Cross-Border Tender Offers and Other Business Combination Transactions and the U.S. Federal Securities Laws: An Overview

1071

Cross-Border Tender Offers and Other Business

Combination Transactions and the U.S. Federal

Securities Laws: An Overview

By John M. Basnage, William J. Curtin, III, and Jeffrey W. Rubin*

In structuring cross-border tender offers and other business combination transactions, par-

ties must consider carefully the potential application of U.S. federal securities laws and

regulations to their transaction. By understanding the extent to which a proposed transaction

will be subject to the provisions of U.S. federal securities laws and regulations, parties may

be able to structure their transaction in a manner that avoids the imposition of unanticipated

or burdensome disclosure and procedural requirements and also may be able to minimize

potential conﬂicts between U.S. laws and regulations and foreign legal or market require-

ments. This article provides a broad overview of U.S. federal securities laws and regulations

applicable to cross-border tender offers and other business combination transactions, in-

cluding a detailed discussion of Regulations 14D and 14E under the Securities Exchange

Act and the principal accommodations afforded to foreign private issuers thereunder.

ABLE OF

ONTENTS

Introduction ................................................................................. 1073

Application of U.S. Securities Laws ......................................... 1074

The Exchange Act ................................................................ 1076

The Securities Act ................................................................ 1076

State Securities Law Considerations ......................................... 1077

General Structure of Our Article ....................................................... 1078

1 Tender Offers ...................................................................... 1078

Background ........................................................................ 1078

Application of Section 14(d) and (e) of the Exchange Act ............ 1079

Registration Requirements of the Securities Act ......................... 1080

1.1 The Cross-Border Tender Offer Rules ....................................... 1081

* Mr. Basnage is a partner resident in the London ofﬁce of Hogan & Hartson MNP; Mr. Curtin is

a partner resident in the Washington, D.C. ofﬁce of Hogan & Hartson L.L.P. and the Paris ofﬁce of

Hogan & Hartson MNP; and Mr. Rubin is a partner resident in the New York ofﬁce of Hogan &

Hartson L.L.P. The authors are grateful for the substantive contributions made by Joseph G. Connolly,

Jr., a partner in the Washington, D.C. ofﬁce of Hogan & Hartson L.L.P., and the assistance of Jean C.

Blackerby, an associate in the Washington, D.C. ofﬁce of Hogan & Hartson L.L.P. The views expressed

in this article are those of the authors alone. They do not reﬂect the views of Hogan & Hartson L.L.P. or

Hogan & Hartson MNP, or any of its individual partners, counsel, associates or clients.

1072 The Business Lawyer; Vol. 61, May 2006

1.1.1 Determination of U.S. Shareholding ........................................ 1082

When to Calculate U.S. Ownership ......................................... 1083

Holders of More Than 10 Percent; Bidder Securities ................... 1084

American Depositary Shares; Convertible or Exchangeable

Securities ........................................................................... 1084

Hostile Tender Offers ........................................................... 1085

Practical Difﬁculties ............................................................. 1085

1.1.2 The Tier I Exemption ........................................................... 1087

Availability ......................................................................... 1087

Subsequent Bidder ............................................................... 1087

Offering Materials ................................................................ 1087

Equal Treatment; Exceptions .................................................. 1088

Filing Requirements ............................................................. 1089

Target’s Response ................................................................. 1089

Purchases Outside of the Tender Offer ..................................... 1089

1.1.3 The Tier II Exemption .......................................................... 1091

Availability ......................................................................... 1091

Loan Note Exception ............................................................ 1091

Subsequent Bidder ............................................................... 1091

1.2 Provisions Applicable to Tender Offers for All Securities .............. 1092

1.2.1 Minimum Offer Period ......................................................... 1092

1.2.2 Notice of Extensions ............................................................ 1092

1.2.3 Prompt Payment of Consideration .......................................... 1093

1.2.4 Response of the Target Company ............................................ 1093

1.2.5 General Anti-Fraud Provisions ................................................ 1093

1.2.6 Purchases Outside of the Offer ............................................... 1094

1.3 Additional Provisions Applicable to Tender Offers for Registered

Securities ........................................................................... 1095

1.3.1 Announcements and Tender Offer Documents ........................... 1096

1.3.2 Target’s Response Document and Communications .................... 1097

1.3.3 Withdrawal Rights ............................................................... 1097

1.3.4 Subsequent Offering Period ................................................... 1098

1.3.5 All Holders-Best Price Rule .................................................... 1099

1.3.6 Mix-and-Match Elections ...................................................... 1100

1.4 Special Considerations Relating to American Depositary Shares .... 1101

1.5 Disclosure

.......................................................................... 1101

2 Exchange Offers .................................................................. 1103

2.1 Rule 802 ............................................................................ 1103

Availability ......................................................................... 1103

Offering Materials ................................................................ 1104

Filing Requirements ............................................................. 1104

Blue Sky Exception .............................................................. 1105

Legends ............................................................................. 1105

Transfer Restrictions ............................................................. 1105

Integration ......................................................................... 1106

Cross-Border Tender Offers and Other Business Combination Transactions 1073

No Exchange Act Reporting Obligations ................................... 1106

Subsequent Bidder ............................................................... 1106

Practical Difﬁculties ............................................................. 1106

2.2 Regulation S ....................................................................... 1107

2.3 Cashing Out U.S. Holders; Vendor Placing; Private Placements ..... 1108

2.4 Registration under the Securities Act ....................................... 1110

2.4.1 Disclosure .......................................................................... 1113

2.4.2 Prospectus Liability .............................................................. 1113

2.4.3 Gun-Jumping Issues ............................................................. 1115

2.4.4 Security Offering Reforms ..................................................... 1116

3 Business Combination Transactions Not Involving a Tender

Offer ................................................................................. 1116

3.1 Exemptions and Exclusions to the Registration Requirements of

the Securities Act ................................................................. 1118

3.1.1 Rule 802 ............................................................................ 1118

3.1.2 Schemes of Arrangement–Section 3(a)(10) ................................ 1118

3.2 Registration under the Securities Act ....................................... 1120

4 Transactions Not Involving U.S. Jurisdictional Means .................. 1120

5 Certain Related Matters ......................................................... 1123

5.1 Exchange Act Registration ..................................................... 1123

5.2 Succession ......................................................................... 1125

5.3 De-Registration ................................................................... 1127

5.4 Reporting of Beneﬁcial Ownership .......................................... 1130

5.5 The Sarbanes-Oxley Act and Corporate Governance Issues .......... 1130

Conclusion .................................................................................. 1133

NTRODUCTION

Many business combination transactions involving non-U.S. companies may

be subject to U.S. laws and regulations. Even if none of the participant companies

to the transaction is organized in the United States, U.S. federal securities laws

and regulations may apply, depending on how the offer is structured and whether

any of the companies’ security holders are resident in the United States. This

article provides an overview of U.S. federal securities laws and regulations appli-

cable to cross-border tender offers and other business combination transactions

where, in the case of a tender offer, the “target” is a company organized under

the laws of a country other than the United States and, in the case of a business

combination transaction not involving a tender offer, the “subject company” is

organized in a jurisdiction outside the United States. Our intention is not to

provide a comprehensive analysis of all securities laws and regulations of conse-

quence in such transactions, but to provide practitioners and other interested

1. In this article “tender offer” refers generally to an offer by a bidder company to acquire shares

of another company, whether for cash, securities or a combination of the two; references to a “business

combination transaction” mean a combination of two entities’ businesses by means of a tender offer

or otherwise. See also infra note 23.

1074 The Business Lawyer; Vol. 61, May 2006

persons with a general guide regarding the substance and scope of the principal

U.S. federal securities laws and regulations a practitioner might encounter in such

transactions.

Application of U.S. Securities Laws

One of the fundamental goals of the U.S. securities laws is the protection of

U.S. investors.

The Securities and Exchange Commission (the “SEC”) takes the

view that U.S. securities laws potentially apply to any transaction that is conducted

in the United States or that employs U.S. jurisdictional means.

Speciﬁcally:

2. This article does not address all the legal, procedural and other issues related to a cross-border

tender offer or business combination transaction. Among other things, this article does not address a

tender offer by an issuer for its own securities governed by Rule 13e-4, 17 C.F.R. § 240.13e-4 (2005),

under the Securities Exchange Act of 1934 (the “Exchange Act”), ch. 404, 48 Stat. 881; it does not

discuss the so-called U.S. “proxy rules” applicable in the context of a solicitation of votes or consents

of certain U.S. companies’ shareholders under section 14(a) of the Exchange Act, 48 Stat. at 895

(codiﬁed as amended at 15 U.S.C. § 78n (2000 & Supp. III 2003); it does not consider the regulation

of tender offers and other business combination transactions pursuant to U.S. or foreign antitrust/

competition laws (principally, the Sherman Antitrust Act of 1890, ch. 647, 26 Stat. 209; the Clayton

Act of 1914, ch. 323, 38 Stat. 730; the Federal Trade Commission Act of 1914, ch. 311, 38 Stat. 717;

and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, Pub. L. No. 94-435, § 201, 90 Stat.

1383, which amended the Clayton Act by adding the requirement that parties to certain transactions,

including the acquisition of assets or shares, provide notiﬁcation to both the U.S. federal Trade Com-

mission and the Antitrust Division of the U.S. Department of Justice). This article also does not discuss

the statutory and other restrictions applicable to business combination transactions involving regulated

industries, such as communications, shipping, energy and defense-related businesses, and does not

discuss U.S. Government review (pursuant to provisions of the Defense Production Act of 1950, ch.

932, 64 Stat. 798, as amended by the Omnibus Trade and Competitiveness Act of 1988, Pub. L. No.

100-418, § 5021, 102 Stat. 1107) of the national security implications of business combination trans-

actions whereby non-U.S. entities seek to gain control of U.S. entities and related actions to suspend

or prohibit such transactions where U.S. national security cannot otherwise be protected. Additionally,

U.S. federal laws such as the International Investment Survey Act of 1976, Pub. L. No. 94-472, 90

Stat. 2059, the Agricultural Foreign Investment Disclosure Act of 1978, Pub. L. No. 95-460, 92 Stat.

1263, and the Domestic and the Foreign Investment Improved Disclosure Act of 1977, Pub. L. No.

95-213, Title II, 91 Stat. 1494, 1498, may impose reporting requirements on foreign investors, which

are not discussed. This article also does not address the speciﬁc accommodations afforded to Canadian

companies under U.S. securities laws pursuant to the multi-jurisdictional disclosure system of the

Securities and Exchange Commission (“ SEC”), see infra note 192, and Canadian provincial securities

regulators.

3. See, e.g., Exchange Act § 2, 48 Stat. at 881 (codiﬁed as amended at 15 U.S.C. § 78b (2000))

(describing the necessity for the enactment of the Exchange Act and the reasons why “transactions in

securities . . . are affected with a national public interest”); Exchange Act § 14(d)(1), 48 Stat. at 895,

as amended by Act of July 29, 1968, Pub. L. No. 90-439, § 2, 82 Stat. 454, 455 (codiﬁed as amended

at 15 U.S.C. § 78n(d)(1) (2000 & Supp. III 2003)) (SEC is authorized, by rule or regulation, to

prescribe such additional information “as necessary or appropriate in the public interest or for the

protection of investors”). See also Final Rule: Cross-Border Tender and Exchange Offers Business

Combinations and Rights Offerings, SEC Release Nos. 33-7759, 34-42054, 70 SEC Docket 2191 (Oct.

22, 1999) [hereinafter “Cross-Border Release”] (The SEC states in the tender offer context that its

“exemptions balance the need to provide U.S. security holders with the protections of the U.S. secu-

rities laws against the need to promote the inclusion of U.S. security holders in these types of cross-

border transactions”).

4. See Schoenbaum v. Firstbrook, 405 F.2d 200, 206-208 (2d Cir. 1968) (reviewing the extrater-

ritorial reach of the Exchange Act and holding that U.S. district courts have subject matter jurisdiction

over violations of the Exchange Act “at least when the transactions involve stock registered and listed

on a national securities exchange, and are detrimental to the interests of American investors,” even

Cross-Border Tender Offers and Other Business Combination Transactions 1075

• the general anti-fraud provisions of the Securities Exchange Act of 1934,

as amended (the “Exchange Act”),

may be violated where fraudulent con-

duct occurs in the United States, or where the effects of the fraudulent

conduct are felt in the United States;

• if a tender offer is made for securities of a class that is registered under

the Exchange Act, it may be necessary for the bidder to comply with the

tender offer provisions of the Exchange Act;

• even where the target company does not have a class of securities regis-

tered under the Exchange Act, the Exchange Act proscribes certain fraud-

ulent, deceptive or manipulative acts or practices in connection with

tender offers that are potentially applicable to any transaction that employs

“U.S. jurisdictional means”; and

• if securities are to be offered to persons in the United States, it may be

necessary to register such securities pursuant to the Securities Act of 1933,

as amended (the “Securities Act”),

or to conﬁrm the availability of an

exemption or exclusion from registration.

U.S. federal securities laws may apply to a tender offer or other business combi-

nation transaction notwithstanding the nationality of the bidder or target or the

protections afforded by their respective home market regulators. This approach

contrasts with that taken in many European jurisdictions, where the nationality

of the target, rather than the residency of the investors or the means by which

the offer is made, may be determinative of the regulatory implications of the

transaction.

though the transactions took place outside of the United States), cert. denied, 395 U.S. 906 (1969);

Leasco Data Processing Equipment Corp. v. Maxwell, 468 F.2d 1326 (2d Cir. 1972); Bersch v. Drexel

Firestone, Inc., 519 F.2d 974 (2d Cir. 1975), cert. denied, 423 U.S. 1018 (1975). See also footnote 2

of SEC Release No. 33-6866, 55 Fed. Reg. 23751 (June 12, 1990) (where the SEC states that the

“tender offer provisions of the Williams Act are extraterritorial in scope” and suggests that jurisdictional

means can be established where it is reasonably foreseeable that U.S. shareholders of a foreign issuer

that have been excluded from an offshore offer, will sell their shares into the market in response to

that offer).

5. Ch. 404, 48 Stat. 881 (codiﬁed as amended at 15 U.S.C.A. §§ 78a–78nn (West 1997 & Supp.

2006).

6. The general anti-fraud provisions are set forth in Exchange Act § 10(b), 48 Stat. at 891 (codiﬁed

as amended at 15 U.S.C. § 78j (2000)) and Rule 10b-5 thereunder (codiﬁed at 17 C.F.R. § 240.10b-

5 (2005)). The “conduct” and “effects” tests have been recognized in a number of court decisions,

including Bersch, supra note 4, and Consolidated Gold Fields PLC v. Minorco, S.A., 871 F.2d 252, 262

(2d Cir. 1989), amended, 890 F.2d 569 (2d Cir. 1989), cert. dismissed, 492 U.S. 939 (1989). The U.S.

Circuit Courts have not adopted uniform standards regarding the level of conduct or effects necessary

to invoke U.S. jurisdiction.

7. Ch. 38, 48 Stat. 74 (codiﬁed as amended at 15 U.S.C.A. §§ 77a–77aa (West 1997 & Supp.

2006).

8. For instance, the United Kingdom’s City Code on Takeovers and Mergers (2006), available at

http://www.thetakeoverpanel.org.uk/new/ [hereinafter the “City Code”] applies to offers for all public

companies and societas europaea, whether listed or unlisted, resident in the United Kingdom, the

Channel Islands or the Isle of Man (see, e.g., the City Code at paragraph 3(a) of the Introduction);

South African takeover regulations apply to companies that are deemed to be resident in South Africa

(see, e.g., South Africa’s Securities Regulation Code on Take-overs and Mergers at Section A(3) in

UIDE TO

OMPANIES

CT AND

EGULATIONS

(Walter D. Geach ed., 1992), at 10-280); in France,

the rules relating to tender offers generally apply only where the target company is a French entity

1076 The Business Lawyer; Vol. 61, May 2006

The Exchange Act

The Exchange Act governs reporting, disclosure and other obligations of public

companies and certain persons having interests in such companies. In particular,

tender offers to which U.S. securities laws apply are governed by the Exchange

Act and by rules adopted by the SEC thereunder.

Certain provisions of the Ex-

change Act

are potentially applicable in respect of any tender offer extended to

U.S. investors or that otherwise employs U.S. jurisdictional means.

Other pro-

visions of the Exchange Act

apply only in respect of an offer for a class of

securities registered under the Exchange Act.

A business combination transac-

tion that does not involve a tender offer is not regulated by the tender offer

provisions of the Exchange Act.

The Securities Act

The Securities Act governs offers and sales of securities and, in general, requires

the registration of offers and sales unless an exemption or exclusion from regis-

tration is available. The Securities Act applies to any tender offer using U.S. ju-

risdictional means involving the exchange of one security in consideration for the

tender of another, whether the exchange security is newly-issued or already out-

standing and whether the exchange security is issued or delivered by the bidder

or a third party.

Any such exchange security must be registered with the SEC

under the Securities Act as part of the tender offer process unless an exemption

or an exclusion applies.

The Securities Act also applies in the context of a business combination trans-

action that does not involve a tender offer but pursuant to which a plan is sub-

listed in France; the residency of the shareholders of the target is irrelevant (see, e.g., General Regu-

lations of the French Autorite´ des marche´s ﬁnanciers at Article 231-1).

9. Tender offers were not regulated by U.S. federal securities laws until the adoption by the United

States Congress in 1968 of the Williams Act amendments to the Exchange Act. Williams Act, Pub. L.

No. 90-439, 82 Stat. 454 (codiﬁed at 15 U.S.C.A. § 78l - 78n (West 1997 & Supp. 2006)). The

provisions of the Exchange Act added by the Williams Act, including sections 14(d) and 14(e), are

consequently sometimes referred to as the “Williams Act”, 15 U.S.C. § 78n(d)-(e) (2000 & Supp. III

2003).

10. In particular Exchange Act section 14(e) as added by the Williams Act, supra note 9, 82 Stat.

at 457 (codiﬁed as amended at 15 U.S.C. § 78n(e) (2000 & Supp. III 2003)) and Regulation 14E

thereunder (codiﬁed at 17 C.F.R. § 240.14e-1–.14f-1 (2005)).

11. A discussion of U.S. jurisdictional means is set forth in section 4 of this article, infra.

12. In particular, Exchange Act section 14(d), as added by the Williams Act, supra note 9, 82 Stat.

at 456 (codiﬁed as amended at 15 U.S.C. § 78n(d) (2000 & Supp. III 2003)) and Regulation 14D

thereunder (codiﬁed at 17 C.F.R. § 240.14d-1–.14d-101 (2005)).

13. Registration under the Exchange Act is discussed infra in section 5.1 of this article. Tender

offers and business combinations involving companies organized in the United States are subject to a

broader application of the Exchange Act requirements, including, in particular, the so-called “proxy

rules” set forth in section 14(a) of the Exchange Act, 48 Stat. at 895 (codiﬁed as amended at 15 U.S.C.

§ 78n (2000 & Supp. III 2003)) and the reporting obligations under section 16 of the Exchange Act,

48 Stat. at 896 (codiﬁed as amended at 15 U.S.C. § 77o (2000)). A discussion of these rules is beyond

the scope of this article. See Exchange Act Rule 3a12-3 (codiﬁed at 17 C.F.R. § 240.3a12-3 (2005)).

14. Securities Act § 5, 48 Stat. at 77 (codiﬁed at 15 U.S.C. § 77e (2000)).

15. Id. See also Securities Act § 4, 48 Stat. at 77 (codiﬁed at 15 U.S.C. § 77d (2000)). See infra

section 3.1 of this article.

Cross-Border Tender Offers and Other Business Combination Transactions 1077

mitted to security holders asking such holders to vote on the combination or to

elect whether to accept an exchange security for their existing security.

Here

again, such new securities must be registered with the SEC as part of the business

combination transaction unless an exemption or exclusion applies.

State Securities Law Considerations

In addition to U.S. federal regulation, the “blue sky”

securities laws of the

several states of the United States may apply to tender offers in which the con-

sideration offered consists at least in part of exchange securities. With the adoption

of the National Securities Markets Improvement Act of 1996,

the circumstances

in which a bidder must register securities with state regulators were substantially

reduced. In particular, section 18

of the Securities Act provides that certain

categories of “covered securities” are exempt from state securities law registration.

Among the securities so exempted are securities that (i) are listed (or upon com-

pletion of the relevant transaction will be so listed) on the New York Stock Ex-

change, Inc. (“NYSE”) or another U.S. national securities exchange with listing

standards substantially similar to those of the NYSE, or quoted (or upon comple-

tion of the relevant transaction will be so quoted) on The Nasdaq Stock Market,

Inc. (“Nasdaq”) before Nasdaq becomes a national securities exchange, or (ii) are

issued or placed in certain transactions exempt from the registration requirements

of the Securities Act.

If the target in a tender offer or a participant in another business combination

transaction is organized or conducts substantial operations in the United States,

16. See Securities Act Rule 145 (codiﬁed at 17 C.F.R. § 230.145 (2005)). Rule 145 provides that

an “offer” or “sale” within the meaning of section 2(3) of the Securities Act occurs in connection with

a business combination transaction pursuant to which the transaction is submitted to the vote of

shareholders, with the effect that the registration provisions of the Securities Act may apply.

17. Most states of the United States have enacted legislation that requires securities to be registered

prior to the public offer or sale of such securities in the state, including in connection with the offer

of securities pursuant to an exchange offer. State securities laws are generally referred to as “blue sky”

laws as a result of their initial objective of thwarting the actions of securities promoters who would

sell interests with no more substance than “so many feet of blue sky.” Hall v. Geiger-Jones Co., 242

U.S. 539, 550 (1917).

18. National Securities Markets Improvement Act of 1996, Pub. L. No. 104-290, 110 Stat. 3416

(codiﬁed in scattered sections in 15 U.S.C.).

19. Securities Act § 18, 48 Stat. at 85, as amended by the National Securities Markets Improvement

Act of 1996, Pub. L. No. 104-290, § 102, 110 Stat. 3416, 3417 (codiﬁed as amended at 15 U.S.C.

§ 77r (2000)).

20. Securities Act § 18(b), 48 Stat. at 85, as amended by the National Securities Markets Improve-

ment Act of 1996, Pub. L. No. 104-290, § 102, 110 Stat. 3416, 3417 (codiﬁed as amended at 15

U.S.C. § 77r (2000)). For example, securities issued in private placements conducted in accordance

with Rule 506 of Regulation D (17 C.F.R. § 230.506 (2005)) are covered securities. On February 28,

2006, Nasdaq petitioned the SEC to expand the scope of covered securities to designate securities

listed on the Nasdaq Capital Market (previously known as “The Nasdaq Small Cap Market”) as covered

securities (http://www.sec.gov/rules/petitions/petn4-513.pdf) and the SEC Advisor y Committee on

Smaller Public Companies has recommended that both National Capital Market and OTC Bulletin

Board securities be designated as covered securities. See Recommendation IV.S.11 in the Final Report

of the SEC Advisory Committee of Smaller Public Companies (April 23, 2006), available at http://

www.sec.gov/info/smallbus/acspc/acspc-ﬁnalreport.pdf. See also infra note 202.

1078 The Business Lawyer; Vol. 61, May 2006

it may be subject to state laws designed to shield companies incorporated or

operating in such states from unsolicited offers. Typically, these laws may prevent

the consummation of certain transactions without board or shareholder approval,

or may impose restrictions on the ability of an entity, in the absence of board or

shareholder approval, to consummate a business combination transaction with

the acquired company for a period of 1 or more years.

ENERAL

TRUCTURE OF

RTICLE

Companies may, depending on the requirements of local law and the desired

result, effect an acquisition or combination by means of a tender offer, a statutory

merger, a corporate amalgamation or a court-approved combination transaction.

We explore in sections 1, 2 and 3 below the application of the U.S. securities laws

and regulations on the principal methods of effecting business combination trans-

actions. In section 4 we discuss actions that may constitute “U.S. jurisdictional

means” for purposes of U.S. federal securities laws and the effect that the existence

of jurisdictional means would have on a business combination transaction; in

section 5 we discuss certain related matters.

ENDER

FFERS

Background

A tender offer generally involves a broad solicitation by a company or an un-

afﬁliated third party to purchase a substantial percentage of a company’s securities

for a limited period of time.

As described in more detail below, tender offers are

regulated in the United States pursuant to section 14(d) and (e) of the Exchange

Act and the SEC’s regulations thereunder.

The term “tender offer” is not deﬁned in the U.S. securities laws.

Although a

purchaser may acquire securities through a variety of means without triggering

the tender offer rules, including in negotiated transactions with existing securities

holders and through regular market transactions, offers structured in a manner

that imposes pressure on security holders to tender their securities will likely fall

within the deﬁnition. In Wellman v. Dickinson

the U.S. District Court for the

21. See, e.g., Delaware General Corporation Law Section 203, D

ODE

. tit. 8. § 203 (Michie

2001 & Supp. 2004) (restricting the ability of companies to engage in business combinations involving

an interested shareholder for a period of 3 years following the time that such shareholder becomes

an interested shareholder).

22. See, e.g., SEC’s discussion of tender offers at http://www.sec.gov/answers/tender.htm. Consid-

eration offered in a tender offer can be cash, securities or a combination of the two. A tender offer in

which at least a portion of the consideration offered consists of securities is referred to in this article

as an “exchange offer.”

23. But see SEC Release No. 33-6159, Proposed Amendments to Tender Offer Rules, 1979 WL

182307 (Nov. 29, 1979) (proposing a deﬁnition of “tender offer” as, among other things, an offer

extended to more than 10 persons, which proposed deﬁnition was withdrawn from the ﬁnal rules

adopted).

