In previous installments (available here and here), we advised our client Kenny Rogers on the legal framework of launching a tender offer for Anglo Freedonian Mining SA, a foreign private issuer trading in London. The long arm of the US securities law regulates cross-border tender offers, and last week we discussed the Tier I exemption. This week, we examine the more limited Tier II exemption set out in Rule 14d-1(d) and Rule 13e-4(i), which is generally available for target companies that are foreign private issuers with 40% or fewer US shareholders.

“The Tier I exemption sounds great,” says Kenny. “In case Anglo Freedonian has more than 10% US shareholders, however, tell me about the Tier II exemption.”

Tier II relief is available both for issuer self-tender offers subject to Rule 13e-4 as well as third-party tender offers governed by Regulation 14D. It covers certain areas of frequent conflict between US and foreign regulatory requirements, including:

• All-holders rule – loan notes and separate US and non-US offers: Tier II tender offers are exempt from the all-holders Rule of Exchange Act Rule 14d-10 (and related Exchange Act Rule 13e-4(f)(8) for issuer self-tender offers) in two ways. First, if a bidder offers loan notes solely to give sellers tax advantages not available in the United States, and these notes are neither listed on an organized securities market nor registered under the Securities Act, the loan notes need not be offered to US securities holders. Second, under the SEC’s 2008 revisions to the cross-border tender offer rules, a bidder may split its offer into multiple separate offers, one made to US securities holders (including ADR holders) and one or more separate offers made to non-US securities holders. In addition, the 2008 cross-border amendments provide that the separate US offer can include non-US securities holders thereby accommodating the inclusion of all the target’s ADRs in the US offer. The offer to US securities holders must be on terms at least as favorable as those offered to any other holders of the target securities.
• Notice of extension: Notice of extension of the length of a tender offer made in accordance with home jurisdiction law or practice will be deemed to satisfy the requirements of Rule 14e-1(d) (which specifies how notice of extensions must be given).
• Prompt payment: Payments made in accordance with home jurisdiction law or practice will be deemed to satisfy the prompt payment requirements of Rule 14e-1(c).

Rule 14e-5 exemption

As we noted in a previous installment, Rule 14e-5 generally prohibits a bidder, its affiliates and certain persons acting on their behalf in a tender or exchange offer from purchasing target equity securities outside the offer. Tier II tender offers are exempt from Rule 14e-5 if certain conditions are met, as follows.

• Purchases by a bidder and its affiliates or an affiliate of the financial advisor. Rule 14e‑5(b)(12) provides for a broad exception from Rule 14e-5 for a bidder and its affiliates or an affiliate of a financial advisor that are permissible under and will be conducted in accordance with the law of the target company’s home jurisdiction if the following conditions are satisfied:
  • the target is a foreign private issuer;
  • the covered person reasonably expects that the tender offer qualifies as a Tier II tender offer;
  • no purchases other than pursuant to the tender offer are made in the United States;
  • the US offering documents disclose the possibility of purchasing securities outside the tender offer, and all such purchases are publicly disclosed in the United States;
  • in the case of purchases by an offeror or its affiliates, the tender offer price must be increased to match any consideration paid outside the tender offer that is greater than the tender offer price; and
  • in the case of purchases by an affiliate of a financial advisor:
    • the financial advisor and the affiliate maintain and enforce written policies and procedures reasonably designed to prevent the transfer of information among the financial advisor and affiliate that might result in a violation of US federal securities laws and regulations through the establishment of information barriers;
    • the financial advisor has an affiliate that is registered as a broker or dealer under Exchange Act Section 15(a);
    • the affiliate has no officers or employees (other than clerical, ministerial or support personnel) in common with the financial advisor that direct, effect or recommend transactions in the subject securities or related securities who also will be involved in providing the offeror or subject company with financial advisory services or dealer‑manager services; and
    • the purchases or arrangements to purchase are not made to facilitate the tender offer.
• Purchases pursuant to a foreign tender offer. Rule 14e‑5(b)(11) provides a more targeted exemption designed to allow a bidder to purchase the securities through a US tender offer and a concurrent foreign offer, if the following conditions are satisfied:
  • both the US tender offer and the concurrent foreign offer qualify as Tier II tender offers;
  • the economic terms and consideration in the US tender and concurrent foreign offer are the same;
  • the procedural terms of the US offer are at least as favorable as the concurrent foreign offer;
  • the intention of the bidder to purchase the securities pursuant to the foreign tender offer is disclosed in the US offering documents; and
  • purchases by the bidder in the foreign tender offer are made solely pursuant to the foreign tender offer and not on the open market or in private transactions.