SECURITIES ACT OF 1933

SECURITIES ACT OF 1933

Release Nos. 33-6653; 34-23421; IC-15199/July 11, 1986

17 CFR Parts 200 and 240

File Nos. S7-34-85, S7-35-85, S7-01-86
Amendments to Tender Offer Rules-All-
Holders and Best-Price

ACTION: Final Rules.

SUMMARY: The Securities and Exchange Commission (“Commission”) today announced the adoption of amendments to its issuer and third-party tender offer rules. The amendments provide that a bidder's or issuer's tender offer must be open to all holders of the class of securities subject to the tender offer and that any security holder must be paid the highest consideration paid to any other security holder during the tender offer. In addition, the Commission is amending existing rules concerning minimum offering periods and withdrawal rights. With respect to minimum offering periods, a tender offer would be required to remain open for ten business days upon the announcement of an increase or decrease in (i) the percentage of securities being sought or (ii) the consideration offered by the offeror. With respect to withdrawal rights, the amendments provide that withdrawal rights extend throughout the offering period and that the

extension of withdrawal rights upon commencement of a competing bid is eliminated. EFFECTIVE DATE: The all-holders requirement of new Rule 14d-10(a)(1) and amended Rule 13e-4(f)(8)(i), and amended Rules 30-1 and 30-3 are effective immediately. The other provisions of new Rule 14d-10 and amended Rules 13e-4, 14d-7 and 14e-1(b) are effective on August 18, 1986, except that a tender offer commenced after that date in competition with an offer that commenced prior to that date would be permitted to rely on the rules in effect prior to such date. FOR FURTHER INFORMATION: For information regarding Rules 14d-7, 14d-10 and 14e-1(b), contact Joseph G. Connolly, Jr. or Gregory E. Struxness, (202) 272-3097, Office of Tender Offers, Division of Corporation Finance, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. For information regarding Rule 13e-4, contact Nancy J. Burke, (202) 272-2848, or Deren E. Manasevit, (202) 272-7494, Office of Legal Policy and Trading Practices, Division of Market Regulation, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.

SUPPLEMENTARY INFORMATION: The Commission is amending Rule 13e-41 and Regulations 14D2 and 14E3 pertaining to tender offers. I. Executive Summary

In July 1985, the Commission proposed a new rule to require a bidder making a tender offer

'17 CFR 240.13e-4. 217 CFR 240.14d-1-14d-10. 317 CFR 240.14e-1-14e-3.

under Section 14(d) of the Securities Exchange Act of 1934 ("Exchange Act")4: (1) to extend the offer to all security holders who own shares of the class of securities subject to the offer ("all-holders requirement”); and (2) to pay every tendering security holder the highest consideration offered to any other security holder at any time during the tender offer ("best-price provision"). At that same time, the Commission proposed corresponding amendments to Rule 13e-4 which made the all-holders requirement and best-price provision applicable to issuer tender offers.6

The Commission also proposed to require that both third-party and issuer tender offers remain open for at least ten business days from the announcement of an increase in the amount of securities being sought by the offeror. The Commission proposed that such amended offers remain open for the same period of time currently required for increases in the consideration offered or the dealer's soliciting fee in order to allow time for security holders to consider the offer as amended.

The July 1985 releases generated 76 comment letters from 68 commentators.7 Commentators were about equally divided in their position on the all-holders requirement for third-party tender offers, while a substantial majority of commentators opposed adoption of the all-holders requirement for issuer tender offers. With respect to the July 1985 best-price proposal, a substantial majority of commentators supported adoption of the best-price proposal for third-party tender offers while commentators were about equally divided on the best-price provision for issuer tender offers. The majority of those commentators who opposed the all-holders requirement and best-price provision for issuer and thirdparty tender offers did so based upon their belief that the Commission lacked authority to promulgate the proposals. Commentators who supported the proposals did so for a variety of policy reasons, including the need to protect security holders from discriminatory tender offers.

415 U.S.C. 78n(d).

5 Release No. 33-6595 (July 1, 1985) [50 FR 27976]. "Release No. 33-6596 (July 1, 1985) [50 FR 28210]. This release also included proposed amendments to the applicable time periods for issuer tender offers in order to bring the provisions governing the conduct of issuer tender offers into conformity with third-party tender offers, to eliminate the advantages afforded defensive issuer tender offers, and to alleviate the confusion that may arise from disparate time periods. On January 9, 1986, the Commission adopted these amendments. See Release No. 33-6618 (January 14, 1986) [51 FR 3031].

With respect to the best-price provision, three commentators suggested revising the best-price proposal to require that all security holders to whom a tender offer is made must be paid the highest consideration paid, rather that offered, to any other security holder. This would permit a bidder to reduce the consideration offered without having to terminate the initial offer and commence a new offer, as has previously been required. The Commission agreed with the suggested reformulation of the best-price provision and in January 1986 proposed, inter alia, a revised best-price provision.8

The revised best-price proposal also necessitated the proposal of amendments to extend withdrawal rights and to require the offering period to remain open for ten business days upon an increase or decrease in the amount of securities sought or consideration offered.