24. 475 F. Supp. 783, 823-24 (S.D.N.Y. 1979), aff’d, 682 F.2d 355 (2d Cir. 1982), cert. denied, 460

U.S. 1069 (1983).

Cross-Border Tender Offers and Other Business Combination Transactions 1079

Southern District of New York identiﬁed eight factors, the existence of one or

more of which could indicate the existence of a tender offer. These factors are:

• the active and widespread solicitation of public shareholders for the shares

of a company;

• a solicitation made for a substantial percentage of a company’s shares;

• an offer to purchase made at a premium over the prevailing market price;

• the terms of the offer are ﬁrm rather than negotiable terms;

• the offer is contingent on the tender of a ﬁxed number of shares, often

subject to a ﬁxed maximum number to be purchased;

• the offer is open only for a limited period of time;

• the shareholders are subjected to pressure to sell their shares; and

• public announcements of a purchasing program precede or accompany

rapid accumulation of large amounts of the target company’s securities.

Application of Section 14(d) and (e) of the Exchange Act

Tender offers are gover ned principally by section 14(d) and (e) of the Exchange

Act.

Section 14(d) of the Exchange Act and rules adopted by the SEC thereunder

(referred to as “Regulation 14D”)

set forth detailed disclosure obligations and

procedural requirements. Section 14(d) and Regulation 14D apply in respect of

a tender offer for a class of equity securities registered under section 12 of the

Exchange Act (such securities are referred to as “Registered Securities”),

pursuant

to which the bidder would, after completion of the offer, be the direct or indirect

beneﬁcial owner of more than 5 percent of such class of equity securities.

Section 14(e) of the Exchange Act and rules adopted by the SEC thereunder

(referred to as “Regulation 14E”)

contain certain anti-fraud and anti-manipulation

rules, as well as procedural rules governing tender offers. Section 14(e) and Regu-

lation 14E apply in respect of a tender offer for any security,

whether equity or

25. 15 U.S.C. § 78n(d), (e) (2000 & Supp. III 2003). See also supra notes 10 and 12.

26. Exchange Act section 14(d) and Regulation 14D, supra note 12, are discussed in detail below.

See section 1.3 of this article, infra.

27. See Exchange Act § 12, 48 Stat. at 892 (codiﬁed as amended at 15 U.S.C.A. § 78l (West 1997

& Supp. 2006)). Registered Securities include: (i) securities listed on U.S. securities exchanges, such

as the NYSE, or that are quoted on Nasdaq, (ii) equity securities not listed on a U.S. securities exchange

or quoted on an inter-dealer quotation system, but which are “widely-held” by U.S.-resident investors,

(iii) equity securities of certain insurance companies exempt from Exchange Act registration and (iv)

equity securities issued by closed-end investment companies registered under the U.S. Investment

Company Act of 1940, ch. 686, Title I, 54 Stat. 789 (codiﬁed as amended 15 U.S.C.A. §§ 80a-1–80a-

64 (West 1997 & Supp. 2006)). See 17 C.F.R. § 240.14d-1 (2005). The registration status of a com-

pany’s securities can be determined by consulting company ﬁlings available on public databases or

by inquiring of the SEC (including reviewing company ﬁlings on the SEC’s Electronic Data Gathering,

Analysis and Retrieval (“EDGAR”) database).

28. Exchange Act § 14(e) and Regulation 14E, supra note 10, are discussed in section 1.2 of this

article, infra.

29. Under U.S. securities laws, “security” is broadly deﬁned and includes, among other instruments,

any note, stock or share, treasury stock, security future, bond, debenture, evidence of indebtedness,

certiﬁcate of interest or participation in any proﬁt-sharing agreement, investment contract, certiﬁcate

of deposit for a security, as well as any put, call or option on a security. See Securities Act § 2(a)(1),

48 Stat. at 74 (codiﬁed as amended at 15 U.S.C. § 77b(a)(1) (2000)).

1080 The Business Lawyer; Vol. 61, May 2006

debt and whether issued by a U.S. company or a foreign company, made, directly

or indirectly, using U.S. jurisdictional means.

Tender offers may be stand-alone efforts by a bidder to acquire a certain amount

or percentage of a target’s securities or, as is more common in the cross-border

context, may be an initial step in a merger, acquisition or other combination of

businesses or assets.

Registration Requirements of the Securities Act

Section 5 of the Securities Act provides that no security (whether outstanding

or newly-issued and whether issued by the bidder or another person) may be

offered using U.S. jurisdictional means unless a registration statement relating to

the offer has been ﬁled with the SEC, absent an available exemption or exclusion.

A number of exemptions or exclusions may be available for the offer of exchange

securities in the context of a tender offer or other business combination transac-

tion, including (i) exclusions for offshore transactions, including offers and sales

made outside of the United States pursuant to Regulation S under the Securities

Act (“Regulation S”),

(ii) exemptions for the non-public, private placement of

securities to certain “sophisticated” investors,

(iii) exemptions for certain cross-

border exchange offers and business combination transactions that fall within the

exemption provided by Rule 802 under the Securities Act

and (iv) exemptions

for securities issued in certain exchange transactions where, among other things,

a court or authorized governmental entity approves the fairness of the terms and

conditions of the exchange.

Registration of securities under the Securities Act

may be a lengthy and disclosure-intensive process and in many cases may not be

practicable

in the business combination transaction context for a bidder that has

not previously registered securities with the SEC under the Securities Act or is

not currently subject to the reporting requirements of the Exchange Act. The

registration and other requirements of the Securities Act applicable in the context

30. U.S. jurisdictional means includes the use of the mails and any means or instrumentality of

interstate or foreign commerce of the United States (including telephone, fax and the internet to, in

or from the United States) or of any facility of a U.S. national securities exchange and is discussed in

section 4 of this article, infra.

31. Securities Act § 5, 48 Stat. at 77 (codiﬁed as amended at 15 U.S.C. § 77e(2000)). See infra

section 3.1 of this article.

32. Securities Act Regulation S Rules 901 to 905 (codiﬁed at 17 C.F.R. § 230.901–.905 (2005)).

33. See 15 U.S.C. § 77d(2) (2000) (the “private placement” exemption of Securities Act § 4(2), 48

Stat. at 77, as amended by Securities Acts Amendments of 1964, Pub. L. No. 88-467, § 12, 78 Stat.

565, 580); SEC v. Ralston Purina Co., 346 U.S. 119 (1953) (applying section 4(2) with an emphasis

on the sophistication and access of the particular group of investors); see also Securities Act Regulation

D Rules 501 to 508 (codiﬁed at 17 C.F.R. §§ 230.501–508 (2005)).

34. 17 C.F.R. § 230.802 (2005).

35. See Securities Act § 3(a)(10), 48 Stat. at 76 as amended by the Exchange Act, ch. 404, § 202,

48 Stat. 881, 906 (codiﬁed as amended at 15 U.S.C.A. § 77c (West 1997 & Supp. 2006)).

36. Registration may be impractical due to timing considerations and for other reasons, including

the burden of preparing U.S. GAAP or U.S. GAAP-reconciled ﬁnancial statements and other disclosure

as well as the signiﬁcant on-going regulatory and disclosure burdens to which a registrant would be

subject.

Cross-Border Tender Offers and Other Business Combination Transactions 1081

of business combinations are discussed in more detail in sections 2.4 and 3.2

below.

In light of the foregoing, many non-U.S. companies seeking to acquire other

offshore companies with limited numbers of U.S. shareholders (or where the

participation of U.S. shareholders is not otherwise critical to the success of the

transaction) have historically sought to avoid the application of U.S. securities

laws, including Regulations 14D and 14E, by excluding U.S. persons from their

tender offers and otherwise avoiding U.S. jurisdictional means. The possibility of

not involving U.S. jurisdictional means and thereby avoiding the application of

U.S. securities laws is described in more detail in section 4 below.

1.1 T

ROSS

-B

ORDER

ENDER

FFER

ULES

The SEC adopted amendments to the Exchange Act and the Securities Act

regulations with effect as of January 2000

to (i) provide relief from certain of

the disclosure and procedural requirements of the Exchange Act and the Securities

Act in order to facilitate bidders’ compliance with U.S. securities laws and (ii)

reduce the circumstances in which bidders determine to exclude U.S. investors

from participating in cross-border business combination transactions. Although

certain of the provisions codiﬁed prior informal SEC guidance, no-action or ex-

emptive relief and SEC interpretive positions, the rules included new, substantive

exemptions. The rules do provide many helpful accommodations to participants

in cross-border tender offers, but in some cases the rules have proven difﬁcult to

apply in practice. On the one hand, the SEC would like to encourage bidders to

include U.S. shareholders in their offers; on the other hand, the SEC would like

to extend the protections of U.S. federal securities laws to investors. The cross-

border rules attempt to balance these competing concerns by focusing relief where

U.S. ownership is smallest or where there is a direct conﬂict between U.S. and

foreign regulations.

The cross-border rules make available certain exemptions from the application

of many of the provisions of the Exchange Act and from the registration require-

ments of the Securities Act in circumstances in which U.S. security holders do

not hold more than a speciﬁed percentage of the target company’s securities. The

exemptions provide two levels of relief in the Exchange Act context. Where U.S.

security holders of a non-U.S. target hold 10 percent or less (calculated in the

manner prescribed by the SEC

and described below in section 1.1.1 of this

article) of the target’s securities, the so-called “Tier I” exemption, a bidder may

be exempt from substantially all U.S. tender offer regulation.

Where U.S. security

holders of a non-U.S. target hold 40 percent or less (calculated in the manner

37. See 17 C.F.R. §§ 240.13e-4(h)(8), (i), 240.14d-1(c), (d), 240.14e-5(b)(10) (2005) (regulations

promulgated under the Exchange Act); 17 C.F.R. §§ 230.800–.802 (2005) (regulations promulgated

under the Securities Act).

38. See Cross-Border Release, supra note 3, at Part II.A.3(c); Part II.A.1.

39. See Exchange Act Rule 13e-4(h)(8), (i) (codiﬁed at 17 C.F.R. § 240.13e-4(h)(8), (i) (2005)).

40. See Exchange Act Rule 14d-1(c) (codiﬁed at 17 C.F.R. § 240.14d-1(c) (2005)).

1082 The Business Lawyer; Vol. 61, May 2006

prescribed by the SEC and described below) of the target’s securities, the so-called

“Tier II” exemption, limited relief from Regulations 14E and 14D may be avail-

able,

but there is no exemption from the registration requirements of the Se-

curities Act. In the Securities Act context, Rule 802 provides exemptions from the

registration provisions of the Securities Act if criteria similar to the Tier I criteria

are met.

None of the cross-border provisions exempts a bidder from the general

anti-fraud, anti-manipulation or civil liability provisions of U.S. securities laws.

The Tier I and Tier II exemptions are available to a bidder only where the target

(i) is a foreign private issuer

with (ii) no more than the requisite limited number

of U.S.-resident holders of the target’s securities (“U.S. holders”). The Tier I ex-

emption is available where U.S. holders hold 10 percent

or less of the target’s

shares; the Tier II exemption is available where U.S. holders hold 40 percent

less of the target’s shares, in each case calculated in the manner prescribed by the

SEC and described in section 1.1.1 below.

1.1.1 D

ETERMINATION OF

U.S. S

HAREHOLDING

In order to determine the percentage of U.S. holders, bidders must “look

through” the record ownership of certain brokers, dealers and banks (or nominees

for any of them) holding securities of the target company for the accounts of their

customers and must determine the residency of those customer accounts. Spe-

ciﬁcally, the obligation to look through record holdings applies to securities held

of record by brokers, dealers, banks and nominees located: (i) in the United States,

(ii) in the target’s country of incorporation and (iii) in the country that is the

primary trading market for the target’s securities (if different from its home juris-

diction). In the case of business combination transactions not involving a tender

offer, the “look through” obligation extends to securities held of record by brokers,

dealers, banks and nominees in each country in which a participant to the trans-

action is organized. The inquiry need extend only to conﬁrming the aggregate

amount of the nominee’s holding that corresponds to U.S. accounts. The obli-

41. See Exchange Act Rule 14d-1(d) (codiﬁed at 17 C.F.R. § 240.14d-1(d) (2005)).

42. Securities Act Rule 802 (codiﬁed at 17 C.F.R. § 230.802 (2005)).

43. A “foreign private issuer” is any corporation or other organization incorporated or organized

under the laws of a country other than the United States, other than a corporation or other organization

more than 50% of the voting securities of which are held of record directly or indirectly by U.S.

residents, for which one of the following is true: (i) the majority of its executive ofﬁcers or directors

are U.S. citizens or residents, (ii) more than 50% of its assets are located in the United States or (iii)

its business is administered principally in the United States. See Securities Act Rule 405 (codiﬁed at

17 C.F.R. § 230.405 (2005)); Exchange Act Rule 3b-4 (codiﬁed at 17 C.F.R. § 240.3b-4 (2005)). In

calculating record shareholding for these purposes there is an obligation to inquire of broker-dealers,

banks and their nominees located in (i) the United States, (ii) the jurisdiction of incorporation of the

issuer and (iii) the country in which the primary trading market for the issuer’s securities exists; in

addition to any U.S. resident holders shown on records maintained by the issuer, securities held by

ﬁnancial intermediaries on behalf of U.S. residents must be counted.

44. See supra note 40.

45. See supra note 41.

Cross-Border Tender Offers and Other Business Combination Transactions 1083

gation to look through requires that “reasonable inquiry” be made of nominees

to determine the residency of their account holder customers.

The bidder’s inquiry must include a review of any beneﬁcial ownership reports

ﬁled with respect to the target in the United States (in particular, Schedules 13D

and 13G and Form 13F)

and ﬁled or available in the target’s home jurisdiction.

The bidder should also review security ownership information contained in other

materials publicly ﬁled by the target, including, for instance, the target’s annual

report on Form 20-F

if the target is subject to Exchange Act reporting obliga-

tions. If the tender offer is “friendly”, the bidder should send or request that the

target send inquiry letters to brokers, dealers, banks and other nominee holders

inquiring as to the aggregate amount of their holdings that correspond to U.S.

accounts. If, after reasonable inquiry, the bidder is unable to obtain information

about a nominee’s customer accounts, or a nominee’s charges for supplying the

information are “unreasonable,” then the bidder may assume that beneﬁcial own-

ers are resident where the nominee has its principal place of business.

In the

case of a hostile tender offer, or where the target is unaware of, or does not

cooperate with, the bidder’s request, it may be difﬁcult or impossible for the

bidder to assess accurately the target’s U.S. shareholding. As discussed below

under the caption “Hostile Tender Offers,” in the case of a hostile offer, the bidder

may be entitled to rely on certain presumptions.

When to Calculate U.S. Ownership

The Tier I and Tier II exemptions incorporate a 30 calendar day “look back”

period for the calculation of U.S. ownership to determine the availability of ex-

emptions. A bidder must make the calculation of U.S. ownership as of 30 calendar

days before the commencement of its offer.

In some cases the calculation of U.S.

ownership at such time will not, as a practical matter, be possible; in certain cases,

therefore, the staff of the SEC (“SEC”) has permitted the calculation to be made

as of a date other than 30 calendar days before commencement of the offer. For

instance, in a jurisdiction in which security holder information is prepared by

third parties, the Staff may permit the U.S. ownership calculation to be based on

the latest security holder list available by such parties or to be based on infor-

46. See Exchange Act Rule 14d-1(d), Instructions to Paragraphs (c) and (d) (codiﬁed at 17 C.F.R.

§ 240.14d-1(d) (2005)). A bidder may consider speaking to the Staff of the SEC [hereinafter the “Staff”]

for guidance as to what constitutes a “reasonable inquiry” for purposes of Rule 14d-1, particularly in

situations where third party brokers, dealers and banks are unaccustomed to inquiries made as to

their clients’ holdings and may be prohibited by local law from responding (or not expressly authorized

to respond) to such inquiries.

47. See Exchange Act Rule 14d-1, Instruction 2(v) to paragraphs (c) and (d) (codiﬁed at 17 C.F.R.

§ 240.14d-1 (2005)).

48. Form 20-F, available at http://www.sec.gov/about/forms/form 20-f.pdf (17 C.F.R. § 249.220f

(2005)). Such reports would be available on the SEC’s EDGAR database.

49. See Exchange Act Rule 14d-1, Instruction 2(iv) to paragraphs (c) and (d) (codiﬁed at 17 C.F.R.

§ 240.14d-1 (2005)).

50. See Exchange Act Rule 14d-1, Instruction 2(i) to paragraphs (c) and (d) (codiﬁed at 17 C.F.R.

§ 240.14d-1 (2005)).

1084 The Business Lawyer; Vol. 61, May 2006

mation requested from such parties with a record date sufﬁciently in advance of

the commencement date to permit the bidder to perform the necessary “look

through” procedures;

where obtaining U.S. ownership information on the 30th

calendar day before commencement is impracticable for reasons outside of the

bidder’s control, the Staff has indicated that the bidder may use information as

of the closest practicable date to the 30th calendar day or the latest information

available.

Holders of More Than 10 Percent; Bidder Securities

The securities of holders that hold in excess of 10 percent of the target’s se-

curities and any securities held by the bidder are not included in the U.S. holder

calculation—in either the numerator or the denominator of the fraction which

yields the percentage of U.S. ownership—whether or not such greater than 10

percent shareholders and/or the bidder are U.S. residents.

Accordingly, a bidder

need not inquire of nominees as to information regarding its customers that hold

more than 10 percent of the target. On the other hand, the existence of one or

more greater than 10 percent shareholders in the target will mean that fewer—

and potentially many fewer—than 10 percent of the target’s security holders must

be resident in the United States for the Tier I exemption to be available. For

example, where there are two large holders who together hold 50 percent of the

target’s outstanding securities, the 10 percent test under Tier I and Rule 802 will

be assessed on the basis of the remaining 50 percent shareholding. Therefore, the

exemptions provided by Tier I and Rule 802 would not be available if U.S. persons

held over 10 percent of the remaining 50 percent, amounting to 5 percent of the

target’s outstanding securities.

American Depositary Shares; Convertible or

Exchangeable Securities

In many cases, securities of a foreign private issuer are represented in the United

States by American Depositary Shares (“ADSs”). Each ADS represents a speciﬁc

51. See Equant N.V., SEC No-Action Letter, 2005 WL 1173099, at *6 (April 18, 2005) (where an

assessment of U.S. shareholders effected 52 days prior to solicitation related to a business combination

“represented the nearest practicable date upon which to base the calculation . . . and any later date

might not allow sufﬁcient time to ensure proper calculation of U.S. ownership as required”).

52. See Telephone Interpretations, Third Supplement, July 2001 [hereinafter the “Third Supple-

ment”], Questions II.E.7 and II.E.8, available at http://www.sec.gov/interps/telephone/phonesupple-

ment3.htm). See also Saipem SpA, SEC No-Action Letter, 2002 WL 1841561 (July 29, 2002); Equant

N.V., supra note 51. With respect to business combinations involving a number of steps, see infra note

186 and accompanying text.

53. See supra note 52, Instruction 2(ii) to paragraphs (c) and (d). See also Third Supplement, supra

note 52, Questions II.E.1 through II.E.5 regarding the calculation of U.S. ownership. The SEC ex-

pressed its concern that a foreign private issuer could have a signiﬁcant majority of its securities held

by controlling non-U.S. shareholders, as a result of which U.S. shareholders could represent a signiﬁ-

cantly greater percentage of the issuer’s non-afﬁliated public ﬂoat. To address this, the SEC adopted

provisions that exclude from U.S. beneﬁcial ownership calculations all security holders holding in

excess of 10 percent of the class of securities subject to the tender offer. See SEC Release No. 33-7611,

63 Fed. Reg. 69136, Part II.H.2 (Dec. 15, 1998).

Cross-Border Tender Offers and Other Business Combination Transactions 1085

number of shares of the issuer, held by a depositary on behalf of the ADS holders.

Bidders are required to examine the participant lists of depositaries for the target’s

American depositary receipt program, if any, and must make inquiries of brokers,

dealers and other nominees appearing on those lists to determine the number of

ADSs held by U.S. holders. Securities underlying ADSs must be counted in de-

termining both the aggregate number of securities outstanding and the number

of U.S. holders.

A bidder is not required to take into account securities other

than ADSs that are convertible into, or exchangeable for, the securities to which

the offer relates, including warrants, options, and convertible securities, unless

such securities are themselves the subject of the tender offer.

Hostile Tender Offers

In the case of a hostile tender offer, a bidder is entitled to rely on a presumption

that the issuer of the subject securities is a foreign private issuer and that the U.S.

ownership percentage limits of the Tier I or Tier II exemption are not exceeded

unless: (i) the aggregate trading volume on all U.S. national securities exchanges,

Nasdaq or the OTC Bulletin Board (“OTCBB”), as reported to the National As-

sociation of Security Dealers (“NASD”), exceeds 10 percent (in the case of Tier I)

or 40 percent (in the case of Tier II) of the worldwide trading volume of the class

of securities subject to the tender offer over the 12-calendar month period ending

30 calendar days prior to commencement of the tender offer; (ii) the most recent

annual report ﬁled or submitted by the target (or security holders of the target’s

securities) with the SEC or regulators in the target’s home jurisdiction indicates

that U.S. holders hold more than 10 percent (in the case of Tier I) or 40 percent

(in the case of Tier II) of the outstanding subject securities; or (iii) the bidder

knows or has reason to know that the level of U.S. holding exceeds the applicable

threshold.

In the absence of the availability of this presumption, the target share-

holder information necessary to assess the bidder’s ability to rely on the Tier I or

Tier II exemptions may not be available without the express cooperation of the

target. In a hostile transaction, therefore, in the absence of the presumption dis-

cussed above, a target may determine to withhold shareholder information, mak-

ing Tier I or Tier II relief unavailable to the bidder, as a defensive mechanism.

Practical Difﬁculties

In practice, quantifying the number of U.S. holders has proven problematic for

a number of reasons. First, non-U.S. companies may not be required to maintain

54. In common usage, an ADS refers to the security that represents the ownership interest in the

underlying, deposited security; an “American Depositary Receipt” refers to the physical certiﬁcate that

evidences an ADS. ADSs provide a number of beneﬁts, including a U.S. transfer facility, an appropriate

trading unit, the ability to obtain dividends and other distributions in U.S. currency, and in some

instances the ability to avoid home jurisdiction transfer taxes.

55. See Exchange Act Rule 14d-1, Instruction 2(ii) to paragraphs (c) and (d) (codiﬁed at 17 C.F.R.

§ 240.14d-1 (2005)).

56. Id.

57. See Exchange Act Rule 14d-1, Instruction 3 to paragraphs (c) and (d) (codiﬁed at 17 C.F.R.

§ 240.14d-1 (2005)).

1086 The Business Lawyer; Vol. 61, May 2006

a share register of the record holders of their securities. Although there may be

statutory procedures available to companies to obtain information from their

shareholders as to their holdings (for instance, section 212 under the United

Kingdom Companies Act 1985

) or from the clearing systems through which the

target’s securities are settled,

such procedures may not result in an accurate

snapshot of beneﬁcial ownership as of a speciﬁed or even particular date.

Sec-

ond, once the record ownership of a company’s securities is established, it may

take several weeks or more to complete the “look through” procedures mandated

by the SEC’s rules. In many cases, a company may need to rely on the voluntary

cooperation of brokers, dealers and other nominees for information as to the

residency of their customers and, in many cases, such cooperation may not be

forthcoming. For instance, European bank secrecy and privacy laws

may restrict

the ability of nominees to cooperate with such requests. Third, in many cases,

procedures required to be performed ﬁrst to determine a company’s record se-

curity holders and then to look though such record holders to determine the

number of U.S. holders may take much longer than 30 calendar days, making it

impossible for a bidder to quantify the number of U.S. holders 30 calendar days

before the commencement of its offer.

Fourth, instructing third parties in con-

nection with effecting a count of U.S. holders on a date 30 calendar days prior to

commencement may compromise the conﬁdentiality of the transaction, forcing a

bidder to make a premature announcement and commence its offer before it might

otherwise seek to do so.

Finally, having to make an assessment as of a particular

date may make planning for a cross-border transaction difﬁcult. A bidder may be

required to engage in a considerable undertaking to comply with the U.S. secu-

rities laws if a target’s U.S. ownership is in excess of the applicable standards.

Therefore, the bidder must have a clear understanding of the target’s status as of

a point in time signiﬁcantly prior to 30 calendar days before commencement of

the offer. In addition, the bidder should be conﬁdent that an exemption available

at the time the transaction is planned will not subsequently cease to be available

due to movements of securities holdings in the intervening period or due to new

information having become available. The Staff has made allowances in certain

58. Companies Act 1985, c.40 (Eng.). Section 212 of the Companies Act permits a company by

written notice to require a person to conﬁrm whether s/he has in the 3 years preceding the date of

notice whether s/he has an interest in the shares of the company and to provide certain other infor-

mation as to her/his interest.

59. For instance, a report known as a Titre au Porteur Identiﬁable (a “TPI Report”) can be requested

from Euroclear Bank S.A./N.V. (“Euroclear”). The TPI Report sets forth, among other information, the

names of persons that hold, either for themselves or as nominees, securities of a company through

the Euroclear system.

60. For instance, nominees holding through Euroclear or Clearstream Banking AG may be unable

or unwilling to provide information as to their beneﬁcial owner customers as of a speciﬁed date.

