U.S. Securities Law Briefing

Transcription

1 U.S. Securities Law Briefing SEC Grants Class-Wide Relief under Rule 14e-5 The U.S. Securities and Exchange Commission (the SEC ) has issued two no-action letters that grant class-wide relief under Rule 14e-5 ( Rule 14e-5 ) of the U.S. Securities Exchange Act of 1934 (the Exchange Act ) to both financial advisers and bidders in the context of certain types of cross-border tender offers for equity securities of foreign private issuers. On March 2, 2007, the Staff of the SEC s Division of Market Regulation (the Staff or Division ) issued class-wide exemptive relief to Sulzer AG and other similarly situated prospective bidders in connection with purchases and arrangements to purchase shares in a target following public announcement of a tender offer (the Prospective Purchaser Relief ). 1 On April 4, 2007, the Staff issued class-wide exemptive relief to Goldman Sachs International and similarly situated financial advisers to engage in certain ordinary course trading activities during tender offers (the Financial Advisor Relief ). 2 Both types of relief are available only in the particular circumstances detailed in the no-action letters. Despite these restrictions, both grants of relief are a helpful development for U.S. crossborder tender offers. Background Rule 14e-5 is designed to prevent manipulative and deceptive practices in connection with a tender offer by prohibiting purchases of the target s securities outside of the tender offer. Specifically, pursuant to Rule 14e-5, covered persons are prohibited from directly or indirectly purchasing or arranging to purchase any subject securities or any related securities except as part of the tender offer. For the purposes of Rule 14e-5, a covered person means: (i) the bidder and its affiliates; (ii) the bidder s dealer-manager and its affiliates; and (iii) any advisor to any of the foregoing whose compensation is dependent on the completion of the offer; and (iv) any person acting, directly or indirectly, in concert with any of the persons previously mentioned in connection with any purchase or arrangement to purchase any subject securities or any related securities. The prohibition on purchases outside of the tender offer applies from the time of the public announcement of the tender offer until the tender offer expires. However, outside the United States, the local law of the target company s home jurisdiction, defined as both the target s jurisdiction of incorporation and the principal market where its securities are listed, may permit covered persons to make purchases of subject securities outside of the tender offer. Thus, there is a potential conflict between Rule 14e-5 and local law and market practice. Financial advisers and their affiliates who are deemed covered persons through acting in the capacity of dealer-managers for the bidder are banned from undertaking certain ordinary course trading activities (such as market-making or ordinary course portfolio management activities for third-party customers). Bidders who wish to engage in stake building activities permitted under local law are unable to do so after the announcement of the tender offer if they extend their tender offer into the United States. Hence, in order to encourage bidders to extend their tender offers into the United States, the Staff have been willing to grant relief from Rule 14e-5 by way of no-action letter in certain circumstances. 1 2 The Prospective Purchaser Relief can be found here. The Financial Adviser Relief can be found here. / /May 2007

2 Prospective Purchaser Relief The Staff have been willing to grant no-action relief from Rule 14e-5 on a case-by case basis for bidders and their agents making purchases outside of the tender offer in certain circumstances (e.g., for ordinary stake building activities where permitted by local law). The Prospective Purchaser Relief extends that relief on a class-wide basis to allow all bidders and certain persons acting on their behalf (the Prospective Purchasers ) 3 to purchase, or arrange to purchase, securities in a target following the public announcement of the tender offer for the target, where the following conditions are satisfied: 1) The target company is a foreign private issuer; 2) The bidder reasonably intends to rely on the Tier II 4 exemptive relief under Rule 14d-1(d) of the Exchange Act in connection with the tender offer; 3) The Prospective Purchasers comply with applicable local law of the target s home jurisdiction; 4) Local law requires that the tender offer price be increased to match any consideration paid outside of the tender offer that is greater than the tender offer price; 5) The SEC and the home jurisdiction are parties to a bilateral or multilateral memorandum of understanding as to consultation and cooperation in the administration and enforcement of securities laws; 5 6) No purchases or arrangements to purchase the subject securities or related securities, otherwise than pursuant to the tender offer, are made in the United States; 7) The United States offering materials disclose prominently the possibility of, or the intention to make, purchases or arrangements to purchase the subject securities or related securities outside of the tender offer by the Prospective Purchasers and disclose the manner in which information regarding such purchases or arrangements to purchase will be disseminated; 8) The Prospective Purchasers disclose in the United States, to the extent such information is made public in the home jurisdiction pursuant to applicable law, information regarding all purchases of the subject securities or related securities otherwise than pursuant to the tender offer since the announcement date; 9) The Prospective Purchasers provide to the Division upon request, a daily time-sequenced schedule of all transactions effected in the subject securities or related securities by the Prospective Purchasers from the announcement date until the tender offer expires, on a transaction-by-transaction basis, including: (a) size, broker (if any), time of execution, and 3 The Staff define Prospective Purchaser as the offeror (bidder), its affiliates, and/or its agents. An affiliate is any person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the offeror. An agent is any broker-dealer or financial advisor who acts on behalf of the offeror in an agency capacity to effect purchases of subject securities or related securities during the pendency, but outside, of the tender offer. 4 In order to qualify for Tier II exemptive relief, the target must be a foreign private issuer with no more than 40% of the subject class of securities beneficially held by U.S. residents. In calculating U.S. ownership, the holdings of the offeror and any securityholder than owns more than 10% of the class are excluded from both the numerator and the denominator of the calculation. 5 Click here for a list of bilateral and multilateral memoranda of understanding. /May

