In our November 1999 memorandum discussing the SEC's then recently adopted reforms to its tender offer rules we told you about a new rule allowing third party bidders to tack a "subsequent offering period" onto their tender offers. This reform, imported from U.K. take-over regulations, allows a bidder to purchase all tendered shares at the expiration of a tender offer, while continuing to allow shareholders who have not yet tendered their shares to participate in the offer for an additional period of time. However, when it adopted the new rule (Rule 14d11), the SEC said that it was taking the position, at least initially, that a bidder must disclose at least five business days in advance of the expiration of an offer whether it would provide a subsequent offering period.
We warned at the time that bidders should be wary of using subsequent offering periods while the SEC insisted on this prior disclosure. We were concerned about the risk of holdouts who would refrain from tendering in the initial offering period if they could wait until after the results of the tender offer were known and yet be certain that they would have another opportunity to tender their shares and promptly get paid.
In the typical case, the reason to allow a subsequent offering period is that it adds another opportunity for the bidder to acquire more than 90% ownership of the target, the threshold necessary for a faster and easier shortform merger under Delaware law, and most other state corporate laws as well. Since you typically don't know whether you've passed this threshold until the final days and hours of the tender offer, you have a dilemma on your hands if you need to decide whether to use the subsequent offering period a week or more in advance of the scheduled expiration of your offer.
The SEC has now announced (and confirmed with us in a telephone conversation) that it is no longer necessary to disclose in advance of the expiration of the tender offer whether a subsequent offering period will be allowed. Under the SEC's new interpretation, it will be permissible to decide whether to use a subsequent offering period after the offer expires so long as the bidder discloses in advance that it is reserving the right to do so. This should be a welcome development for bidders because it eliminates the hold-out problem and allows them to decide after the final results of the tender offer are known whether they would benefit from using a subsequent offering period.
Copyright © 2007, Mayer, Brown, Rowe & Maw LLP. and/or Mayer Brown International LLP. This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.
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