61. Directive 95/46/EC of the European Parliament and of the Council (Oct. 24, 1995), in No. L.

281 O

FFICIAL

OURNAL OF THE

UROPEAN

OMMUNITIES

31 (Nov. 23, 1995)

62. See Equant N.V., supra note 51. The difﬁculties encountered in determining the U.S. ownership

are also described in the counsel inquir y letters in connection with the SEC No-Action Letters relating

to Saipem SpA, supra note 52, and Alcan, Inc., SEC No-Action Letter, 2003 WL 22480558

(Oct. 8, 2003).

63. See, e.g., City Code, supra note 8, Rule 2.

Cross-Border Tender Offers and Other Business Combination Transactions 1087

circumstances.

In the absence of rulemaking in this area, parties to a business

combination transaction may need to approach the Staff for guidance where they

anticipate such issues.

1.1.2 T

IER

XEMPTION

Availability

The Tier I exemption is available where (i) the target is a foreign private issuer

and (ii) U.S. holders hold 10 percent or less (calculated in the manner prescribed

by the SEC) of the target’s securities for which the tender offer is being made,

whether or not the target’s securities are Registered Securities.

Where the Tier I

exemption is available, a bidder is generally able, subject to certain procedural

requirements, to extend its offer to shareholders in the United States solely in

compliance with substantive “home country” procedures and requirements. The

bidder will not be subject to any of the speciﬁed disclosure, dissemination and

SEC ﬁling, minimum offer period or mandatory withdrawal rights obligations that

are designed to ensure that security holders are provided with adequate disclosure

and sufﬁcient time to consider whether or not to participate in a tender offer. If

an exchange offer is contemplated, an offer satisfying the Tier I exemption will

generally also be exempt from the registration requirements of the Securities Act

by Rule 802 described below in section 2.1 of this article.

Subsequent Bidder

In order to provide a level playing ﬁeld in the case of competing offers, if an

initial bidder relies on the Tier I exemption to make its offer, a subsequent, com-

peting bidder will not be subject to the 10 percent ownership limitation condition

of the Tier I exemption.

As a result, the subsequent bidder will not be disad-

vantaged by any movement of securities into the United States following the

announcement of the initial bidder’s offer.

Offering Materials

Offering materials, in English,

must be provided to shareholders in the United

States on a basis comparable to that provided to shareholders in the home juris-

64. For instance, in order to provide certainty as to the availability of exemptions in the context

of pre-conditional offers in the United Kingdom and certain other jurisdictions (i.e., where, pursuant

to local regulation, an offer is announced, but commences only after certain regulatory approvals have

been obtained), the Staff has indicated that it will permit the calculation of U.S. ownership to be made

on the date that is 30 calendar days prior to announcement. See Third Supplement, supra note 52,

Question II.E.6. See also Air Products and Chemicals, Inc., SEC No-Action Letter, 1999 WL 498543

(July 12, 1999).

65. Exchange Act Rule 14d-1(c) (codiﬁed at 17 C.F.R. § 240.14d-1(c) (2005)).

66. See Exchange Act Rule 14d-1(c)(1) (codiﬁed at 17 C.F.R. § 240.14d-1(c)(1) (2005)).

67. Such offering materials must be translated into English if they are not already in English.

Exchange Act Rule 14d-1(c)(3)(i) (codiﬁed at 17 C.F.R. § 240.14d-1(c)(3)(i) (2005)) provides that

“[t]he bidder must disseminate any informational document to U.S. holders, including any amend-

ments thereto, in English, on a comparable basis to that provided to security holders in the home

jurisdiction.”

1088 The Business Lawyer; Vol. 61, May 2006

diction. These materials would typically contain certain customary or mandated

legends advising U.S. shareholders as to the basis of their preparation.

Financial

information can be presented in accordance with home jurisdiction generally

accepted accounting principles without reconciliation to U.S. generally accepted

accounting principles (“U.S. GAAP”).

Equal Treatment; Exceptions

Shareholders in the United States must be permitted to participate in the tender

offer on terms at least as favorable as those offered to other shareholders, subject

to certain exceptions:

• Cash-Only Alternative. A bidder may offer U.S. shareholders only cash

consideration if it has a reasonable basis

for believing that the amount

of cash offer ed is substantially equivalent to the value of the shares or other

consideration offered to non-U.S. holders, subject to certain conditions.

• Blue Sky Exemption. In certain circumstances, a bidder may exclude share-

holders in the United States resident in states of the United States that do

not exempt the securities offered as consideration from state securities

registration requirements. However, if a cash-only alternative is offered to

a U.S. holder in any state, that consideration must be provided to all U.S.

holders in every state.

• Loan Notes Exception. In the United Kingdom, it is customary for a bidder

to offer a loan note alternative in an offer where at least a portion of the

offer consideration consists of cash.

Loan notes afford certain tax beneﬁts

to holders subject to United Kingdom taxation. The Tier I exemption

permits the issuance of a loan note alternative exclusively to non-U.S.

security holders so long as the loan notes are not listed on an exchange,

are not registered under the Securities Act and are offered solely to offer

target shareholders tax advantages not available in the United States.

68. See, e.g., Securities Act Rule 802(a)(3) (codiﬁed at 17 C.F.R. § 230.802(a)(3) (2005)) (which

mandates that certain legends be provided in the case of an exchange offer exempt from the registration

requirements of the Securities Act).

69. See Cross-Border Release, supra note 3, at n.22.

70. As a practical matter, the opinion of an independent expert may be required to support the

bidder’s determination of substantial equivalence.

71. The exception is available if the offered security is a “margin security” or if, on request, an

opinion is provided to the effect that the cash alternative is substantially equivalent to the value of the

securities offered outside the United States. See Exchange Act Rule 14d-1(c)(2)(iii) (codiﬁed at 17

C.F.R. § 240.14d-1(c)(2)(iii) (2005)).

72. See Exchange Act Rule 14d-1(c)(2)(i) and (ii) (codiﬁed at 17 C.F.R. § 240.14d-1(c)(2)(i), (ii)

(2005)).

73. See Cross-Border Release, supra note 3 (acknowledging the common use of loan notes in the

United Kingdom). See also G

ARY

ABORN

AKEOVERS

AW AND

RACTICE

§ 11.22 (LexisNexis Butter-

worths, 1st ed. 2005).

74. See Exchange Act Rule 14d-1(c)(2)(iv) (codiﬁed at 17 C.F.R. § 240.14d-1(c)(2)(iv) (2005)). In

addition to the foregoing provisions regarding equal treatment, if a bidder commences a tender offer

for securities of a foreign private issuer and initially excludes U.S. security holders but thereafter

chooses to extend the offer into the United States during the pendency of the foreign offer, the equal

Cross-Border Tender Offers and Other Business Combination Transactions 1089

Filing Requirements

If the target’s securities are Registered Securities, then, in addition to providing

English language offering materials to shareholders in the United States, a bidder

must submit offering materials in English to the SEC under cover of Form CB no

later than the business day after the offering materials were published or dissem-

inated in the home jurisdiction.

If the bidder is a non-U.S. company, the bidder

must also ﬁle with the SEC a consent to service of process in the United States

on Form F-X and appoint an agent for service of process in the United States.

There is no fee for submitting Form CB or Form F-X. If the target’s securities are

not Registered Securities, the bidder’s offer document does not need to be sub-

mitted to the SEC. A bidder does not incur “prospectus liability”

in respect of

offering materials submitted to the SEC under cover of Form CB, but may be

liable under applicable anti-fraud rules.

Target’s Response

The target company’s management may distribute to its security holders its

recommendation relating to the bidder’s offer without complying with the disclo-

sure requirements of Regulation 14E

and without ﬁling its recommendation with

the SEC on, or containing the speciﬁc disclosure mandated by, Schedule 14D-9.

Purchases Outside of the Tender Offer

Rule 14e-5 under the Exchange Act prohibits a bidder from purchasing or

arranging to purchase, directly or indirectly, any security of the class that is subject

to the bidder’s offer otherwise than pursuant to the tender offer.

The prohibition

applies from the time the tender offer is publicly announced until it is terminated.

Rule 14e-5 applies generally to the bidder, the bidder’s advisers (so long as the

advisers’ compensation is dependent upon completion of the offer) and dealer-

managers and their respective afﬁliates. The SEC has consistently taken the view

treatment provisions would generally require the U.S. offer to be open for at least as many days as

the minimum period permitted by the foreign jurisdiction. The Staff has noted that because such

treatment of U.S. holders may result in a violation of the foreign jurisdiction’s rules, it will consider

relief on a case-by-case basis. Third Supplement, supra note 52, Question II.B.1.

75. See Exchange Act Rule 14d-1(c)(3)(iii) (codiﬁed at 17 C.F.R. § 240.14d-1(c)(3)(iii) (2005)).

76. Id.

77. Securities Act §§ 11 and 12(a), 48 Stat. at 82–84 (codiﬁed as amended at 15 U.S.C. §§ 77k and

77l (2000)).

78. See infra section 2.4.2 of this article for a discussion of prospectus liability.

79. See Exchange Act Rule 14e-2(d) (codiﬁed at 17 C.F.R. § 240.14e-2(d) (2005)). Exchange Act

Rule 14e-2 would otherwise require management to distribute to its security holders its recommen-

dation relating to the bidder’s offer no later than 10 U.S. business days from the date the offer was

ﬁrst published, sent or given to target security holders.

80. See Exchange Act Rule 14d-9 (codiﬁed at 17 C.F.R. § 240.14d-9 (2005)). Schedule 14D-9

requires disclosure relating to, inter alia, the relationship between the bidder and the target company,

the bidder’s interest in the securities of the target company, the target’s position with respect to the

offer and the purposes of the transaction. 17 C.F.R. § 240.14d-101 (2005).

81. See Exchange Act Rule 14e-5(b)(10) (codiﬁed at 17 C.F.R. § 240.14e-5(b)(10) (2005)).

82. 17 C.F.R. § 240.14e-5(a) (2005).

1090 The Business Lawyer; Vol. 61, May 2006

in discussions with practitioners that if a tender offer is made in the United States,

Rule 14e-5 applies to all purchases, whether inside or outside of the United States,

with the exceptions noted below.

There are a number of express exceptions to the broad prohibition on purchases

outside of the tender offer.

In addition, the Tier I exemption provides blanket

relief in respect of purchases outside of a tender offer during the offer, including

in the United States, as long as each of the following conditions is satisﬁed:

• offering materials provided to U.S. holders disclose prominently the pos-

sibility of purchases or arrangements to purchase, or the intent to make

such purchases, other than in accordance with the terms of the tender

offer;

• offering materials explain how information about any such purchases will

be disclosed;

• the bidder discloses in the United States information as to any such pur-

chases or arrangements in a manner comparable to information provided

by the bidder in the target’s home jurisdiction; and

• all such purchases comply with applicable laws and regulations in the

target’s home jurisdiction.

In the United Kingdom and in other non-U.S. jurisdictions, there is an established

practice whereby holders (including, in many cases, senior management) of target

securities provide “irrevocable undertakings” to tender into the bidder’s offer at

the offer price for no additional consideration.

Such undertakings may be truly

irrevocable or may be irrevocable subject only to a higher competing offer not

being made.

Parties may seek to enter into such arrangements prior to com-

mencement of the offer or subsequently. These undertakings are typically deemed

to constitute tenders into the bidder’s offer and hence are not restricted by Rule

14e-5’s prohibition on purchases outside of the bidder’s offer, but the form and

method of soliciting such undertakings should be considered carefully to ensure

that they fall within the scope of arrangements the Staff has approved in the past.

83. See Exchange Act Rule 14e-5(b) (codiﬁed at 17 C.F.R. § 240.14e-5(b) (2005)). For instance,

Exchange Act Rule 14e-5(b)(6) (codiﬁed at 17 C.F.R. § 240.14e-5(b)(6) (2005)) provides express relief

for purchases by connected market makers and connected exempt principal traders in connection

with a tender offer subject to the City Code. Exchange Act Rule 14e-5(b)(7) (codiﬁed at 17 C.F.R.

§ 240.14e-5(b)(7) (2005)) provides express relief for purchases made after the public announcement

of an offer pursuant to unconditional and binding contracts entered into before the announcement,

the material terms of which are disclosed in the bidder’s offering materials.

84. See Exchange Act Rule 14e-5(b)(10) (codiﬁed at 17 C.F.R. § 240.14e-5(b)(10) (2005)). See also

Cross-Border Release, supra note 3, Part II.A.3(c) and Part II.C.1(a).

85. Such arrangements may help a bidder ensure the success of its offer. See, e.g., Proﬁt Eagle

Limited, SEC No-Action Letter, 2005 WL 3500565 (Dec. 20, 2005); Compagnie de Saint-Gobain,

SEC No-Action Letter, 2005 WL 1878292 (Aug. 3, 2005); United Technologies Corporation for Kidde

plc, SEC No-Action Letter, 2005 WL 38836 (Jan. 5, 2005); Harmony Gold Mining Company Limited,

SEC No-Action Letter, 2004 WL 2809186 (Nov. 19, 2004).

86. See Harmony Gold Mining Company Limited, supra note 85; id., St. David Capital plc, SEC No-

Action Letter 2000 WL 462994 (Apr. 17, 2000); Third Supplement, supra note 52, Question I.L.4.

87. See Third Supplement, supra note 52, Question I.L.4. See also United Technologies SEC No-

Action Letter, 2004 WL 326676 (Feb. 18, 2004); UCB S.A., SEC No-Action Letter, 2004 WL 1161232

(May 19, 2004); St. David Capital plc, supra note 86.

Cross-Border Tender Offers and Other Business Combination Transactions 1091

In addition, in the authors’ experience, the Staff may provide informal oral “relief”

under Rule 14e-5 in circumstances permitting a bidder to enter into arrangements

to purchase the target’s securities from a limited number of shareholders after

announcement of the tender offer, but prior to the commencement thereof, so

long as such arrangements are publicly disclosed and the consideration paid is

identical to the consideration to be provided in the tender offer.

1.1.3 T

IER

II E

XEMPTION

Availability

The Tier II exemption is available where (i) the target is a foreign private issuer

and (ii) U.S. holders hold 40 percent or less

of the target’s securities for which

the tender offer is being made.

Although a bidder remains generally subject to

the U.S. tender offer rules, certain accommodations are provided to address tra-

ditional areas of conﬂict between non-U.S. tender offer rules and U.S. tender offer

rules. These accommodations are described in sections 1.2 and 1.3 below as part

of the discussion of the substantive provisions of Regulation 14D and Regulation

14E. If an exchange offer is contemplated, an offer satisfying the Tier II exemption

will not be exempt from the registration requirements of the Securities Act by

virtue of Rule 802.

Loan Note Exception

As is the case with the Tier I exemption, the Tier II exemption permits the

issuance of a loan note alternative to non-U.S. security holders only if the loan

notes are not listed on an exchange, are not registered under the Securities Act

and are offered solely to afford target shareholders tax advantages not available in

the United States.

Subsequent Bidder

Consistent with the relief provided by the Tier I exemption, a level playing ﬁeld

is provided in the case of competing offers. If an initial bidder relies on the Tier

II exemption to make its offer, a subsequent, competing bidder will not be subject

to the 40 percent ownership limitation condition of the Tier II exemption. As a

result, the subsequent bidder will not be disadvantaged by any movement of

securities into the United States following announcement of the initial bidder’s

offer.

88. Such percentage must be calculated in the manner prescribed by the SEC, as discussed in

section 1.1.1 of this article supra.

89. See Exchange Act Rule 14d-1(d)(1)(i), (ii) (codiﬁed at 17 C.F.R. § 240.14d-1(d)(1)(i), (ii)

(2005)).

90. See Securities Act Rule 802 (codiﬁed at 17 C.F.R. § 230.802 (2005)).

91. See Exchange Act Rule 14d-1(d)(2)(i) (codiﬁed at 17 C.F.R. § 240.14d-1(d)(2)(i) (2005)).

92. See supra note 89.

1092 The Business Lawyer; Vol. 61, May 2006

1.2 P

ROVISIONS

PPLICABLE TO

ENDER

FFERS

FOR

ECURITIES

All tender offers that utilize U.S. jurisdictional means, including offers for non-

Registered Securities (to which Exchange Act section 14(d) and Regulation 14D

do not apply), are subject to Exchange Act section 14(e) and Regulation 14E.

These requirements are described below, along with any express relief from such

requirements afforded to transactions that fall within the Tier II exemption.

1.2.1 M

INIMUM

FFER

ERIOD

Rule 14e-1(a) provides that a tender offer must remain open for a minimum

of 20 U.S. business days from the time the tender offer commences.

There is,

however, no speciﬁed time by which a tender offer must be completed. The term

“U.S. business day” means any day other than Saturday, Sunday or a U.S. federal

holiday and consists of the time period from 12:01 a.m. through 12:00 midnight

Eastern (New York City) time.

1.2.2 N

OTICE OF

XTENSIONS

Rule 14e-1(b) provides that a tender offer must remain open for at least 10

U.S. business days after any announcement of a change in (i) the consideration

offered, (ii) the percentage of the securities being sought or (iii) the dealer’s so-

liciting fee.

Under Rule 14e-1(d), a bidder may extend its offer by announcing

such extension by a press release or other public announcement before the earlier

of (i) 9:00 a.m. Eastern time or (ii) the opening of trading on the next business

day.

The Tier II exemption permits a bidder to announce extensions to its offer

in accordance with market practice in the target’s home jurisdiction instead.

The SEC permits

a bidder who qualiﬁes for the Tier II exemption to reduce

or waive the condition of the offer relating to the minimum number of shares

tendered (the “minimum condition”)

100

without extending withdrawal rights dur-

ing the remainder of the offer or keeping the offer open for 10 U.S. business days,

as long as each of the following conditions is satisﬁed:

93. As discussed in section 1.1.2 of this article, supra, the Tier I exemption relieves bidders from

complying with Rule 14e-1 and 14e-2 and, subject to certain conditions, Rule 14e-5, of Regulation

14E; the Tier II exemption, on the other hand, provides only limited relief from complying with

Regulation 14E.

94. See Exchange Act Rule 14e-1(a) (codiﬁed at 17 C.F.R. § 240.14e-1(a)(2005)).

95. See Exchange Act Rule 14d-1(g)(3) (codiﬁed at 17 C.F.R. § 240.14d-1(g)(3)(2005)).

96. See Exchange Act Rule 14e-1(b) (codiﬁed at 17 C.F.R. § 240.14e-1(b)(2005)).

97. See Exchange Act Rule 14e-1(d) (codiﬁed at 17 C.F.R. § 240.14e-1(d)(2005)).

98. See Exchange Act Rule 14d-1(d)(2)(ii) (codiﬁed at 17 C.F.R. § 240.14d-1(d)(2)(ii) (2005)).

99. See Cross-Border Release, supra note 3, paragraph II.B.

100. In the United Kingdom, a tender offer is typically structured to enable a bidder to waive the

minimum condition once it has received sufﬁcient tenders to provide it with control of the target.

Immediately upon receipt of sufﬁcient shares to provide the bidder with control and waiver of the

minimum condition, all offer conditions are deemed to have been satisﬁed, tendered securities are

accepted and settlement commences. See, e.g., SERENA Software, Inc., SEC No-Action Letter, 2004

WL 842524 (Apr. 13, 2004).

Cross-Border Tender Offers and Other Business Combination Transactions 1093

• the bidder has announced that it may reduce the minimum condition at

least 5 U.S. business days prior to the time that it reduces the condition;

• such announcement is disseminated through a press release and other

methods reasonably designed to inform U.S. holders;

• the press release states the exact percentage to which the acceptance con-

dition may be reduced and states that a reduction is possible; it must also

advise security holders that have tendered their target securities to with-

draw their tendered securities immediately if their willingness to tender

would be affected by a reduction in the minimum condition;

• security holders that have tendered their securities must continue to have

the right to withdraw their tenders for a 5 U.S. business day period fol-

lowing the announcement;

• the offer document must contain a description of the procedure for re-

ducing the minimum condition; and

• the bidder must afford target security holders the opportunity to tender

their shares for at least 5 U.S. business days after waiver of the minimum

condition.

1.2.3 P

ROMPT

AYMENT OF

ONSIDERATION

Rule 14e-1(c) provides that consideration be paid or securities be returned

promptly after termination or withdrawal of the offer.

101

In the authors’ experi-

ence, “promptly” has generally been construed by practitioners to mean within 5

U.S. business days. The Tier II exemption permits a bidder to comply instead

with the settlement requirements of the target’s home jurisdiction, which may be

materially in excess of 5 U.S. business days.

102

1.2.4 R

ESPONSE OF T HE

ARGET

OMPANY

Pursuant to Rule 14e-2, within 10 U.S. business days after commencement, the

target must publish or give its security holders a statement that it (i) recommends

acceptance or rejection of the bidder’s offer, (ii) expresses no opinion and is

remaining neutral toward the bidder’s offer or (iii) is unable to take a position

with respect to the bidder’s offer.

103

1.2.5 G

ENERAL

NTI

-F

RAUD

ROVISIONS

The general anti-fraud provisions of the Exchange Act, including section 14(e),

section 10(b) and Rule 10b-5

104

thereunder, prohibit, in connection with any

101. See Exchange Act Rule 14e-1(c) (codiﬁed at 17 C.F.R. § 240.14e-1(c) (2005)).

102. See Exchange Act Rule 14d-1(d)(2)(iv) (codiﬁed at 17 C.F.R. § 240.14d-1(d)(2)(iv) (2005)).

103. See Exchange Act Rule 14e-2(a) (codiﬁed at 17 C.F.R. § 240.14e-2(a) (2005)).

104. See Exchange Act § 14(e), 48 Stat. at 895 as added by the Williams Act, supra note 9, 82 Stat.

at 457 (codiﬁed as amended at 15 U.S.C. § 78n (2000 & Supp. III 2003)); Exchange Act § 10(b), 48

Stat. at 891 (codiﬁed as amended at 15 U.S.C. § 78j (2000)); Exchange Act Rule 10b-5 (codiﬁed at

17 C.F.R. § 240.10b-5 (2005)).

1094 The Business Lawyer; Vol. 61, May 2006

tender offer, the bidder or its agents from making any untrue statement of a

material fact or omitting to state any material fact necessary to make the statements

made, in light of the circumstances under which they were made, not misleading.

Similarly, bidders must not engage in any deceptive or manipulative practices and

sufﬁcient notice and time to react must be given to target shareholders in con-

nection with any change in consideration or other material terms of the offer.

105

Rule 14e-3 establishes a “disclose or abstain from trading” requirement that pro-

hibits a bidder and its directors, ofﬁcers and agents from trading while in pos-

session of material non-public information about the target.

106

1.2.6 P

URCHASES

UTSIDE OF THE

FFER

Rule 14e-5 under the Exchange Act

107

prohibits a bidder from purchasing or

arranging to purchase, directly or indirectly, any security of the class that is

subject to the bidder’s offer otherwise than pursuant to the tender offer. This

prohibition applies from the time the tender offer is announced until it is ter-

minated.

108

In some European jurisdictions, market custom is such that several

weeks or more may pass between the date on which an offer is announced

and the date of commencement.

109

In such circumstances, Rule 14e-5 will re-

strict purchases by the bidder and its afﬁliates. The Tier II exemption does not

provide any exemption from Rule 14e-5. Rule 14e-5 does, however, provide

speciﬁc relief for certain market transactions customarily effected by participants

in a U.K. tender offer, even in a transaction not falling within the Tier I exemp-

tion. In particular, in an offer subject to the City Code, connected exempt

market-makers and connected exempt principal traders can continue to make

markets in the target’s securities, subject to certain disclosure obligations.

110

addition, the SEC has granted relief under Rule 14e-5 in transactions not falling

within the Tier I exemption on certain conditions

111

and has indicated it will

105. See Exchange Act § 14(e), supra note 104; Exchange Act Rule 14e-1 (codiﬁed at 17 C.F.R.

§ 240.14e-1 (2005)).

106. See Exchange Act Rule 14e-3 (codiﬁed at 17 C.F.R. § 240.14e-3 (2005)).

107. Exchange Act Rule 14e-5 (codiﬁed at 17 C.F.R. § 240.14e-5 (2005)).

108. See Exchange Act Rule 14e-5(a) (codiﬁed at 17 C.F.R. § 240.14e-5(a) (2005)).

109. In the United Kingdom, for example, Rule 30.1 of the City Code, supra note 8, provides that

an offer document must be posted within 28 days from announcement of a bidder’s ﬁrm intention to

make an offer.

110. See Exchange Act Rule 14e-5(b)(9) (codiﬁed at 17 C.F.R. § 240.14e-5(b)(9) (2005)).

111. See, e.g., Vodafone Group plc, SEC No-Action Letter, 2003 WL 1029613 (Mar. 11, 2003);

CIBER (UK), SEC No-Action Letter, 2003 WL 202571 (Jan. 31, 2003); and DB Sechste Vermo¨gens-

verwaltungsgesellschaft mbH, SEC No-Action Letter, 2002 WL 1880505, (Aug. 9, 2002). Conditions

to the grant of an exemption include, inter alia, (i) that no purchases of shares or arrangements to

purchase shares be made in the United States; (ii) that no purchases of shares be made at a price per

share higher than that offered in the offer; (iii) that the offer document disclose prominently the

intention to make such purchases; and (iv) that the bidder provide to the Staff, upon request, a detailed

list of all such purchases. See also Harmony Gold Mining Company Limited, supra note 85, where in the

context of bifurcated offers the Staff granted relief under Rule 14e-5 to permit purchases in the non-

U.S. offer while the U.S. offer was pending. In Mittal Steel Company N.V. SEC No-Action Letter (June

22, 2006), available at http://www.sec.gov/divisions/marketreg/mr-noaction/mittal062206.pdf, the

Staff granted blanked no-action relief in the multiple offer context, subject to certain conditions. See

also section 1.3.5 of this article, infra.

