership of the
subject class of securities that is
publicly available and that appears in
any filing with the Commission or any
regulatory body in the issuer’s
jurisdiction of incorporation or (if
different) the non-U.S. jurisdiction in
which the primary trading market for
the subject securities is located. This
example is not intended to be exclusive.
PART 232—REGULATION S–T—
GENERAL RULES AND REGULATIONS
FOR ELECTRONIC FILINGS
5. The authority citation for Part 232
continues to read, in part, as follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j,
77s(a), 77z–3, 77sss(a), 78c(b), 78l, 78m, 78n,
78o(d), 78w(a), 78ll, 80a–6(c), 80a–8, 80a–29,
80a–30, 80a–37, and 7201 et. seq.; and 18
U.S.C. 1350.
*
*
*
*
*
6. Amend § 232.101 by:
a. Revising paragraphs (a)(1)(vi) and
(a)(1)(vii);
b. Removing and reserving paragraph
(b)(7); and
c. Revising paragraph (b)(8) to read as
follows:
8. Form S–4 (referenced in § 239.25)
is amended by adding a statement
regarding reliance on the cross-border
exemptions and check boxes on the
cover page immediately before the
‘‘Calculation of Registration Fee’’ table
to read as follows:
Note: The text of Form S–4 does not and
this amendment will not appear in the Code
of Federal Regulations.
Form S–4 Registration Statement Under
the Securities Act of 1933
*
*
*
*
*
If applicable, place an X in the box to
designate the appropriate rule provision
relied upon in conducting this
transaction:
Exchange Act Rule 13e–4(i) (Issuer
Tender Offer) b
Exchange Act Rule 14d–1(d) (Third
Party Tender Offer) b
*
*
*
*
*
9. Amend Form F–4 (referenced in
§ 239.34) by adding a statement
regarding reliance on the cross-border
exemptions and check boxes on the
cover page immediately before the
‘‘Calculation of Registration Fee’’ table
to read as follows:
Note: The text of Form F–4 does not and
this amendment will not appear in the Code
of Federal Regulations.
Form F–4 Registration Statement Under
the Securities Act of 1933
§ 232.101 Mandated electronic
submissions and exceptions.
(a) * * *
(1) * * *
(vi) Form CB (§§ 239.800 and 249.480
of this chapter) filed or submitted under
§ 230.801 or 230.802 of this chapter or
§ 240.13e–4(h)(8), 240.14d–1(c), or
240.14e–2(d) of this chapter;
(vii) Form F–X (§ 239.42 of this
chapter) when filed in connection with
a Form CB (§§ 239.800 and 249.480 of
this chapter);
*
*
*
*
*
(b) * * *
(8) Form F–X (§ 232.42 of this
chapter) if filed by a Canadian issuer
when qualifying an offering statement
pursuant to the provisions of Regulation
A (§§ 230.251–230.263 of this chapter);
*
*
*
*
*
*
*
*
*
*
If applicable, place an X in the box to
designate the appropriate rule provision
relied upon in conducting this
transaction:
Exchange Act Rule 13e–4(i) (Issuer
Tender Offer) b
Exchange Act Rule 14d–1(d) (Third
Party Tender Offer) b
*
*
*
*
*
10. Amend Form F–X (referenced in
§ 239.42) by revising the Note to General
Instruction II.B.(2) to read as follows:
PART 239—FORMS PRESCRIBED
UNDER THE SECURITIES ACT OF 1933
*
Note: The text of Form F–X does not and
this amendment will not appear in the Code
of Federal Regulations.
Form F–X Appointment of Agent for
Service of Process and Undertaking
General Instructions
7. The authority citation for part 239
continues to read in part as follows:
*
*
II. * * *
B. * * *
(2) * * *
*
*
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s,
77z–2, 77z–3, 77sss, 78c, 78l, 78m, 78n,
78o(d), 78u–5, 78w(a), 78ll, 78mm, 80a–2(a),
80a–3, 80a–8, 80a–9, 80a–10, 80a–13, 80a–
24, 80a–26, 80a–29, 80a–30, and 80a–37,
unless otherwise noted.
Note: Regulation S–T Rule 101(b)(8) only
permits the filing of the Form F–X in paper
if filed by a Canadian issuer when qualifying
an offering statement pursuant to the
provisions of Regulation A (§§ 230.251—
230.263 of this chapter).
*
*
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*
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*
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*
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*
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*
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PART 240—GENERAL RULES AND
REGULATIONS, SECURITIES
EXCHANGE ACT OF 1934
Category
11. The authority citation for Part 240
continues to read, in part, as follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j,
77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn,
77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j,
78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78p,
78q, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 80a–
20, 80a–23, 80a–29, 80a–37, 80b–3, 80b–4,
80b–11, and 7201 et seq.; and 18 U.S.C. 1350,
unless otherwise noted.
*
*
*
*
*
12. Amend § 240.13d–1 by:
a. Removing ‘‘; and’’ from the end of
paragraph (b)(1)(ii)(I);
b. Adding paragraph (b)(1)(ii)(K); and
c. Removing the authority citation
following the section.
The addition reads as follows:
§ 240.13d–1
13G.
Filing of Schedules 13D and
*
*
*
*
*
(b)(1) * * *
(ii) * * *
(K) A non-U.S. institution that is the
functional equivalent of any of the
institutions listed in paragraphs
(b)(1)(ii)(A) through (J) of this section, so
long as the non-U.S. institution is
subject to a regulatory scheme that is
comparable to the regulatory scheme
applicable to the equivalent U.S.
institution; and
*
*
*
*
*
13. Amend § 240.13d–102 by:
a. Revising Instruction 12 to the
Instruction for the Cover Page before the
Notes;
b. In Item 3 removing the period at the
end of paragraphs (a), (b), (c), and (d)
and in each place adding a semicolon;
c. In Item 3 removing the period at the
end of paragraph (j) and in its place
adding a semicolon and adding
paragraph (k); and
d. In Item 10 redesignating paragraph
(b) as paragraph (c) and adding new
paragraph (b).
The revision and additions read as
follows:
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§ 240.13d–102 Schedule 13G—Information
to be included in statements filed pursuant
to § 240.13d–1(b), (c), and (d) and
amendments thereto filed pursuant to
§ 240.13d–2.
*
*
*
*
*
Instructions for Cover Page:
*
*
*
*
*
(12) Type of Reporting Person—Please
classify each ‘‘reporting person’’
according to the following breakdown
(see Item 3 of Schedule 13G) and place
the appropriate Symbol on the form:
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23:58 May 08, 2008
Jkt 214001
Symbol
Broker Dealer ...................................
Bank ..................................................
Insurance Company .........................
Investment Company ........................
Investment Adviser ...........................
Employee Benefit Plan or Endowment Fund .....................................
Parent Holding Company/Control
Person ...........................................
Savings Association .........................
Church Plan ......................................
Corporation .......................................
Partnership .......................................
Individual ...........................................
Non-U.S. Institution ..........................
Other .................................................
BD
BK
IC
IV
IA
*
*
*
*
EP
HC
SA
CP
CO
PN
IN
FI
OO
*
Item 3. * * *
(k) [ ] A non-U.S. institution that is
the functional equivalent of any of the
institutions listed in paragraphs (a)–(j)
of this Item. Please specify the type of
institution: lll
*
*
*
*
*
Item 10. Certification
*
*
*
*
*
(b) The following certification shall be
included if the statement is filed
pursuant to § 240.13d–1(b)(1)(ii)(K):
By signing below I certify that, to the
best of my knowledge and belief, the
foreign regulatory scheme applicable to
[insert particular category of
institutional investor] is comparable to
the regulatory scheme applicable to the
functionally equivalent U.S.
institution(s). I also undertake to furnish
to the Commission staff, upon request,
information that would otherwise be
disclosed in a Schedule 13D.
*
*
*
*
*
14. Amend § 240.13e–3 by revising
paragraph (g)(6) to read as follows:
§ 240.13e–3 Going private transactions by
certain issuers or their affiliates.
*
*
*
*
*
(g) * * *
(6) Any tender offer or business
combination made in compliance with
§ 230.802 of this chapter, § 240.13e–
4(h)(8) or § 240.14d–1(c) or any other
kind of transaction that otherwise meets
the conditions for reliance on the crossborder exemptions set forth in
§ 240.13e–4(h)(8), 240.14d–1(c) or
230.802(a) of this chapter except for the
fact that it is not technically conducted
under those rules.
15. Amend § 240.13e–4 by:
a. Revising the introductory text of
paragraph (i);
b. Revising paragraph (i)(2)(ii);
c. Adding paragraphs (i)(2)(v) and (vi);
and
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d. Revising paragraph 2.i. to the
Instructions to paragraph (h)(8) and (i).
The revisions and additions read as
follows:
§ 240.13e–4
Tender offers by issuers.
*
*
*
*
*
(i) Cross-border tender offers (Tier II).
Any issuer tender offer (including any
exchange offer) that meets the
conditions in paragraph (i)(1) of this
section shall be entitled to the
exemptive relief specified in paragraph
(i)(2) of this section, provided that such
issuer tender offer complies with all the
requirements of this section other than
those for which an exemption has been
specifically provided in paragraph (i)(2)
of this section. In addition, any issuer
tender offer (including any exchange
offer) subject only to the requirements of
section 14(e) of the Act and Regulation
14E (§§ 240.14e–1 through 240.14e–8)
thereunder that meets the conditions in
paragraph (i)(1) of this section also shall
be entitled to the exemptive relief
specified in paragraph (i)(2) of this
section, to the extent needed under the
requirements of Regulation 14E
provided the tender offer complies with
all other requirements of Regulation 14E
other than those for which an
exemption has been specifically
provided in paragraph (i)(2) of this
section:
*
*
*
*
*
(2) * * *
(ii) Equal treatment—separate U.S.
and foreign offers. Notwithstanding the
provisions of paragraph (f)(8) of this
section, an issuer or affiliate conducting
an issuer tender offer meeting the
conditions of paragraph (i)(1) of this
section may separate the offer into
multiple offers: One offer made to U.S.
holders and all holders of American
Depositary Receipts representing
interests in the subject securities and
one or more offers made to non-U.S.
holders. The U.S. offer must be made on
terms at least as favorable as those
offered any other holder of the same
class of securities that is the subject of
the tender offers. U.S. holders may be
included in the foreign offer(s) only
where the laws of the jurisdiction
governing such foreign offer(s) expressly
preclude the exclusion of U.S. holders
from the foreign offer(s) and where the
offer materials distributed to U.S.
holders fully and adequately disclose
the risks of participating in the foreign
offer(s).
