Judges, it seems, have a way of turning the common to the convoluted, the intuitive to the indistinct, and the obvious to the obscure. So it has been with the SEC's tender offer best price rule, which is supposed to ensure all shareholders responding to a tender offer receive the same price for their shares.
By all appearances, the best price rule represents an axiomatic or at least a quasi-axiomatic proposition. But since a 1995 federal court decision that required judges to examine virtually any collateral benefits paid by acquirers to shareholders, plaintiffs' attorneys have been holding tender offers hostage, claiming that such things as employment compensation and benefits, severance arrangements and commercial contracts between acquirers and customers or suppliers who are also shareholders offend the best price rule.
"The addition of these words clarifies that payments made to shareholders in the course of a tender offer that are not consideration for the tendered securities do not attract the best price rule," Hogan says.
The SEC has also adopted a more specific exemption for employment arrangements where the employee, such as a director or officer, is also a shareholder and would benefit from the employment arrangement if the tender succeeds. Examples include employees whose severance kicks in on a change of control. The exemption applies as long as the payments are compensation for past or future services and are not based on the number of securities tendered.
Indeed, Nathan believes the plaintiffs' bar will take a run at the amendments.
"They don't give up easily, so it might take a test case or two before people start to feel comfortable with tender offers," he says. "But eventually, the amendments will do what they're supposed to do because their legislative history and intent is far more clear than the murky history of the original rule."