Cross-Border Tender Offers and Other Business Combination Transactions 1095

continue to consider requests for relief from Rule 14e-5 on a case-by-case

basis.

112

In an exchange offer or other business combination transaction pursuant to

which securities are offered in the United States, Regulation M

113

under the Ex-

change Act may apply. Regulation M prohibits a bidder and its ﬁnancial advisers

from bidding for, purchasing or attempting to induce others to bid for or purchase

any securities of the class offered in exchange for the target’s securities

114

from 1

or 5 U.S. business days before the date of commencement of the offer until the

offer expires or the business combination transaction is completed. There are a

number of exemptions to Regulation M, including in respect of “actively-traded

reference securities.”

115

1.3 A

DDITIONAL

ROVISIONS

PPLICABLE TO

ENDER

FFERS

FOR

EGISTERED

ECURITIES

A tender offer by a bidder for any Registered Securities that is not exempt

pursuant to the Tier I exemption must comply not only with the requirements of

Exchange Act section 14(e) and Regulation 14E, but also with Exchange Act

section 14(d) and Regulation 14D. These requirements, and any express relief

from such requirements afforded to transactions that fall within the Tier II ex-

emption, are described below.

In addition to the foregoing obligations, if the tender offer or request for tenders

is made by a bidder or an afﬁliate of a bidder for Registered Securities and is not

eligible for the Tier I exemption, the transaction may also be subject to Exchange

Act Rule 13e-3

116

, if the tender offer would result in the issuer “going private”

117

If the transaction is subject to Exchange Act Rule 13e-3, a bidder or its afﬁliate

would be required to ﬁle with the SEC a Schedule 13E-3

118

, setting forth infor-

mation regarding the offer, and disclose certain information to security holders of

112. See Cross-Border Release, supra note 3, paragraph II.B (noting “[t]o the extent that an offerer

needs additional relief from that provided in Tier II, the staff, pursuant to delegated authority, will

consider applications for exemptions on a case-by-case basis”).

113. Exchange Act Regulation M (codiﬁed at 17 C.F.R. §§ 242.100–.105 (2005)). A full discussion

of Regulation M in the context of an exchange offer or other business combination transaction is

beyond the scope of this article.

114. “Covered securities” include other securities into which the reference securities may be con-

verted or exchanged or for which the reference securities may be exercised. See Regulation M Rule

100(b) (codiﬁed at17 C.F.R. § 242.100(b) (2005)).

115. See Regulation M Rule 102 (codiﬁed at 17 C.F.R. § 242.102(d)(1) (2005)).

116. Exchange Act Rule 13e-3 (codiﬁed at 17 C.F.R. § 240.13e-3 (2005)).

117. The effects referred to in Rule 13e-3 are causing any class of equity securities of the issuer

that is subject to section 12(g) or 15(d) of the Exchange Act to be held of record by less than 300

persons, or causing any class of equity securities of the issuer that is either listed on a national securities

exchange or authorized to be quoted in an inter-dealer quotation system of any registered national

securities association to be neither so listed nor so authorized. Exchange Act Rule 13e-3(a)(ii)(codiﬁed

at 17 C.F.R. § 240.13e-3(a)(ii)(2005)).

118. See Exchange Act Rule 13e-3(d) (codiﬁed at 17 C.F.R. § 240.13e-3(d) (2005)). Schedule 13E-3

is available at http://www.sec.gov/about/forms/sched13e-3.pdf.

1096 The Business Lawyer; Vol. 61, May 2006

the class of securities that is the subject of the transaction, as well as to comply

with various anti-fraud provisions set forth in Rule 13e-3.

119

1.3.1 A

NNOUNCEMENTS AND

ENDER

FFER

OCUMENTS

A bidder is deemed to have commenced a tender offer when the bidder ﬁrst

publishes, sends or gives to target security holders transmittal forms or discloses

instructions as to how to tender securities into the offer.

120

A bidder must ﬁle with

the SEC a tender offer statement on Schedule TO on the date of commencement

of the offer.

121

The U.S. “offer to exchange” forms a substantial part of Schedule

122

and must be disseminated to the target’s U.S. security holders as soon as

practicable on the date of commencement of a tender offer.

123

Dissemination is

typically effected by posting or other delivery of the offer to exchange to the

target’s shareholders and in certain circumstances by summary publication in a

U.S. newspaper with national circulation. To facilitate such distribution, the target

may elect either to provide the bidder with its shareholder list or to distribute the

bidder’s offer to exchange to its shareholders on behalf of the bidder.

124

In the

case of an exchange offer, the offer to exchange will also constitute the bidder’s

preliminary prospectus under the Securities Act. After commencement of the offer,

the bidder is obliged to report promptly on Schedule TO material changes to

information previously ﬁled with the SEC, including additional tender offer ma-

terials, such as press releases, investor presentations and similar materials relating

to the tender offer.

125

A bidder must ﬁle on Schedule TO any press announcements and other written

communications regarding a tender offer prior to its commencement no later than

the date of ﬁrst use of the communication.

126

Each pre-commencement written

communication must include a prominent legend advising security holders to

read the tender offer statement when it becomes available because it contains

important information.

127

The legend must also advise security holders that they

can obtain copies of the tender offer statement and other documents on the SEC’s

website and explain which documents may be obtained free of charge from the

bidder.

128

119. Rule 13e-3 sets forth various exceptions and additional conditions. A detailed discussion of

Exchange Act Rule 13e-3 is beyond the scope of this article.

120. See Exchange Act Rule 14d-2(a) (codiﬁed at 17 C.F.R. § 240.14d-2(a) (2005)).

121. See Exchange Act Rule 14d-3(a)(1) (codiﬁed at 17 C.F.R. § 240.14d-3(a)(1) (2005)). Schedule

TO is found at 17 C.F.R. § 240.14d-100 (2005).

122. The contents of the bidder’s Schedule TO and its related offer to exchange are discussed in

section 1.5 of this article, infra.

123. See Exchange Act Rule 14d-4 (codiﬁed at 17 C.F.R. § 240.14d-4 (2005)).

124. See Exchange Act Rule 14d-5(b), (c) (codiﬁed at 17 C.F.R. § 240.14d-5(b), (c) (2005)).

125. See Exchange Act Rule 14d-3(b) (codiﬁed at 17 C.F.R. § 240.14d-3(b) (2005)).

126. See Exchange Act Rule 14d-2(b)(2) (codiﬁed at 17 C.F.R. § 240.14d-2(b)(2) (2005)).

127. Instruction 3 to paragraph (b)(2) of Exchange Act Rule 14d-2 (codiﬁed at 17 C.F.R. § 240.14d-

2 (2005)) (providing that the legend must advise investors to read the tender offer statement when it

is available and advise investors that they can obtain the tender offer statement and other ﬁled doc-

uments for free at the SEC website).

128. Id.

Cross-Border Tender Offers and Other Business Combination Transactions 1097

1.3.2 T

ARGET

’

ESPONSE

OCUMENT

AND

OMMUNICATIONS

The target must ﬁle with the SEC on Schedule 14D-9 as soon as practicable on

the date of publication or dispatch any solicitation, recommendation or statement

made in relation to the offer to its security holders,

129

including any information

disseminated by the target pursuant to Rule 14e-2.

130

The target is also required to ﬁle with the SEC on Schedule 14D-9 from the

time of the ﬁrst public announcement of the transaction, on the date of release,

press announcements and other written communications regarding a tender offer

prior to commencement of the offer.

131

Each pre-commencement communication

must be accompanied by a legend advising shareholders of the target company

to read the target’s recommendation or solicitation statement when it becomes

available.

132

The legend must also advise security holders that they can obtain

copies of ﬁled documents on the SEC’s website and explain which document may

be obtained for free from the target.

133

1.3.3 W

ITHDRAWAL

IGHTS

Tendering shareholders have the right to withdraw tendered securities during

the tender offer and, in any case, after the passing of 60 calendar days from the

date of commencement of the tender offer if the tender offer remains open.

134

The

SEC generally takes the view

135

that withdrawal rights must be available to target

shareholders worldwide, not only to those shareholders resident in the United

States.

136

In many jurisdictions, the provision of withdrawal rights during the offer

period is not customary and may require express consent from home country

regulators.

137

129. See Exchange Act Rule 14d-9(b)(1) (codiﬁed at 17 C.F.R. § 240.14d-9(b)(1) (2005)).

130. See Exchange Act Rule 14e-2 (codiﬁed at 17 C.F.R. § 240.14e-2 (2005)) (providing that within

10 U.S. business days of the publication of the tender offer, the target must publish, send to or give

security holders a statement as to whether it recommends acceptance or rejection of the offer, expresses

no opinion as to the offer, or is unable to take a position regarding the offer).

131. See Exchange Act Rule 14d-9(a) (codiﬁed at 17 C.F.R. § 240.14d-9(a) (2005)).

132. See Instruction 3 to Exchange Act Rule 14d-9(a) (codiﬁed at 17 C.F.R. § 240.14d-9(a) (2005)).

133. Id.

134. Exchange Act § 14(d)(5), as added by the Williams Act, supra note 9, 82 Stat. at 456 (codiﬁed

as amended at 15 U.S.C. § 78n(d)(5) (2000 & Supp. III 2003)); Exchange Act Rule 14d-7 (codiﬁed

at 17 C.F.R. § 240.14d-7 (2005)).

135. See Cross-Border Release, supra note 3 (providing that “equal treatment requires that the

procedural terms of the tender offer . . . [including] withdrawal rights, must be the same for all security

holders”).

136. But see Saipem SpA, supra note 52 (providing an example where in the context of bifurcated

offers, withdrawal rights were not afforded to holders tendering into the non-U.S. offer).

137. For instance, in the United Kingdom, where withdrawal rights would typically only apply

from the 42nd day after commencement of an offer until the date the minimum condition has been

satisﬁed, in the experience of the authors, the U.K. Panel on Takeovers and Mergers typically grants

relief permitting withdrawal rights to subsist throughout the initial offering period, on the condition

that the bidder does not declare its offer unconditional as to acceptances until the offer becomes

wholly unconditional. In certain cases, the Staff has granted exemptions under Exchange Act section

14(d)(5) and Exchange Act Rule 14d-7, subject to conditions. See Harmony Gold Mining Company

1098 The Business Lawyer; Vol. 61, May 2006

1.3.4 S

UBSEQUENT

FFERING

ERIOD

A bidder may provide for a subsequent offering period immediately following

the initial offering period of 3 to 20 U.S. business days after the termination of

the initial offering period;

138

no Rule 14d-7 withdrawal rights apply during this

subsequent offering period. All shares tendered in the subsequent offering period

must be accepted and consideration promptly paid as the shares are tendered.

139

The subsequent offering period provides a U.S. statutory basis that accommodates

takeover practice in a number of European jurisdictions, where tender offers are

typically held open for a period (in some cases, signiﬁcantly in excess of 20

business days) after all conditions have been satisﬁed to assist bidders in reaching

the statutory minimum shareholding necessary to engage in a squeeze-out or other

back-end merger with the target.

140

The subsequent offering period also provides

target security holders who remain after all offer conditions have been satisﬁed

with one last opportunity to tender into an offer and avoid the delay and illiquid

market that can result after a completion of a tender offer and before a statutory

squeeze-out is accomplished. To the extent that local market practice provides for

a subsequent offering period in excess of 20 U.S. business days, express relief

would be required from the Staff.

141

The bidder is required to announce the results of its tender offer (including the

number of shares tendered) no later than 9:00 a.m. Eastern time on the next

business day after the expiration of the initial offering period and to pay promptly

for the securities tendered in the initial offering period.

142

The Tier II exemption

provides that announcement and payment made in accordance with the require-

ments or practice of the home jurisdiction will satisfy Rule 14d-11;

143

and the

Staff has granted analogous relief in transactions not strictly falling within the Tier

II exemption.

144

Limited, supra note 85; Alcan, Inc., supra note 62; Discount Investment Corporation Ltd., SEC No-

Action Letter, 2004 WL 1626232 (June 14, 2004). See also Third Supplement, supra note 52, Question

II.A.1.

138. See Exchange Act Rule 14d-11 (codiﬁed at 17 C.F.R. § 240.14d-11 (2005)).

139. See Exchange Act Rule 14d-11(e) (codiﬁed at 17 C.F.R. § 240.14d-11(e) (2005)).

140. In the United Kingdom, for instance, an offer must remain open for 14 days following the

date on which the offer becomes unconditional as to acceptances. See City Code, supra note 8, Rule

31.4. In practice, transactions in the United Kingdom are often structured so as to provide for a

subsequent offer period open for a period longer than the mandatory 14 calendar days and longer

than the 20 U.S. business days provided for in Exchange Act Rule 14d-11, in many cases until further

notice is given. See SERENA Software, Inc., supra note 100.

141. The Staff has, however, granted such relief in a number of transactions, subject to certain

conditions. See Harmony Gold Mining Company Limited, supra note 85 (providing for no-action relief

with respect to a subsequent offering period in excess of 20 days but requiring that such period in

no event exceed 42 days); SERENA Software, Inc., supra note 100; Alcan, Inc., supra note 62 (where

no restriction was imposed); Serono S.A., SEC No-Action Letter, 2002 WL 31116135 (Sept. 12, 2002).

142. See Exchange Act Rule 14d-11(d) (codiﬁed at 17 C.F.R. § 240.14d-11(d) (2005)).

143. See Exchange Act Rule 14d-1(d)(2)(v) (codiﬁed at 17 C.F.R. § 240.14d-1(d)(2)(v) (2005)).

144. See Alcan, Inc., supra note 62; Sanoﬁ-Synthe´labo S.A., SEC No-Action Letter, 2004 WL

1351302 (June 10, 2004); Serono S.A., supra note 141.

Cross-Border Tender Offers and Other Business Combination Transactions 1099

1.3.5 A

OLDERS

-B

EST

RICE

ULE

Rule 14d-10 under the Exchange Act sets forth the “all holders-best price”

requirement, providing that the tender offer must be made to all holders of the

target’s securities and all holders must be offered the highest consideration offered

to any holder of the target’s securities.

145

The Tier II exemption permits a bidder

to bifurcate its offer into two separate offers to accommodate logistical difﬁculties

and potential points of conﬂict among U.S. tender offer rules, local rules and

market practice—one offer made only to U.S. holders and another offer made

only to non-U.S. holders, so long as the U.S. offer is made on terms at least as

favorable as those offered to non-U.S. holders.

146

As a matter of practice, where

the target’s securities trade in the form of ADSs in the United States, all holders

of ADSs will typically be included in the U.S. offer. Although not speciﬁcally

permitted pursuant to the Tier II exemption, the Staff has granted no-action relief

permitting non-U.S. ADS holders to be included in the U.S. offer in a number of

transactions.

147

Care must be taken in connection with the negotiation of certain compensation

arrangements with executive ofﬁcers of the target who also own target securities.

In particular, certain courts in the United States have held that bonuses, non-

competition payments and severance payments received by executives who tender

their shares into the offer may violate Rule 14d-10 to the extent that such pay-

ments constituted additional consideration paid in connection with the offer.

148

On December 16, 2005, the SEC proposed amendments to Rule 14d-10 that

would (i) clarify that the best-price rule applies only with respect to the consid-

eration offered and paid for securities tendered in a tender offer and (ii) provide

an exemption from the rule for the negotiation, execution and amendment of

payments or beneﬁts under employment compensation, severance or other em-

ployee beneﬁt arrangements that are entered into by the bidder or the subject

company with current or future employees or directors of the subject company.

149

145. See Exchange Act Rule 14d-10(a) (codiﬁed at 17 C.F.R. § 240.14d-10(a) (2005)).

146. See Exchange Act Rule 14d-1(d)(2)(ii) (codiﬁed at 17 C.F.R. § 240.14d-1(d)(2)(ii) (2005)).

Rule 14d-1(d)(2)(i) provides the loan note exception, which is the only other express exception to

the equal treatment rule under Tier II.

147. See Harmony Gold Mining Company Limited, supra note 85; Sanoﬁ-Synthe´labo S.A., supra note

144 (in each case permitting the bidder to make the U.S. part of its offer available to both holders of

the target’s ordinary shares located in the United States and all holders of the target’s ADSs, wherever

located).

148. U.S. federal courts have been split on their approach to analyzing actions brought under

Exchange Act Rule 14d-10, with certain courts following the so-called “bright-line” test, which effec-

tively provides that arrangements entered into with an executive prior to commencement of a tender

offer are not regulated by Exchange Act Rule 14d-10, and other courts following the so-called “integral

part” test, where executive compensation arrangements related or integral to a tender offer may be

restricted by Exchange Act Rule 14d-10. See e.g., Gerber v. Computer Assocs. Int’l, Inc., 303 F. 3d

126, 136 (2d Cir. 2002); Walker v. Shield Acquisition Corp., 145 F. Supp. 2d 1360 (N.D. Ga. 2001)

(ﬁnding that compensation paid after the close of the tender offer was not restricted by Exchange Act

Rule 14d-10); Epstein v. MCA, Inc. 50 F.3d 644 (9th Cir. 1995) (ﬁnding that such compensation may

violate Exchange Act Rule 14d-10 even though it was paid after the tender offer closed), rev’d on other

grounds, 516 U.S. 367 (1996).

149. See SEC Release No. 34-52968, 70 Fed. Reg. 76116 (Dec. 22, 2005).

1100 The Business Lawyer; Vol. 61, May 2006

Pending adoption of ﬁnal rules by the SEC, parties should exercise caution and,

where such payments are contemplated, consider structuring and documenting

such payments in a manner that cannot be construed as constituting an induce-

ment to the recipients to tender their securities into the offer.

1.3.6 M

AND

-M

ATCH

LECTIONS

A bidder may determine to offer target security holders a combination of cash

and exchange securities with the total amount of cash and number of securities

offered ﬁxed, but affording target security holders the right to elect to vary the

proportion of each form of consideration received.

150

In practice, to the extent

that the elections of respective security holders do not offset each other, elections

will be scaled back by a prorating factor determined when all elections have been

received. Shareholders that make mix-and-match elections will not know the

number of securities or the amount of cash received until settlement of the con-

sideration under the offer. Exchange Act Rule 14d-10 provides that where a bidder

offers more than one type of consideration in a tender offer, security holders must

be afforded an equal right to elect among each of the types of consideration

offered, and the highest consideration of each type paid to any security holder

will be paid to any other security holder receiving that type of consideration.

151

As a result of the elections and allocations pursuant to a mix-and-match election,

some security holders may receive more cash or more securities of the bidder

than other target security holders.

Exchange Act Rule 14d-11 provides that where a bidder offers target security

holders a choice of different forms of consideration, the bidder may elect to pro-

vide a subsequent offering period only where (i) there is no ceiling on any form

of consideration offered and (ii) the same form and amount of consideration is

offered in both the initial and subsequent offering periods.

152

In practice, a mix-

and-match election typically provides for a maximum number of shares to be

issued and/or cash to be paid. In addition, in order to set the prorating factor for

payment of consideration in the initial offering period, the mix-and-match option

is typically terminated on or shortly after expiration of the initial offering period

and before expiration, and perhaps commencement, of the subsequent offering

period, which may constitute a violation of Rule 14d-11(c). The Staff has, how-

ever, customarily granted exemptions from Rules 14d-10 and 14d-11 in these

circumstances in order to permit the different allocation of cash and shares to

target security holders and the termination of the mix-and-match election prior

to the expiration of the subsequent offer, subject to certain conditions.

153

150. See infra note 153.

151. See Exchange Act Rule 14d-10(c) (codiﬁed at 17 C.F.R. § 240.14d-10(c) (2005)).

152. See Exchange Act Rule 14d-11(b), (f) (codiﬁed at 17 C.F.R. § 240.14d-11(b), (f) (2005)).

153. For examples of such mix-and-match provisions, see, e.g., SERENA Software Inc., supra note

100, The Royal Bank of Scotland Group plc, SEC No-Action Letter, 1999 WL 1277041 (Dec. 30,

1999); Amerada Hess Corporation, SEC No-Action Letter, 2000 WL 33226265 (Dec. 13, 2000); Smith

& Nephew Group plc, SEC No-Action Letter, 2003 WL 21005596 (Apr. 24, 2003); Zimmer Holdings,

Inc., SEC No-Action Letter, 2003 WL 21462902 (June 19, 2003).

Cross-Border Tender Offers and Other Business Combination Transactions 1101

1.4 S

PECIAL

ONSIDERATIONS

ELATING TO

MERICAN

EPOSITARY

HARES

Where the target is a non-U.S. company that has established an ADR program

in the United States, it is necessary to consider, in facilitating the tender of ADSs

into the bidder’s offer, whether (i) to require ADS holders to withdraw the ordi-

nary shares underlying their ADSs from the ADS depositary facility and to tender

such underlying shares in the offer or (ii) to appoint a U.S. exchange agent and

establish separate tender mechanics for ADS holders.

From the bidder’s perspective, the simpler approach is to require U.S. ADS

holders to withdraw underlying ordinary shares from the ADS depositary facility

and to tender such shares in accordance with customary local law offer proce-

dures. Under this approach, the bidder would supply the ADS holders with, in

addition to offering materials, instructions explaining how to participate in the

offer by withdrawing the shares underlying their ADSs and instructing a desig-

nated ﬁnancial intermediary to tender such shares into the bidder’s offer. In most

cases, tendering ADS holders would be required to pay a withdrawal fee, which

may act as a disincentive to tendering, particularly where target security holders

are uncertain as to the success of the offer. Accordingly, this approach is usually

considered only when the number of shares held in the form of ADSs is relatively

small and the receipt of such securities is not necessary to ensure the success of

the transaction.

Alternatively, a bidder may provide for separate ADS tender and acceptance

procedures. This approach involves appointing a third party to act as U.S. ex-

change agent in the United States to accept tenders from ADS holders. Under this

approach, separate forms of acceptance (typically in the form of a U.S.-style letter

of transmittal) are distributed to ADS holders along with the offering materials.

ADS holders who desire to accept the offer do so by completing the letter of

acceptance indicating the number of ADSs to be tendered and delivering the letter

along with the tendered ADSs (if in certiﬁcated form) to the exchange agent prior

to the closing date of the offer. Such letters are deemed to be instructions to the

depositary (or a holder on the books of the depositary, such as The Depository

Trust Company or its nominee) with respect to the tendering of the underlying

securities held by or on behalf of ADS holders. All such tenders are then counted

as valid acceptances in the offer. After successful completion of the offer, the

exchange agent distributes the requisite cash (typically converted into U.S. dollars,

unless prior arrangement has been made) or share consideration to the tendering

ADS holders, less any required withholding tax under U.S. law and, if borne by

the ADS holder, the exchange agent’s costs.

1.5 D

ISCLOSURE

In connection with a tender offer pursuant to which no exchange securities will

be offered, other than as set forth in the next paragraph, there are no speciﬁc

requirements as to the content of offering materials disseminated to target holders,

whether or not such materials are required to be submitted to the SEC under

1102 The Business Lawyer; Vol. 61, May 2006

cover of Form CB. A bidder is, of course, subject to the anti-fraud provisions of

Rule 14e-3 and Rule 10b-5, which will affect its determination as to what infor-

mation ought to be disclosed.

In connection with an offer for Registered Securities, a ﬁling on Schedule TO,

if applicable, must include speciﬁed information, including a detailed summary

of the bidder’s past contacts, transactions and negotiations with the target and its

advisers.

154

In the context of a recommended offer, this narrative section rarely

poses problems. However, where negotiations for an agreed transaction have bro-

ken down or where an offer is otherwise hostile, the description of any breakdown

in negotiations may create a sensitive disclosure issue. Furthermore, without the

target’s cooperation, certain mandated information may not be available. It is

important for the bidder and its ﬁnancial advisers to understand this requirement

early in the process so that appropriate records of conversations and correspon-

dence are kept to facilitate drafting and necessary inquiries of the bidder are made.

Schedule TO also requires disclosure as to (i) the business and operations of the

bidder and the target, (ii) the terms of the offer, (iii) the bidder’s plans for the

target, (iv) certain information as to the bidder’s advisers, (v) information as to

the bidder’s interest in, and dealings in, the target’s securities, (vi) material non-

public information that may have been furnished to the bidder and (vii) a detailed

explanation of the mechanics for tendering securities and procedures for accep-

tance and settlement.

155

There is often sensitivity in disclosing the intentions of a

bidder as to the future management and ownership arrangements of the target

and disclosed intentions consequently tend to be broad and somewhat generic.

When the bidder’s ﬁnancial condition is material to the decision by the target’s

shareholders of whether or not to tender, Schedule TO also requires that ﬁnancial

statements of the bidder be included.

156

Schedule TO provides that such ﬁnancial

statements will not be material when (i) only cash consideration is offered, (ii)

the offer is not subject to any ﬁnancing condition and (iii) either the bidder is a

public reporting company ﬁling reports on the SEC’s Electronic Data Gathering,

Analysis and Retrieval (“EDGAR”) database or the offer is for all of the target’s

outstanding securities of the subject class.

157

The bidder must provide the same ﬁnancial information reconciled to U.S.

GAAP as would be required under Item 17 of Form 20-F under the Exchange

Act.

158

If ﬁnancial statements are required in the context of a cash tender offer,

154. See Exchange Act § 14(d), as added by the Williams Act, supra note 9, 82 Stat. at 456 (codiﬁed

as amended at 15 U.S.C. § 78n(d) (2000 & Supp. III 2003)); Schedule TO (Exchange Act Rule 14d-

100 (codiﬁed at 17 C.F.R. § 240.14d-100 (2005)).