*
*
*
*
*
(v) Suspension of withdrawal rights
during counting of tendered securities.
The issuer or affiliate may suspend
withdrawal rights required under
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paragraph (f)(2) of this section at the end
of the offer and during the period that
securities tendered into the offer are
being counted, provided that:
(A) The issuer or affiliate has
provided an offer period including
withdrawal rights for a period of at least
20 U.S. business days;
(B) At the time withdrawal rights are
suspended, all offer conditions have
been satisfied or waived, except to the
extent that the issuer or affiliate is in the
process of determining whether a
minimum acceptance condition
included in the terms of the offer has
been satisfied by counting tendered
securities; and
(C) Withdrawal rights are suspended
only during the counting process and
are reinstated immediately thereafter,
except to the extent that they are
terminated through the acceptance of
tendered securities.
(vi) Early commencement.
Notwithstanding the requirements of
section 5(a) of the Act (15 U.S.C. 77e(a)),
the issuer or affiliate in an exchange
offer not subject to this section may
solicit tenders before a registration
statement is effective as to the security
offered to the same extent as would be
permitted pursuant to paragraph (e)(2)
of this section, so long as no securities
are purchased until the registration
statement is effective and the tender
offer has expired, and the issuer or
affiliate provides withdrawal rights to
the same extent as would be required if
the exchange offer were subject to the
requirements of section 13(e) of the Act
(15 U.S.C. 78m(e)) and paragraph
(f)(2)(i) of this section. If a material
change occurs in the information
published, sent or given to security
holders, the issuer or affiliate must
comply with the provisions of
paragraph (e)(3) of this section in
disseminating information about the
material change to security holders,
including the minimum periods during
which the offer must remain open after
notice of such change is provided to
security holders.
Instructions to paragraph (h)(8) and
(i) of this section:
*
*
*
*
*
2. * * *
i. Calculate the U.S. ownership as of
a date no more than 60 days before the
public announcement of the tender
offer;
*
*
*
*
*
16. Amend § 240.14d–1 by:
a. Revising paragraph (a);
b. Revising paragraph (d) introductory
text, paragraphs (d)(2)(ii) and (d)(2)(iv);
c. Adding paragraphs (d)(2)(vi),
(d)(2)(vii), (d)(2)(viii), (d)(2)(ix), and
(d)(2)(x); and
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Jkt 214001
d. Revising Instructions 2.i., 3.ii.,
3.iii., and 3.iv. to the Instructions to
paragraphs (c) and (d).
The revisions and additions read as
follows:
§ 240.14d–1 Scope of and definitions
applicable to Regulations 14D and 14E.
*
*
*
*
*
(a) Scope. Regulation 14D
(§§ 240.14d–1 through 240.14d–101)
shall apply to any tender offer which is
subject to section 14(d)(1) of the Act (15
U.S.C. 78n(d)(1)), including, but not
limited to, any tender offer for securities
of a class described in that section
which is made by an affiliate of the
issuer of such class. Regulation 14E
(§§ 240.14e–1 through 240.14e–8) shall
apply to any tender offer for securities
(other than exempted securities) unless
otherwise noted therein.
*
*
*
*
*
(d) Tier II. A person conducting a
tender offer (including any exchange
offer) that meets the conditions in
paragraph (d)(1) of this section shall be
entitled to the exemptive relief specified
in paragraph (d)(2) of this section,
provided that such tender offer
complies with all the requirements of
this section other than those for which
an exemption has been specifically
provided in paragraph (d)(2) of this
section. In addition, a person
conducting a tender offer subject only to
the requirements of section 14(e) of the
Act (15 U.S.C. 78n(e)) and Regulation
14E thereunder that meets the
conditions in paragraph (d)(1) of the
section also shall be entitled to the
exemptive relief specified in paragraph
(d)(2) of this section, to the extent
needed pursuant to the requirements of
Regulation 14E, provided that the tender
offer complies with all requirements of
Regulation 14E other than those for
which an exemption has been
specifically provided in paragraph (d)(2)
of this section:
*
*
*
*
*
(2) * * *
(ii) Equal treatment—separate U.S.
and foreign offers. Notwithstanding the
provisions of § 240.14d–10, a bidder
conducting a tender offer meeting the
conditions of paragraph (d)(1) of this
section may separate the offer into
multiple offers: One offer made to U.S.
holders and all holders of American
Depositary Receipts representing
interests in the subject securities and
one or more offers made to non-U.S.
holders. The U.S. offer must be made on
terms at least as favorable as those
offered any other holder of the same
class of securities that is the subject of
the tender offers. U.S. holders may be
included in the foreign offer(s) only
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26919
where the laws of the jurisdiction
governing such foreign offer(s) expressly
preclude the exclusion of U.S. holders
from the foreign offer(s) and where the
offer materials distributed to U.S.
holders fully and adequately disclose
the risks of participating in the foreign
offer(s).
*
*
*
*
*
(iv) Prompt payment. Payment made
in accordance with the requirements of
the home jurisdiction law or practice
will satisfy the requirements of
§ 240.14e–1(c). Where payment may not
be made on a more expedited basis
under home jurisdiction law or practice,
payment for securities tendered during
any subsequent offering period within
14 business days of the date of tender
will satisfy the prompt payment
requirements of § 240.14d–11(e). For
purposes of this paragraph, a business
day is determined with reference to the
target’s home jurisdiction.
*
*
*
*
*
(vi) Length of subsequent offering
period. Notwithstanding the provisions
of § 240.14d–11, the maximum time
period for a subsequent offering period
may extend beyond 20 U.S. business
days.
(vii) Payment of interest on securities
tendered during subsequent offering
period. Notwithstanding the
requirements of § 240.14d-11(f), the
bidder may pay interest on securities
tendered during a subsequent offering
period, if required under applicable
foreign law. Paying interest on securities
tendered during a subsequent offering
period in accordance with this section
will not be deemed to violate § 240.14d–
10(a)(2).
(viii) Suspension of withdrawal rights
during counting of tendered securities.
The bidder may suspend withdrawal
rights required under section 14(d)(5) of
the Act (15 U.S.C. 78n(d)(5)) at the end
of the offer and during the period that
securities tendered into the offer are
being counted, provided that:
(A) The bidder has provided an offer
period including withdrawal rights for a
period of at least 20 U.S. business days;
(B) At the time withdrawal rights are
suspended, all offer conditions have
been satisfied or waived, except to the
extent that the bidder is in the process
of determining whether a minimum
acceptance condition included in the
terms of the offer has been satisfied by
counting tendered securities; and
(C) Withdrawal rights are suspended
only during the counting process and
are reinstated immediately thereafter,
except to the extent that they are
terminated through the acceptance of
tendered securities.
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(ix) Mix and match elections and the
subsequent offering period.
Notwithstanding the requirements of
§ 240.14d–11(b), where the bidder offers
target security holders a choice between
different forms of consideration, it may
establish a ceiling on one or more forms
of consideration offered.
Notwithstanding the requirements of
§ 240.14d–11(f), a bidder that
establishes a ceiling on one or more
forms of consideration offered pursuant
to this subsection may offset elections of
tendering security holders against one
another, subject to proration, so that
elections are satisfied to the greatest
extent possible and pro rated to the
extent that they cannot be satisfied in
full. Such a bidder also may separately
offset and pro rate securities tendered
during the initial offering period and
those tendered during any subsequent
offering period, notwithstanding the
requirements of § 240.14d–10(c).
(x) Early commencement.
Notwithstanding the requirements of
section 5(a) of the Act (15 U.S.C. 77e(a)),
the bidder in an exchange offer not
subject to § 240.14d–4(b) may solicit
tenders before a registration statement is
effective as to the security offered to the
same extent as would be permitted
pursuant to § 240.14d–4(b), so long as
no securities are purchased until the
registration statement is effective and
the tender offer has expired, and the
bidder provides withdrawal rights to the
same extent as would be required if the
exchange offer were subject to the
requirements of § 240.14d–7. If a
material change occurs in the
information published, sent or given to
security holders, the bidder must
comply with the provisions of
§ 240.14d–4(d) in disseminating
information about the material change
to security holders, including the
minimum periods during which the
offer must remain open after notice of
such change is provided to security
holders.
Instructions to paragraphs (c) and (d):
*
*
*
*
*
2. * * *
i. Calculate the U.S. ownership as of
a date no more than 60 days before the
public announcement of the tender
offer;
*
*
*
*
*
3. * * *
ii. The aggregate trading volume of the
subject class of securities on all national
securities exchanges in the United
States or on the OTC market, as reported
to the Financial Industry Regulatory
Authority, Inc. over the 12-calendarmonth period ending on a date no more
than 60 days before public
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23:58 May 08, 2008
Jkt 214001
announcement of the offer, exceeds 10
percent (40 percent in the case of
paragraph (d) of this section) of the
worldwide aggregate trading volume of
that class of securities over the same
period;
iii. The most recent annual report or
annual information filed or submitted
by the issuer with securities regulators
of the home jurisdiction or with the
Commission before the public
announcement of the offer indicates that
U.S. holders hold more than 10 percent
(40 percent in the case of paragraph (d)
of this section) of the outstanding
subject class of securities; or
iv. The bidder knows or has reason to
know, before the public announcement
of the offer, that the level of U.S.
ownership exceeds 10 percent (40
percent in the case of paragraph (d) of
this section) of such securities. As an
example, for purposes of this
Instruction, a bidder is deemed to have
reason to know information about U.S.
ownership of the subject class of
securities that is publicly available and
that appears in any filing with the
Commission or any regulatory body in
the issuer’s jurisdiction of incorporation
or (if different) the non-U.S. jurisdiction
in which the primary trading market for
the subject securities is located. This
example is not intended to be exclusive.
