New CDIs provide guidance regarding tender offer rules and schedules

by Cydney Posner

Below are summaries of some more new CDIs from Corp Fin, this group relating to the tender offer rules and schedules. Two of the new CDIs provide guidance regarding disclosure of compensatory arrangements for financial advisors. The other new CDIs provide additional guidance under the Abbreviated Tender or Exchange Offers for Non-Convertible Debt Securities no-action letter (January 23, 2015), which superseded prior no-action positions and permitted the issuer to conduct a tender offer for non-convertible debt securities held open for at least five business days, so long as specified criteria were satisfied.

Rule 14d-101 – Schedule 14D-9

  • 159.01 Item 5 of Schedule 14D-9 and Item 1009(a) of Reg M-A together require a summary of all material terms of any employment, retainer or other compensation arrangements with “all persons…that are directly or indirectly employed, retained, or to be compensated to make solicitations or recommendations in connection with” a transaction subject to the provision. A financial advisor to a board or committee engaged for the exclusive purpose of providing advice with respect to the tender or exchange offer and whose analyses or conclusions are discussed in the issuer’s Schedule 14D-9 is “indirectly employed, retained, or to be compensated” to assist the issuer in making its Schedule 14D-9 solicitation or recommendation, and as a result, the summary would be required. That is the case even if the advisor’s opinion expressly disclaims making a solicitation or recommendation to any of the target company shareholders.
  • 159.02 Generally, depending on the facts and circumstances, a generic disclosure that “customary compensation” will be paid to the financial advisors, without any further details, would not satisfy the requirement for a “summary of all material terms.” Corp Fin believes that that type of generic disclosure is generally inadequate because “it lacks the specificity needed to assist security holders in evaluating the merits of the solicitation or recommendation and the objectivity of the financial advisors’ analyses or conclusions used to support such solicitation or recommendation. See generally Exchange Act Release No. 16384 (Nov. 29, 1979) (stating that the disclosure in Schedule 14D-9 is intended to ‘assist security holders in making their investment decision and in evaluating the merits of a solicitation/recommendation’).” While it may not always be necessary to quantify the amount of compensation, Corp Fin indicates that the summary would “generally include the following:
  • the types of fees payable to the financial advisors (e.g., independence fees, sale transaction or ‘success’ fees, periodic advisory fees, or discretionary fees);
  • if multiple types of fees are payable to the financial advisors and there is no quantification of these fees, then sufficiently-detailed narrative disclosure to allow security holders to identify the fees that will provide the primary financial incentives for the financial advisors;
  • any contingencies, milestones, or triggers relating to the payment of the financial advisors’ compensation (e.g., the payment of a fee upon the consummation of a transaction, including with a bidder in an unsolicited tender or exchange offer); and
  • any other information about the compensatory arrangement that would be material to security holders’ assessment of the financial advisors’ analyses or conclusions, including any material incentives or conflicts that should be considered as part of this assessment.”