155. See Schedule TO (Exchange Act Rule 14d-100 (codiﬁed at 17 C.F.R. § 240.14d-100 (2005)).

156. See Instructions to Item 10, Schedule TO, Exchange Act Rule 14d-100 (codiﬁed at 17 C.F.R.

§ 240.14d-100 (2005)).

157. See Instruction 2 to Item 10, Schedule TO, Exchange Act Rule 14d-100 (codiﬁed at 17 C.F.R.

§ 240.14d-100 (2005)).

158. See Instruction 8 to Item 10, Schedule TO, Exchange Act Rule 14d-100 (codiﬁed at 17 C.F.R.

§ 240.14d-100 (2005)). The ﬁnancial statement requirements of Item 17 of Form 20-F (17 C.F.R.

§ 249.220f (2005)), available at http://www.sec.gov/about/forms/form20-f.pdf, are less burdensome

than the requirements of Item 18. For example, the required reconciliation to U.S. GAAP is less

extensive.

Cross-Border Tender Offers and Other Business Combination Transactions 1103

only two years of statements need to be provided and these can be incorporated

by reference into the Schedule TO, as long as a summary is provided in the actual

Schedule TO.

159

Pro forma ﬁnancial information may also be required in negoti-

ated third-party cash tender offers.

160

As discussed above in sections 1.2.4 and 1.3.2 of this article, a target company

may have certain disclosure obligations pursuant to Rule 14d-9 and Rule 14e-2

under the Exchange Act.

XCHANGE

FFERS

In addition to compliance with the tender offer rules described in section 1

above, tender offers pursuant to which exchange securities constitute at least part

of the offer consideration are subject to the registration and other requirements

of the Securities Act, unless an exemption or exclusion applies.

161

There are a

number of exemptions that may be available for the offer of securities in the

exchange offer context, including Rule 802, which may be available in the case

of a tender offer falling within the Tier I exemption.

2.1 R

ULE

802

A bidder may offer its shares in exchange for the shares of a non-U.S. target

without having to register the shares being offered.

162

The most signiﬁcant im-

plication of reliance on the Rule 802 exemption is that the bidder will not have

to prepare and ﬁle the detailed disclosure speciﬁed in a registration statement on

Form F-4 or Form S-4, nor will the transaction be subject to the timing constraints

of the SEC’s registration and review process.

163

Availability

The Rule 802 exemption is available where (i) the target is a foreign private

issuer, (ii) U.S. holders hold 10 percent or less of the target’s securities

164

and (iii)

the bidder permits shareholders in the United States to participate in the tender

offer on terms at least as favorable as those offered to other shareholders.

165

most cases, where the Tier I exemption is available, Rule 802 will also be available.

As in the case of calculating U.S. shareholding for purposes of the Tier I exemp-

159. See Instruction 3 to Item 10, Schedule TO, Exchange Act Rule 14d-100 (codiﬁed at 17 C.F.R.

§ 240.14d-100 (2005)).

160. See Instruction 5 to Item 10, Schedule TO, Exchange Act Rule 14d-100 (codiﬁed at 17 C.F.R.

§ 240.14d-100 (2005)).

161. See supra note 15 and accompanying text. See also infra section 3.1 of this article.

162. See Securities Act Rule 802 (codiﬁed at 17 C.F.R. § 230.802 (2005)).

163. The registration and disclosure requirements ﬂow from the application of section 5 of the

Securities Act. Securities Act § 5, 48 Stat. at 77 (codiﬁed at 15 U.S.C. § 77e (2000)). See infra note

204 relating to Form F-4 and Form S-4.

164. Such percentage must be calculated in the manner prescribed by the SEC, which is substan-

tially similar to the manner prescribed in Exchange Act Rule 14d-1, as discussed supra in section

1.1.1. of this article. See Securities Act Rule 800(h) (codiﬁed at 17 C.F.R. § 230.800(h) (2005)).

165. See Securities Act Rule 802(a)(1), (2) (codiﬁed at 17 C.F.R. § 230.802(a)(1), (2) (2005)).

1104 The Business Lawyer; Vol. 61, May 2006

tion, there is an obligation to look through the record ownership of certain bro-

kers, dealers and banks, and the calculation is based on U.S. ownership of the

target 30 calendar days prior to the commencement of the exchange offer.

166

should be noted that Rule 802 is not available when there are no U.S. security

holders of the target.

167

Other than in the case of an exchange offer by the issuer of the securities to

which the offer relates (or the issuer’s afﬁliate), there is a rebuttable presumption

that the issuer of the securities is a foreign private issuer and that U.S. holders

hold 10 percent or less of the outstanding securities.

168

The presumption will not

hold where (i) the offer is made pursuant to an agreement with the issuer of the

securities to which the offer relates, (ii) the trading volume on all U.S. national

securities exchanges, Nasdaq or the OTCBB, as reported to the NASD, over the

12-calendar month period ending 30 calendar days prior to commencement of

the exchange offer exceeds 10 percent of the worldwide trading volume of the

class of securities subject to the tender offer, (iii) the most recent annual report

ﬁled or submitted by the target (or security holders of the target’s securities) with

the SEC or regulators in the target’s home jurisdiction indicates that U.S. holders

hold more than 10 percent of the outstanding subject securities, or (iv) the bidder

knows or has reason to know that the level of U.S. holding exceeds 10 percent

of the outstanding subject securities.

169

Offering Materials

Offering materials must be provided to shareholders in the United States on a

basis comparable to the basis pursuant to which materials are provided to share-

holders in the home jurisdiction.

170

Accordingly, if materials are mailed to non-

U.S. holders, then materials should be mailed to U.S. holders; if notice of the

offer is effected by publication outside of the United States, publication, rather

than actual delivery of offering materials, would ordinarily be sufﬁcient.

171

Filing Requirements

Offering materials sent to shareholders in the United States must be submitted

to the SEC under cover of Form CB.

172

The Form CB must be submitted no later

than the ﬁrst business day after the offering materials have been published or

166. See Securities Act Rule 800(h) (codiﬁed at 17 C.F.R. § 230.800(h) (2005)).

167. See Third Supplement, supra note 52, Question II.C.1.

168. See Securities Act Rule 802(c) (codiﬁed at 17 C.F.R. § 230.802(c) (2005)).

169. Id.

170. See Securities Act Rule 802(a)(3)(ii), (iii) (codiﬁed at 17 C.F.R. § 230.802(a)(3)(ii), (iii)

(2005)). Although foreign law may require a detailed advertisement, the Staff will permit a summary

advertisement with a toll-free number for investors to use to obtain the complete disclosure document.

See Third Supplement, supra note 52, Question II.D.1.

171. See Securities Act Rule 802(a)(3) (ii), (iii) (codiﬁed at 17 C.F.R. § 230.802(a)(3)(ii), (iii)

(2005)).

172. Form CB is available at http://www.sec.gov/about/forms/formcb.pdf. Offering materials must

be translated into English if they are not already in English. Securities Act Rule 802(a)(3)(i) (codiﬁed

at 17 C.F.R. § 230.802(a)(3)(i) (2005)).

Cross-Border Tender Offers and Other Business Combination Transactions 1105

disseminated in the home jurisdiction.

173

There is no fee for submitting Form CB.

If the bidder is a non-U.S. company, it must ﬁle with the SEC a consent to service

of process in the United States on Form F-X and appoint an agent for service of

process in the United States.

174

There is no ﬁling fee for Form F-X. U.S. bidders

do not need to ﬁle this form.

Blue Sky Exception

A bidder may exclude certain shareholders in the United States if the share-

holders are in states of the United States that do not exempt the exchange secu-

rities from state registration requirements.

175

This exception is effectively a “blue

sky” exception

176

and applies where a bidder has made a good faith effort to seek

the registration of the exchange securities in such states.

Legends

Any document disseminated in the United States must bear a prominent legend

stating that (i) the offer is being conducted pursuant to disclosure requirements

of another jurisdiction, which may differ from the disclosure requirements in the

United States, (ii) ﬁnancial statements contained in the offer document have been

prepared in accordance with accounting standards that may not be comparable

to U.S. GAAP, if true, (iii) (in the case of a non-U.S. issuer) it may be difﬁcult for

investors to enforce their legal rights against the issuer and its ofﬁcers and direc-

tors and (iv) the bidder may purchase securities other wise than under the ex-

change offer, if true.

177

Transfer Restrictions

The securities offered by the bidder in exchange for those of the target will take

on the same characterization as that of the target securities.

178

If the securities of

the target are “Restricted Securities” within the meaning of the Securities Act—

effectively meaning that they are not freely tradable in the United States—then

the bidder’s securities offered in exchange will also be Restricted Securities.

179

If,

however, the target’s securities are unrestricted (for instance, because they were

issued in certain offshore transactions in compliance with Regulation S or pur-

173. See Securities Act Rule 802(a)(3)(i) (codiﬁed at 17 C.F.R. § 230.802(a)(3)(i) (2005)).

174. Id. Form F-X is available at http://www.sec.gov/about/forms/formf-x.pdf.

175. See Securities Act Rule 802(a)(2) (codiﬁed at 17 C.F.R. § 230.802(a)(2) (2005)).

176. See supra note 17.

177. See Securities Act Rule 802(b) (codiﬁed at 17 C.F.R. § 230.802(b) (2005)). The legend required

by Rule 802 may be tailored to avoid confusion in the case of an offeror that is a domestic issuer

incorporated in the United States. See Third Supplement, supra note 52, Question II.C.2.

178. See Cross-Border Release, supra note 3, Part II.D.2(c); General Note 8 to Securities Act Rules

800-802 (codiﬁed at 17 C.F.R. § 230.800-802 (2005)).

179. “Restricted Securities” are generally securities acquired by the issuer or an afﬁliate of the issuer

of such securities in a transaction or chain of transactions not involving any public offering. Such

securities are subject to restrictions as to resale. See Securities Act Rule 144 (codiﬁed at 17 C.F.R.

§ 230.144 (2005)).

1106 The Business Lawyer; Vol. 61, May 2006

suant to a registration statement under the Securities Act), then the bidder’s se-

curities offered in exchange will be freely tradable in the hands of a non-afﬁliate

of the issuer of the securities.

180

Integration

An offer of securities pursuant to Rule 802 will not be integrated with any other

exempt offer by the bidder, even if the other transaction occurs simultaneously.

181

Accordingly, the use of the Rule 802 exemption will not render unavailable or

otherwise prevent a bidder from relying on another exemption under the Secu-

rities Act in respect of the placement of securities pursuant to an exchange offer.

No Exchange Act Reporting Obligations

The use of the Rule 802 exemption will not result in the bidder incurring

reporting obligations under section 15(d) of the Exchange Act.

182

Nor does the

use of Rule 802 preclude a foreign private issuer from relying on the exemption

from SEC Exchange Act registration pursuant to Rule 12g3-2(b) under the Ex-

change Act.

183

Subsequent Bidder

If an initial bidder is able to rely upon Rule 802 to extend its exchange offer

into the United States, a competing bidder will not be subject to the 10 percent

ownership limitation condition of the Rule 802 exemption.

184

As a result, the

subsequent bidder will not be precluded from relying on Rule 802 by any move-

ment of securities into the United States following announcement of the initial

bidder’s offer.

Practical Difﬁculties

For the reasons enumerated in section 1.1.1 above, it may be difﬁcult for a

bidder to conﬁrm its eligibility to rely on Rule 802. Furthermore, Rule 802 does

180. Id.

181. See General Notes to Securities Act Rules 800 to 802 (codiﬁed at 17 C.F.R. § 230.800–.802

(2005)).

182. Exchange Act section 15(d) provides that any issuer that has had a registration statement

declared effective by the SEC under the Securities Act with respect to any class of debt or equity

securities shall have an obligation to ﬁle with the SEC the periodic reports that would otherwise be

required to be ﬁled had such class of securities been registered under Exchange Act section 12.

Exchange Act § 15(d), as added by Act of May 27, 1936, ch. 462, § 3, 49 Stat. 1375, 1377 (codiﬁed

as amended at 15 U.S.C. § 78o (2000 & Supp. III 2003)). No such obligation is incurred in the

absence of the ﬁling of a registration statement. See section 2.4 of this article infra.

183. The Exchange Act Rule 12g3-2(b) exemption is typically claimed by foreign private issuers

whose securities are not traded on a U.S. securities exchange (including Nasdaq) but that have a class

of equity security held by more than 300 security holders in the United States. See Exchange Act Rule

12g3-2(b) (codiﬁed at 17 C.F.R. § 240.12g3-2(b) (2005)). The securities of many foreign private issuers

that have claimed the Rule 12g3-2(b) exemption are quoted on “services” such as the Pink Sheets.

See http://www.pinksheets.com.

184. See Securities Act Rule 802(a)(1) (codiﬁed at 17 C.F.R. § 230.802(a)(1) (2005)).

Cross-Border Tender Offers and Other Business Combination Transactions 1107

not provide an express safe harbor in respect of a second step “squeeze-out”

merger. For instance, in many European jurisdictions, a bidder has the right upon

obtaining typically between 90 percent and 95 percent of the target’s securities to

serve notice upon minority shareholders whereupon, by operation of law, such

minority shareholders’ target securities will be cancelled and reissued to, or trans-

ferred directly to, the bidder.

185

Because securities held by the bidder are excluded

from the U.S. holder calculation, a bidder that has relied upon Rule 802 to effect

an exchange offer may ﬁnd that when it seeks to effect statutory squeeze-out

procedures it is ineligible to rely on Rule 802 on the basis that U.S. holders then

hold in excess of 10 percent of outstanding securities. However, the Staff has

stated that in the case of a business combination transaction involving multiple

steps, a bidder’s initial determination of U.S. shareholding will be sufﬁcient to

determine eligibility for the use of the Rule 802 exemption in the subsequent

transaction so long as (i) the disclosure document discloses the bidder’s intent to

conduct a subsequent “clean-up” transaction and the terms of such transaction

and (ii) the subsequent step is consummated within a reasonable time following

the ﬁrst step.

186

It is unclear what the Staff would consider a “reasonable time” in

this regard. It may be prudent, therefore, to consult the Staff in connection with

any particular transaction.

2.2 R

EGULATION

In the context of an exchange offer, Regulation S provides a “safe harbor” ex-

clusion from the registration requirements of the Securities Act for offers and sales

of the bidder’s securities outside the United States, subject to certain conditions

and selling restrictions contained therein.

187

Brieﬂy, these require that the offer

not be made in the United States (or to U.S. persons

188

in the case of a so-called

185. See, e.g., Companies Act 1985, c. 40 (Eng.) section 429, which provides a right for a bidder

to buy out minority shareholders where nine-tenths of the class of securities to which the offer relates

has been obtained. In France, Article 237-1 of the General Regulations of the French Autorite´ des

marche´s ﬁnanciers provides for the transfer of securities not tendered by minority shareholders to the

majority shareholder or shareholder group, provided that minority shareholders constitute no more

than 5 percent of the equity or voting rights of the target company.

186. See Third Supplement, supra note 52, Question II.E.9.

187. See Securities Act Regulation S (codiﬁed at 17 C.F.R. §§ 230.901–.905 (2005)).

188. “U.S. person” means, with certain exceptions;

(i) Any natural person resident in the United States; (ii) Any partnership or corporation organized

or incorporated under the laws of the United States; (iii) Any estate of which any executor or

administrator is a U.S. person; (iv) Any trust of which any trustee is a U.S. person; (v) Any agency

or branch of a foreign entity located in the United States; (vi) Any non-discretionary account or

similar account (other than an estate or trust) held by a dealer or other ﬁduciary for the beneﬁt

or account of a U.S. person; (vii) Any discretionary account or similar account (other than an

estate or trust) held by a dealer or other ﬁduciary organized, incorporated, or (if an individual)

resident in the United States; and (viii) Any partnership or corporation if: (A) Organized or

incorporated under the laws of any foreign jurisdiction; and (B) Formed by a U.S. person prin-

cipally for the purpose of investing in securities not registered under the Act, unless it is organized

or incorporated, and owned, by accredited investors (as deﬁned in § 230.501(a)) who are not

natural persons, estates or trusts.

17 C.F.R. § 230.902(k)(1) (2005).

1108 The Business Lawyer; Vol. 61, May 2006

“category 2”

189

transaction), except pursuant to the Rule 802 exemption or a

“private placement” exemption.

190

In addition, the bidder cannot engage in “di-

rected selling efforts”

191

to condition the U.S. market for the bidder’s securities

being offered. In a large cross-border exchange offer where the bidder has relied

upon Rule 14d-1(d)(2)(ii) under the Exchange Act or otherwise determined to

bifurcate its offer into separate U.S. and non-U.S. offers, the bidder will typically

rely on Regulation S to avoid registering securities offered pursuant to the non-

U.S. offer with the SEC.

192

2.3 C

ASHING

U.S. H

OLDERS

ENDOR

LACING

;

RIVATE

LACEMENTS

In the case of an offer falling within the Tier I exemption, a bidder may offer

U.S. holders cash in place of the securities offered to target shareholders outside

of the United States so long as the bidder has a reasonable basis for believing that

the amount of cash is substantially equivalent to the value of the securities offered

to non-U.S. holders.

193

In the case of an offer falling within the Tier II exemption,

the Staff has indicated that it would consider requests for relief under the Rule

189. See Securities Act Rule 902(b)(2) (codiﬁed at 17 C.F.R. § 230.902(b)(2) (2005)).

190. See Securities Act Rule 802 (codiﬁed at 17 C.F.R. § 230.802 (2005)); Securities Act § 4(2), 48

Stat. at 77, as amended by Securities Acts Amendments of 1964, Pub. L. No. 88-467, § 12, 78 Stat.

565, 580 (codiﬁed as amended at 15 U.S.C. § 77d(2) (2000)).

191. “Directed selling efforts” means:

any activity undertaken for the purpose of, or that could reasonably be expected to have the

effect of, conditioning the market in the United States for any of the securities being offered in

reliance on this Regulation S (§ 230.901 through § 230.905 and Preliminary Notes). Such activity

includes placing an advertisement in a publication ‘with a general circulation in the United States’

that refers to the offering of securities being made in reliance upon this Regulation S.

17 C.F.R. § 230.902(c)(1) (2005). But see Preliminary Note 7 to Regulation S, in relation to certain

offshore press activities conducted in accordance with Securities Act Rule 135e (codiﬁed at 17 C.F.R.

§ 230.135e (2005)).

192. See, e.g., Registration Statement on Form F-4 ﬁled by Mittal Steel Company N.V. on

March 23, 2006. The question has arisen whether the furnishing of tender offer materials under cover

of Form 6-K could be viewed as a public announcement in the U.S. and an inducement to U.S.

security holders to tender. See Third Supplement, supra note 52, Question II.G.1, in which the Staff

stated that tender offer materials may be furnished to the SEC without triggering the U.S. tender offer

rules so long as the issuer takes three steps to assure that the information is not used as a means to

induce indirect participation by U.S. holders of the securities: (i) the materials must not include a

transmittal letter or other means of tendering the securities, (ii) the materials must prominently disclose

that the offer is not available to U.S. persons or is being made only in countries other than the United

States and (iii) the issuer must take precautionary measures to ensure that the offer is not targeted to

person in the United States or to U.S persons (citing Part II.G of the Cross-Border Release, supra note

3). The interpretation concludes “Alternatively, the issuer may choose not to submit these materials

to the Commission.” Although an issuer may determine not to submit offering materials to the SEC,

an issuer would nonetheless need to consider its U.S. securities law disclosure obligations regarding

the transaction. See also Coral Gold, SEC No-Action Letter, 1991 WL 176737 (February 19, 1991),

in which the Staff concurred that the furnishing of an offering circular under cover of Form 6-K

containing only the information legally required in Canada (the jurisdiction in which a securities

offering was made) and setting forth a restrictive legend in accordance with Regulation S would not

constitute directed selling efforts for purposes of Regulation S.

193. See Exchange Act Rule 14d-1(c)(2)(iii) (codiﬁed at 17 C.F.R. § 240.14d-1(c)(2)(iii) (2005)).

Cross-Border Tender Offers and Other Business Combination Transactions 1109

14d-10 all-holders rule on a case-by-case basis to permit U.S. holders to be

“cashed-out.”

194

In addition, the SEC has permitted a bidder offering securities to a target’s

shareholders to allot the securities otherwise allocable to U.S. shareholders to a

third-party “vendor” that causes such securities to be sold (“placed”) outside of

the United States on behalf of U.S. holders and then remits the proceeds of such

placement to U.S. holders, less costs.

195

In this way, no offer or sale of the bidder’s

securities occurs in the United States and, accordingly, no registration under the

Securities Act is required. So long as such securities are immediately resold in a

deep and established secondary market, cashed-out U.S. holders would appear

to bear little investment risk in connection with the exchange securities, to have

no control over the disposition of such securities and generally to be divorced

from any of the incidents of ownership pertaining to such securities. Although a

vendor placement results in different treatment for shareholders that are able to

receive securities and U.S. holders that receive only the proceeds from the sale of

such securities, this different treatment has been permitted by the SEC

196

and by

home country regulators.

197

Similarly, the SEC has found that such placements

do not violate Section 5 of the Securities Act.

198

A vendor placement may be

desirable from a bidder’s perspective to the extent that it permits the bidder to

preserve cash in circumstances in which it is not practicable to issue securities to

U.S. residents. Additionally, in jurisdictions with laws requiring a bidder to offer

substantially identical consideration to all target shareholders, a vendor placement

may afford a mechanism to provide cash to U.S. holders and shares to all other

holders in compliance with such laws.

Finally, it may be possible to include certain U.S. shareholders in an unregis-

tered exchange offer by relying on the private placement exemption afforded by

section 4(2) of the Securities Act,

199

where an offer has been extended into the

United States and U.S. security holders are generally limited to receiving cash

consideration. In these circumstances, a practice has developed among European

securities practitioners of placing the bidder’s securities with a limited number of

“qualiﬁed institutional buyers,”

200

in compliance with certain private placement

194. See Cross-Border Release, supra note 3. Moreover, home country laws or regulations may, in

many cases, restrict a bidder from withholding share consideration from a portion of its security

holders including, for instance, security holders resident in the United States.

195. See Singapore Telecommunications Limited, SEC No-Action Letter, 2001 WL 533462 (May

15, 2001); TABCORP Holdings Limited, SEC No-Action Letter, 1999 WL 766087 (Aug. 27, 1999);

Durban Roodepoort Deep, SEC No-Action Letter, 1999 WL 1578786 (June 22, 1999). In each of the

placings described in these letters, procedures were established to ensure that U.S. resident target

security holders would not be entitled to any of the incidents of ownership of the bidder’s securities.

196. See the SEC No-Action Letters cited supra note 195.

197. See supra note 194.

198. See the SEC No-Action Letters cited supra note 195.

199. Securities Act § 4(2), 48 Stat. at 77, as amended by Securities Acts Amendments of 1964,

Pub. L. No. 88-467, § 12, 78 Stat. 565, 580 (codiﬁed as amended at 15 U.S.C. § 77d(2) (2000)).

200. The term “qualiﬁed institutional buyer” is deﬁned in Securities Act Rule 144A and includes,

broadly, certain institutional investors with at least $100 million in securities under management.

Securities Act Rule 144A (codiﬁed at 17 C.F.R. § 230.144A (2005)). Pursuant to such practice, how-

ever, any such offers would not typically be made in reliance upon Rule 144A.

1110 The Business Lawyer; Vol. 61, May 2006

procedures, including the receipt of investor letters of representation and the

avoidance by the bidder and its advisers of any “general solicitation or general

advertising”

201

in the United States. Securities placed privately with qualiﬁed in-

stitutional buyers pursuant to Section 4(2) are considered Restricted Securities

for purposes of the Securities Act. In practice, reliance on private placement pro-

cedures to permit certain institutional or sophisticated investors to participate in

an exchange offer will be limited generally to circumstances where the number

of U.S. shareholders and/or the monetary value of the shares issued in the ex-

change offer is limited or where the bidder requires the participation of only a

limited number of a wider group of U.S. target shareholders who are eligible to

rely on a private placement exemption.

2.4 R

EGISTRATION UNDER THE

ECURITIES

If Rule 802 or another exemption or exclusion from the registration require-

ments of the Securities Act is unavailable, the issuer must ﬁle a registration state-

ment with the SEC in connection with an exchange offer. In practice, because of

the expense and time involved in preparing an initial registration statement and

responding to Staff comments, the ﬁling of a registration statement is generally

reasonable in the context of an exchange offer only when the bidder (and the

target, in the case of a hostile transaction) is already subject to the reporting

requirements of the Exchange Act and has ﬁled at least one annual report with

the SEC. This would be the case, for example, where the bidder has previously

offered its securities publicly in the United States or where the bidder’s securities

trade on a U.S. securities exchange, such as the NYSE, or Nasdaq.

202

A foreign private issuer undertaking a registered exchange offer in the United

States must prepare and ﬁle with the SEC a registration statement on Form F-

203

a U.S. bidder would use Form S-4. Both Forms consolidate the Exchange

Act requirements of Schedule TO and the Securities Act requirements for the

registration of securities and include the prospectus/offer to exchange to be dis-

tributed to target shareholders. The registration statement contains detailed in-

formation about the bidder and the target, the exchange offer transaction, the

securities being registered, the bidder’s plans with respect to the target, the means

and effects of tendering shares, audited ﬁnancial statements of both the bidder

and target and pro forma ﬁnancial information showing the effects of the tender

201. Such prohibited solicitation and advertising includes, but is not limited to, “(1) [a]ny adver-

tisement, article, notice or other communication published in any newspaper, magazine, or similar

media or broadcast over television or radio; and (2) [a]ny seminar or meeting whose attendees have

been invited by any general solicitation or general advertising,” with certain exceptions provided.