3 price of purchase; and (b) the exchange, quotation system, or other facility through which the purchase occurred; 10) Upon the request of the Division, the Prospective Purchasers transmit the information as specified in paragraphs 9(a) and 9(b) to the Division at its offices in Washington, D.C. within 30 days of its request; 11) The Prospective Purchasers retain all documents and other information required to be maintained pursuant to this exemption for a period of not less than two years from the date of the termination of the tender offer; 12) Representatives of the Prospective Purchasers are made available (in person at the offices of the Division in Washington, D.C. or by telephone) to respond to inquiries of the Division relating to their records; and 13) Except as otherwise exempted in this relief, the Prospective Purchasers must comply with Rule 14e-5. Financial Adviser Relief The Staff have also been willing to grant no-action relief from Rule 14e-5 on a case by case basis for financial advisers and their affiliates for a number of ordinary course trading activities (the Trading Activities ) in certain circumstances 6. The Financial Advisor Relief extends that relief on a class-wide basis to allow financial advisers, and their affiliates and separately identifiable departments ( Affiliates and Departments ) to engage in Trading Activities which may otherwise be prohibited under Rule 14e-5 where the following conditions are satisfied: 1) The target company is a foreign private issuer; 2) The Financial Advisor reasonably believes that the target company has a level of U.S. shareholding that would enable it to rely on the Tier II exemptive relief provided under Rule 14d-1(d) of the Exchange Act in connection with the tender offer; 3) The Trading Activities are only conducted outside of the United States; 4) The Trading Activities are consistent with the Financial Advisor s Affiliates and Departments normal and usual business practices, and are not conducted for the purposes of promoting or otherwise facilitating the offer, or for the purpose of creating actual, or apparent, active trading in, or maintaining or affecting the price of, the securities of the target company; 5) The offer document discloses prominently the Financial Advisor s intention to conduct the Trading Activities; 6) Each of the Affiliates and Departments of the Financial Advisor that conduct the Trading Activities has no officers (or persons performing similar functions) or employees (other than clerical, ministerial or support personnel) who direct, effect or recommend transactions in the subject securities or related securities who also will be involved in providing the bidder or target in such transactions with financial advisory services or dealer-manager services; 7) The Financial Advisor has an affiliate that is registered as a broker-dealer under Section 15(a) of the Exchange Act; 6 A list of Trading Activities is attached as Appendix A. /May

4 8) The Trading Activities are permissible under, and are conducted in accordance with, applicable local law of the target s home jurisdiction. The Financial Advisor and its Affiliates and Departments must also comply with any information barrier requirements imposed by applicable local law. 9) The Financial Advisor and its Affiliates and Departments maintain and enforce written policies and procedures that are reasonably designed to prevent the transfer of information among the Financial Advisor and its Affiliates and Departments that conduct the Trading Activities that might result in a violation of the U.S. federal securities laws through the establishment of information barriers; 10) The Financial Advisor, through its Affiliates and Departments, conducts the Trading Activities voluntarily in compliance with the pertinent provisions of the United Kingdom s City Code on Takeovers and Mergers and Rules Governing Substantial Acquisitions of Shares (the City Code ), and the Affiliates and Departments conduct themselves as if they were connected exempt principal traders as defined in the City Code, including complying with regulations with respect to the establishment and maintenance of information barriers, conflict of interest provisions and other requirements, other than with respect to the notification of relevant trades to the Takeover Panel. The Financial Advisor will, however, publicly disclose in the United States information regarding the Trading Activities to the extent that such information is required to be made public in the target s home jurisdiction; 11) The Financial Advisor provides to the Division, upon request, a daily time-sequenced schedule of all transactions effected in the subject securities or related securities by the Financial Advisor s Affiliates and Departments, on a transaction-by-transaction basis, including: (a) size, broker (if any), time of execution, and price of purchase; and (b) the exchange, quotation system, or other facility through which the purchase occurred; 12) Upon the request of the Division, the Financial Advisor transmits the information as specified in paragraphs 11(a) and 11(b) to the Division at its offices in Washington, D.C. within 30 days of its request; 13) The Financial Advisor retains all documents and other information required to be maintained pursuant to this exemption for a period of not less than two years from the date of the termination of the offer; 14) Representatives of the Financial Advisor are made available (in person at the offices of the Division in Washington, D.C. or by telephone) to respond to inquiries of the Division relating to its records; and 15) The Financial Advisor and its Affiliates and Departments will comply with Rule 14e-5 except as exempted by the relief granted in this relief or pursuant to any no-action letter or exemptive relief granted by the Staff. * * * The Prospective Purchaser Relief and the Financial Adviser Relief were both issued as class-wide relief. Generally speaking, this class-wide relief obviates the need to continue to seek relief in each case. Rather, the relief can be relied upon by Financial Advisors and their Affiliates and Departments as well as Prospective Purchasers where the conditions outlined above are satisfied. Hopefully, this means that a significant obstacle to cross-border tender offers, namely the time spent seeking SEC no-action relief, can be eliminated in certain circumstances. Of course, /May

