The Securities and Exchange Commission (the "SEC") recently adopted tender offer and registration exemptive rules under both the Securities Act of 1933 ("Securities Act") and the Securities Exchange Act of 1934 ("Exchange Act") for cross-border tender and exchange offers, business combinations, and rights offerings relating to the securities of foreign private issuers. According to the SEC, the new exemptive rules are intended to encourage foreign private issuers to extend cross-border transactions to U.S. security holders. The new rules for cross-border transactions become effective on January 24, 2000.
Tender Offer Exemptions
Tier I Exemption. Under the new rules, tender offers for the securities of a foreign private issuer, whether made by a U.S. or foreign person, will be exempt from the U.S. tender offer rules if:
- U.S. security holders hold 10% or less of the subject securities;
- bidders provide a tender offer document or offering circular, in English, to U.S. security holders on a comparable basis to that provided to other security holders;
- U.S. security holders participate in the offer on as favorable terms as any other security holder (with an exception for the bidder to pay cash only to U.S. security holders if the bidder has a reasonable basis to believe that the cash is substantially equivalent to the consideration offered to non-U.S. security holders); and
- the bidder must submit for notice purposes only, an English language translation of the offering materials to the SEC on new Form CB and, in the case of a foreign offeror, file with the SEC a consent to service on Form F-X.
The SEC noted that bidders, the subject company, or any officer, director or other person who would have an obligation to file a Schedule 14D-9 may rely on the Tier I exemption.
New Rule 14e-5. New Rule 14e-5 under the Exchange Act, which replaces the old Rule 10b-13, prohibits, in connection with a tender offer for equity securities, a bidder from purchasing or arranging to purchase any of the target's securities outside of the tender offer. However, the SEC explained that Rule 14e-5 has an exemption which allows certain purchases outside of an ongoing tender offer if the transaction qualifies for the Tier I exemption.
Tier II Exemption. Under certain conditions set forth in the new rules, offerors in a crossborder transaction would be entitled to limited relief from the U.S. tender offer rules to minimize the conflicts with foreign regulatory requirements. This exemption will be available to issuer and third-party tender offers when the target company is a foreign private issuer and U.S. security holders own more than 10%, but less than 40%, of the subject securities. The SEC highlighted, however, that a bidder in the Tier II exemption must offer identical consideration to U.S. and non-U.S. security holders alike. The SEC stated that the Tier II exemption is merely a codification of exemptive and interpretative positions that it currently applies in cross-border acquisitions.
Rules 801 and 802. Under new Rule 801, equity securities issued in rights offerings by a foreign private issuer will be exempt from the Securities Act registration requirements if U.S. security holders hold 10% or less of the issuer's securities that are the subject of the offering. Under new Rule 802, securities issued in exchange offers for foreign private issuers' securities and securities issued in business combinations involving foreign private issuers will be exempt from the Securities Act registration requirements and the qualification requirements of the Trust Indenture Act, if U.S. security holders hold 10% or less of the subject class of securities.
Liability for Cross-Border Transactions
The SEC stated that the beneficial ownership requirements, anti-fraud and anti-manipulation rules will continue to apply to all cross-border transactions, regardless of any exemptions. According to the SEC, application of these rules will provide the necessary and basic level of protection for U.S. security holders who participate in cross-border transactions.
Cross-Border Tender and Exchange Offers, Business Combinations and Rights Offerings, SEC Rel. No. 33-7759, 34-42054, 64 Fed. Reg. 61382 (Nov. 10, 1999) (to be codified at 17 C.F.R. pts. 200, 230, 239, 240, 249 and 260).