*
*
*
*
*
17. Amend § 240.14d–100 by adding a
statement regarding reliance on the
cross-border exemptions and check
boxes on the cover page immediately
before the General Instructions to read
as follows:
§ 240.14d–100 Schedule TO. Tender offer
statement under section 14(d)(1) or 13(e)(1)
of the Securities Exchange Act of 1934.
Schedule TO—Tender Offer Statement
Under Section 14(d)(1) or 13(e)(1) of the
Securities Exchange Act of 1934
*
*
*
*
*
If applicable, check the appropriate
box(es) below to designate the
appropriate rule provision(s) relied
upon:
[ ] Rule 13e–4(i) (Issuer Tender Offer)
[ ] Rule 14d–1(d) (Third-Party Tender
Offer)
*
*
*
*
*
18. Amend § 240.14e–5 by:
a. Removing ‘‘and’’ at the end of
paragraphs (b)(9) and (c)(6);
b. Removing the period at the end of
paragraphs (b)(10) and (c)(7) and in its
place adding ‘‘; and’’; and
c. Adding paragraphs (b)(11), (b)(12),
(c)(8), and (c)(9).
The additions read as follows:
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§ 240.14e–5. Prohibiting purchases
outside of a tender offer.
*
*
*
*
*
(b) Excepted activity. * * *
(11) Purchases or arrangements to
purchase pursuant to a foreign tender
offer(s). Purchases or arrangements to
purchase pursuant to a foreign offer(s)
where the offeror seeks to acquire
subject securities through a U.S. tender
offer and a concurrent or substantially
concurrent foreign offer(s), if the
following conditions are satisfied:
(i) The U.S. and foreign tender offer(s)
meet the conditions for reliance on the
Tier II cross-border exemptions set forth
in § 240.14d–1(d);
(ii) The economic terms and
consideration in the U.S. tender offer
and foreign tender offer(s) are the same,
provided that any cash consideration to
be paid to U.S. security holders may be
converted from the currency to be paid
in the foreign tender offer(s) to U.S.
dollars at an exchange rate disclosed in
the U.S. offering documents;
(iii) The procedural terms of the U.S.
tender offer are at least as favorable as
the terms of the foreign tender offer(s);
(iv) The intention of the offeror to
make purchases pursuant to the foreign
tender offer(s) is disclosed in the U.S.
offering documents; and
(v) Purchases by the offeror in the
foreign tender offer(s) are made solely
pursuant to the foreign tender offer(s)
and not pursuant to an open market
transaction(s), a private transaction(s),
or other transaction(s); and
(12) Purchases or arrangements to
purchase by an affiliate of the financial
advisor and an offeror and its affiliates.
(i) Purchases or arrangements to
purchase by an affiliate of a financial
advisor and an offeror and its affiliates
that are permissible under and will be
conducted in accordance with the
applicable laws of the subject
company’s home jurisdiction if the
following conditions are satisfied:
(A) The subject company is a foreign
private issuer as defined in § 240.3b–
4(c);
(B) The covered person reasonably
expects that the tender offer meets the
conditions for reliance on the Tier II
cross-border exemptions set forth in
§ 240.14d–1(d);
(C) No purchases or arrangements to
purchase otherwise than pursuant to the
tender offer are made in the United
States;
(D) The United States offering
materials disclose prominently: The
possibility of, or the intention to make,
purchases or arrangements to purchase
subject securities or related securities
outside of the tender offer, and if there
will be public disclosure of purchases of
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subject or related securities, the manner
in which information regarding such
purchases will be disseminated;
(E) There is public disclosure in the
United States, to the extent that such
information is made public in the
subject company’s home jurisdiction, of
information regarding all purchases of
subject securities and related securities
otherwise than pursuant to the tender
offer from the time of public
announcement of the tender offer until
the tender offer expires;
(F) Purchases or arrangements to
purchase by an offeror and its affiliates
must satisfy the following additional
condition: the tender offer price will be
increased to match any consideration
paid outside of the tender offer that is
greater than the tender offer price; and
(G) Purchases or arrangements to
purchase by an affiliate of a financial
advisor must satisfy the following
additional conditions:
(1) The financial advisor and the
affiliate maintain and enforce written
policies and procedures reasonably
designed to prevent the transfer of
information among the financial advisor
and affiliate that might result in a
violation of U.S. federal securities laws
and regulations through the
establishment of information barriers;
(2) The financial advisor has an
affiliate that is registered as a broker or
dealer under section 15(a) of the Act (15
U.S.C. 78o(a));
(3) The affiliate has no officers (or
persons performing similar functions) or
employees (other than clerical,
ministerial, or support personnel) in
common with the financial advisor that
direct, effect, or recommend
transactions in the subject securities or
related securities who also will be
involved in providing the offeror or
subject company with financial advisory
services or dealer-manager services; and
(4) The purchases or arrangements to
purchase are not made to facilitate the
tender offer.
(ii) The provisions of paragraph
(b)(12)(i) of this section shall not apply
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23:58 May 08, 2008
Jkt 214001
to risk arbitrage trading by an affiliate of
a financial advisor.
(c) Definitions. * * *
(8) Subject company has the same
meaning as in § 229.1000 of this
chapter.
(9) Home jurisdiction has the same
meaning as in the Instructions to
paragraphs (c) and (d) of § 240.14d–1.
*
*
*
*
*
PART 239—FORMS PRESCRIBED
UNDER THE SECURITIES ACT OF 1933
PART 249—FORMS, SECURITIES
EXCHANGE ACT OF 1934
19. The authority citation for part 249
continues to read in part as follows:
Authority: 15 U.S.C. 78a et. seq., 7202,
7233, 7241, 7262, 7264, and 7265; and 18
U.S.C. 1350, unless otherwise noted.
*
*
*
*
*
20. Amend Form CB (referenced in
§ 239.800 and § 249.480) by:
a. Removing the line ‘‘Filed or
submitted in paper if permitted by
Regulation S–T Rule 101(b)(8) [ ]’’ and
the corresponding Note on the cover
page;
b. Revising General Instruction
II.A.(1);
c. Removing General Instruction
II.A.(2) and redesignating General
Instruction II.A.(3) and (4) as General
Instruction II.A.(2) and (3); and
d. Revising General Instructions B and
D.
Note: The text of Form CB does not and
this amendment will not appear in the Code
of Federal Regulations.
Form CB
TENDER OFFER/RIGHTS OFFERING
NOTIFICATION FORM
(AMENDMENT NO. ll)
*
*
*
*
*
General Instructions
*
*
*
*
*
II. Instructions for Submitting Form
A. (1) Regulation S–T Rule
101(a)(1)(vi) (17 CFR 232.101(a)(1)(vi))
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26921
requires a party to submit the Form CB
in electronic format via the
Commission’s Electronic Data
Gathering, Analysis, and Retrieval
system (EDGAR) in accordance with the
EDGAR rules set forth in Regulation S–
T (17 CFR Part 232). For assistance with
technical questions about EDGAR or to
request an access code, call the EDGAR
Filer Support Office at (202) 551–8900.
*
*
*
*
*
B. When submitting the Form CB in
electronic format, the persons specified
in Part IV must provide signatures in
accordance with Regulation S–T Rule
302 (17 CFR 232.302). When submitting
the Form CB in paper in accordance
with a hardship exemption, the persons
specified in Part IV must sign the
original and at least one copy of the
Form and any amendments. You must
conform any unsigned copies. The
specified persons may provide typed or
facsimile signatures in accordance with
Securities Act Rule 402(e) (17 CFR
230.402(e)) or Exchange Act Rule 12b–
11(d) (17 CFR 240.12b–11(d)) as long as
the filer retains copies of signatures
manually signed by each of the
specified persons for five years.
*
*
*
*
*
D. If filing in paper pursuant to a
hardship exemption, in addition to any
internal numbering you may include,
sequentially number the signed original
of the Form and any amendments by
handwritten, typed, printed or other
legible form of notation from the first
page of the document through the last
page of the document and any exhibits
or attachments. Further, you must set
forth the total number of pages
contained in a numbered original on the
first page of the document.
*
*
*
*
*
Dated: May 6, 2008.
By the Commission.
Nancy M. Morris,
Secretary.
[FR Doc. E8–10388 Filed 5–8–08; 8:45 am]
BILLING CODE 8010–01–P
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]]>Agencies
[Federal Register Volume 73, Number 91 (Friday, May 9, 2008)]
[Proposed Rules]
[Pages 26876-26921]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-10388]
[[Page 26875]]
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Part IV
Securities and Exchange Commission
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17 CFR Parts 230, 232, 239, 240, and 249
Revisions to the Cross-Border Tender Offer, Exchange Offer, and
Business Combination Rules and Beneficial Ownership Reporting Rules for
Certain Foreign Institutions; Proposed Rule
Federal Register / Vol. 73 , No. 91 / Friday, May 9, 2008 / Proposed
Rules
[[Page 26876]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 230, 232, 239, 240, and 249
[Release Nos. 33-8917; 34-57781; File No. S7-10-08]
RIN 3235-AK10
Revisions to the Cross-Border Tender Offer, Exchange Offer, and
Business Combination Rules and Beneficial Ownership Reporting Rules for
Certain Foreign Institutions
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: After eight years of experience with the current cross-border
exemptions adopted in 1999, the Commission is proposing changes to
expand and enhance the utility of these exemptions for business
combination transactions. Our goal continues to be to encourage
offerors and issuers in cross-border business combinations, and rights
offerings by foreign private issuers, to permit U.S. security holders
to participate in these transactions in the same manner as other
holders. Many of the rule changes we propose today would codify
existing interpretive positions and exemptive orders in the cross-
border area. In several instances, we request comment about whether the
rule changes we propose also should apply to tender offers for U.S.
companies. In this release, we also address certain interpretive issues
of concern for U.S. and other offerors engaged in cross-border business
combinations. We hope that this guidance will prove useful in
structuring and facilitating these transactions in a manner consistent
with U.S. investor protection.