Securities Act Rule 502(c) (codiﬁed at 17 C.F.R. § 230.502(c) (2005)).

202. Nasdaq is expected to become a national securities exchange during 2006. See http://www.

nasdaq.com/about/FAQsExchange.stm.

203. Where the bidder intends to issue securities in the form of ADSs, the bidder would need to

unless sufﬁcient ADSs have already been so registered. See General Instruction II to Form F-6 with

respect to the calculation of the amount of securities to be registered, available at http://www.sec.gov/

about/forms/formf-6.pdf.

Cross-Border Tender Offers and Other Business Combination Transactions 1111

offer.

204

Financial statements must be prepared under U.S. GAAP or be reconciled

to U.S. GAAP.

205

In the case of a hostile exchange offer, certain mandated infor-

mation may not be made available by the target.

206

In such a case, a bidder may

need to request that the Staff grant relief under Rule 409

207

of the Securities Act

or otherwise in respect of the unavailable information.

208

Relief under Rule 437

209

may be required in respect of any consents required, but unavailable.

To the extent that audited ﬁnancial statements are required to be included in

an SEC ﬁling, it is important that the bidder conﬁrm, at an early stage, that audits

were conducted in accordance with the auditing standards required by the Public

Company Accounting Oversight Board (the “PCAOB”),

210

that the auditors satisfy

the PCAOB’s and the SEC’s independence criteria and that the ﬁnancial statements

comply with the applicable SEC requirements.

211

Should any issue concerning

the ability to comply with these requirements arise, it may be prudent for bidders

and their legal counsel to initiate discussions with the Staff at the earliest practi-

cable time.

The preparation of Form F-4 or S-4 (and the prospectus/offer to exchange

contained within) can take several months, and the Form F-4 or S-4 containing

a prospectus/offer to exchange must be ﬁled before commencement of the ex-

change offer. If the Staff determines to review the registration statement, it will so

notify the bidder and will provide comments on the registration statement to the

bidder. If the Staff’s comments result in any material changes to the preliminary

prospectus/offer to exchange and such document has already been distributed to

the target security holders, a supplement to the prospectus/offer to exchange

would need to be re-circulated to the target’s security holders and the offer would

204. Securities Act Form S-4, available at http://www.sec.gov/about/forms/forms-4.pdf; Form F-4,

available at http://www.sec.gov/divisions/corpﬁn/forms/f-4.htm.

205. See, e.g., Items 10–17 of Form F-4, available at http://www.sec.gov/about/form/formf-4.pdf;

Instruction 2 to Item 14 of Form S-4, available at http://www.sec.gov/about/forms/forms-4.pdf.

206. In particular, in an exchange offer, U.S. GAAP ﬁnancial information of the target satisfying

the staleness requirements of Item 8.A of Form 20-F, available at http://www.sec.gov/about/forms/

form20-f.pdf, may not be publicly available.

207. Securities Act Rule 409 (codiﬁed at 17 C.F.R. § 230.409 (2005)) (providing relief for infor-

mation unknown or not reasonably available).

208. Id. See, e.g., Registration Statement on Form F-4 ﬁled by Mittal Steel Company N.V. on March

23, 2006, at page 8 under “Note on Arcelor Information”; Registration Statement on Form F-4 ﬁled

by Gas Natural SDG SA, on February 28, 2006, at page 15 under “Presentation of Certain Financial

and Other Information—Endesa Information”; Registration Statement on Form F-4 ﬁled by Harmony

Gold Mining Company Limited on October 21, 2004, at page vi under “Presentation of Certain

Financial and Other Information—Goldﬁelds Information,” all available at the SEC’s EDGAR website,

http://searchwww.sec.gov/EDGARFSClient/jsp/EDGAR_MainAccess.jsp.

209. Securities Act Rule 437 (codiﬁed at 17 C.F.R. § 230.437 (2005)).

210. The PCAOB was created to establish auditing and related attestation, quality control, ethics,

and independence standards and rules to be used by registered public accounting ﬁrms in the prep-

aration and issuance of audit reports as required by the U.S. Sarbanes-Oxley Act of 2002, Pub. L. No.

107-204, 116 Stat. 745 (codiﬁed at 15 U.S.C. §§ 7201–7266 and scattered sections of Title 15 and

18 of U.S.C. (Supp. III 2003)) [hereinafter the “Sarbanes-Oxley Act”], or the rules of the SEC. See

http://www.pcaob.org/Standards/index.aspx.

211. See SEC Division of Corporation Finance, International Reporting and Disclosure Issues in the

Division of Corporation Finance (November 1, 2004, updated February 24, 2005), available at http://

www.sec.gov/divisions/corpﬁn/internatl/cﬁrdissues1104.htm.

1112 The Business Lawyer; Vol. 61, May 2006

need to be kept open, and possibly extended, for an additional period of at least

5 U.S. business days, depending on the changes to the prospectus.

212

Before a

bidder may accept and settle any tendered securities, the SEC must have declared

the registration statement effective. Effectiveness occurs at the bidder’s request

after all of the SEC’s comments and questions have been resolved. The registration

process can take anywhere from four to eight weeks or more from ﬁrst ﬁling,

depending on a variety of factors, including whether the bidder currently ﬁles

reports under the Exchange Act and whether the Staff affords the bidder’s regis-

tration statement limited review treatment. In virtually all instances where the

bidder is not subject to SEC reporting, a full SEC review should be anticipated.

Subject to local law timing requirements and practical considerations, a bidder

may (i) launch its exchange offer upon the ﬁling of its registration statement with

the SEC, (ii) await an initial round of SEC comments prior to launching the offer

or (iii) wait until all SEC comments are resolved and the SEC has declared the

bidder’s registration statement effective.

213

To the extent that the bidder’s disclo-

sure is being reviewed by, and subject to comments from, other regulators (in

foreign jurisdictions or U.S. states), it is generally necessary and advisable to await

the resolution of these comments prior to the ﬁnalization of the SEC registration

statement.

214

Exchange Act section 15(d)

215

provides that any issuer that has had a registra-

tion statement declared effective by the SEC under the Securities Act with respect

to any class of debt or equity securities shall have an obligation to ﬁle with the

SEC the periodic reports that would otherwise be required to be ﬁled had such

class of securities been registered under Exchange Act section 12. An issuer’s

Exchange Act section 15(d) obligations may be suspended (but not terminated)

in any year other than the year such obligation arose (i.e., the year in which the

relevant registration statement was ﬁled) at any time that the issuer has fewer

than 300 shareholders (300 holders resident in the United States, if the issuer is

a foreign private issuer.)

216

An issuer’s Exchange Act section 15(d) obligation will

be suspended automatically if and so long as the issuer has any class of securities

212. See Exchange Act Rule 14d-4(d)(2) (codiﬁed at 17 C.F.R. § 240.14d-4(d)(2) (2005)), which

mandates the prompt dissemination to security holders of material changes in information previously

provided and that the offer remain open for at least 5 additional U.S. business days from the date

such materials are so disseminated.

213. Prior to the amendment of Exchange Act Rule 14d-1 in January 2000, an offer could not be

launched until the registration statement had been declared effective by the SEC. See Securities Act

Rule 162 (codiﬁed at 17 C.F.R. § 230.162 (2005)).

214. Ordinarily an issuer will want to avoid ﬁnalizing the disclosure document with one regulator

until it is conﬁdent it has received and resolved all material comments from all regulators.

215. Exchange Act § 15(d), as added by Act of May 27, 1936, ch. 462, § 3, 49 Stat. 1375, 1377

(codiﬁed as amended at 15 U.S.C. § 78o (2000 & Supp. III 2003)).

216. Id. Exchange Act section 15(d) does not distinguish among securities held by persons resident

in the United States for purposes of the automatic suspension of an issuer’s Exchange Act section

15(d) reporting obligations (but see, Super-Sol Ltd., SEC No-Action Letter, 1982 WL 29995

(January 4, 1982). Exchange Act Rule 12h-3 (codiﬁed at 17 C.F.R. § 240.12h-3 (2005)) permits the

voluntary suspension of Exchange Act section 15(d) reporting obligations where securities of a foreign

private issuer are held of record by less than 300 persons resident in the United States.

Cross-Border Tender Offers and Other Business Combination Transactions 1113

registered under Exchange Act section 12.

217

In calculating record shareholding

for purposes of Exchange Act Rule 12h-3, there is an obligation to inquire of

broker-dealers, banks and their nominees; any U.S.-resident holders shown on

records maintained by the issuer must be added securities held by ﬁnancial in-

termediaries on behalf of U.S. residents.

218

2.4.1 D

ISCLOSURE

In the case of a registered exchange offer (for Registered Securities or non-

Registered Securities), in addition to the disclosure mandated by the Exchange

Act and Regulation 14D, extensive information will need to be disclosed to target

security holders and ﬁled with the SEC pursuant to the Securities Act. Substan-

tially all of the information required in a bidder’s Schedule TO will be incorpo-

rated by reference to the preliminary prospectus/offer to exchange ﬁled on Form

F-4 or S-4, as the case may be.

In the case of an exchange offer exempt from the registration requirements of

the Securities Act pursuant to Rule 802, there are no speciﬁc requirements as to

the content of offering materials disseminated to target holders other than legends

mandated by Rule 802, and the form of the offer document will generally conform

to local law disclosure requirements and/or local law market practice. A bidder

will, of course, be subject to the anti-fraud provisions of Rule 14e-3 and Rule

10b-5.

219

2.4.2 P

ROSPECTUS

IABILITY

In the context of an unregistered exchange offer, as in the case of any tender

offer, a bidder (and its directors and ofﬁcers) may have liability under Section

10(b)

220

of, and Rule 10b-5

221

under, the Exchange Act, which prohibit manip-

ulative or deceptive practices in connection with the purchase or sale of securities.

Effectively, the bidder and its ofﬁcers, directors and controlling persons may be

liable under Rule 10b-5 in respect of a material misstatement or omission con-

tained in offering materials to the extent that the material misstatement or omis-

sion was made with “scienter”—which means that the defendant knew that the

published information was false or misleading or acted with willful, deliberate or

reckless disregard for the truth.

222

Although extreme recklessness may be sufﬁcient

217. See Exchange Act § 15(d), as added by Act of May 27, 1936, ch. 462, § 3, 49 Stat. 1375, 1377

(codiﬁed as amended at 15 U.S.C. § 78o (2000 & Supp. III 2003)).

218. See Exchange Act Rule 12h-3(b)(2) (codiﬁed at 17 C.F.R. § 240.12h-3(b)(2) (2005)), which

states that the number of persons resident in the United States should be determined in accordance

with Exchange Act Rule 12g3-2(a) (codiﬁed at 17 C.F.R. § 240.12g3-2(a) (2005)).

219. See Exchange Act Rules 10b-5; 14e-3 (codiﬁed at 17 C.F.R. §§ 240.10b-5 and 240.14e-3

(2005)).

220. Exchange Act § 10(b), 48 Stat. at 891 (codiﬁed at 15 U.S.C. § 78j (2000)).

221. Exchange Act Rule 10b-5 (codiﬁed at 17 C.F.R. § 240.10b-5 (2005)).

222. See Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976) (holding that private actions brought

under Rule 10b-5 (now codiﬁed at 17 C.F.R. § 240.10b-5 (2005)) must show that the defendant acted

with scienter in order to succeed); Aaron v. SEC, 446 U.S. 680 (1980). In Ernst & Ernst, scienter is

described as “a mental state embracing intent to deceive, manipulate or defraud.” 425 U.S. at 193.

1114 The Business Lawyer; Vol. 61, May 2006

to establish liability under Rule 10b-5, negligence is not.

223

A private party bring-

ing an action under Rule 10b-5 must prove that he or she relied on such mis-

statement or omission to his or her detriment.

224

In the case of a registered exchange offer, the bidder and its directors, ofﬁcers

and controlling persons will be subject to liability under section 11

225

and section

12(a)

226

of the Securities Act in respect of material misstatements and omissions

in the prospectus/offer to exchange, in addition to liability under Rule 10b-5.

Section 11 of the Securities Act creates a right of action against the bidder, its

directors and every person who signs the registration statement (including direc-

tor nominees who consent to be named in the registration statement), if the

registration statement, at the time it is declared effective, contains an untrue state-

ment of a material fact or omits to state a material fact required to be stated therein

or necessary to make the statements therein not misleading.

227

The right of action

is imposed by the mere status of a person as described above and not as a result

of any action taken or omitted to be taken.

228

Unlike Rule 10b-5, no “scienter” is

required under section 11.

229

The liability of the bidder under section 11 is there-

fore effectively strict liability. Directors and persons who have signed the registra-

tion statement may avoid liability if they can establish that they met an appropriate

standard of due diligence, generally, the “reasonable investigation” standard,

230

connection with the preparation of the registration statement.

Section 12(a) of the Securities Act provides that a person who offers or sells a

security in violation of the registration requirements of the Securities Act

231

offers or sells a security by means of a prospectus or an oral communication that

223. See Sanders v. John Nuveen & Co., Inc., 619 F.2d 1222 (7th Cir. 1977) (holding that reck-

lessness, but not negligence, meets the scienter requirement of Exchange Act Rule 10b-5), cert. denied,

450 U.S. 1005 (1981); Broad v. Rockwell International Corp., 642 F.2d 929, 961–962 (5th Cir. 1981)

(ﬁnding that “severe recklessness” sufﬁces for purposes of Exchange Act Rule 10b-5, provided that it

is “not merely simple or even inexcusable negligence but an extreme departure from the standards of

ordinary care”), cert. denied, 454 U.S. 965 (1981).

224. See List v. Fashion Park Inc., 340 F.2d 457 (2d Cir. 1965), cert. denied, 382 U.S. 811 (1965);

AUSA Life Insurance Co. v. Ernst & Young, 206 F.3d 202 (2d Cir. 2000).

225. Securities Act § 11, 48 Stat. at 82 (codiﬁed as amended at 15 U.S.C. § 77k (2000)).

226. Securities Act § 12(a), 48 Stat. at 84 (codiﬁed as amended at 15 U.S.C. § 77l(a) (2000)).

227. See Securities Act § 11(a), 48 Stat. at 82 (codiﬁed as amended at 15 U.S.C. § 77k(a) (2000)).

228. Id. (providing the right to sue those individuals identiﬁed in Securities Act section 11 without

conditioning the right on a link to any speciﬁc action on their part). Under Securities Act section 11,

the issuer (the bidder, in this context) is strictly liable for any material misstatements or omissions in

the registration statement, while the other individuals identiﬁed in Securities Act section 11 have a

due diligence defense. See Escott v. BarChris Construction Co., 283 F. Supp. 643 (S.D.N.Y. 1968).

229. Securities Act § 11, 48 Stat. at 82 (codiﬁed as amended at 15 U.S.C. § 77k (2000)).

230. Generally, a defendant has a due diligence defense if he or she can establish that “he had,

after reasonable investigation, reasonable ground to believe and did believe, at the time such part of

the registration statement became effective, that the statements therein were true and that there was

no omission to state a material fact required to be stated therein or necessary to make the statements

therein not misleading.” Securities Act § 11(b), 48 Stat. at 82 (codiﬁed as amended at 15 U.S.C.

§ 77k(b) (2000)). A slightly lower standard of due diligence applies with respect to “expertised”

portions of the registration statement (those prepared by or on the authority of an expert). Id.

231. See Securities Act §12(a)(1), 48 Stat. at 84 (codiﬁed as amended at 15 U.S.C. § 77l (a)(1)

(2000)).

Cross-Border Tender Offers and Other Business Combination Transactions 1115

contains an untrue statement of a material fact or omits to state a material fact

232

will be liable to the person purchasing the security unless the seller can sustain

the burden of proof that the seller did not know, and in the exercise of reasonable

care could not have known, of such untruth or omission. It should be noted that

the Securities Act deﬁnes “prospectus” extremely broadly so that it effectively

includes any written communication (including radio and television communi-

cations and any communication that is available on a company’s website) used in

connection with an offer or sale of securities.

233

As in the case of section 11, section

12(a)(2) provides a due diligence defense, the “reasonable care” standard,

234

for

any person (including the bidder) who can sustain the burden of proving that he

or she did not know, and in the exercise of reasonable care could not have known,

of such untruth or omission.

235

Unlike Rule 10b-5, no “scienter” is required under

section 12.

236

The potential liability that a bidder has for the contents of its offering materials

is, of course, in addition to its potential liability under Exchange Act section 14(e)

and Rule 14e-3 thereunder, which are discussed above in section 1.2.5.

2.4.3 G

-J

UMPING

SSUES

Section 5 of the Securities Act generally prohibits the making of (i) offers by

an issuer prior to the time that its registration statement has been ﬁled with the

SEC (the making of which is commonly referred to as “gun-jumping”), and (ii)

after a registration statement has been ﬁled with the SEC, offers other than pur-

suant to the preliminary prospectus/offer to exchange then ﬁled.

237

Public an-

nouncements and shareholder communications relating to an exchange offer

would be restricted, therefore, from the time of ﬁrst public announcement of the

transaction until the registration statement has been declared effective by the SEC.

Rules 165

238

and 425

239

under the Securities Act, however, permit free written

232. See Securities Act § 12(a)(2), 48 Stat. at 84 (codiﬁed as amended at 15 U.S.C. § 77l(a)(2)

(2000)).

233. The term “written communication” is deﬁned in Securities Act Rule 405 (codiﬁed at 17 C.F.R.

§ 230.405 (2005)). “Prospectus” is deﬁned, with certain exceptions, as “any prospectus, notice, cir-

cular, advertisement, letter, or communication, written or by radio or television, which offers any

security for sale or conﬁrms the sale of any security.” Securities Act § 2(a)(10), 48 Stat. at 75 (codiﬁed

as amended at 15 U.S.C. § 77b(a)(10) (2000)).

234. Under Securities Act section 12(a)(2), the defendant has a due diligence defense if he or she

can establish that he or she “did not know, and in the exercise of reasonable care could not have

known, of such untruth or omission.” Securities Act § 12(a)(2), 48 Stat. at 84 (codiﬁed as amended

at 15 U.S.C. § 77l(a)(2) (2000)).

235. See Sanders, 619 F.2d at 1228 (7th Cir. 1977) (delving into congressional intent behind Se-

curities Act section 12(a)(2) and comparing the “reasonable care” standard thereunder to the “reason-

able investigation” standard under Securities Act section 11).

236. See Securities Act § 12, 48 Stat. at 84 (codiﬁed as amended at 15 U.S.C. § 77l (2000)).

237. See Securities Act § 5, 48 Stat. at 77 (codiﬁed as amended at 15 U.S.C. § 77e (2000)). The

SEC’s concern with respect to “gun-jumping” activity is the prevention of activity by issuers, under-

writers and dealers that could condition the public and create public interest in the lead-up to a public

offering. See, for example, Publication of Information Prior to or After the Effective Date of a Regis-

tration Statement, SEC Release No. 33-3844, 22 Fed. Reg. 8359 (October 24, 1957).

238. Securities Act Rule 165 (codiﬁed at 17 C.F.R. § 230.165 (2005)).

239. Securities Act Rule 425 (codiﬁed at 17 C.F.R. § 230.425 (2005)).

1116 The Business Lawyer; Vol. 61, May 2006

and oral communications in the context of an exchange offer before the ﬁling of

the bidder’s registration statement, provided that written communications are

ﬁled with the SEC on the day ﬁrst used and contain a legend advising recipients

to read the prospectus/offer to exchange when ﬁled. These rules also permit the

use of written communications other than in the form of the statutory prospectus/

offer to exchange after the ﬁling of the bidder’s registration statement, subject to

certain conditions.

240

2.4.4 S

ECURITY

FFERING

EFORMS

In 2005, the SEC enacted amendments that reform many offering procedures

under the Securities Act, including changes to the registration, communication

and public offering process in the United States.

241

In its adopting release, the

SEC made clear that the reforms do not apply to business combination transac-

tions.

242

However, the reforms may nonetheless be relevant to foreign issuers,

insofar as they may make entry into the U.S. markets more attractive, and pro-

vide means for foreign issuers already subject to U.S. reporting obligations, es-

pecially well-known seasoned issuers, to raise capital that may be used to ﬁnance

acquisitions.

243

USINESS

OMBINATION

RANSACTIONS

NVOLVING A

ENDER

FFER

As an alternative to effecting an acquisition by means of a tender offer, parties

may, particularly in the case of a negotiated transaction, elect to combine their

businesses via a statutory merger, a corporate amalgamation, a “synthetic merger”

244

or a “scheme of arrangement” (or other court-approved combination transaction)

pursuant to which shareholders of the participating companies vote to approve

the transaction. The form of the transaction is generally a function of the legal

requirements of the jurisdictions in which the constituent companies are orga-

240. Supra notes 238 and 239.

241. See SEC Release No. 33-8591, 70 Fed. Reg. 44722 (Aug. 3, 2005) [hereinafter “Reform

Release”].

242. See, e.g., footnotes 160, 203 and 514 of the Reform Release, supra note 241.

243. Well-known seasoned issuers are entitled to ﬁle registration statements with the SEC that are

automatically effective. See, for example, General Instruction I.C. of Form F-3, available at http://

www.sec.gov/about/forms/formf-3.pdf and General Instruction I.D. of Form S-3, available at http://

www.sec.gov/about/forms/forms-3.pdf. It is beyond the scope of this article to address these securities

offering reforms.

244. The phrase “synthetic merger” generally refers to a transaction or series of related transactions

that have substantially the same effects as a statutory merger and may be employed where no statutory

merger procedures exist. A synthetic merger could include, for instance, the acquisition by a “succes-

sor” company of substantially all of the assets of a “target” company, in exchange for a combination

of cash, securities and/or the assumption of all or a portion of the target company’s liabilities. See,

e.g., Shareholders’ Circular, dated April 22, 2005, attached as Exhibit 3 to the Form 6-K submitted

by Equant N.V. to the SEC on April 25, 2005, S.E.C. Filing 05769962.

Cross-Border Tender Offers and Other Business Combination Transactions 1117

nized,

245

as well as tax, regulatory and other practical considerations. A business

combination transaction involving such a vote and the issuance of new securities

is subject to the Securities Act if U.S. jurisdictional means are utilized. Hence,

any securities issued pursuant to such a transaction must be registered under the

Securities Act unless an exemption or exclusion is available.

246

Although the Ex-

change Act regulates the solicitation of votes of a company’s shareholders,

247

such

rules are applicable only in connection with the solicitation of votes in respect of

Registered Securities and do not apply, in any case, with respect to the securities

of a foreign private issuer.

248

Business combination transactions that do not con-

stitute tender offers for purposes of U.S. securities laws are not subject to section

14(d) or section 14(e) of the Exchange Act or Regulation 14D or Regulation 14E

thereunder, which by their terms only apply to tender offers.

In the context of a business combination transaction not comprising a tender

offer, as in the case of an exchange offer, the various private placement exemptions

and the Regulation S safe harbor may be available as an alternative to Securities

Act registration.

249

Rule 802 provides an exemption from the registration require-

ments of the Securities Act with respect to the issuance of securities to share-

holders for foreign private issuers with a limited U.S. shareholder base. Section

3(a)(10)

250

of the Securities Act provides an exemption with respect to securities

issued in connection with a business combination transaction in which the ex-

change of securities has been approved by a court after a hearing on the fairness

of the exchange.

251

In the absence of such an exemption or exclusion, however,

any securities issued would have to be registered under the Securities Act.

245. The availability of statutory merger procedures varies from jurisdiction to jurisdiction. In

jurisdictions in which a statutory merger procedure applies, applicable law generally permits only

entities organized under the laws of such jurisdiction to merge. In other countries, such as the United

Kingdom, no such procedure is available, but other procedures, such as a court-mediated scheme of

arrangement, are available and there is a statutory procedure available to “squeeze out” minority

shareholders subsequent to a tender offer. See Companies Act 1985, c.40 (Eng.) sections 428-430f.

246. See Securities Act Rule 145 (codiﬁed at 17 C.F.R. § 230.145 (2005)).

247. Regulation 14A, Exchange Act Rules 14a-1–14b-2 (codiﬁed at 17 C.F.R. § 240.14a-1–.14b-2

(2005)) [hereinafter the “proxy rules”].

248. See Exchange Act Rule 3a12-3 (codiﬁed at 17 C.F.R. § 240.3a12-3 (2005)). See also supra note

116 and accompanying text. Pursuant to Exchange Act Rule 13e-3 (codiﬁed at 17 C.F.R. § 240.13e-

3 (2005)), a going private transaction by a bidder or its afﬁliate not exempt pursuant to Rule 802 or

the Tier I exemption may require the ﬁling with the SEC of Schedule 13E-3 and compliance with the

other provisions of Rule 13e-3. Even though foreign private issuers are exempt from the proxy rules,

the disclosure documents prepared by foreign private issuers in Rule 13e-3 going private transactions

are subject to ﬁling with, and review by, the SEC. See, e.g., the Schedule 13E-3 ﬁled with the SEC by

Kerzner International Limited on May 24, 2006, S.E.C. Filing 005-48645.

249. See supra section 2.2 of this article.

250. Securities Act § 3(a)(10), 48 Stat. at 76 as amended by the Exchange Act, ch. 404, § 202, 48

Stat. 881, 906 (codiﬁed as amended at 15 U.S.C.A. § 77c(a)(10) (West 1997 & Supp. 2006)). Securities

Act section 3(a)(10) is discussed in more detail in section 3.1.2 of this article, infra.

