by Cydney Posner
Below are summaries of some more new CDIs from Corp Fin, this group relating to the tender offer rules and schedules. Two of the new CDIs provide guidance regarding disclosure of compensatory arrangements for financial advisors. The other new CDIs provide additional guidance under the Abbreviated Tender or Exchange Offers for Non-Convertible Debt Securities no-action letter (January 23, 2015), which superseded prior no-action positions and permitted the issuer to conduct a tender offer for non-convertible debt securities held open for at least five business days, so long as specified criteria were satisfied.
- 159.01 Item 5 of Schedule 14D-9 and Item 1009(a) of Reg M-A together require a summary of all material terms of any employment, retainer or other compensation arrangements with “all persons…that are directly or indirectly employed, retained, or to be compensated to make solicitations or recommendations in connection with” a transaction subject to the provision. A financial advisor to a board or committee engaged for the exclusive purpose of providing advice with respect to the tender or exchange offer and whose analyses or conclusions are discussed in the issuer’s Schedule 14D-9 is “indirectly employed, retained, or to be compensated” to assist the issuer in making its Schedule 14D-9 solicitation or recommendation, and as a result, the summary would be required. That is the case even if the advisor’s opinion expressly disclaims making a solicitation or recommendation to any of the target company shareholders.
- 159.02 Generally, depending on the facts and circumstances, a generic disclosure that “customary compensation” will be paid to the financial advisors, without any further details, would not satisfy the requirement for a “summary of all material terms.” Corp Fin believes that that type of generic disclosure is generally inadequate because “it lacks the specificity needed to assist security holders in evaluating the merits of the solicitation or recommendation and the objectivity of the financial advisors’ analyses or conclusions used to support such solicitation or recommendation. See generally Exchange Act Release No. 16384 (Nov. 29, 1979) (stating that the disclosure in Schedule 14D-9 is intended to ‘assist security holders in making their investment decision and in evaluating the merits of a solicitation/recommendation’).” While it may not always be necessary to quantify the amount of compensation, Corp Fin indicates that the summary would “generally include the following:
- the types of fees payable to the financial advisors (e.g., independence fees, sale transaction or ‘success’ fees, periodic advisory fees, or discretionary fees);
- if multiple types of fees are payable to the financial advisors and there is no quantification of these fees, then sufficiently-detailed narrative disclosure to allow security holders to identify the fees that will provide the primary financial incentives for the financial advisors;
- any contingencies, milestones, or triggers relating to the payment of the financial advisors’ compensation (e.g., the payment of a fee upon the consummation of a transaction, including with a bidder in an unsolicited tender or exchange offer); and
- any other information about the compensatory arrangement that would be material to security holders’ assessment of the financial advisors’ analyses or conclusions, including any material incentives or conflicts that should be considered as part of this assessment.”
Section 14(e) and Regulation 14E
Rule 14e-1
- 162.01 The Abbreviated Tender or Exchange Offers for Non-Convertible Debt Securities no-action letter (January 23, 2015) (the “Letter”) states that if the issuer is an Exchange Act reporting company, the issuer must furnish a press release announcing the abbreviated offer on a Form 8-K filed prior to 12:00 noon, Eastern time, on the first business day of the abbreviated offer. A foreign private issuer may satisfy this condition by filing a Form 6-K.
- 162.02 The Letter states that abbreviated offers must be made “for any and all” subject debt securities. That requirement does not preclude the use of minimum tender conditions.
- 162.03 Under the Letter, “abbreviated offers for consideration consisting of Qualified Debt Securities, as defined in the Letter, may be made to all persons who are QIBs and non-U.S. persons for a fixed amount of Qualified Debt Securities or for an amount of Qualified Debt Securities calculated with reference to a fixed spread to a benchmark, so long as a fixed amount of cash consideration is concurrently offered to persons other than QIBs and non-U.S. persons to approximate the value of the offered Qualified Debt Securities.” In the latter case, the amount of cash consideration offered concurrently to persons other than QIBs and non-U.S. persons may instead be calculated by reference to a fixed spread to a benchmark, provided that the calculation is the same as the calculation used in determining the amount of Qualified Debt Securities.
- 162.04 Offerors can issue Qualified Debt Securities under Section 3(a)(9), rather than Section 4(a)(2) or Rule 144A, to Eligible Exchange Offer Participants, as defined in the Letter, and still conduct an abbreviated offer in reliance on the Letter.
- 162.05 One of the conditions specified in the Letter is that the abbreviated offer not be “commenced within ten business days after the first public announcement or the consummation of the purchase, sale or transfer by the issuer or any of its subsidiaries of a material business or amount of assets,” if that transaction would require pro forma financials under Article 11 of Reg S-X (whether or not the issuer is registered under the Exchange Act). Accordingly, if the offeror announces one of these transactions, it can announce the abbreviated offer at any time, but should not commence the abbreviated offer prior to 5:01 p.m. on the tenth business day after the first public announcement of a purchase, sale or transfer of a material business or amount of assets described in the Letter. Note that, if the abbreviated offer is commenced after 5:01 p.m. on a particular business day, the first day of the five business day period would be the next business day.