DATES: Comments should be received on or before June 23, 2008.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/proposed.shtml);
Send an e-mail to rule-comments@sec.gov. Please include
File Number S7-10-08 on the subject line; or
Use the Federal Rulemaking Portal (https://
www.regulations.gov). Follow the instructions for submitting comments.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, U.S. Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number S7-10-08. This file number
should be included on the subject line if e-mail is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (https://www.sec.gov/rules/proposed.shtml). Comments
also are available for public inspection and copying in the
Commission's Public Reference Room, 100 F Street, NE., Washington, DC
20549, on official business days between the hours of 10 a.m. and 3
p.m. All comments received will be posted without change; we do not
edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT: Christina Chalk, Senior Special
Counsel, or Tamara Brightwell, Senior Special Counsel, at (202) 551-
3440, in the Division of Corporation Finance, and Elizabeth Sandoe,
Branch Chief, at (202) 551-5720, in the Division of Trading and Markets
(for questions relating to the proposed changes to Rule 14e-5), U.S.
Securities and Exchange Commission, 100 F Street, NE., Washington, DC
20549-3628.
SUPPLEMENTARY INFORMATION: We propose to amend Rules 162,\1\ 800 \2\
and 802 \3\ under the Securities Act of 1933 \4\ and Rule 101 \5\ of
Regulation S-T.\6\ We also propose to amend Rules 13d-1,\7\ 13e-3,\8\
13e-4,\9\ 14d-1,\10\ and 14e-5 \11\ under the Securities Exchange Act
of 1934.\12\ We also propose changes to Form S-4,\13\ Form F-4,\14\
Form F-X,\15\ Form CB,\16\ Schedule 13G \17\ and Schedule TO.\18\
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\1\ 17 CFR 230.162.
\2\ 17 CFR 230.800.
\3\ 17 CFR 230.802.
\4\ 15 U.S.C. 77a et seq.
\5\ 17 CFR 232.101.
\6\ 17 CFR 232.10 et seq.
\7\ 17 CFR 240.13d-1.
\8\ 17 CFR 240.13e-3.
\9\ 17 CFR 240.13e-4.
\10\ 17 CFR 240.14d-1.
\11\ 17 CFR 240.14e-5.
\12\ 15 U.S.C. 78a et seq.
\13\ 17 CFR 239.25.
\14\ 17 CFR 239.34.
\15\ 17 CFR 239.42.
\16\ 17 CFR 239.800.
\17\ 17 CFR 240.13d-102.
\18\ 17 CFR 240.14d-100.
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Table of Contents
I. Background
A. Introduction
1. Treatment of U.S. target security holders before the adoption
of the cross-border exemptions
2. Overview of the cross-border exemptions
B. Summary of the rule proposals and interpretive guidance
II. Discussion
A. Eligibility threshold--determining U.S. ownership
1. Methods for determining U.S. ownership under the existing
cross-border exemptions
a. Negotiated transactions
b. Non-negotiated transactions
2. Current eligibility test for negotiated transactions
a. Concerns
b. Proposed changes to the eligibility standard for negotiated
transactions
3. The current test for non-negotiated or hostile tender offers
a. Concerns
b. Proposed changes to the presumption for non-negotiated
transactions
4. Possible new eligibility standards for negotiated and hostile
transactions
B. Proposed changes to Tier I exemptions
1. Expanded exemption from Rule 13e-3
2. Technical changes to Rule 802
C. Proposed changes to Tier II exemptions
1. Extend Tier II relief where target securities are not subject
to Rule 13e-4 or Regulation 14D
2. Expand Tier II relief for dual or multiple offers
a. Offeror may make more than one non-U.S. offer
b. U.S. offer may include non-U.S. persons and foreign offer(s)
may include U.S. persons
c. Proration and the use of the dual or multiple offer structure
3. Termination of withdrawal rights while tendered securities
are counted
4. Expanded relief for subsequent offering periods
a. Proposed revisions to prompt payment rule
b. Prompt payment and ``mix and match'' offers
5. Additional guidance with respect to terminating withdrawal
rights after reduction or waiver of a minimum acceptance condition
6. Early termination of the initial offering period or a
voluntary extension of the initial offer period
7. Codification of Rule 14e-5 cross-border exemptions
D. Expanded availability of early commencement for exchange
offers
E. Proposed changes to schedules and forms
1. Form CB
2. Proposed changes to Schedule TO, Form F-4 and Form S-4
F. Beneficial ownership reporting by foreign institutions
1. Background
2. Proposed rules
G. Interpretive Guidance
1. Application of the all-holders rule to foreign target
security holders
2. Ability of bidders to exclude U.S. target security holders
3. Vendor placements
[[Page 26877]]
III. General Request for Comment
IV. Paperwork Reduction Act
V. Cost-Benefit Analysis
VI. Consideration of Impact on Economy, Burden on Competition and
Promotion of Efficiency, Competition and CAPITAL FORMATION
VII. Initial Regulatory Flexibility Analysis
VIII. Small Business Regulatory Enforcement Fairness Act
IX. Statutory Basis and Text of Proposal
I. Background
A. Introduction
Securities markets today are characterized by increasing
globalization. Advances in information technology, the increased use of
ADR \19\ facilities giving U.S. investors an ownership interest in the
securities of foreign companies, and other factors have increased
significantly the number of U.S. and foreign companies engaged in
cross-border business combination transactions.\20\ Computerization and
the advent of the Internet age have fueled a revolution in investor
participation in global capital markets. With increasing globalization
of worldwide securities markets, U.S. investors frequently purchase
securities issued by foreign companies, including foreign private
issuers.
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\19\ ``ADRs'' refer to American Depositary Receipts. We use this
term synonymously with American Depositary Shares, or ADSs.
\20\ See Jessica Hall, Cross-Border Mergers Defy U.S. Slump,
REUTERS (October 18, 2007)(noting that cross-border deals reached
record highs through mid-October 2007, and were up 82 percent over
levels for the same period in 2006, according to figures compiled by
the research firm Dealogic).
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The Commission has undertaken several recent rulemaking initiatives
that impact foreign private issuer reporting and registration
requirements. For example, we recently revised our rules to make the
U.S. capital markets more attractive to foreign private issuers by
allowing the use of financial statements prepared in accordance with
International Financial Reporting Standards (or IFRS) as issued by the
International Accounting Standards Board (or IASB), without a
reconciliation to U.S. GAAP.\21\ In addition, we amended the
deregistration rules for exiting the U.S. regulatory system when the
level of U.S. interest in a foreign private issuer's securities has
decreased, such that continued registration is no longer justified.\22\
We also have proposed a change to the manner of determining the
availability of the Rule 12g3-2(b) exemption from Exchange Act
registration.\23\ Further, we have proposed rule revisions applicable
to foreign issuers, intended to improve the accessibility of the U.S.
public capital markets and enhance the information available to
investors.\24\
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\21\ Acceptance From Foreign Private Issuers of Financial
Statements Prepared in Accordance With International Financial
Reporting Standards Without Reconciliation to U.S. GAAP, Release No.
33-8879 (December 21, 2007) [73 FR 986].
\22\ Termination of a Foreign Private Issuer's Registration of a
Class of Securities Under Section 12(g) and Duty to File Reports
Under Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
Release No. 34-55540 (March 27, 2007) [72 FR 16934]
(``Deregistration Release'').
\23\ Exemption from Registration Under Section 12(g) of the
Securities Exchange Act of 1934 for Foreign Private Issuers, Release
No. 34-57350 (February 19, 2008) [73 FR 10102] (``Rule 12g3-2(b)
Release'').
\24\ Foreign Issuer Reporting Enhancements, Release No. 33-8900
(February 29, 2008) [73 FR 13404].
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We believe these changes benefit investors and issuers. U.S.
investors benefit from additional investment opportunities in
securities of foreign companies, while issuers benefit from the
potential for increased investor interest and a reduction in the cost
of regulatory compliance. Consistent with these recent efforts to
enhance our regulatory system applicable to foreign private issuers, we
are proposing enhancements to our rules governing cross-border business
combination transactions.
The rule revisions we propose today are based on our experiences in
the cross-border area during the eight years since the current cross-
border exemptions were adopted. The revisions are intended to address
the areas of conflict or inconsistency with foreign regulations and
practice that acquirors frequently encounter in cross-border business
combination transactions.\25\ Whether non-U.S. issuers list their
securities on a U.S. market or U.S. investors access overseas trading
markets to purchase their securities, cross-border business combination
transactions frequently present conflicts between U.S. and foreign
regulatory systems.\26\ The cross-border exemptions are premised on the
status of the target company in a business combination, or the issuer
in a rights offering, as a foreign private issuer as defined in our
rules.
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\25\ The proposed revisions are, with a few exceptions, limited
to cross-border business combination transactions. ``Cross-border''
refers to business combinations in which the target company is a
``foreign private issuer'' as defined in Exchange Act Rule 3b-4(c)
[17 CFR 240.3b-4(c)], and rights offerings where the issuer is a
foreign private issuer, as so defined. In the past under very
limited circumstances, offerors have obtained no-action and
exemptive relief for business combinations in which the target
company was a foreign issuer but did not meet the definition of
foreign private issuer in Rule 3b-4. Such relief continues to be
considered only in special circumstances and will be as narrowly
tailored as practicable.