251. In the cross-border context, see infra note 260.

1118 The Business Lawyer; Vol. 61, May 2006

3.1 E

XEMPTIONS AND

XCLUSIONS TO THE

EGISTRATION

EQUIREMENTS OF THE

ECURITIES

3.1.1 R

ULE

802

Reliance on Rule 802 permits the successor in a business combination trans-

action (or the surviving company in an amalgamation) to offer its shares in ex-

change for the shares of a non-U.S. target without having to register the shares

being offered. This avoids the need to prepare and ﬁle the detailed disclosure

speciﬁed in Form F-4 or Form S-4.

252

Rule 802 may be available where (i) the

target is a foreign private issuer with some U.S. holders and (ii) U.S. holders hold

10 percent or less of the target’s securities.

253

In the case of a business combination

transaction such as a merger where the securities are issued by the acquiring

company, the calculation will be based on U.S. ownership of the company to be

acquired as calculated 30 calendar days prior to the date of solicitation for the

merger.

254

In business combination transactions such as an amalgamation, where

the securities are issued by a successor company to all participating companies,

the calculation must be made as if measured immediately after completion of the

business combination transaction.

255

In this case, the calculation would be made

based on U.S. holder information available 30 calendar days prior to solicitation,

but applied on a pro forma basis as if measured immediately after completion of

the transaction.

256

3.1.2 S

CHEMES OF

RRANGEMENT

—S

ECTION

)(10)

In many jurisdictions, acquisitions or business combinations are effected by

schemes of arrangement, or similar statutory arrangements involving both vote

of affected security holders and a court determination regarding the fairness of

the transaction. Schemes of arrangement conducted so as to fall within the Se-

curities Act section 3(a)(10) exemption may provide signiﬁcant advantages over

tender offers to the extent that the timing, disclosure and other requirements of

the Exchange Act and registration requirements of the Securities Act will not apply.

Schemes of arrangement may afford additional advantages under local law, in-

cluding, for instance, the ability to structure a transaction to avoid security transfer

tax, provide roll-over tax relief and to eliminate objecting/minority investors as

part of the scheme transaction.

257

252. Securities Act Form S-4, available at http://www.sec.gov/about/forms/forms-4.pdf; Form F-4,

available at http://www.sec.gov/about/forms/formf-4.pdf.

253. As described supra in section 1.1.1 of this article, certain “look through” provisions apply in

the context of assessing the availability of Rule 802 (codiﬁed at 17 C.F.R. § 230.802 (2005)).

254. See supra section 2.1 of this article.

255. See Securities Act Rule 802 (codiﬁed at 17 C.F.R. § 230.802 (2005)).

256. See Cross-Border Release, supra note 3, at paragraph II.F.1.

257. Under the laws of certain jurisdictions, such as the United Kingdom, not only is the approval

of a minimum percentage in value of the relevant class of securities required, but the approval of a

majority in number is also required. See Companies Act 1985, c.40 (Eng.) section 425. If the subject

company has an ADS program, the record holder of securities underlying the ADSs (effectively the

custodian of the ADS depositary) will typically be treated as a single holder of record. Companies may

Cross-Border Tender Offers and Other Business Combination Transactions 1119

Section 3(a)(10) of the Securities Act provides an exemption from the registra-

tion requirements of the Securities Act for

any security which is issued in exchange for one or more bona ﬁde outstanding se-

curities, claims or property or partly in such exchange and partly for cash, where the

terms and conditions of such issuance and exchange are approved, after a hearing

upon the fairness of such terms and conditions at which all persons to whom it is

proposed to issue securities in such exchange shall have the right to appear, by any

court . . . expressly authorized by law to grant such approval.

258

The Staff has identiﬁed the following conditions that must be satisﬁed in order

for an issuer to be entitled to rely on the exemption provided by section 3(a)(10):

• the securities must be issued in exchange for securities, claims or prop-

erty—they cannot be offered for cash;

• a court or authorized governmental entity (which can be a non-U.S. court

or entity) must approve the fairness of the terms and conditions of the

exchange;

• the reviewing court or authorized entity must (i) ﬁnd, before approving

the transaction, that the terms and conditions of the exchange are fair to

those to whom securities will be issued and (ii) be advised before the

hearing that the issuer will rely on the Section 3(a)(10) exemption based

on the court’s or authorized entity’s approval;

• the court or authorized governmental entity must hold a hearing before

approving the fairness of the terms and conditions of the transaction;

• a governmental entity must be expressly authorized by law to hold the

hearing, although it is not necessary that the law require the hearing;

• the fairness hearing must be open to everyone to whom securities would

be issued in the proposed exchange;

• adequate notice of the hearing must be given to all those persons; and

• there cannot be any improper impediments to the appearance by those

persons at the hearing.

259

The section 3(a)(10) exemption has been relied upon in numerous cross-border

business combination transactions, including “schemes of arrangement” under

Section 425 of the United Kingdom Companies Act 1985 and in jurisdictions

such as South Africa, Australia and Hong Kong

260

with similar procedures pro-

want to consult with the relevant depositar y and their legal counsel to determine whether a means

exists, through a temporary custodianship or otherwise, to permit the record or beneﬁcial owners of

ADSs to be counted as record holders for the purpose of satisfying the test based on approval by a

speciﬁed percentage of the number of security holders.

258. Supra note 250.

259. Revised Staff Legal Bulletin No. 3 (CF) (Oct. 20, 1999), available at http://www.sec.gov/interps/

legal/cfslb3r.htm.

260. See General Electric Company and GE Investments, Inc., SEC No-Action Letter, 2004 WL

362330 (Feb. 24, 2004); Constellation Brands, Inc., SEC No-Action Letter, 2003 WL 215032 (Jan.

29, 2003); Ashanti Goldﬁelds Company Limited, SEC No-Action Letter, 2002 WL 1359408 (June 19,

2002); China Light & Power Company Limited, SEC No-Action Letter, 1998 WL 2443 (Jan. 2, 1998).

It is not clear that the Staff would grant no-action relief under Securities Act section 3(a)(10) in

connection with a scheme of arrangement or similar proceeding in a civil law jurisdiction.

1120 The Business Lawyer; Vol. 61, May 2006

viding for a court-convened meeting of shareholders, followed by a ruling on the

fairness of the transaction.

Securities issued pursuant to section 3(a)(10) may be subject to restrictions on

their transfer to the extent that the holder of such securities was afﬁliated with

any party to the business combination transaction prior to the transaction.

261

3.2 R

EGISTRATION UNDER THE

ECURITIES

Registration of securities by foreign private issuers to be issued in connection

with business combination transactions are effected on Form F-4.

262

As in the

case of an exchange offer, public announcements and shareholder communica-

tions relating to a business combination transaction are restricted, except as per-

mitted by Rules 165 and 425 under the Securities Act. These rules permit free

written and oral communications before the ﬁling of the bidder’s registration

statement and permit the use of written communications other than the statutory

prospectus after the ﬁling of the bidder’s registration statement, subject to certain

conditions.

263

The potential liability issues discussed above in section 2.4.2 of this

article in relation to registered exchange offers apply in the case of a registered

business combination transaction.

RANSACTIONS

NVOLVING

U.S. J

URISDICTIONAL

EANS

Notwithstanding the accommodations available pursuant to the cross-border

tender offer rules, in some instances bidders making offers for securities of non-

U.S. targets that do not constitute Registered Securities determine not to extend

their offers to the target’s U.S. shareholders. It is the understanding of the authors

that some of the reasons cited to justify this practice include:

• a desire to reduce the prospect of litigation in U.S. courts;

• a desire to minimize procedural complexities;

• a desire to avoid conﬂicts between U.S. and non-U.S. regulatory schemes;

• a desire to reduce the length of time the offer must remain open;

• a desire to reduce costs;

• the desire of the bidder to avoid becoming a “reporting company”;

• the inability of the bidder to prepare the ﬁnancial information that would

be required in an offer; and

• U.S. shareholders represent a small percentage of the target’s shareholders

or are otherwise not necessary to complete the transaction.

In seeking to exclude offers from the reach of the tender offer rules under the

Exchange Act, bidders have structured offshore transactions to avoid the use of

261. See supra note 259, Revised Staff Legal Bulletin No. 3 (CF).

262. See supra section 2.4 of this article.

263. See supra notes 238 and 239.

Cross-Border Tender Offers and Other Business Combination Transactions 1121

U.S. jurisdictional means.

264

Although this approach has been challenged in U.S.

courts,

265

U.S. courts have generally taken the view that tender offers made outside

the United States are not subject to the procedural or registration requirements

of U.S. securities laws.

266

The anti-fraud provisions of the U.S. securities laws may,

however, apply to misstatements or omissions af fecting U.S. purchasers or sellers.

267

In order to avoid the use of U.S. jurisdictional means, an offer by its terms may

not be made, directly or indirectly, in the United States. To reduce the chance that

the offer could be deemed to have been made in the United States indirectly,

procedures are often implemented to avoid the use, by the offeror or any trans-

action participant, of U.S. jurisdictional means (including telephone, fax and in-

ternet to, in or from the United States). Such procedures may include, among

others, placing legends on offer documents, prohibiting the distribution of offer

documents into the United States and placing restrictions on publicity and com-

munications regarding the offer in the United States (including submissions or

ﬁlings required to be made by the bidder pursuant to its extant Exchange Act

reporting obligations).

No statutory or administrative “safe harbor” exists as to the avoidance of U.S.

jurisdiction. There can be no assurance, therefore, that compliance with the pro-

cedures described herein or other procedures would preclude either a judicial

ﬁnding that the U.S. federal securities laws apply to an offer or the imposition of

a judicial remedy, such as an injunction against the offer, for failure to comply

with such laws. Moreover, in many cross-border offer situations, particularly

where the number of U.S. holders of the target’s securities is relatively signiﬁ-

cant,

268

the SEC has encouraged the bidder to extend its offer into the United

States by informal means. In its 1990 concept release, the SEC took the position,

notwithstanding the views of the Delaware court in Plessey Co. plc v. General

Electric Co. plc,

269

that “U.S. jurisdictional means” exist whenever it is reasonably

foreseeable that excluded U.S. shareholders of a foreign issuer who have not been

264. The jurisdictional reach of the tender offer rules is provided by section 14(d) of the Exchange

Act, which ties potential liability to “the use of the mails or . . . any means or instrumentality of

interstate commerce or of any facility of a national securities exchange or otherwise.” Exchange Act

§ 14(d), as added by the Williams Act, supra note 12, 82 Stat. at 455 (codiﬁed as amended at 15

U.S.C. § 78n(d) (2000 & Supp. III 2003)). Bidders therefore may seek to avoid the use of any such

means to avoid the application of the Exchange Act tender offer rules. Websites accessible in the

United States must not be used to entice U.S. investors to participate in offshore offerings. The Staff

has stated, however, that a company using Regulation S to allow participation in a business combi-

nation offshore (such as a merger or other voting transaction, but not a tender or exchange offer) may

put the prospectus/offer to exchange on an unrestricted website, and need not prevent the U.S. holders

from receiving the transaction consideration. The company should not, however, engage in any further

activities such as sending the disclosure document used in connection with a business combination

to U.S. holders. See Third Supplement, supra note 52, Question II.F.1.

265. See supra note 4.

266. See, e.g., Exchange Act § 30(b), 48 Stat. at 904 (codiﬁed at 15 U.S.C. § 78dd (2000)). It should

be noted that the SEC has never adopted any rules to implement section 30(b).

267. See supra notes 4 and 6; Plessey Co. plc v. General Electric Co. plc, 628 F. Supp. 477 (D. Del.

1986); Bersch, supra note 4; Schoenbaum, supra note 4.

268. “Signiﬁcant” for these purposes could be in the order of 5 to 10 percent of all shareholders.

269. See supra note 267.

1122 The Business Lawyer; Vol. 61, May 2006

included in the offer will sell their securities into the secondary market in response

to that offer.

270

Moreover, the authors believe that the Staff may be less willing to

accept jurisdictional arguments in support of the exclusion of U.S. holders since

the adoption of its cross-border tender offer rule amendments, which have facili-

tated the inclusion of U.S. holders in cross-border tender offers in certain contexts.

Summarized below are the procedures customarily followed in European tender

offers in which the offer is not extended in the United States. These procedures

are based on U.S. court decisions and statements of the SEC to date and take into

account past practice in other similar offer situations.

271

Although these proce-

dures have been implemented in many European offers,

272

compliance with such

procedures has often been difﬁcult or impossible because of U.S. shareholders’

interest in the transaction and the signiﬁcant practical problems of such compliance.

• The offer documents, form of acceptance, proxy materials or circulars to

shareholders and press releases should include legends stating in effect

that the materials do not constitute an extension of the offer into the

United States; that no money, securities or other consideration is being

solicited from U.S. residents and, if sent, will not be accepted; and if the

bidder subsequently determines to extend the tender offer into the United

States, the procedural and ﬁling requirements of the SEC will be satisﬁed

at such time. No means to tender securities (or forms that could be re-

turned to indicate interest in participating in the tender offer) may be

provided as part of any press materials.

• The bidder and its advisers and agents should avoid any physical distri-

bution of the offer documentation to persons in the United States, includ-

ing to the target’s shareholders with registered addresses in the United

States.

• The bidder and its advisers and agents (including the institution(s) re-

ceiving acceptances) should ensure that they do not accept under any

circumstances the delivery of any written communication relating to the

offer (including a form of acceptance) that is postmarked in, bears a return

address from, or otherwise appears to have been dispatched from the

United States.

• The bidder and its advisers and agents should establish procedures to

handle telephone and e-mail inquiries in and from the United States. Gen-

erally, if the telephone caller is in the United States or intends to dissem-

inate information concerning the offer in the United States, the caller

should be informed that the offer is not being made in the United States

or by any U.S. jurisdictional means, and that no information concerning

the offer may be so conveyed to or by the caller in the United States, and

270. See SEC Release No. 33-6866, 55 Fed. Reg. 23751 n.2 (June 12, 1990).

271. See generally SEC Release No. 34-29275, 56 Fed. Reg. 27582 (June 14, 1991).

272. See Edward F. Greene et al., Toward a Cohesive International Approach to Cross-Border Takeover

Regulation,51U.M

IAMI

L. R

. 823, 825-26 (1997) (citing examples of this practice and the common

procedures employed to effect this result). See also Consolidated Gold Fields PLC, supra note 6.

Cross-Border Tender Offers and Other Business Combination Transactions 1123

the telephone call should be terminated. E-mail inquiries from U.S. resi-

dents should be handled in a similar manner.

• Publicity concerning the offer should be conducted in a manner to min-

imize contact with U.S. electronic and print media and U.S.-based ﬁnan-

cial analysts, both preceding and during the term of the offer. No press or

analyst conferences, meetings or telephone calls to discuss the offer should

be held in the United States at any time during the offer.

• Appropriate click-through, certiﬁcation or other restrictions and proce-

dures must be incorporated on the bidder’s website to ring-fence offer-

related materials from U.S. holders.

• Representatives of the U.S. media may be invited to brieﬁngs outside the

United States regarding the offer in accordance with Rule 14d-l(e) if (i)

access is provided to both U.S. and non-U.S. journalists and (ii) any offer

documentation, press releases or any other related materials provided by

the bidder or its advisers and agents to such journalists contains a legend

to the effect that the materials do not constitute an extension of a tender

offer in the United States for a class of equity securities of the target

company.

From a business perspective, the restrictions on U.S. press and analyst contact

may be very difﬁcult or impossible for a U.S. bidder to comply with. In U.S.-

excluded offers where the U.S. holdings of the target’s securities are quite small,

this business and legal dilemma has been resolved by the bidder preparing a short

descriptive U.S. press release and/or by the bidder ﬁling a brief descriptive state-

ment with the SEC in a periodic report, providing a copy to the NYSE, if appli-

cable, and refusing all further comment in the United States during the term of

the offer.

273

Such press releases or SEC ﬁlings or submissions would typically be

prepared in consultation with the bidder’s U.S. legal counsel.

274

ERTAIN

ELATED

ATTERS

5.1 E

XCHANGE

EGISTRATION

A bidder in an exchange offer (or the surviving entity in a business combination

transaction) may determine to list or arrange for the quotation of its securities on

a U.S. securities exchange or on Nasdaq, respectively, at the time that the bidder

makes its offer to ensure that a liquid U.S. trading market develops for its securities

upon completion of the transaction and thereby potentially increase the attrac-

tiveness of the transaction to security holders.

275

In the case of a listing on a U.S.

securities exchange or, before Nasdaq becomes a national securities exchange,

273. See supra note 192.

274. In addition to not directing the offer into the United States or to U.S. residents, bidders may

also want to consider avoiding the use of any U.S. jurisdictional means in connection with the planning

or implementation of the offer, in order to minimize the risk of the application of U.S. anti-fraud

provisions. See Bersch, supra note 4.

275. Other potential beneﬁts of a U.S. listing or quotation could include enhanced liquidity, broader

research coverage and a currency for U.S. acquisitions.

1124 The Business Lawyer; Vol. 61, May 2006

quotation on Nasdaq, the bidder’s securities must be registered under section

12(b)

276

or 12(g),

277

respectively, of the Exchange Act, and the requisite listing/

quotation formalities must be completed before such securities can be eligible to

be listed or quoted. Registration under section 12 of the Exchange Act will subject

the registrant not only to the periodic reporting obligations under the Exchange

Act, but also to applicable provisions of the Sarbanes-Oxley Act of 2002 (the

“Sarbanes-Oxley Act”)

278

to the extent that such provisions are not already

applicable.

In certain circumstances, as discussed in section 5.2 below, a bidder or surviv-

ing entity may succeed to the Exchange Act registration of the target or prede-

cessor entity. Where succession does not occur, in the case of a registered exchange

offer or other business combination transaction, registration under the Exchange

Act in connection with a listing or quotation may be effected at the election of

the bidder or surviving entity by ﬁling a relatively simple Form 8-A

279

with the

SEC during the Securities Act registration process. In the case of the issuance of

securities in connection with an exchange offer or a business combination trans-

action conducted pursuant to an exemption or exclusion from registration by a

foreign private issuer under the Securities Act, registration under the Exchange

Act would be effected by ﬁling a registration statement on Form 20-F with the

SEC.

280

A bidder or surviving entity that initially determines that it is not required to

Exchange Act reporting obligation under section 15(d)

281

of the Exchange Act (as

a result of succession or having had a registration statement declared effective by

the SEC) will nevertheless incur an obligation to register its securities under the

Exchange Act. Registration will be required (i) in connection with a subsequent

listing or quotation of its securities or (ii) upon its equity securities being held by

500 or more holders, at least 300 of which are resident in the United States

282

276. Codiﬁed as amended at 15 U.S.C.A. § 78l(b) (West 1997 & Supp. 2006).

277. Codiﬁed as amended at 15 U.S.C.A. § 78l(g) (West 1997 & Supp. 2006).

278. Pub. L. No. 107-204, 116 Stat. 745 (codiﬁed at 15 U.S.C. §§ 7201–7266 and scattered sections

of Title 15 and 18 of U.S.C. (Supp. III 2003)).

279. Form 8-A, available at http://www.sec.gov/about/forms/form8-a.pdf.

280. See, e.g., General Instruction A of Form 20-F, available at http://www.sec.gov/about/forms/

form20-f.pdf.

281. Exchange Act § 15(d), as added by Act of May 27, 1936, ch. 462, § 3, 49 Stat. 1375, 1377

(codiﬁed as amended at 15 U.S.C. § 78o (2000 & Supp. III 2003)).

282. For purposes of determining the number of U.S.-resident holders, securities are deemed to

be held by those holders identiﬁed as owners of such securities on records maintained by or on behalf

of the issuer, except in the case of securities held by broker-dealers, banks and their nominees, where

the issuer must make inquiries of such ﬁnancial intermediaries and its securities will be deemed to

be held by the number of U.S.-resident holders for which any such ﬁnancial intermediary holds. See

Exchange Act § 12(g), as added by Securities Acts Amendments of 1964, Pub. L. No. 88-467, § 3(c),

78 Stat. 565, 566 (codiﬁed as amended at 15 U.S.C.A. § 78l(g) (West 1997 & Supp. 2006)); Exchange

Act Rules 12g3-2(a), 12g5-1 (codiﬁed at 17 C.F.R. §§ 240.12g3-2(a), 240.12g5-1 (2005)). An ex-

emption from the registration requirements of the Exchange Act may be available if timely claimed

by a foreign private issuer pursuant to Exchange Act Rule 12g3-2(b) (codiﬁed at 17 C.F.R. § 240.12g3-

2(b) (2005)). Such exemption is not available, however, if securities are listed on a U.S. securities

exchange (or, before Nasdaq becomes a national securities exchange, quoted on Nasdaq), if the issuer

Cross-Border Tender Offers and Other Business Combination Transactions 1125

and the bidder’s having total assets equal to, or in excess of, $10 million,

283

unless

the bidder is able to rely upon the exemption from registration provided by Rule

12g3-2(b)

284

under the Exchange Act.

285

5.2 S

UCCESSION

Pursuant to Rule 12g-3 under the Exchange Act,

286

if in connection with a

succession by merger, consolidation, exchange of securities, acquisition of assets

or similar transaction, securities of a bidder not already registered under the Ex-

change Act are issued to holders of securities of the target that were registered

under the Exchange Act, then, upon consummation of the transaction, the bid-

der’s securities will generally be deemed registered under the Exchange Act. Pur-

suant to Rule 15d-5 under the Exchange Act,

287

if in connection with a succession

by merger, consolidation, exchange of securities, acquisition of assets or similar

transaction, securities of a bidder not required to ﬁle reports under section 15(d)

of the Exchange Act are issued to holders of a target that is required to ﬁle reports

under section 15(d) of the Exchange Act, then the duty to ﬁle such reports shall

be assumed by the bidder.

For purposes of Rule 12g-3 and Rule 15d-5, “succession” occurs only in con-

nection with a direct acquisition of the assets comprising a going business.

288

Succes-

sion is not triggered merely by gaining control of a company, unless such control

is accompanied by the direct acquisition of assets.

289

Succession is potentially

applicable to a business combination transaction effected by way of a tender offer,

if the tender offer comprises the acquisition of assets of the target as a going

business, statutory merger, corporate amalgamation, transfer of assets or court-

approved merger, such as a scheme of arrangement, among others.

290

Succession for purposes of Rule 12g-3 will not occur if (i) upon consummation

of the business combination transaction, the bidder has fewer than 300 record

holders of its securities, or, in the case of a foreign private issuer bidder, fewer

has in the past offered securities publicly in the United States or if the issuer otherwise has or had

any securities registered under Exchange Act section 12 during the prior eighteen months. See Ex-

change Act Rule 12g3-2(b) (codiﬁed at 17 C.F.R. § 240.12g3-2(b) (2005)). In December 2005, the

SEC proposed amendments to the conditions for claiming the Rule 12g3-2(b) exemption. SEC Release

No. 34-53020, International Series Release No. 1295, 2005 WL 3629022 (December 23, 2005).

283. In this later case, a bidder must register such class of securities under the Exchange Act within

120 days of the end of the ﬁscal year in which the relevant threshold has been exceeded. See supra

note 277.

284. 17 C.F.R. § 240.12g3-2(b) (2005).

285. See Exchange Act Rule 12g3-2(d) (codiﬁed at 17 C.F.R. § 240.12g3-2(d) (2005)), which limits

the availability of the Exchange Act Rule 12g3-2(b) exemption, in particular in the context of an

exchange offer for Registered Securities.

286. 17 C.F.R. § 240.12g-3 (2005).

287. 17 C.F.R. § 240.15d-5 (2005).

288. Succession is deﬁned in Exchange Rule 12b-2 (codiﬁed at 17 C.F.R. § 240.12b-2 (2005)).

289. Id.

290. In the authors’ experience, participants in a business combination transaction effected as a

tender offer may conclude that the requisite acquisition of assets occurs upon completion of a second

step, squeeze-out transaction, if contemplated.

1126 The Business Lawyer; Vol. 61, May 2006

than 300 holders resident in the United States or (ii) the class of securities issued

by the bidder or surviving entity is exempt from registration under Exchange Act

registration requirements, other than pursuant to Rule 12g3-2 thereunder.

291

bidder or surviving entity will succeed to a target’s or predecessor entity’s obli-

gations under section 15(d) of the Exchange Act,

292

unless the bidder or surviving

entity is exempt from ﬁling reports under section 15(d) or the duty to ﬁle such

reports is suspended under section 15(d) of the Exchange Act.

293

The principal beneﬁt of succession is that a bidder need not ﬁle an Exchange

Act registration statement with the SEC in order to effect the required or desired

registration under the Exchange Act of its securities. The bidder need only ﬁle

with the SEC a notice of succession on Form 8-K.

294

Another beneﬁt of succession

is that it facilitates the continuous listing or quotation of the target shareholders’

securities in the United States without the need on the part of the bidder to

coordinate the ﬁling and declaration of effectiveness of a new Exchange Act reg-

istration statement.

295

Finally, a successor bidder may, in limited circumstances,

be able to take advantage of certain short-form registration statements in connec-

tion with capital raising under the Securities Act, notwithstanding its recent in-

corporation and/or recently incurred obligation to ﬁle reports under the Exchange

Act.

296

The operation of succession may, however, have unintended consequences for

a successor bidder. The bidder may become subject to the periodic reporting and

other obligations under the Exchange Act, notwithstanding the fact that it may

never have accessed U.S. capital markets and/or sought a listing or quotation of

its securities on a U.S. securities exchange or on Nasdaq. A successor issuer will

291. See Exchange Act Rule 12g3-2(a) (codiﬁed at 17 C.F.R. § 240.12g3-2(a) (2005)).

292. Exchange Act § 15(d), as added by Act of May 27, 1936, ch. 462, § 3, 49 Stat. 1375, 1377

(codiﬁed as amended at 15 U.S.C. § 78o (2000 & Supp. III 2003)).