Specifically, the Commission proposed to amend Rules 13e-4(f)(1)(ii)9 and 14e-1(b)10 to provide that a tender offer must remain open for ten business days upon the announcement of an increase or decrease in the percentage of securities being sought or in the consideration offered by the offeror. The Commission proposed two alternatives to extend withdrawal rights. Under the first alternative, additional withdrawal rights would attach for ten business days upon the announcement of a decrease in the percentage of securities being sought or consideration offered. The second alternative provided that withdrawal rights would extend throughout the offer, and that the current requirement to extend withdrawal rights upon the commencement of a competing bid would be eliminated.

Thirteen comment letters were received in response to the Commission's release proposing the reformulated best-price rule." Commentators generally supported the proposal revising the best-price provision from offered to paid. Further, the commentators who addressed the proposal to require that the offering period re

7 The letters of comment, as well as a copy of the summary of the comment letters prepared by the staff, are available for public inspection and copying at the Commission's Public Reference Room (See File Nos. S7-34-85, S7-35-85).

8 Release No. 33-6619 (January 14, 1986) [51 FR 3186].
917 CFR 240.13e-4(f)(1)(ii).
1017 CFR 240.14e-1(b).

"The letters of comment, as well as a copy of the summary of the comment letters prepared by the staff, are available for public inspection and copying at the Commission's Public Reference Room (See File No. S7-01-86).

main open for ten business days upon an increase or decrease in the consideration offered or percentage of securities sought generally supported such an amendment. With respect to the two proposals regarding withdrawal rights, commentators generally favored the proposal to extend withdrawal rights throughout the offering period over the proposal to require additional withdrawal rights for ten business days upon the announcement of a decrease in the percentage of securities sought or consideration offered.

The Commission continues to believe that it has the requisite rulemaking authority to adopt the all-holders requirement and best-price provision and, accordingly, is adopting those amendments substantially as proposed. In addition, the Commission is adopting, substantially as proposed, the amendments to Rules 13e-4(f)(1)(ii) and 14e-1(b) regarding the extension of the offering period for changes in the consideration offered or the amount of securities sought. Finally, the Commission is adopting the amendments to Rules 13e-4(f)(2)12 and 14d-713 to provide that withdrawal rights extend until the expiration of the offering period. These amendments also eliminate the extension of withdrawal rights upon the commencement of a competing bid.

II. Authority

The Commission proposed the all-holders and best-price requirements for issuer and third-party tender offers pursuant to statutory authority vested in it by, inter alia, Sections 3(b), 13(e), 14(d), 14(e) and 23(a)14 of the Exchange Act. 15 Section 23(a) authorizes the Commission to adopt such rules and regulations "as may be necessary or appropriate to implement the provisions of [the Exchange Act]." So long as the rule promulgated pursuant to such general rulemaking authority is "reasonably related to the purposes of the enabling legislation it will be sustained."16 Sections 13(e), 14(d) and 14(e), added to the Exchange Act as part of the Williams Act amendments (Sections 13(d)17 and (e), and 14(d), (e) and (f)18 of the Exchange Act), were designed:

1217 CFR 240.13e-4(f)(2).

1317 CFR 240.14d-7.

1415 U.S.C. 78c(b), 78m(e), 78n(d), 78n(e) and 78w(a).

15 The Commission also proposed and is adopting these amendments under Section 23(c) of the Investment Company Act of 1940, 15 U.S.C. 80a-23(c), and Sections 9(a)(6) and 10(b) of the Exchange Act, 15 U.S.C. 78i(a)(6) and 78j(b). 16 Mourning v. Family Publications Service, Inc., 411 U.S. 356, 369 (1973).

1715 U.S.C. 78m(d).

1815 U.S.C. 78n(f).

19 Full Disclosure of Corporate Equity Ownership and in

(1) to promote investor protection by requiring full and fair disclosure in connection with cash tender offers, and (2) to eliminate discriminatory treatment among security holders who may desire to tender their shares. 19 These purposes are implemented through disclosure requirements, substantive provisions and antifraud protections. As discussed below, the all-holders and bestprice requirements further the purposes of the Williams Act by assuring fair and equal treatment of all holders of the class of securities that is the subject of a tender offer and are an appropriate exercise of the Commission's general rulemaking authority.

The all-holders and best-price rules are "necessary or appropriate" to implement the Williams Act. They expressly preclude bidders from discriminating among holders of the class of securities that is the subject of the offer, either by exclusion from the offer or by payment of different consideration. Without the all-holders and best-price requirements, the investor protection purposes of the Williams Act would not be fully achieved because tender offers could be extended to some security holders but not to others. Such discriminatory tender offers could result in the abuses inherent in "Saturday Night Specials," "First-Come First Served" offers and unconventional tender offers since security holders who are excluded from the offer may be pressured to sell to those in the included class in order to participate, at all, in the premium offered. These excluded security holders would not receive the information required by the Williams Act, would have their shares taken up on a first-come firstserved basis and would have no withdrawal rights. There is nothing in the Williams Act or its legislative history to suggest that Congress intended to permit such selective protection of target company security holders.