\26\ ``Business combination'' is defined in Securities Act Rule
800(a) as any ``statutory amalgamation, merger, arrangement or
reorganization requiring the vote of security holders of one or more
participating companies. It also includes a statutory short form
merger that does not require a vote of security holders.'' In this
release, we use the term more broadly to include those kinds of
transactions, as well as tender and exchange offers. See Securities
Act Rule 165(f)(1) [17 CFR 230.165(f)(1)] (defining the term more
broadly, to include the types of transactions listed in Rule 145(a)
[17 CFR 230.145(a)], as well as exchange offers).
---------------------------------------------------------------------------
We believe the revisions we propose today represent an appropriate
balance between the need to protect U.S. investors through application
of the protections afforded by U.S. law, and the desirability of
facilitating and enabling transactions that may benefit all security
holders, including those in the United States. We also believe
expanding the availability of the cross-border exemptions will serve
the public interest by encouraging bidders to include U.S. holders in
cross-border business combination transactions from which they
otherwise might be excluded, thereby extending the benefits of those
transactions to U.S. investors.
1. Treatment of U.S. Target Security Holders Before the Adoption of the
Cross-Border Exemptions
Before the cross-border exemptions became effective in January
2000, U.S. holders \27\ of a foreign issuer or foreign target company
frequently were excluded from cross-border business combination
transactions or rights offerings because of actual or perceived
conflicts between U.S. and foreign law. Where U.S. security holders
held a relatively small percentage of a foreign target's securities,
their participation was not necessary to the successful completion of
the business combination transaction and acquirors frequently excluded
them.\28\ Even where the percentage of securities held in the United
States was significant, acquirors and issuers in business combination
transactions and rights offerings
[[Page 26878]]
sometimes avoided extending the offer into the United States because of
perceived litigation risks or conflicts in rules or practice, or the
desire not to engage in the process of preparing and filing a
Securities Act registration statement.\29\ Exclusion deprived U.S.
investors of some or all of the benefits of such cross-border
transactions.
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\27\ See, e.g., Instruction 2 to Exchange Act Rules 14d-1(c) and
14d-1(d) (defining ``U.S. holder'' as ``any security holder resident
in the United States'').
\28\ See Cross-Border Tender Offers, Business Combinations and
Rights Offerings, Release No. 33-7611 (November 13, 1998) [63 FR
69136] (``1998 Cross-Border Proposing Release''), Section II.A. The
U.K. Takeover Panel (the entity that regulates tender offers in the
United Kingdom) provided us with information it compiled in 1997
based on a random sample of 31 tender offers (out of 171 possible
mergers or tender offers). When the U.S. ownership of the target was
less than 15 percent (30 offers), the bidders excluded U.S. persons
in all of the offers. When the U.S. ownership was more significant,
such as 38 percent (one offer), the bidders included U.S. persons.
In the 30 offers that excluded U.S. persons, the ownership
percentage was as follows: in 27 offers, U.S. persons held less than
5 percent; in the remaining three offers, U.S. persons held 7
percent, 8 percent and 10-15 percent, respectively.
\29\ Id.
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2. Overview of the Cross-Border Exemptions
In an effort to facilitate the inclusion of U.S. security holders
in primarily foreign transactions, we adopted the cross-border
exemptions on October 26, 1999.\30\ These exemptions represented the
culmination of efforts since 1991, when we issued two proposing
releases addressing cross-border issues.\31\ Between 1991 and 1999, the
staff gained valuable experience addressing numerous individual
requests for no-action and exemptive relief in the cross-border
area.\32\ The cross-border exemptions addressed areas of frequent
regulatory conflict or differences in practice encountered by the staff
during those years.
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\30\ Cross-Border Tender and Exchange Offers, Business
Combinations and Rights Offerings, Release No. 33-7759, 34-42054
(October 22, 1999) [64 FR 61382] (``Cross-Border Adopting
Release''). In this release, we refer to the cross-border exemptions
adopted in the Cross-Border Adopting Release as the ``cross-border
exemptions.'' The cross-border exemptions may be found in Securities
Act Rules 800-802 [17 CFR 230.800-802] and Exchange Act Rules 13e-
3(g)(6) [17 CFR 240.13e-3(g)(6)], 13e-4(h)(8) [17 CFR 240.13e-
4(h)(8)], 13e-4(i) [17 CFR 240.13e-4(i)], 14d-1(c) [17 CFR 240.14d-
1(c)], 14d-1(d) [17 CFR 240.14d-1(d)], and 14e-2(d) [17 CFR 240.14e-
2(d)].
\31\ See International Tender and Exchange Offers, Release No.
33-6897 (June 5, 1991) [56 FR 27582] and Cross-Border Rights Offers;
Amendments to Form F-3, Release No. 33-6896 (June 4, 1991) [56 FR
27564]. Additionally, we addressed a number of issues presented in
the cross-border context in a concept release in 1990. See Concept
Release Multinational Tender and Exchange Offers, Release No. 33-
6866 (June 6, 1990) [55 FR 23751].
\32\ Where we refer in this release to ``relief,'' we mean
exemptive or no-action relief provided by letter in the context of
an individual transaction, unless otherwise indicated. See footnote
49 below referring to the staff's delegated authority to provide
exemptive relief from U.S. rule provisions for specific cross-border
transactions. Where we refer to ``interpretive guidance,'' we mean
oral positions taken by the staff or written interpretations
promulgated by the Division of Corporation Finance in the Manual of
Publicly Available Telephone Interpretations available on our Web
site. We refer to ``Commission guidance'' or ``Commission
interpretive guidance'' to mean positions expressed by the
Commission in releases.
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Generally speaking, the cross-border exemptions are structured as a
two-tier system based broadly on the level of U.S. interest in a
transaction, measured by the percentage of target securities of a
foreign private issuer held by U.S. investors.\33\ Where no more than
ten percent of the subject securities are held in the United States
(Tier I and Rules 801 and 802), a qualifying cross-border transaction
will be exempt from most U.S. tender offer rules \34\ and from the
registration requirements of Section 5 of the Securities Act of
1933.\35\ Tier I provides a broad exemption from the filing,
dissemination and procedural requirements of the U.S. tender offer
rules and the heightened disclosure requirements applicable to going
private transactions as defined in Rule 13e-3.\36\ Tier I also exempts
the subject company of a tender offer from the obligation to express
and support a position with respect to that tender offer.\37\ At the
same level of U.S. ownership, Rules 801 and 802 also provide relief
from the registration requirements of Securities Act Section 5 for
securities issued in rights offerings and business combination
transactions.
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\33\ Although the target (or issuer in a rights offering) must
be a foreign private issuer, the acquiror relying on the cross-
border exemptions need not be a foreign private issuer and, in fact,
may be a U.S. company.
\34\ The U.S. anti-fraud and anti-manipulation rules and civil
liability provisions continue to apply to these transactions. See
Cross-Border Adopting Release, Section I.A.
\35\ 15 U.S.C. 77e.
\36\ Exchange Act Rules 13e-3(g)(6), 13e-4(h)(8) and 14d-1(c).
\37\ Exchange Act Rule 14e-2(d).
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Issuers relying on Rule 801, offerors relying on Rule 802, and
third-party bidders and issuers relying on the Tier I cross-border
exemption must furnish a Form CB to the Commission.\38\ Form CB is a
cover sheet for an English translation of the disclosure document used
in the foreign home jurisdiction and disseminated to U.S. target
security holders.\39\ This form must be submitted to the Commission by
the next business day after the disclosure document attached and used
in the foreign home jurisdiction is published or otherwise disseminated
in accordance with home country rules.\40\ The materials submitted
under cover of Form CB are not deemed filed with the Commission, and
the filer is not subject to the liability provisions of Section 18 of
the Exchange Act.\41\
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\38\ Securities Act Rules 801(a)(4)(i) and 802(a)(3)(i), and
Exchange Act Rules 13e-4(h)(8)(iii) and 14d-1(c)(3)(iii).
\39\ Item 1 of Form CB [17 CFR 239.800].
\40\ Securities Act Rules 801(a)(4)(i) and 802(a)(3)(i) and
Exchange Act Rules 14d-1(c)(3)(iii) and 13e-4(h)(8)(iii). If the
bidder is a foreign company, it must also file a Form F-X with the
Commission appointing an agent for service of process in the United
States. See, e.g., Exchange Act Rule 14d-1(c)(3)(iii).
\41\ 15 U.S.C. 78r. See also, the Cross-Border Adopting Release,
Section II.A.2. However, an acquiror or other person submitting Form
CB is subject to U.S. anti-fraud provisions. See footnote 34 above.
---------------------------------------------------------------------------
A bidder relying on the Tier I exemption must submit a Form CB only
if the tender offer would have been subject to Regulation 14D \42\ or
Rule 13e-4, but for the Tier I exemption. No filing requirement exists
for a tender offer subject only to Exchange Act Section 14(e) and
Regulation 14E; accordingly, furnishing a Form CB is not necessary.\43\
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\42\ Exchange Act Rules 14d-1 through 14d-11.
\43\ See Cross-Border Adopting Release, Section II.A.2.
Regulation 14E applies to all tender offers, including those not
subject to Section 13(e) or 14(d) of the Exchange Act. These include
tender offers for non-equity securities and securities that are not
registered under Section 12 of the Exchange Act [15 U.S.C. 78l], as
well as partial offers for less than all of the subject class, where
the bidder will not own, based on purchases in the tender offer and
ownership in the target before the offer commences, more than five
percent of the subject class of equity securities after the tender
offer.
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Where U.S. holders own more than ten percent but no more than 40
percent of the target securities (Tier II), the cross-border exemptions
provide targeted relief from some U.S. tender offer rules to address
certain recurring areas of regulatory conflict. The Tier II exemptions
encompass narrowly-tailored relief from certain U.S. tender offer
rules, such as the prompt payment, extension and notice of extension
requirements in Regulation 14E. The Tier II exemptions do not provide
relief from the registration requirements of Securities Act Section 5,
nor do they include an exemption from the additional disclosure
requirements applicable to going private transactions by issuers or
affiliates.
