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E. Determining U.S. Ownership
us SEC - C&DI - Proxy Rules and Schedules
Question 1
Q: Are non-U.S. security holders of greater than 10% excluded from the calculation of the U.S. ownership percentage?
A: Yes. All 10% and greater security holders are excluded from both the numerator and denominator. See Rule 800(h)(2); Instruction (2)(i) of paragraphs (h)(8) and (i) of Rule 13e-4; and, Instruction (2)(ii) to paragraphs (c) and (d) of Rule 14d-1. [Superseded]
Question 2
Q: Are U.S. institutions and QIBs (qualified institutional buyers under Rule 144A) excluded from the calculation regardless of the size of their holdings?
A: No. Only security holders with 10% or more of the securities of the target are excluded. [Superseded]
Question 3
Q: Are the securities held by the bidder excluded from the calculation?
A: Yes. See Rule 800(h)(2); Instruction (2)(ii) to paragraphs (c) and (d) of Rule 14d-1. [Superseded]
Question 4
Q: If unable to calculate accurately the U.S. ownership in a target with respect to an exchange offer, can the offeror first file a registration statement to avoid violating Section 5, and then later if it is determined that U.S. ownership is less than 10% (e.g., Tier I), withdraw the registration statement and rely on Rule 802?
A: Yes. See Securities Act Rule 477 for procedures to withdraw a registration statement. [Superseded]
Question 5
Q: May a bidder exclude U.S. security holders from an exchange offer made in a foreign jurisdiction at a time when U.S. ownership exceeds 10% (Tier II) and then later extend the offer to U.S. security holders when U.S. ownership falls to 10% or below (Tier I)?
A: This scenario would concern us if the circumstances suggested that the bidder excluded U.S. persons from an exchange offer either with the purpose or intent of causing a migration of shares from the U.S. to the foreign jurisdiction so that an exemption from registration would then become available. This would be viewed as part of a plan or scheme to evade the registration provisions of the Securities Act. Therefore, the exemptions would not be available. See General Note 2 to Rules 800, 801 and 802. [Superseded]
Question 6
NEW
Q: U.K. law provides for preconditional tender offers. The Republic of Ireland has similar provisions in its law. In a preconditional tender offer, the bidder announces that it intends to commence an offer after certain stated conditions have been satisfied. For example, the tender offer will commence only after antitrust regulatory approval has been obtained. In preconditional tender offers, commencement may occur months after the announcement of the offer. In this type of tender offer, when must U.S. ownership of the target be determined? Thirty days before commencement or 30 days before announcement?
A: U.S. ownership may be determined 30 days before announcement of the offer. This should allow the bidder to determine the availability of the exemptions during the planning of the offer, and U.S. ownership will be based on a more relevant point of time in the process. This position is based on the nature of these pre-conditional offers - the U.K. and Irish regulatory systems expressly provide for this type of offer, the foreign regulators must approve the use of this type of offer, and the foreign regulators also must approve when the bidder terminates the offer before commencement.
This position applies only to these U.K. and Irish pre-conditional offers. This position otherwise does not negate the general requirement that U.S. ownership is to be determined 30 days before commencement. See Securities Act Rule 800(h)(1), Exchange Act Rule 13e-4 (Instruction 2(i) to paragraphs (h)(8) and (i)) and Exchange Act Rule 14d-1 (Instruction 2(i) to paragraphs (c) and (d)). This time period assures that applicability of the exemptions turns on the actual shareholder base at a time close to the commencement of the offer. If a company believes relief similar to that provided for U.K. and Irish preconditional offers is warranted under another country's regulatory system, the Office of Mergers & Acquisitions should be consulted in advance. [Superseded]
Question 7
Q: In determining the number of U.S. persons holding target shares, Rules 801 and 802 speak to the number of U.S. shareholders "as of 30 days before commencement." Since the number of U.S. shareholders may vary daily, can a bidder choose a particular day within the 30 days before commencement to determine U.S. ownership?
A: No. Bidders must look at U.S. ownership on the 30th day before commencement. If the 30th day is impracticable for reasons outside of the bidder's control, the bidder should use the date within the 30-day period as close to the 30th day as practicable. Also see the following question. [Superseded]
Question 8
Q: Rule 800(h) requires the calculation of U.S. ownership exactly 30 days before commencement of an exchange offer or solicitation of proxies in a business combination transaction. How do bidders comply with this requirement in a foreign jurisdiction where the information is only published at fixed intervals?
A: In foreign jurisdictions where the bidder and issuer are limited in their access to security holder list information prepared periodically by third parties, calculation of U.S. ownership may be based on the latest security holder list available, unless the bidder or issuer has access to more accurate information. [Superseded]
Question 9
NEW
Q: A business combination frequently involves multiple steps (e.g., a tender offer followed by a clean-up merger). If in the first step an offeror relies on the tender offer exemptions under Tier I or Tier II or the Securities Act exemption under Rule 802, must the offeror, for purposes of determining its eligibility under the exemptions, recalculate the U.S. ownership in the target for the subsequent step in the transaction?
A: No. The initial calculation of U.S. ownership made for the first step of the transaction is sufficient to determine eligibility for the use of the exemptions in the subsequent step, so long as: (1) the disclosure document for the first step discloses the offeror's intent to conduct the subsequent step and the terms of the subsequent transaction; and (2) the subsequent step is consummated within a reasonable time following the first step. [Superseded]
This is a work of the U.S. Government
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