Consistent with the disclosure objectives of the Williams Act, Section 14(d) is "designed to make the relevant facts known so that shareholders have a fair opportunity to make their [investment]

Corporate Takeover Bids, Hearings on S. 510 Before the Subcomm. on Securities of the Senate Comm. on Banking and Currency, 90th Cong. 1st Sess. 17 (1967) (statement of Manuel F. Cohen, Chairman, Securities and Exchange Commission) (hereinafter Senate Hearings); Takeover Bids, Hearings on H.R. 14475, S. 510 Before the Subcomm. on Commerce and Finance of the House Comm. on Interstate and Foreign Commerce, 90th Cong., 2d Sess. 11 (1968) (statement of Manuel F. Cohen, Chairman, Securities and Exchange Commission) (hereinafter House Hearings); S. Rep. No. 550, 90th Cong., 1st. Sess. 10 (1967); H.R. Rep. No. 1711, 90th Cong., 2d. Sess. 11 (1968).

decision" to tender, sell or hold their securities. 20 Specifically, Section 14(d)(1) requires bidders at the time a tender offer is made to provide investors, as well as the Commission, with information concerning, among other things, the terms of the offer and the bidder's plans or proposals with respect to the target company. In addition, Section 14(d)(1) specifically grants to the Commission the authority to prescribe other disclosure requirements for bidders "as [may be] necessary or appropriate in the public interest or for the protection of investors." Congress also provided the Commission with this same broad grant of rulemaking authority in Section 14(d)(4) which authorizes the Commission to specify "as necessary or appropriate in the public interest or the protection of investors" the information to be included in any recommendation by the management or others in favor of or in opposition to a tender offer.

Consistent with that intent, the Commission has used its rulemaking authority to promulgate regulations designed to ensure that security holders have adequate information about a tender offer. For example, Rule 14d-221 provides that a tender offer will commence upon publication or public announcement of the tender offer. That rule does not contemplate that notification of the tender offer will be made to only certain security holders, but rather operates on the assumption that all holders will be adequately informed about the tender offer. Similarly, Rule 14d-422 provides for dissemination of tender offer materials to all security holders.

The all-holders requirement complements these rules and serves as a means of effecting the purposes of the Williams Act. The all-holders requirement would realize the disclosure purposes of the Williams Act23 by ensuring that all members of the class subject to the tender offer receive information necessary to make an informed decision regarding the merits of the tender offer. If tender offer disclosure is given to all holders, but some are barred from participating in the offer, the Williams Act disclosure objectives would be ineffective.

Further, the specific language of the Williams Act

20 Id.

2117 CFR 240.14d-2.

2217 CFR 240.14d-4.

23 See, e.g., S. Rep. No. 550, supra at 3 ("The bill is designed to make the relevant facts known so that shareholders have a fair opportunity to make their decision.”). 24 See, e.g., Section 14(d)(1) which refers to tender offers made for "any class of any equity security."

contemplates tender offers made for a "class" of equity security.24 That language reflects Congress' understanding that all security holders were to have the opportunity to participate in a tender offer for a target's securities. In addition to Section 14(d)(1)'s references to tender offers for "any class of any equity security," Section 14(d)(6), which governs proration of securities tendered, discusses tender offers "for less than all the outstanding equity securities of a class." By using the term "class" of equity security,25 it can be inferred that Congress intended that, when a tender offer is made, it will be made to all holders of the outstanding securities of such class. The substantive provisions of the Williams Act also support the Commission's rulemaking authority to require that all security holders subject to a tender offer be treated alike. For example, in promulgating both the pro rata and equal price provisions of Sections 14(d)(6) and (d)(7), Congress intended, inter alia, to assure fair treatment among security holders who may desire to tender their shares. The pro rata provisions of Section 14(d)(6) were promulgated in order to give all security holders an equal opportunity to participate in a tender offer for less than all the outstanding shares of the target.26 Specifically, that section provides that where a greater number of securities are deposited than the offeror is bound or willing to take up, the securities deposited must be taken up pro rata according to the number of securities deposited by each person. Although Section 14(d)(6) recognizes that a tender offeror may accept less than all the securities of a particular class, that section does not authorize tender offers to be made to less than all security holders of the particular class of securities sought.

Similarly, Section 14(d)(7) assures equality of treatment among all security holders who tender their shares by requiring that any increase in consideration offered to security holders be paid to all security holders whose shares are taken up during the offer. One of Congress' purposes in promulgating the provision was "to assure equality of treatment among all shareholders who tender their shares. "27 These substantive provi

25 Pursuant to the authority vested in it by Sections 3(b) and 23(a) to define terms, the Commission, by promulgating the all-holders provision, is defining the term "class" of equity security.

26 S. Rep. No. 550, supra, at 10; H.R. Rep. No. 1711, supra,

at 11. 27 Id.