The scope of the Tier I and Tier II cross-border exemptions and the
exemptions from the Securities Act registration requirements provided
in Rules 801 and 802 are based broadly on the level of U.S. interest in
a given transaction, as illustrated by the percentage of shares held by
U.S. persons. In addition to these U.S. ownership thresholds, the
cross-border exemptions are conditioned on other requirements, such as
the principle that U.S. target security holders be permitted to
participate in the offer on terms at least as favorable as those
afforded other target holders.\44\ This approach differs from our
approach in adopting revisions to the deregistration rules applicable
to foreign private issuers in 2007 \45\ and more recently, in our
proposed revisions to Rule 12g3-2(b) recommending the
[[Page 26879]]
use of an average daily trading volume test (``ADTV'').\46\
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\44\ Securities Act Rules 801(a)(3) and 802(a)(2) [17 CFR
230.801(a)(3) and 230.802(a)(2)]; Exchange Act Rules 13e-4(h)(8)(ii)
and (i)(2)(ii); and 14d-1(c)(2) and (d)(2)(ii).
\45\ See the Deregistration Release.
\46\ See the Rule 12g3-2(b) Release and the discussion in
Section II.A.4 below.
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B. Summary of Rule Proposals and Interpretive Guidance
We believe the existing cross-border exemptions have facilitated
the inclusion of U.S. security holders in foreign transactions in a
manner consistent with our investor protection mandate.\47\ We
recognize that in some instances, however, the exemptions are not
operating as optimally as intended, or do not address continuing and
recurring conflicts of law and practice not anticipated when we adopted
them.\48\ As a result, companies repeatedly call upon the Commission's
staff to address particular areas of conflict in the context of
individual cross-border transactions.\49\
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\47\ Another area in which we have modified our rules in the
foreign private issuer context is the Multijurisdictional Disclosure
System (``MJDS'') with Canada. See Exchange Act Rule 14d-1(b). That
system allows a bidder in a cross-border tender offer to conduct its
offer in accordance with Canadian rules and/or the rules of any
applicable Canadian province instead of U.S. tender offer
requirements, where the conditions in the rule are met. These
include the requirement that the target company in the tender offer
be a foreign private issuer and not an investment company, and that
U.S. holders own less than 40 percent of the subject securities. The
bidder must file its offer materials, prepared in accordance with
Canadian requirements, on Form 14D-1F [17 CFR 240.14d-102] with the
Commission. See Rule 14d-1(b)(1). MJDS also specifies certain forms
to be used by Canadian companies issuing securities to U.S. persons.
See, e.g., Forms F-8 [17 CFR 239.38], F-9 [17 CFR 239.39], F-10 [17
CFR 239.40], and F-80 [17 CFR 239.41]. Except for limited
solicitations of comment below, this release does not propose
changes to MJDS.
\48\ For a general discussion of the cross-border exemptions and
a broad overview of how they operate, see Steven Davidoff & Brett
Carron, ``Getting U.S. Security Holders to the Party: The SEC's
Cross-Border Release Five Years On,'' 26.3 U. Pa. J. Int'l Econ. L.
455 (2005); and John Basnage, William Curtin III & Jeffrey Rubin,
``Cross-Border Tender Offers and Other Business Combination
Transactions and the U.S. Federal Securities Laws: An Overview,''
61.3 Business Lawyer 1071 (2006).
\49\ Pursuant to Rule 30-1 of the SEC's Rules of General
Organization [17 CFR 200.30-1], the staff has delegated authority to
exempt individual bidders and issuers from application of our rules.
No-action and exemptive letters issued by the staff in connection
with cross-border transactions may be found on our Web site at
https://www.sec.gov/divisions/corpfin/cf-noaction.shtml and https://
www.sec.gov/divisions/marketreg/mr-noaction.shtml#rule14e5.
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The rule revisions we propose today address recurring issues and
unintended consequences that have impeded the usefulness of the cross-
border exemptions. We believe the proposed changes will encourage more
offers to be extended into the United States. Generally speaking, the
proposed revisions represent an expansion and refinement of the current
exemptions, and in some areas, would codify relief previously granted
only on an individual basis. Our proposed codification of various staff
interpretive positions would make such relief available as a matter of
right, thereby reducing the burdens and costs for bidders and issuers
of extending cross-border offers to U.S. holders when conducting cross-
border transactions.
In some instances, the changes we propose would address practical
problems that have limited the ability of bidders and issuers to rely
on the exemptions. For example, we hope the proposed changes relating
to the calculation of U.S. ownership of the target foreign private
issuer will provide greater certainty and ease of use for those seeking
to rely on the exemptions. In proposing these rule revisions, we hope
to better address the burdens on bidders and issuers who must comply
with two or more regulatory systems in the context of cross-border
transactions.\50\ As a result, we hope the revisions we propose today
will make bidders more likely to extend offers to U.S. holders.
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\50\ Although the focus of the rule changes we propose is cross-
border business combinations, in some instances, we solicit comment
on whether certain of these changes should also apply to business
combinations where the target company is a U.S. issuer. We may adopt
these changes at the time we adopt changes to our cross-border
business combination rules. For example, we ask for comments on
whether domestic exchange offers not subject to Rule 13e-4 or
Regulation 14D should be permitted to commence early. We also
solicit comment on whether the rule changes we propose to facilitate
``mix and match'' tender offers and the relaxation of the our rules
relating to subsequent offering periods also should apply to tender
offers for domestic companies.
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In this release, we also provide guidance on some of the
interpretive issues that have arisen during the years since the cross-
border exemptions were adopted. In some instances, we propose to codify
existing staff interpretive positions. We also discuss our views on
some of the interpretive matters addressed in the 1998 Cross-Border
Proposing Release and the Cross-Border Adopting Release. The rule
changes we propose today include:
Refinement of the tests for calculating U.S. ownership of
the target company for purposes of determining eligibility to rely on
the cross-border exemptions in both negotiated and hostile
transactions, including changes to:
[cir] Use the date of public announcement of the business
combination as the reference point for calculating U.S. ownership;
[cir] Permit the offeror to calculate U.S. ownership as of a date
within a 60-day range before announcement;
[cir] Specify when the offeror has reason to know certain
information about U.S. ownership that may affect its ability to rely on
the presumption of eligibility in non-negotiated tender offers;
Expanding relief under Tier I for affiliated transactions
subject to Rule 13e-3 for transaction structures not covered under our
current cross-border exemptions, such as schemes of arrangement, cash
mergers, or compulsory acquisitions for cash;
Extending the specific relief afforded under Tier II to
tender offers not subject to Sections 13(e) or 14(d) of the Exchange
Act;
Expanding the relief afforded under Tier II in several
ways to eliminate recurring conflicts between U.S. and foreign law and
practice, including:
[cir] Allowing more than one offer to be made abroad in conjunction
with a U.S. offer;
[cir] Permitting bidders to include foreign security holders in the
U.S. offer and U.S. holders in the foreign offer(s);
[cir] Allowing bidders to suspend back-end withdrawal rights while
tendered securities are counted;
[cir] Allowing subsequent offering periods to extend beyond 20 U.S.
business days;
[cir] Allowing securities tendered during the subsequent offering
period to be purchased within 14 business days from the date of tender;
[cir] Allowing bidders to pay interest on securities tendered
during a subsequent offering period;
[cir] Allowing separate offset and proration pools for securities
tendered during the initial and subsequent offering periods;
Codifying existing exemptive orders with respect to the
application of Rule 14e-5 for Tier II tender offers;
Expanding the availability of early commencement to offers
not subject to Section 13(e) or 14(d) of the Exchange Act;
Requiring that all Form CBs and the Form F-Xs that
accompany them be filed electronically;
Modifying the cover pages of certain tender offer
schedules and registration statements to list any cross-border
exemptions relied upon in conducting the relevant transactions; and
Permitting foreign institutions to report on Schedule 13G
to the same extent as their U.S. counterparts, without individual no-
action relief.
In addition to these proposed rule changes, we provide guidance or
solicit commenters' views on the following issues:
The ability of bidders to terminate an initial offering
period or any
[[Page 26880]]
voluntary extension of that period before a scheduled expiration date;
The ability of bidders in tender offers to waive or reduce
the minimum tender condition without providing withdrawal rights;
The application of the all-holders provisions of our
tender offer rules to foreign target security holders;
The ability of bidders to exclude U.S. target security
holders in cross-border tender offers; and
The ability of bidders to use the vendor placement
procedure for exchange offers subject to Section 13(e) or 14(d) of the
Exchange Act.
II. Discussion
A. Eligibility Threshold--Determining U.S. Ownership
Business combination transactions are extraordinary events for
target companies and their security holders. When U.S. persons hold a
significant percentage of a target's securities in a cross-border
business combination transaction, we believe U.S. tender offer and
other rules should provide certain basic protections in transactions
that will significantly impact their ownership interest in that target
company.\51\ When U.S. persons do not hold a significant stake in the
subject target class, we believe that by allowing the acquiror to
conduct the transaction in accordance with the applicable foreign law,
while including U.S. persons and treating them at least as favorably as
all other target holders, U.S. persons are better protected than they
would be if the acquiror chose to exclude them from the transaction so
that the transaction would not be subject to U.S. regulations.
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\51\ We believe these protections are even more critical in
cross-border tender offers, where home country law may not allow
acquirors to eliminate minority security holders under the same
circumstances as in the United States. For example, in some foreign
jurisdictions, the ability of bidders to ``squeeze out'' target
security holders remaining after a tender offer may be more limited
than in the United States, where this generally will be accomplished
whenever the bidder purchases a majority of target shares. See
discussion in footnote 155 below. Therefore, a decision whether to
tender into an offer and the procedural protections associated with
that offer may be even more critical, because target security
holders who remain after the offer may not be cashed out in a back-
end merger, as would be typical in the United States.
