Monday, November 28, 2016

Corp Fin staff updates guidance on tender offers and schedules

By Jacquelyn Lumb

The SEC’s Division of Corporation Finance recently updated its guidance related to tender offers and schedules. In the first Q&A, the staff said that a financial adviser which is engaged to assist an issuer with its Schedule 14D-9 would be considered a person that is directly employed, retained, or to be compensated to make solicitations or recommendations in connection with a transaction, and must be disclosed under Item 1009(a) of Regulation M-A and Item 5 of Schedule 14D-9. The disclosure must include all material terms of the adviser’s employment, retainer, or other arrangement of compensation.

Compensation disclosure. The use of generic disclosure in this regard, such as “customary compensation will be paid to the adviser,” will ordinarily be insufficient, according to the staff. While it depends on the facts and circumstances, the term “customary compensation” generally lacks the specificity that securities holders need to evaluate the merits of the solicitation or recommendation and the objectivity of the financial adviser’s analysis or conclusions.

Quantifying the amount of the compensation may not be required in all instances, but the summary of material terms of the compensation arrangements should include the types of fees payable to the financial advisers. If the adviser will receive multiple types of fees and there is no quantification of these fees, the narrative should be sufficiently detailed to allow securities holders to identify the fees that will provide the primary financial incentive.

The disclosure also should include any contingencies, milestones, or triggers relating to the payment of the adviser’s compensation, such as payment upon consummation of the transaction, which includes a bidder in an unsolicited tender or exchange offer. Issuers should disclose any other information about the compensation arrangement that would be material to a securities holder’s assessment of the adviser’s analysis or conclusions, including any material incentives or conflicts.

No-action letter. In response to a series of questions about a no-action letter on abbreviated tender or exchange offers for non-convertible debt (Abbreviated Tender or Exchange Offers for Non-Convertible Debt Securities, January 23, 2015), the staff advised that a foreign private issuer may satisfy the requirement to furnish a press release announcing the abbreviated offer by filing a Form 6-K, rather than a Form 8-K as noted in the letter, prior to noon on the first business day of the offer.

In connection with that same letter, the staff wrote that abbreviated offers must be made for any and all subject debt securities. In response to whether that means that abbreviated offers cannot have minimum tender conditions, the staff advised that abbreviated offers can have minimum tender conditions.

Also in connection with the same letter, the staff said the amount of cash consideration offered concurrently to persons other than qualified institutional buyers and non-U.S. persons can be calculated with reference to a fixed spread to a benchmark, provided that the calculation is the same as the one used in determining the amount of qualified debt securities.

In response to the final question involving the no-action letter, the staff advised that offerors may announce an abbreviated offer at any time, but should not commence the offer prior to 5:01 p.m. on the tenth business day after the first public announcement of a purchase, sale, or transfer of a material business or an amount of assets as described in the letter. If the abbreviated offer is commenced after 5:01 p.m. on a particular business day, the first day of the five business day period described in the letter would be the next business day.