Q:  In cross-border tender offers, determining the U.S. ownership in the target company is important for the purpose of determining if the Tier I (10% or less) exception from Rule 14e-5 contained in 14e-5(b)(10) is available. For the purpose of determining eligibility for treatment as a Tier I offer, the Commission adopted a 30-day "look back" period before the "commencement" of the tender offer. Even if the Tier I exception is not available, counsel must determine U.S. ownership if applying for an individual exemption from Rule 14e-5. What time period should counsel use for purposes of the Tier I exception of 14e-5(b)(10) and for individual exemptions?

A:  For the purpose of the Tier I exception under Rule 14e-5(b)(10), the bidder should calculate U.S. ownership in the target company 30 days before commencement, as set forth in the Instructions to Rules 14d-1(c) and 13e-4(h). (See the questions in Part E of the Cross-Border Interpretations for discussion of this 30-day look back.) Because Rule 14e-5 applies from "announcement," as opposed to "commencement," sometimes these two events are not simultaneous, which may create difficulties in calculating U.S. ownership for purposes of Rule 14e-5. If, at the time of announcement, the offeror cannot calculate the percentage of U.S. ownership for the 30 days before commencement, the exception is not available. The exception may, however, become available if the 30-day "look back" can be performed at a later time. Counsel should contact the Office of Trading Practices in the Division of Market Regulation if this situation arises and the bidder wants to request an individual exemption while the exception is not available. An exemption would be based, in part, on U.S. ownership at the time of announcement.

Q:  Read literally, Rule 14e-5 prohibits purchases of the target's shares in a foreign offer after the announcement of a U.S. offer. Since this type of exemption does not involve purchases or arrangements to purchase outside the offers, and is simply so that the transaction may be structured as dual offers, does the bidder need an exemption from Rule 14e-5?

A:  Yes. The bidder should contact the Office of Trading Practices in the Division of Market Regulation to obtain an individual exemption from Rule 14e-5 for this dual offer structure. See Letter re BSCH's Offer for Shares and ADSs of Banco Rio (June 20, 2000). We do not require many of the conditions for this exemption from Rule 14e-5 that we have required in other cross-border contexts.

Q:  In U.K. tender offer practice, an "irrevocable undertaking" is an agreement to tender into the offer at the offer price for no additional compensation. The U.K. City Code on Takeovers and Mergers (City Code) does not treat an "irrevocable undertaking" as a purchase, and the City Code permits bidders to enter into irrevocable undertakings at any time, subject to certain restrictions. May the bidder enter into irrevocable undertakings with certain shareholders?

A:  Yes, if the arrangement is truly an "irrevocable undertaking" to tender into the offer with no additional compensation paid to the shareholder. This interpretation only applies to "hard irrevocables," which are agreements to tender from which the shareholder cannot withdraw, and the consideration must be paid in accordance with the offer. If the irrevocable does not have these features, the offeror may still qualify for an exemption, so counsel should contact the Office of Trading Practices in the Division of Market Regulation. See, e.g., Letter re St David Capital plc Offer for Hyder plc to John M. Basnage, Esq. (April 17, 2000); Letter re WPD Limited Offer for Hyder plc to Bart Capeci, Esq. (May 30, 2000). 

Q:  The Division of Market Regulation sometimes grants exemptions from Rule 14e-5 in certain circumstances for purchases outside an offer pursuant to a foreign regulatory scheme. One condition for this exemption is that no purchases or arrangements to purchase the shares outside the offer shall be made in the United States. May the bidder solicit a foreign affiliate of a U.S. shareholder or solicit the U.S. shareholder overseas to sell the target's shares outside the offer (often at a higher price) to avoid this condition?

A:  No. We strictly interpret this condition. Any of these scenarios violates the condition of the exemption from Rule 14e-5 that purchases outside the offer not be made in the United States.

Q:  Rule 14e-5(b)(8) permits purchases or arrangements to purchase by an affiliate of the dealer-manager if specified conditions are satisfied. May a department, which is not a separately identifiable corporate entity from the dealer-manager, be considered an "affiliate" for the purpose of this exception to Rule 14e-5?

A:  Yes. We have interpreted "affiliate" to include a "department" if all the conditions of Rule 14e-5(b)(8) are satisfied. See Letter re Vodafone AirTouch Offer for Mannesmann to Sebastian R. Sperber, Esq. (January 27, 2000); Letter re Exchange Offers by Telefonica S.A. to Spencer Klein, Esq. (February 29, 2000); Letter re Exchange Offers by Telefonica S.A. to David Golay, Esq. (February 4, 2000). This is similar to the definition of "affiliated purchaser" in Rule 100 of Regulation M, which addresses certain separately identifiable departments or divisions of an entity. See Rule 100(b) of Regulation M, Exchange Act Release No. 38067, n. 22 (January 3, 1997).

Q:  A prerequisite for the exception in paragraph (b)(8) of Rule 14e-5 for purchases by affiliates of the dealer-manager is that the dealer-manager be registered as a broker or dealer under Section 15(a) of the Exchange Act. For purposes of the Rule 14e-5(b)(8) exception, what entities are included within the meaning of "dealer-manager" requiring registration as a broker or dealer under Section 15(a)?

A:  All entities conducting the tender offer or offering advisory services regarding the tender offer must be either: (i) registered as a broker or dealer under Section 15(a); or (ii) an affiliate within a broker or dealer registered under Section 15(a). It is extremely important that there is no information sharing between the affiliates seeking to rely on the exception and all entities conducting the tender offer or offering advisory services regarding the offer. Effective information barriers prevent improper motives from influencing purchases by affiliates while permitting the dealer-manager and other affiliates to continue their normal tender offer activities. We can only monitor the sufficiency of these information barriers if those entities conducting, or advising on, the offer are registered under Section 15(a) of the Exchange Act. Otherwise, the potential for abuse exists. Thus, we limit this exception to instances where all entities assisting the offeror (both dealer-managers and other affiliates) are registered under Section 15(a) of the Exchange.

Q:  Rule 14e-5(b)(7) permits a purchase or arrangement to purchase outside of a tender offer so long as the contract was entered into before public announcement of the offer, the contract is unconditional and binding on both parties and the existence of the contract and all material terms (including quantity, price and parties) are disclosed in the offering materials. May the obligation to purchase shares be conditioned on the success or completion of the offer?

A:  No. The contract must be unconditional.