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When we adopted the cross-border exemptions, we established a
threshold eligibility test for use of the exemptions based on the
percentage of target shares held by U.S. persons.\52\ The current test,
based on the level of U.S. ownership in the target company, has worked
well conceptually. However, we have become aware of certain
difficulties that can make application of our threshold eligibility
test problematic in practice, including issues that can arise when
conducting both the look-through analysis for negotiated transactions
and the alternate test for non-negotiated deals, as discussed below. We
believe the recommended changes will enhance the utility of the cross-
border exemptions because they will make it easier for bidders and
issuers to determine whether they are eligible to rely on them.
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\52\ For rights offerings, eligibility to rely on Rule 801 is
determined by the percentage of subject securities of the issuer
held by U.S. persons. See Securities Act Rule 800(h).
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1. Methods for Determining U.S. Ownership Under the Existing Cross-
Border Exemptions
a. Negotiated Transactions
As discussed above, under our current rules, eligibility to rely on
the cross-border exemptions is determined in part by the percentage of
U.S. beneficial holders of the relevant class of target securities.\53\
U.S. ownership of the target company is determined by reference to the
target's non-affiliated float \54\ and holders of greater than ten
percent of the subject class are excluded from the calculation of U.S.
ownership.\55\ Any securities held by the acquiror in the business
combination transaction similarly are excluded from the
calculation.\56\
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\53\ Note that in response to inquiries from U.S. bidders
regarding the availability of Securities Act Rules 801 and 802 when
there are no U.S. holders in the issuer (in a rights offering) or
subject company (in an exchange offer or other business
combination), or when an offer is not extended to U.S. holders, the
Division of Corporation Finance has taken the position that the
cross-border exemptions do not apply unless there is at least one
U.S. security holder of the subject class of securities. See Section
II.C. Question 1 in the Third Supplement to the Division of
Corporation Finance's Manual of Publicly Available Telephone
Interpretations (July 2001), at https://www.sec.gov/interps/
telephone/phonesupplement3.htm. This is consistent with the intent
of the exemptions: to facilitate the inclusion of U.S. security
holders of foreign private issuers in business combinations and
rights offerings.
\54\ We use ``float'' to refer to the aggregate market value of
the subject securities held by non-affiliates. See generally, the
definition of ``Small Business Issuer'' in Securities Act Rule 405
[17 CFR 230.405] and the Note to that provision. We do not include
in that definition securities held by persons or entities that
individually own more than ten percent of the subject securities.
\55\ See Instruction 2.ii. to Exchange Act Rules 13e-4(h)(8) and
(i), and 14d-1(c) and 14d-1(d). See also Securities Act Rule
800(h)(2).
\56\ Id.
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The rules specify the manner in which a bidder in a negotiated
transaction must determine which target securities are held by persons
resident in the United States.\57\ They require the acquiror to ``look
through'' securities held of record by nominees in specified
jurisdictions to identify those held for the accounts of persons
located in the United States.\58\ If after ``reasonable inquiry,'' the
acquiror is unable to obtain information about the location of the
security holders for whom a nominee holds, the rules allow the acquiror
to assume that the customers are residents of the jurisdiction in which
the nominee has its principal place of business.\59\ The relevant date
for determining U.S. ownership is the 30th day before a benchmark date
that varies with the type of transaction for which the exemption is
sought.\60\
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\57\ See Instruction 2 to Exchange Act Rules 13e-4(h)(8) and
(i), and 14d-1(c) and (d); Securities Act Rule 800(h).
\58\ See, e.g., Instruction 2.iii. to Exchange Act Rules 14d-
1(c) and 14d-1(d) (instructing the bidder to limit its inquiry as to
securities held in nominee form to nominees located in the United
States, the subject company's jurisdiction of incorporation and the
jurisdiction that is the primary trading market for the subject
securities, if different from the target's jurisdiction of
incorporation). We recently revised the rule pertaining to
termination of registration to include a definition of ``primary
trading market'' that may include trading in more than one foreign
market. See Exchange Act Rule 12h-6(f)(5) [17 CFR 240.12h-6(f)(5)].
This does not change the meaning of ``primary trading market'' as
used in the cross-border exemptions and in the instruction to the
definition of foreign private issuer in Exchange Act Rule 3b-4 and
Securities Act Rule 405 [17 CFR 230.405]. An acquiror's or issuer's
obligation to look through nominees in calculating U.S. ownership
continues to be limited to the jurisdiction of the single, principal
foreign trading market for the target's securities, if different
from the target's jurisdiction of incorporation.
\59\ See Securities Act Rule 800(h)(3) and Instruction 2.iv. to
Exchange Act Rules 13e-4(h)(8) and (i), and 14d-1(c) and (d).
\60\ See Instruction 2.i. to Exchange Act Rules 13e-4(h)(8) and
(i), and 14d-1(c) and (d) (specifying that U.S. ownership must be
calculated as of the 30th day before commencement of a tender
offer). For the Securities Act Rule 801 and 802 exemptions, see Rule
800(h) (stating that U.S. ownership must be calculated as of the
record date for a rights offering or as of the 30th day before the
commencement of an exchange offer or the solicitation for a business
combination other than a tender offer).
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b. Non-Negotiated Transactions
In adopting the eligibility standard for negotiated transactions
described in the preceding section, we recognized that the required
look-through analysis would be more difficult for third-party offerors
in non-negotiated transactions because they would not have the
cooperation of the issuer.\61\ In particular, obtaining information
from nominees who hold for the account of others is difficult for
third-party acquirors and may have the effect of alerting the market to
a contemplated offer before the acquiror wishes to make
[[Page 26881]]
its intentions known. For that reason, the cross-border exemptions
include a presumption available for non-negotiated or ``hostile''
transactions.\62\ The ``hostile presumption'' allows a third-party
bidder in a non-negotiated tender or exchange offer to assume that U.S.
ownership in the target company is no more than ten percent or 40
percent, the thresholds for Tier I and Rule 802, and Tier II
respectively, so long as average daily trading volume in the United
States does not exceed ten percent or 40 percent of the average daily
trading volume worldwide over a twelve-month period ending 30 days
before commencement, and the bidder has no reason to know that actual
U.S. ownership is inconsistent with that figure (either based on the
issuer's informational filings with the Commission or foreign
regulators or based on the bidder's actual or imputed knowledge from
other sources).\63\
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\61\ See discussion in the Cross-Border Adopting Release,
Section II.F.3.
\62\ We distinguish a ``hostile'' tender offer from one made
pursuant to an agreement with the target company, which we refer to
as a negotiated or recommended transaction.
\63\ See, e.g., Instruction 3.i.-iv. to Exchange Act Rules 14d-
1(c) and 14d-1(d) (stating that the presumption is available unless
the aggregate trading volume in the U.S. exceeds certain levels, or
the bidder knows or should know that actual levels of U.S ownership
exceed the ceiling for the applicable exemption). The instruction,
as currently written, refers to the Nasdaq market and the trading
volume of securities on the over-the-counter (OTC) market as
reported to the NASD, but since the adoption of Exchange Act Rules
14d-1(c) and 14d-1(d) and the corresponding instruction, the Nasdaq
market has become an exchange, the NASDAQ OMX Group, Inc.
Additionally, the trading volume of securities on the OTC market is
now reported to the Financial Industry Regulatory Authority, Inc.,
or FINRA, which was created through the consolidation of the NASD
and the member regulation, enforcement and arbitration functions of
the NYSE. We therefore propose a technical change to the rules to
reflect these changes.
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2. Current Eligibility Test for Negotiated Transactions
a. Concerns
Although we believe the current tests for determining eligibility
to rely on the cross-border exemptions generally have worked well,
changes in several areas would be appropriate to address timing and
informational restrictions that have impeded the application of the
current exemptions. Many of these problems relate to the threshold
eligibility determination for negotiated transactions.
In particular, the requirement that U.S. ownership be calculated as
of the 30th day before the commencement of a tender offer or exchange
offer, or before the solicitation for other kinds of business
combination transactions \64\ presents practical difficulties for
acquirors in certain jurisdictions. In some countries, the look-through
analysis we require for negotiated transactions takes longer than 30
days to perform.\65\ Numerous acquirors have advised us that in some
jurisdictions, it is not possible to calculate U.S. ownership as of a
set date in the past. In others, information about the location of
target security holders is only published at fixed intervals.\66\
Additionally, the exact date of commencement is not within the control
of the acquiror in some jurisdictions.\67\ In recognition of these
problems, issuers have sought guidance from the staff regarding the
date of calculating U.S. ownership for purposes of determining
eligibility to rely on the cross-border exemptions. The staff has
stated that, where the 30th day before commencement is impracticable
for reasons outside of the acquiror's control the acquiror may use the
date within the 30-day period before commencement that is as close as
possible to the 30th day.\68\ However, the staff continues to receive
inquiries from acquirors who cannot definitively use a date within the
30 days before commencement because of logistical problems in the time
needed to conduct the mandated look-through analysis, or because of the
regulatory review process.\69\ In the case of an exchange offer where
the acquiror will issue securities in exchange for target securities,
more than 30 days may be needed to prepare offering materials and
complete the regulatory review process.
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\64\ See Securities Act Rule 800(h)(1), Instruction 2.i. to
Exchange Act Rules 13e-4(h)(8) and 13e-4(i), and Instruction 2.i. to
Rules 14d-1(c) and 14d-1(d).
\65\ See, e.g., Serono S.A. (September 12, 2002) (``Serono
S.A.'') (stating that approximately six to eight weeks is necessary
to complete a look-through analysis to obtain information about the
level of U.S. beneficial ownership of a French company).
\66\ See Section II.E. Question 8 in the Third Supplement to the
Division of Corporation Finance Manual of Publicly Available
Telephone Interpretations (July 2001), at https://www.sec.gov/
interps/telephone/phonesupplement3.htm.
\67\ In some foreign jurisdictions, for example, a bidder is
obligated to commence an offer within a certain number of days of
receiving home country regulatory approval of its offer materials.
As noted above, bidders cannot always obtain information about U.S.
ownership as of a date in the past; rather, they can request that
information only as of a current date going forward 30 days to the
anticipated date of commencement. When the date of commencement is
uncertain, it becomes difficult for offerors to comply with our
rules.
