The Division of Corporation Finance has issued 27 new Compliance and Disclosure Interpretations related to the cross-border exemptions. The C&DIs replace prior Telephone Interpretations and reflect some substantive and technical changes to previous positions while also providing new guidance related to, among other things, tender offers, shareownership status and calculations, subject class determination, filing and dissemination of offering materials, and withdrawal rights.
Existing interpretations. In the cross-border C&DIs, the staff reiterates its positions that Securities Act Rules 801 and 802 are not available when there are no U.S. security holders of the issuer or the offer is not extended to U.S. security holders and that excluding U.S. security holders from an offer at a time when U.S. ownership exceeds 10 percent and then later extending the offer to U.S. security holders when ownership falls would raise concerns if circumstances indicate that the bidder excluded U.S. holders with the intent of migrating securities to a foreign jurisdiction to achieve a registration exemption.
In addition, the staff notes that securities held by the acquiror are excluded from the U.S. ownership calculation for purposes of determining a cross-border exemption and that the initial calculation of U.S. ownership is sufficient to determine eligibility for an exemption in a subsequent step of the transaction if the subsequent step is disclosed and consummated within a reasonable time after the first step. If an offeror is unable to calculate the U.S. ownership, the offeror may file a registration statement to avoid a violation and later withdraw the registration statement and rely on an exemption upon a determination that U.S. ownership is no more than 10 percent, the staff explains.
The staff also reiterates its positions that a bidder commencing a foreign tender offer for the securities of a foreign private issuer that later chooses to extend the offer to the U.S. must allow the offer to remain open at least as long as the minimum period required in the jurisdiction governing the foreign offer and that an offeror disseminating and advertisement in a home jurisdiction can satisfy the requirement to inform U.S. holders of the offer by providing a less detailed summary advertisement in a national publication that specifies how U.S. holders can get a complete copy of the offering materials in English.
The staff also states that, in order to terminate withdrawal rights, all conditions must be satisfied or waived and that the bidder must declare the offer wholly unconditional.
New interpretations. Among other things, the C&DIs also provide the following guidance:
- A foreign private issuer seeking to do a “warrant flush” may rely on the Tier I exemption in Exchange Act Rule 13e-4(h)(8) where the transaction is not subject to tender offer regulation in another jurisdiction.
- The term “successor registrant” does not mean that the acquiror must be an Exchange Act reporting company following a business combination.
- When a bidder is aware that a U.S. parent company holds authority over shares, the shareholder should be deemed a U.S. holder.
- The “look through” analysis to determine U.S. ownership may not be eliminated even when responses are not likely to be forthcoming or may be incomplete.
- Where the parties do not know the exchange ratio in an amalgamation at the time of announcement and cannot determine the “pro forma” U.S. ownership for the new holding company within prescribed timeframes, the staff will not object if they use the comparative market capitalizations of the parties instead.
- The fact that holders of ordinary shares and preference shares have the same voting rights for the transaction is not dispositive as to whether securities are a single class for purposes of calculating U.S. ownership, and other factors such as different pricing should be considered.
- A foreign private issuer that meets the conditions of Rule 801 except that its U.S. holders hold equity securities through Global Depositary Receipts rather than ADRs may extend a rights offering to its U.S. holders without registering the offering.
- To conduct a dual offer in reliance on Rule 14d-1(d)(2)(ii), the U.S. offer must be made on terms at least as favorable as the terms offered to all other holders of the subject securities.
- In a cross-border tender offer not subject to Regulation 14D, where U.S. ownership in the subject company is above 10 percent, a bidder may offer cash to U.S. holders of the subject company and shares to other holders.
- A bidder can rely on Rule 14d-1(c)(2)(iii) to offer cash to U.S. holders while offering a choice between cash and stock consideration to non-U.S. holders, but the “substantially equivalent” requirement would not be satisfied if the cash consideration is less than the value of the stock consideration.
- A foreign private issuer planning to conduct a rights offering without Securities Act registration that must file a registration statement in its home jurisdiction incorporating by reference certain documents must translate the documents into English and furnish them to the Commission under cover of Form CB.