293. Id.

294. Notwithstanding Exchange Act Rule 12g-3(f) (codiﬁed at 17 C.F.R. § 240.12g-3(f) (2005)),

the Staff has permitted foreign private issuers to provide notiﬁcation of succession under Rule 12g-3

on Form 6-K, (available at http://www.sec.gov/about/forms/form6-k.pdf), rather than Form 8-K (avail-

able at http://www.sec.gov/about/forms/form8-k.pdf). See Royal Dutch Petroleum Company N.V., SEC

No-Action Letter, 2005 WL 1266414 (May 17, 2005); Six Continents PLC, SEC No-Action Letter,

2003 WL 1883711 (Mar. 28, 2003); British Telecommunications plc, SEC No-Action Letter, 2001

WL 1230261 (Oct. 11, 2001); The Bank of Tokyo-Mitsubishi Ltd, SEC No-Action Letter, 2001 WL

428449 (Mar. 28, 2001). Pursuant to Staff interpretive guidance, the target must publish notice of the

succession by ﬁling a certiﬁcate of termination of its registration with the SEC on Form 15. See

Exchange Act Interpretation 4S, Supplement to the Division of Corporation Finance Telephone Inter-

pretations, March 1999, available at http://www.sec.gov/interps/telephone/phonesupplement1.htm.

295. Securities may not be traded or quoted, as the case may be, on NYSE or Nasdaq until a

company’s Exchange Act registration statement has been declared effective. Effectiveness of a bidder’s

Exchange Act registration statement, in the case of a simultaneous Securities Act registration, will

occur in coordination with declaration of effectiveness of the Securities Act registration statement

pursuant to Exchange Act Rule 12d1-2 (codiﬁed at 17 C.F.R. § 240.12d1-2 (2005)).

296. The Securities Act provides for several short forms of registration, including Form S-3, avail-

able at http://www.sec.gov/divisions/corpﬁn/forms/s-3.htm, and Form F-3, available at http://

www.sec.gov/about/forms/formf-3.pdf, which permit an issuer to incorporate by reference materials

ﬁled with the SEC pursuant to its Exchange Act reporting obligations. A successor bidder’s ability to

use such forms is limited, however. See, e.g., General Instruction I.A.4 to Registration Statement for

Securities of Certain Foreign Private Issuers, Securities Act Form F-3.

Cross-Border Tender Offers and Other Business Combination Transactions 1127

also become liable for ﬁlings made by the predecessor entity and will be obliged

to make or correct ﬁlings that were not made or were made and are required to

be corrected.

297

Were the bidder or surviving entity to desire to list its securities on a U.S.

securities exchange subsequent to succession, it would do so by completing the

requisite listing application and ﬁling a short form Exchange Act registration state-

ment with the SEC on Form 8-A.

298

Were the bidder to desire to secure a quotation

of its securities on Nasdaq subsequent to succession (prior to the time that Nasdaq

becomes a national securities exchange), only a listing application would be re-

quired; by reason of succession, no separate Exchange Act registration would be

required.

Parties’ speciﬁc ﬁling and other obligations in the context of succession will

depend on many factors, including the nature of the relevant business combina-

tion transaction, the Exchange Act reporting status of the parties to the transac-

tion, the intended timing, if any, of the listing or quotation of the bidder’s or

surviving entity’s securities, the total number of shareholders of the parties (and

the number of shareholders resident in the United States) at the time of succession

and the total number of shareholders of the target or predecessor entity resident

in the United States at the target’s ﬁnancial year end.

A bidder or surviving entity that is deemed to have registered a class of secu-

rities under section 12 of the Exchange Act or incurs a reporting obligation under

section 15(d) of the Exchange Act, in each case by succession, will become subject

to the periodic reporting obligations under the Exchange Act, as well as to ap-

plicable provisions of the Sarbanes-Oxley Act.

299

5.3 D

-R

EGISTRATION

A bidder or surviving entity in a business combination transaction that (i) has

succeeded to another party’s section 12(b) or section 12(g) Exchange Act regis-

tration or (ii) has taken steps to register a class of securities under the Exchange

Act in connection with the listing or quotation of such securities, will continue

to be subject to the periodic reporting requirements and other provisions of the

Exchange Act until such registration is terminated.

300

A bidder or surviving entity

297. See Keir D. Gumbs, Understanding Succession under the Federal Securities Laws,19I

NSIGHTS

(April 2005).

298. See supra note 279.

299. See infra section 5.5 of this article. The Staff has considered, and granted relief in connection

with, a number of other issues in transactions involving succession, including (i) the ability of the

successor to ﬁle post-effective amendments to the predecessor’s registration statements pursuant to

Securities Act Rule 414 (codiﬁed at 17 C.F.R. § 230.414 (2005)), (ii) the ability of the successor to

take into account the reporting history of the predecessor in determining the eligibility of the successor

to use Forms S-3, S-4 and S-8 under the Securities Act and in determining whether the successor

meets the “current public information” requirements of Securities Act Rule 144(c) and (iii) the obli-

gation of beneﬁcial owners that have ﬁled ownership reports on Schedules 13D or 13G to ﬁle addi-

tional or amended Schedules 13D or 13G as a result of the reorganization. See, e.g., Shire Pharma-

ceuticals Group plc, SEC No-Action Letter, 2005 WL 3115788 (Nov. 17, 2005).

300. See Exchange Act Rule 12d2-2(d) (codiﬁed at 17 C.F.R. § 240.12d2-2(d) (2005)); Exchange

Act Rule 12g-4(b) (codiﬁed at 17 C.F.R. § 240.12g-4(b) (2005)).

1128 The Business Lawyer; Vol. 61, May 2006

that has ﬁled a registration statement to register securities with the SEC under

the Securities Act, including in connection with an exchange offer, or has suc-

ceeded to another party’s section 15(d) Exchange Act reporting obligations pur-

suant to Rule 15d-5, will thereafter always have either an active reporting obli-

gation or a suspended reporting obligation under section 15(d) of the Exchange

Act.

301

If a class of securities of a bidder or surviving entity is listed on a U.S. national

securities exchange, the bidder or surviving entity could seek to terminate its

registration under section 12(b) of the Exchange Act by delisting its securities

from such exchange.

302

Such delisting and termination would be effected by ﬁling

with the SEC a notiﬁcation of removal from listing and registration on Form 25.

303

However, if following such delisting the entity has a class of equity securities held

by 300 or more holders resident in the United States,

304

the class will be deemed

registered under section 12(g) of the Exchange Act.

305

Were the number of holders

of its securities resident in the United States subsequently to fall below 300, the

bidder could then seek to terminate its registration under section 12(g) by ﬁling

with the SEC a certiﬁcation and notice of termination on Form 15; Form 15 can

also be used to terminate any obligation to ﬁle reports pursuant to section 15(d)

of the Exchange Act.

306

Upon the ﬁling of the certiﬁcation, the obligations of the

bidder to ﬁle reports with the SEC would cease. However, under current SEC

rules, the issuer may again become subject to reporting obligations if the number

of holders of any class of equity securities, at the end of any ﬁscal year, were 300

or more.

307

A company that does not have a class of securities registered under

section 12 of the Exchange Act, and whose section 15(d) reporting obligations

have been suspended, is not deemed to be an “issuer” under the Sarbanes-Oxley

301. Exchange Act § 15(d), as added by Act of May 27, 1936, ch. 462, § 3, 49 Stat. 1375, 1377

(codiﬁed as amended at 15 U.S.C. § 78o (2000 & Supp. III 2003)).

302. See Exchange Act Rule 12d2-2 (codiﬁed at 17 C.F.R. § 240.12d2-2 (2005)). If a bidder’s

securities are quoted on Nasdaq, its securities will have been registered under Exchange Act section

12(g). Upon termination of its quotation (and upon conﬁrmation that the number of its U.S. resident

holders is below 300), the bidder could seek to terminate its registration under Exchange Act section

12(g) by ﬁling with the SEC a certiﬁcation and notice of termination on Form 15. See Exchange Act

Rule 12g-4 (codiﬁed at 17 C.F.R. § 240.12g-4 (2005)).

303. See Exchange Act Rule 12d2-2 (codiﬁed at 17 C.F.R. § 240.12d2-2 (2005)). Form 25, available

at http://www.sec.gov/about/forms/form25.pdf.

304. The calculation is based on the “look through” requirements of Rule 12g3-2(a) under the

Exchange Act (codiﬁed at 17 C.F.R. § 240.12g3-2(a) (2005)).

305. See Exchange Act Rule 12g-2 (codiﬁed at 17 C.F.R. § 240.12g-2 (2005)).

306. See Exchange Act Rule 12g-4 (codiﬁed at 17 C.F.R. § 240.12g-4 (2005)). See also Exchange

Act Rule 12h-3 (codiﬁed as 17 C.F.R. § 240.12h-3 (2005)). Form 15, available at http://www.sec.gov/

about/forms/form15.pdf.

307. Although issuers without a prior U.S. listing may be eligible to claim the exemption from

Exchange Act registration and reporting obligations set forth in Exchange Act Rule 12g3-2(b), pursuant

to Exchange Act Rule 12g3-2(d) this exemption is not available for securities of a foreign private issuer

that has or has had during the prior 18 months any securities registered under Exchange Act section

12 or has an active or suspended reporting obligation under Section 15(d) of the Exchange Act. 17

C.F.R. § 240.12g3-2(d) (2005). See supra note 297.

Cross-Border Tender Offers and Other Business Combination Transactions 1129

Act.

308

It is generally understood that a company that is an “issuer” under the

Sarbanes-Oxley Act by reason of the registration of its securities under section 12

of the Exchange Act, and that it is not subject to section 15(d) of the Exchange

Act, will cease to be an “issuer” under the Sarbanes-Oxley Act upon termination

of such registration.

309

A party’s obligation to ﬁle reports under section 15(d) of the Exchange Act, if

any, is automatically suspended for so long as its securities are registered pursuant

to section 12(b) or section 12(g) of the Exchange Act.

310

Any obligation to ﬁle

reports under section 15(d) of the Exchange Act that is reinstated upon the ter-

mination of an issuer’s registration under section 12 of the Exchange Act can be

suspended, but not terminated, by ﬁling with the SEC a certiﬁcation and notice

of suspension on Form 15, where the number of holders of a bidder’s securities

resident in the United States falls below 300.

311

Hence, under current SEC rules,

a foreign private issuer may again become subject to reporting obligations if the

number of U.S. resident holders of any class of its equity securities at the end of

any ﬁscal year is 300 or more.

312

On December 23, 2005, the SEC published proposed rule amendments

313

address concerns regarding the difﬁculties many foreign private issuers have en-

countered in seeking to deregister under the Exchange Act and to terminate their

reporting obligations. Such proposals would permit deregistration based upon

compliance with various tests based, among other things, on the percentage of

U.S. resident holders of the issuer’s securities, in addition to the tests based on

the number of holders of securities, and would allow the permanent termination,

rather than suspension only, of a foreign private issuer’s section 15(d) reporting

obligations.

314

The proposed rules do not clearly address, however, the extent to

which the relief proposed would apply to successor issuers.

Bidders that seek to acquire U.S. companies that have (or have had) securities

registered pursuant to section 12 of the Exchange Act or a reporting obligation

pursuant to section 15(d) of the Exchange Act should consult with their legal

counsel to consider the implications, under the Exchange Act, of the proposed

acquisition, and the issues they may need to address should they desire to cease

their reporting obligations.

308. SEC, Division of Corporation Finance, Sarbanes-Oxley Act of 2002—Frequently Asked Questions

November 8, 2002 (revised November 14, 2002), available at http://www.sec.gov/divisions/corpﬁn/

faqs/soxact2002.htm, Question 1. If the company elects to ﬁle reports voluntarily, it will be subject

to certain of the SEC rules adopted pursuant to the Sarbanes-Oxley Act. Id. Question 9.

309. To the authors’ knowledge, the SEC has not issued written guidance on the point.

310. Exchange Act § 15(d), as added by Act of May 27, 1936, ch. 462, § 3, 49 Stat. 1375, 1377

(codiﬁed as amended at 15 U.S.C. § 78o (2000 & Supp. III 2003)).

311. See Exchange Act Rule 12h-3 (codiﬁed at 17 C.F.R. § 240.12h-3 (2005)).

312. Because Exchange Act Rule 12g3-2(b) is currently unavailable if an issuer has a reporting

obligation (suspended or active) under Exchange Act section 15(d), an issuer in this category would

never be able to terminate permanently its obligation. 17 C.F.R. § 240.12g3-2(b) (2005).

313. See SEC Release No. 34-53020, 70 Fed. Reg. 77688 (Dec. 30, 2005).

314. Id.

1130 The Business Lawyer; Vol. 61, May 2006

5.4 R

EPORTING OF

ENEFICIAL

WNERSHIP

Section 13(d) of the Exchange Act provides that entities that alone or in concert

with other entities acquire, directly or indirectly, the beneﬁcial ownership of more

than 5 percent of a class of Registered Securities must ﬁle a beneﬁcial ownership

report with the SEC.

315

“Beneﬁcial ownership” exists where a person has or shares

the power to vote or dispose of a security, either directly or indirectly through a

contract, arrangement, relationship, understanding or otherwise, whether formal

or informal.

316

More than one person may be deemed to be the beneﬁcial owner

of the same securities.

317

Beneﬁcial ownership also exists and must be reported

where a person has the right to acquire securities if the right is exercisable within

60 calendar days or the right was acquired with the purpose or effect of changing

or inﬂuencing control of the issuer.

318

For instance, parties to an irrevocable un-

dertaking granted in connection with a tender offer may have a section 13(d)

reporting obligation in respect of the shares that are the subject of such under-

taking if such shares are Registered Securities. The reporting obligation applies

regardless of whether the target or the acquirer (or both) are non-U.S. entities

and/or whether the interest in the securities was acquired in the United States or

abroad.

In the context of a tender offer, a beneﬁcial ownership report would need to

be ﬁled by the bidder on Schedule 13D.

319

Schedule 13D requires, among other

things, a description of the identity of the acquirer, including directors, ofﬁcers

and controlling persons, the purpose of the transaction and plans that the acquirer

may have for the target or for accumulating additional target shares, the source

and amount of funds used to acquire the securities, the percentage of the target’s

share capital acquired, details about transactions in the target’s securities in the

preceding 60 calendar days and the nature of any arrangements to which the

acquirer is a party relating to the target’s securities.

320

An initial ﬁling on Schedule

13D must be made within 10 calendar days of the acquisition; amendments must

be made promptly—in the authors’ experience, generally interpreted by the se-

curities bar to mean on the same day as the date on which the transaction to

which the ﬁling relates has occurred.

5.5 T

ARBANES

-O

XLEY

CT AND

ORPORATE

OVERNANCE

SSUES

Under the Sarbanes-Oxley Act,

321

a bidder that has ﬁled a registration statement

under the Securities Act with the SEC or has an obligation to ﬁle reports under

315. See Rule 13d-1(a) under the Exchange Act (codiﬁed at 17 C.F.R. § 240.13d-1(a) (2005)).

316. See Rule 13d-3 under the Exchange Act (codiﬁed at 17 C.F.R. § 240.13d-3 (2005)).

317. Pursuant to Rule 13d-3, supra note 316, a beneﬁcial owner of a security includes any person

who, directly or indirectly, has or shares voting power or investment power with respect to a security.

If two or more persons share voting power or investment power over the same security, they may

each be deemed a beneﬁcial owner for purposes of Rule 13d-3.

318. See Rule 13d-3(d)(1) under the Exchange Act (codiﬁed at 17 C.F.R. § 240.13d-3(d)(1) (2005)).

319. Exchange Act, Schedule 13D, 17 C.F.R.§ 240.13d-101 (2005).

320. Id.

321. Pub. L. No. 107-204, 116 Stat. 745 (codiﬁed at 15 U.S.C. §§ 7201–7266 and scattered sections

of Title 15 and 18 of U.S.C. (Supp. III 2003)).

Cross-Border Tender Offers and Other Business Combination Transactions 1131

section 15(d) of the Exchange Act (or has securities registered under section 12

of the Exchange Act) will be subject to certain corporate governance and other

requirements. Among the requirements of the Sarbanes-Oxley Act applicable to

a foreign private issuer bidder that becomes subject to such Act are the following:

322

• a bidder whose securities are, prior to the time that Nasdaq becomes a

national securities exchange, quoted on Nasdaq or are listed a national

securities exchange will be subject to certain requirements applicable to

its audit committee, including (i) the requirement that its audit committee

members be independent, properly funded and vested with authority to

engage independent legal counsel;

323

(ii) the requirement that its audit

committee establish certain whistleblower procedures to deal with com-

plaints and concerns relating to auditing matters (and a prohibition on

the termination or harassment of whistleblowers);

324

(iii) the requirement

that its audit committee pre-approve services provided by the company’s

auditors, subject to certain de minimis exceptions;

325

(iv) the requirement

that its directors and ofﬁcers not exert improper inﬂuence in relation to

the audit process;

326

(v) restrictions on the services that can be provided

by its auditors;

327

(vi) the mandatory rotation of lead, reviewing and con-

curring audit partners

328

and (vii) the requirement that the audit commit-

tee disclose whether it has an “audit committee ﬁnancial expert”;

329

• the bidder must disclose whether it has adopted a “code of ethics” for its

principal executive ofﬁcer, principal ﬁnancial ofﬁcer, principal accounting

ofﬁcer or controller and persons performing similar functions and, if it

has adopted such a code, the bidder must make such code available on

its website and must disclose changes and waivers to the code;

330

322. A foreign private issuer listed on the NYSE or quoted on Nasdaq will have to comply with

additional corporate gover nance requirements; certain accommodations may be available to foreign

private issuers, however. See, e.g., NYSE C

OMPANY

ANUAL

§ 303A.00; Nasdaq Marketplace Rule

4350(a)(1). A description of such requirements is beyond the scope of this article.

323. See Exchange Act § 10A(g), (h), as added by Private Securities Litigation Reform Act of 1995,

Pub. L. No. 104-67, § 301(a), 109 Stat. 737, 762 (codiﬁed as amended at 15 U.S.C. § 78j-1(g), (h)

(2000 & Supp. III 2003)); Sarbanes-Oxley Act § 303, 116 Stat. at 778 (codiﬁed at 15 U.S.C. § 7242

(Supp. III 2003)).

324. See Exchange Act § 10A(j), as added by Private Securities Litigation Reform Act of 1995, Pub.

L. No. 104-67, § 301(a), 109 Stat. 737, 762 (codiﬁed as amended at 15 U.S.C. § 78j-1(j) (2000 &

Supp. III 2003)); N

ORK

TOCK

XCHANGE

ULE

303(A)(7)(c)(iii), available at http://rules.nyse.

com/NYSE/. The whistleblower provisions have proven particularly controversial in Europe, where

such provisions may fall foul of home country or E.U. privacy and employment legislation.

325. See Exchange Act § 10A(i), as added by Private Securities Litigation Reform Act of 1995, Pub.

L. No. 104-67, § 301(a), 109 Stat. 737, 762 (codiﬁed as amended at 15 U.S.C. § 78j-1(i) (2000 &

Supp. III 2003)).

326. See Sarbanes-Oxley Act § 303, 116 Stat. at 778 (codiﬁed at 15 U.S.C. § 7242 (Supp. III 2003)).

327. See Exchange Act § 10A(g), (h), supra note 323; Sarbanes-Oxley Act § 201(b), 116 Stat. at

771–72 (codiﬁed at 15 U.S.C. § 7231 (Supp. III 2003).

328. See Exchange Act § 10A(j), supra note 324.

329. See Sarbanes-Oxley Act § 407, 116 Stat. at 790 (codiﬁed at 15 U.S.C. § 7265 (Supp. III 2003);

17 C.F.R. § 229.401(h) (2005).

330. See Sarbanes-Oxley Act § 406, 116 Stat. at 789 (codiﬁed at 15 U.S.C. § 7264 (Supp. III 2003)).

1132 The Business Lawyer; Vol. 61, May 2006

• the bidder’s chief executive ofﬁcer and chief ﬁnancial ofﬁcer must certify

the bidder’s compliance with the Exchange Act and the fair presentation

of the bidder’s ﬁnancial condition and results of operations in annual and

periodic reports that contain ﬁnancial statements;

331

• the bidder must establish and maintain, and its principal executive and

principal ﬁnancial ofﬁcers must review and disclose, their conclusions

with respect to disclosure controls and procedures that are designed to

ensure that information required to be disclosed in the bidder’s reports

under the Exchange Act is recorded, processed, summarized and timely

reported;

332

• in respect of its ﬁscal year ending on or after July 15, 2006, if it is an

“accelerated ﬁler”,

333

or otherwise for its ﬁscal year beginning on or after

December 16, 2006,

334

a bidder will be required, with the participation of

its principal executive and principal ﬁnancial ofﬁcers, to evaluate annually

the effectiveness of its internal controls over ﬁnancial reporting (including

any changes thereto) and report on such controls in its annual report;

such report must (i) include a statement of management’s responsibility

for establishing and maintaining adequate internal controls over ﬁnancial

reporting, (ii) identify the framework used by management to evaluate the

effectiveness of its internal control procedures, (iii) assess the effectiveness

of such internal controls and (iv) include a statement that the company

has issued an attestation report on management’s assessment of the bid-

der’s internal controls;

335

• in respect of its ﬁscal year ending on or after July 15, 2006, if it is an

“accelerated ﬁler” or otherwise for its ﬁscal year beginning on or after

December 16, 2006, a bidder will be required to include in each annual

report an attestation from its auditors on their assessment of the bidder’s

internal controls over ﬁnancial reporting;

336

• directors and ofﬁcers of the bidder may not make equity trades in the

bidder’s securities during certain “black-out” periods under the bidder’s

share-based retirement (or bonus, incentive or proﬁt-sharing) plans, if any,

subject to certain exceptions;

337

331. See Sarbanes-Oxley Act § 906(a), 116 Stat. at 806 (codiﬁed at 18 U.S.C. § 1350 (Supp. III

2003)).

332. See Sarbanes-Oxley Act § 302, 116 Stat. at 777 (codiﬁed at 15 U.S.C. § 7241 (Supp. III 2003)).

333. See Exchange Act Rule 12b-2 (codiﬁed at 17 C.F.R. § 240.12b-2 (2005)).

334. See SEC Release No. 33-8618, 70 Fed. Reg. 56825 (September 29, 2005); SEC Release No.

33-8545, 70 Fed. Reg. 11528 (March 8, 2005); SEC Release No. 33-8392, 69 Fed. Reg. 9722 (March

1, 2004); SEC Release No. 33-8238, 68 Fed. Reg. 36636 (June 18, 2003); SEC Press Release No.

2006-75 (May 17, 2006), available at http://www.sec.gov/news/press/2006/2006-75.htm.

335. Exchange Act Rules 13a-15(c), 15d-15(c) (codiﬁed at 17 C.F.R. §§ 240.13a-15(c), 240.15d-

15(c) (2005)); Regulation S-K Item 308, 17 C.F.R § 229.308 (2005); Sarbanes-Oxley Act § 404, 116

Stat. at 789 (codiﬁed at 15 U.S.C. § 7262 (Supp. III 2003)).

336. See Sarbanes-Oxley Act § 404, 116 Stat. 789 (codiﬁed at 15 U.S.C. § 7262 (Supp. III 2003));

SEC Press Release No. 2006-75 supra note 334.

337. See Sarbanes-Oxley Act § 306(a), 116 Stat. at 779 (codiﬁed at 15 U.S.C. § 7244 (Supp. III

2003)); Regulation BTR, 17 C.F.R. § 245.100–.104 (2005).

Cross-Border Tender Offers and Other Business Combination Transactions 1133

• the bidder cannot extend loans or other credit to its directors or executive

ofﬁcers, subject to certain exceptions;

338

and

• the bidder’s chief executive ofﬁcer and chief ﬁnancial ofﬁcer are required

to repay to the bidder certain bonus and other incentive-based compen-

sation and certain trading proﬁts following a restatement of the bidder’s

accounts due to material noncompliance as a result of misconduct, with

any ﬁnancial reporting requirement under U.S. federal securities laws.

339

A full description of Sarbanes-Oxley Act (and, in particular, the application of

such Act to domestic companies) is beyond the scope of this article. However, in

view of the signiﬁcance of these matters, bidders should discuss these matters in

detail with legal counsel prior to structuring an offering.

ONCLUSION

Many business combination transactions involving non-U.S. companies are

subject to U.S. securities laws and regulations. These laws and regulations may

impose signiﬁcant substantive, disclosure and procedural obligations and, as a

result, may have signiﬁcant effects upon the timing, structure and consequences

of such transactions. By understanding the extent to which a proposed transaction

may be subject to U.S. securities laws and regulations, a party may be able to

structure its transaction in a manner that avoids unanticipated or undesirable

effects and minimizes potential conﬂicts between U.S. and home country regu-

lation. Early consideration of potentially applicable U.S. federal securities laws

may also assist a party in assessing the need for formal exemptive or other relief

from the Staff or home country regulators. The early involvement of knowledge-

able legal counsel should increase the likelihood that parties will achieve their

business objectives in compliance with U.S. federal and local securities laws.

338. See Exchange Act § 13(k), as added by Sarbanes-Oxley Act § 402(a), 116 Stat. at 787 (codiﬁed

at 15 U.S.C. § 78m(k) (2000 & Supp. III 2003)).

339. See Sarbanes-Oxley Act § 304, 116 Stat. at 778 (codiﬁed at 15 U.S.C. § 7243 (Supp. III 2003)).