\68\ See Section II.E. Question 7 in the Third Supplement to the
Division of Corporation Finance Manual of Publicly Available
Telephone Interpretations (July 2001), at https://www.sec.gov/
interps/telephone/phonesupplement3.htm.
\69\ For example, shares of listed French companies are not
certificated and the majority of such shares are held in bearer
form, meaning that the only ownership records for such shares are
maintained by Euroclear France, the French clearing system. It
generally takes more than 30 days to request and analyze the
position listing known as a ``TPI report.'' See, e.g., Alcan, Inc.
(October 7, 2003) (``Alcan'') and Equant N.V. (April 18, 2005)
(``Equant N.V.'') and footnote 65 above.
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The reference date for assessing U.S. ownership under the cross-
border exemptions also creates logistical problems in certain cases.
The current exemptions key the determination of U.S. ownership to the
date of commencement of the tender offer or the commencement of the
solicitation for other types of business combinations, or to the record
date for a rights offering.\70\ If the announcement of the transaction
predates the commencement by more than 30 days, an acquiror will not
know with certainty when it announces a transaction whether it will be
eligible to rely on the cross-border exemptions at all, or whether it
will be eligible for Tier I/Rule 802 or Tier II. The staff has been
advised that this is problematic in some foreign jurisdictions because
by law, the announcement must provide detailed information about the
transaction, including information about how U.S. target security
holders will be treated.\71\ Even where such information is not legally
required at the time of announcement, issuers may wish to inform target
security holders and the market at large of this information.
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\70\ See Securities Act Rule 800(h)(1), Instruction 2.i. to
Exchange Act Rules 13e-4(h)(8) and (i), and Instruction 2 to
Exchange Act Rules 14d-1(c) and (d).
\71\ The staff has been contacted by counsel for bidders in
certain European countries with concerns about calculating U.S.
ownership as of the date specified under current rules, where an
announcement of the transaction must be made more than 30 days
before commencement and under home country regulation the
announcement must include detailed information about the treatment
of U.S. target holders.
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In addition, keying the look-through analysis to commencement
creates a discrepancy for purposes of the exemption from Rule 14e-5.
Rule 14e-5 generally prohibits purchases of target securities outside
of a tender offer from the date of announcement of that offer through
its expiration.\72\ Tender offers conducted in reliance on the Tier I
exemption are exempt from the application of Rule 14e-5.\73\ However,
because Rule 14e-5 applies from the date of announcement of the tender
offer, a bidder will not necessarily know at the time of announcement
whether it will qualify for the cross-border exemptions as of the 30th
date before commencement.
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\72\ Exchange Act Rule 14e-5 [17 CFR 240.14e-5]. We propose to
extend this exemption to encompass Tier II-eligible tender offers.
\73\ Exchange Act Rule 14e-5(b)(10)(i).
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Finally, from time to time the suggestion is made that excluding
holders of greater than ten percent of the
[[Page 26882]]
subject securities disproportionately elevates the levels of U.S.
ownership in target companies. In the 1998 Cross-Border Proposing
Release, we proposed to exclude from the calculation of U.S. ownership
securities owned by non-U.S. target holders who individually held more
than ten percent of the subject class, on the grounds that such large
investors were affiliates and the securities they held were not part of
the target's public float.\74\ When the exemptions were adopted, they
excluded securities held by both U.S. and non-U.S. persons holding
greater than ten percent of the target company's securities because of
commenters' concerns that excluding only large non-U.S. holders, as
originally proposed, would skew the U.S. ownership percentages
upward.\75\ We continue to receive feedback from various
constituencies, however, that exclusion of large holders results in
reduced eligibility to rely on the cross-border exemptions. We would be
interested in commenters' views on this requirement under our current
rules and whether it should be modified or eliminated.
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\74\ See 1998 Cross-Border Proposing Release, Section II.H.2.
\75\ See Cross-Border Adopting Release, Section II.F.2.
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Request for Comment
Should we continue to exclude from the calculation of U.S.
ownership target securities held by the acquiror in the contemplated
transaction?
Should we eliminate the requirement to exclude subject
securities held by greater than ten percent holders in calculating U.S.
ownership of the target company? Would U.S. interest in a transaction
more appropriately be measured by considering all of the outstanding
securities, without excluding large holders? Would changing the rule in
this manner result in extending the exemptions to circumstances where
U.S. investors could be adversely affected?
Should we eliminate greater than ten percent holders only
where such holders are otherwise affiliated with the issuer?
Are there problems in determining who is a greater than
ten percent holder that should be addressed in revised rules?
If the requirement to exclude large holders is retained,
is a greater than ten percent holding the appropriate level for
exclusion? Should the percentage be higher, such as 15 or 20 percent?
Is there any reason to eliminate the exclusion of greater
than ten percent holders only for non-U.S. holders and not for U.S.
holders, or vice-versa? What would the impact of such change be on the
number of companies eligible for Tier I or Tier II?
Should we maintain the same tests, with the revisions
proposed, but raise the maximum U.S. ownership level for Tier I and
Rules 801 and 802 to 15 percent? What effect would this have on the
number of cross-border transactions eligible to be conducted under
these exemptions? Would expanding the availability of Tier I and Rules
801 and 802 be in the interests of U.S. investors?
b. Proposed Changes to the Eligibility Standard for Negotiated
Transactions
We believe that by revising the eligibility tests for negotiated
cross-border business combination transactions as proposed, we would
eliminate many of the issues that have arisen. As discussed above, the
first problem with the current test is the requirement that U.S.
ownership be calculated as of a single, specified date. Accordingly, we
propose that acquirors be permitted to calculate U.S. ownership within
a specified 60-day range rather than using a single date.\76\ This
approach is consistent with the position taken by the staff
interpretively in considering timing issues in the cross-border
context.\77\ It also would provide greater flexibility where the timing
of a transaction is driven by market forces or a regulatory process
that is, to some extent, outside the control of the acquiror.
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\76\ As discussed below, we also propose to change the reference
point for calculation of U.S. ownership from commencement to
announcement. We are not currently proposing a change to the
requirement to calculate as of the record date for rights offerings.
See Rule 800(h)(1).
\77\ See, e.g., Section II.E. Questions 6, 7 and 8 in the Third
Supplement to the Division of Corporation Finance Manual of Publicly
Available Telephone Interpretations (July 2001), at https://
www.sec.gov/interps/telephone/phonesupplement3.htm.
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While we propose to provide greater flexibility as to the date on
which U.S. ownership in the target company may be assessed, we remain
concerned about the possibility that a date for calculation would
intentionally be chosen to present less than a representative picture
of the target security holder base. The instructions to the cross-
border exemptions make it clear that the exemptions are not available
for any transaction or series of transactions that technically comply
with our rules but are, in fact, part of a plan or scheme to evade them
in practice.\78\
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\78\ See General Note 2 to Securities Act Rules 800, 801 and
802, Instruction 4 to Exchange Act Rules 13e-4(h)(8) and 13e-4(i),
and Instruction 5 to Exchange Act Rules 14d-1(c) and 14d-1(d).
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As discussed above, another logistical problem with the cross-
border exemptions centers on the use of commencement as the triggering
event for the calculation of U.S. ownership. We now propose to require
that U.S. ownership be calculated within a 60-day period before the
public announcement of the cross-border tender offer or business
combination transaction.\79\ For these purposes, public announcement
generally means the same as in Instruction 5 to Rule 14d-2(b)(2).\80\
By using announcement instead of commencement as the triggering event
for purposes of the calculation, we hope to enable acquirors planning
cross-border transactions to determine at an earlier point how they
will treat U.S. holders.
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\79\ See proposed revisions to Securities Act Rule 80 0(h)(1),
Instruction 2.i. to Exchange Act Rules 13e-4(h)(8) and (i), and
Instruction 2.i. to Exchange Act Rules 14d-1(c) and (d).
\80\ Instruction 5 to Exchange Act Rule 14d-2(b)(2) [17 CFR
240.14d-2(b)(2)] states that `` `public announcement' is 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.''
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This change also would allow the application of the exemptions to
be based on the characteristics of the target security holder base
before it is influenced by the announcement of the transaction.\81\
Further, it would permit acquirors to meet home country requirements,
which may mandate that the acquiror include information about the
treatment of U.S. holders in the announcement of the transaction. In
addition, it would encourage bidders to provide the markets and target
security holders with valuable information at an earlier stage in the
transaction process, including alerting investors who may acquire the
target company's securities after the announcement whether they will
have the full protections of Regulations 14D and 14E.
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\81\ See Section II.E. Question 6 in the Third Supplement to the
Division of Corporation Finance Manual of Publicly Available
Telephone Interpretations (July 2001), at https://www.sec.gov/
interps/telephone/phonesupplement3.htm (discussing the rationale for
why the staff has permitted announcement to be used as the reference
point for calculating U.S. ownership in ``pre-conditional offers''
conducted under U.K. or Irish law).
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Where U.S. ownership levels do not permit the acquiror to rely on
the Tier I exemption or Rule 802, calculating the level before
announcement would provide more time to plan and put together the
necessary offering materials. For those who plan to rely on the Tier II
exemption, the proposed change would afford more time to determine and
seek any necessary
[[Page 26883]]
exemptive or no-action relief. In addition, because announcement also
is the triggering event for application of Rule 14e-5, this change
would further harmonize Tier I and Tier II relief as it relates to that
provision. However, we are aware that for some business combination
transactions, several weeks or months may elapse between the time of
announcement and commencement of the transaction, because of home
country regulatory review or other reasons. The target security holder
base, including the percentage of those securities held by U.S.
persons, may change significantly between announcement and
commencement. We do not propose to change the relevant date for
calculation of U.S. ownership for rights offerings. Issuers will
continue to calculate U.S. ownership as of the record date for a rights
offering.\82\ Because issuers control the record date for rights
offerings and generally
