Corp Fin has just posted some new CDIs related to M&A transactions, more specifically, a revised CDI related to Form S-4 and lock-up agreements and a new group of CDIs related primarily to material changes in tender offers. The CDIs are summarized below.
Securities Act Sections C&DIs Section 5 and Form S-4
Revised Question 239.13 and Revised Question 225.10 Where an acquiring company seeks a lock-up agreement from the target’s management and principal security holders to vote in favor of the transaction, the execution of the lock-up may be an investment decision made before the Rule 145(a) transaction is presented to non-affiliated security holders for their vote.
The staff has not objected to the registration of offers and sales where lock-up agreements have been signed in the following circumstances:
- “the lock-up agreements involve only executive officers, directors, affiliates, founders and their family members, and holders of 5% or more of the voting equity securities of the target company (‘target company insiders’);
- the persons signing the lock-up agreements collectively own less than 100% of the voting equity securities of the target company;
- votes will be solicited from security holders of the target company who have not signed the agreements if such votes are needed to approve the Rule 145(a) transaction under state or foreign law; and
- the acquiring company delivers a prospectus to all security holders of the target company entitled to vote on the Rule 145(a) transaction in accordance with its obligations under the Securities Act.”
This revision reflects a deletion in the third bullet above that previously required solicitation of votes from non-signatories who “would be ineligible to purchase in a private offering.” Instead, the bullet refers to solicitation of votes from non-signatories where needed. Further, the last bullet above requiring delivery of a prospectus is a new addition in this revision.
In addition, the revised CDI provides that,
“[w]here the target company insiders in the above circumstances deliver written consents approving the Rule 145(a) transaction before the Form S-4 (or Form F-4) is filed, the staff will not object to the subsequent registration of offers and sales of the acquiring company’s securities on Form S-4 (or Form F-4) as long as:
- target company insiders who delivered the written consents will be offered and sold securities of the acquiring company only in an offering made pursuant to a valid Securities Act exemption; and
- the securities registered on the Form S-4 (or Form F-4) will be offered and sold only to those security holders of the target company who did not deliver written consents approving the Rule 145(a) transaction.”
Previously, the CDI stated that, where the target company insiders who signed lock-ups also delivered written consents approving the business combination, the staff did object to a subsequent registration on Form S-4 for any of the shareholders “because offers and sales have already been made and completed privately, and once begun privately, the transaction must end privately.” Now, the staff will allow the registration to go forward so long as the offers and sales to the consenting target company insiders were made under a valid exemption and those who consented will not receive registered shares.
Tender Offer Rules and Schedules
New Question 101.17 While, “as a general rule,” an offer should remain open for a minimum of five business days from the date that a material change is first disclosed, that’s not always the case. A shorter time period may be adequate “if disclosure and dissemination of the material change allows security holders sufficient time to consider such information and factor it into their decision whether to tender shares, withdraw shares already tendered, sell into the market, or hold their shares.” The staff cites in support Release No. 34-24296 (April 3, 1987) and “footnote 70 in Release No. 34-23421 (July 11, 1986) (‘The minimum period during which an offer must remain open following material changes in the terms of the offer or information concerning the offer, other than a change in price or percentage of securities sought, will depend on the facts and circumstances, including the relative materiality of the terms or information’).”
New Question 101.18 Where an offeror commences an all-cash, “partly financed” or “unfinanced” tender offer under Reg 14D and discloses the lack of committed financing in its offer to purchase, subsequent securing of all the necessary committed financing is viewed by the staff as a material change. As a result, the offeror must:
- “promptly disclose the change from an unfinanced tender offer to a fully financed tender offer in accordance with Rule 14d-6(c);
- promptly file an amendment to Schedule TO to report the material change in accordance with Rule 14d-3(b)(1); and
- promptly disseminate disclosure of the change to security holders in a manner reasonably designed to inform security holders of the change in accordance with Rule 14d-4(d)(1).”
Disclosure of the material change must be disseminated “with sufficient time for security holders to consider such information and factor it into the decision whether to tender shares, withdraw shares already tendered, sell into the market, or hold their shares.” As a result, if the material change “occurs near or at the end of the tender offer, the offeror must ensure sufficient time remains in the offer to allow for adequate dissemination, including by extending the offer if necessary. This position equally applies to issuer tender offers subject to Rule 13e-4 and its comparable requirements.”
New Question 101.19 A tender offer is considered fully financed if the offeror has obtained a binding commitment letter from a lender to provide the funds necessary to purchase the maximum amount of securities sought in the offer, but not if the letter is only a “highly confident” letter from a lender.
New Question 101.20 The offeror in a cash tender offer for all securities of the subject class has disclosed in its offer that it has obtained a binding commitment letter from a lender to fund the purchase of all the shares and has also disclosed the possibility of use of alternative funding sources, such as available cash. A decision by the offeror to substitute an alternative source or available cash sufficient to fund the purchase of all the shares would not be considered a material change. The staff advises, however, that the offeror consider updating the tender offer materials “to reflect the substitution of the funding source (or the substitution of cash) and the material terms of the new funding source.”
New Question 101.21 Where the offeror in an all-cash tender offer subject to Reg 14D discloses a binding commitment letter from a lender to fund the purchase all the securities, but also conditions its purchase on the actual receipt of the funds from the lender, satisfaction of the condition through fulfillment of the obligation is not a material change. If the lender does not fulfill its obligation, but the offeror uses alternative sources and waives the condition, as discussed above, there is likewise no material change.
However, if the lender does not fulfill its contractual obligation by providing the funds, and the offeror has no alternative source of funds but still waives the funding condition,
“then the waiver would constitute a material change, requiring the offeror to:
- promptly disclose the material change in accordance with Rule 14d-6(c);
- promptly file an amendment to Schedule TO to report the material change in accordance with Rule 14d-3(b)(1); and
- promptly disseminate disclosure of the change to security holders in a manner reasonably designed to inform security holders of the change in accordance with Rule 14d-4(d)(1).”
The staff observes that the waiver and the absence of funding “could implicate other tender offer provisions, such as the prompt payment requirement in Rule 14e-1(c) as well as the provisions of Section 14(e). This position equally applies to issuer tender offers subject to Rule 13e-4 and its comparable requirements (i.e., Rules 13e-4(c)(3), 13e-4(d)(2) and 13e-4(e)(3)).”