5 financial advisors seeking to rely on the Financial Advisor Relief, and bidders seeking to rely on the Prospective Purchaser Relief, should seek advice to ensure that their relevant factual circumstances are consistent with the circumstances in which each grant of relief applies. * * * /May

6 Appendix A The following banking and securities services activities by Financial Advisors and their affiliates and separately identifiable departments ( Affiliates and Departments ) with respect to the target s securities, including futures, forwards, options, swaps or similar instruments(collectively, the Securities ) are deemed to be Trading Activities: 1) Market-making activities in the Securities; 2) Purchasing and selling Securities as part of ordinary course portfolio and asset management activities for third-party customers (other than any covered person) in which activities the Financial Advisors and their Affiliates and Departments would generally have discretionary trading authority, as well as purchasing and selling Securities as principal for their own accounts; 3) Principal facilitation to buy the Securities to facilitate client orders on the relevant stock exchanges or in the over-the-counter markets; 4) Creation of derivatives and products (including futures, forwards, options, swaps or similar instruments) and dynamic hedging and covering activities, short sales and other forms of hedging and covering, such as purchasing and selling Securities, with respect to positions in these derivatives contracts that are created after the announcement of the tender offer in question, as well as such hedging and covering activates with respect to (a) derivatives contracts in place prior to such announcement and (b) any such trading and positions as would be permitted otherwise pursuant to the relief; 5) Index arbitrage activities (other than risk arbitrage trading) that are not to facilitate the relevant tender offer and are limited in scope, so that such index arbitrage activities are consistent with activities undertaken by the Financial Advisors and their Affiliates and Departments in the ordinary course of business prior to the announcement of the relevant tender offer and reflect the same balance and constituency as the index being hedged, and hedging and covering activities, including dynamic hedging, short sales and other forms of hedging, such as purchasing and selling Securities, with respect to such indexrelated activities; 6) Program trades of Securities by the Financial Advisors and their Affiliates and Departments in relation to a basket of securities the composition of which has been proposed by a client (other than any covered person), and hedging and covering activities with respect thereto, including dynamic hedging, short sales and other forms of hedging, such as purchasing and selling Securities with respect to such activities; 7) Hedging activities, including dynamic hedging, short sales or other forms of hedging, such as purchasing and selling Securities or with respect to the market-making activities in Securities described in (1) above; 8) Lending and borrowing Securities to and from other intermediaries to assist the Financial Advisors and their Affiliates and Departments in managing their market-making activities in Securities described in (1) above; 9) Purchasing Securities for purposes of delivery securities upon exercise of call options or warrants or creation or redemption of exchange-traded funds, or buying Securities in respect of the exercise of put options or warrants or creation or redemption of exchange- /May

7 traded funds, all in connection with the market-making and related hedging activities described in (1) and (7) above; 10) Buying Securities to cover short positions entered into after the announcement of the relevant tender offer; 11) Purchases of Securities in a proprietary capacity. /May

8 Please address any queries to any of your usual contacts at Linklaters or to any of the following: Office Tel No. Contacts Addresses London David Ludwick Jason Manketo Alexander Naidenov Cecil Quillen Brigid Rentoul Jennifer Schneck Pam Shores Tom Shropshire Steve Thierbach New York Josh Berick Jeff Cohen Edward Fleischman Jon Gray Adele Hogan Scott Sonnenblick Larry Vranka Hong Kong Hyung Ahn Sang Lee Patrick Sheil Frankfurt Ray Fisher Paris Tom O Neill tom.oneill@linklaters.com Rome Luigi Sensi luigi.sensi@linklaters.com Singapore Arun Balasubramanian arun.balasubramanian@linklaters.com Tokyo Isamu Watson isamu.watson@linklaters.com This publication is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts at Linklaters. Linklaters. All Rights Reserved 2007 Please refer to for important information on the regulatory position of the firm. /May