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SEC 7300 - Tender offers
Publication date: 30 Jun 2023
us PwC SEC Volume 7300
.1 General
.11 How is the term tender offer defined?
The term tender offer has not been defined in the Exchange Act nor in any SEC rule. However, the SEC staff has published guidance which states that “[a] tender offer is typically an active and widespread solicitation by a company or third party (often called the “bidder” or “offeror”) to purchase a substantial percentage of the company’s securities.” For instance, if Company A makes an offer to the Registrant X’s shareholders to purchase all of their Registrant X equity shares (registered under Exchange Act Section 12) for $100 per share, the offer would likely be considered a tender offer.
Notwithstanding the absence of a statutory or regulatory definition, courts and the SEC oftentimes consider an eight-factor test (sometimes referred to as the Wellman test) when determining whether a particular acquisition program constitutes a tender offer under the Exchange Act. The eight factors include whether the transaction:
- involves an active and widespread solicitation of security holders;
- involves a solicitation for a substantial percentage of the issuer's stock;
- offers a premium over the market price;
- contains terms that are fixed as opposed to flexible;
- is conditioned upon the tender of a fixed number of securities;
- is open for a limited period of time;
- pressures security holders to respond; and
- would result in the bidder acquiring a substantial amount of securities.
[Editor’s note: All eight factors do not necessarily need to be present for a particular acquisition program to be considered a tender offer. Participants in an acquisition program should consider consulting with their legal counsel to determine whether the program is a tender offer. See footnote 3 to SEC Release No. 34-43069, Commission Guidance on Mini-Tender Offers and Limited Partnership Tender Offers.]
.12 How are US tender offers regulated?
US regulation of tender offers is generally based on three sections of the Exchange Act and the related SEC rules:
- Exchange Act Section 13(e) and Exchange Act Rule 13e-4;
- Exchange Act Section 14(d) and Regulation 14D; and
- Exchange Act Section 14(e) and Regulation 14E.
The applicability of each section and the underlying regulations depends on: (i) the party conducting the offer (e.g., the issuer or an affiliate vs. a third party), (ii) the nature of the subject security (e.g., equity security vs. debt security), (iii) whether the security is registered under Exchange Act Section 12, and (iv) whether or not the bidder would own more than five percent of the securities after the tender offer.
- Exchange Act Section 14(d) and Regulation 14D apply to tender offers for equity securities that are registered under Exchange Act Section 12 made by parties other than the target or affiliates of the target, if after consummation of the tender offer the bidder would beneficially own more than five percent of the class of securities subject to the offer. Regulation 14D requires the bidder to make specific disclosures to security holders and mandates certain procedural protections. Regulation 14D requires the bidder to file its offering documents and other information with the SEC and also requires the target to send to its security holders specific disclosure about its recommendation, file a Schedule 14D-9 containing that disclosure, and send the Schedule 14D-9 to the bidder.
- Exchange Act Rule 13e-4 applies to all tender offers by the issuer (or an issuer’s affiliate) for the issuer’s equity securities when the issuer has a class of equity securities registered under Exchange Act Section 12 (e.g., the securities are listed for trading on a national securities exchange such as the New York Stock Exchange) or when the issuer files periodic reports under Exchange Act Section 15(d). Exchange Act Rule 13e-4 provides for disclosure, filing and procedural safeguards similar to those provided under Regulation 14D.
Exchange Act Section 14(e) is the antifraud provision for all tender offers and prohibits fraudulent, deceptive, and manipulative acts in connection with a tender offer. Regulation 14E provides the basic procedural protections for all tender offers.
Tender offer participants should review the SEC’s rules and regulations and associated interpretive guidance and should consider consulting with their legal counsel regarding the applicable disclosure requirements.
.2 Schedule TO
.21 What is Schedule TO and where can I find it?
Schedule TO is the Exchange Act disclosure form used for both issuer tender offers under Exchange Act Rule 13e-4 and third party tender offers under Regulation 14D. The disclosure requirements of Schedule TO are set forth in the form and related instructions. Rather than including the specific disclosure requirements in the form, Schedule TO generally leverages the provisions of Regulation M-A for its detailed disclosures.
You can find the text of Schedule TO in Exchange Act Rule 14d-100 at https://www.ecfr.gov/current/title-17/chapter-II/part-240/section-240.14d-100.
[Editor’s note: An issuer tender offer also may meet the definition of a going private transaction (referred to as a Rule 13e-3 transaction) set forth in Exchange Act Rule 13e-3. In a tender offer that is also a Rule 13e-3 transaction, the bidder/offeror would also make the disclosures specified in Schedule 13e-3 (see Exchange Act Rule 13e-100). See SEC FRM 14210.2. The financial statement requirements of Schedule 13e-3 are set forth in Item 13 of that form. See SEC FRM 14320.]
.22 Where can I find the financial statement disclosure requirements applicable to Schedule TO?
Schedule TO’s financial statement requirements are set forth under Item 10 of the form and call for the information required by Item 1010(a) and (b) of Regulation M-A for the issuer (in an issuer tender offer) and for the offeror (in a third-party tender offer), if material. The instructions to Item 10 of Schedule TO provide additional guidance (e.g., Instruction 2 provides an example for which financial statements would be considered not material). See SEC FRM 14310 and 14410 through 14430.
[Editor’s note: If the tender offer consideration includes securities, the offeror will likely need to register those securities under the Securities Act (e.g., a registered exchange offer), in which case the financial statement requirements of the registration form used (e.g., Form S-4) will need to be considered.]
.3 Additional information
.31 Where can I find additional information?
See SEC FRM Topic 14.
See a discussion of tender offers and going private transactions on the SEC’s website at:
The text of Exchange Act Rules 13e-3, and 13e-4 can be found on Viewpoint under SEC Reporting / SEC Rules and Regulations / Regulation 13e.
The SEC staff has also provided interpretive guidance relating to tender offers at:
.9 Frequently asked question
.901 Are previously issued financial statements of the issuer or bidder to be included in Schedule TO required to be recast to reflect a subsequent discontinued operation or change to its reportable segments?
The SEC staff has indicated that previously issued historical financial statements of the issuer (in an issuer tender offer) or of the bidder (in a third-party tender offer) to be included in Schedule TO are not required to be recast to reflect a subsequent discontinued operation or a subsequent organizational change causing a change to its reportable segments. This is due to the fact that previously issued financial statements are not considered to be "reissued" merely by disclosure included in a Schedule TO. However, the SEC staff has stated that sufficient information about the subsequent discontinued operation or change in reportable segments must be provided in the Schedule TO so that security holders are informed of those changes and their impact on the reported financial statements. The effect of the discontinued operation should be reflected through pro forma financial information prepared in accordance with S-X Article 11. Segment information under both the old basis and the new basis of segmentation should be presented, to the extent practicable, for all periods for which an income statement has been filed in the Schedule TO. See SEC FRM 14310.3.
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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