Tender Offer Regulations

Tender Offer Framework

A tender offer is a public bid to purchase shares directly from shareholders at a specified price. The Williams Act (amendments to the 1934 Act) and related SEC rules govern the process.

Key Rules

• Schedule TO: Filed by the bidder with the SEC upon commencing a tender offer. Discloses terms, purpose, source of funds, and plans for the target.
• Rule 14d-9: The target company's board must file a recommendation (accept, reject, or no opinion) within 10 business days.
• Rule 14d-10 (All Holders/Best Price): The tender offer must be open to ALL holders of the class, and the bidder must pay the highest price paid to any shareholder during the offer to all tendering shareholders.
• Rule 14e-1 (Timing): Tender offer must remain open for a minimum of 20 business days. If the price or percentage sought changes, the offer must remain open at least 10 additional business days.

Additional Tender Offer Rules

• Rule 14e-2: Target must publish its position (recommend, reject, or express no opinion) within 10 business days of commencement
• Rule 14e-3: Prohibits trading on MNPI in the context of tender offers — broader than general insider trading rules
• Rule 14e-5: Prohibits purchases of the subject securities outside the tender offer during its pendency
• Withdrawal rights: Shareholders may withdraw tendered shares at any time while the offer is open
• Proration: If the offer is for less than all shares and more shares are tendered than sought, the bidder must purchase pro rata from all tendering shareholders

Going-Private Transactions (Rule 13e-3)

Special disclosure rules when the issuer or its affiliates take a public company private. Requires filing Schedule 13E-3 with enhanced disclosure about fairness, purpose, and alternatives considered.

Issuer Tender Offers — Self-Tenders (Rule 13e-4)

When a company repurchases its own shares via tender offer, additional rules apply under Rule 13e-4:

• The issuer must file Schedule TO with the SEC
• The offer must remain open for at least 20 business days
• All holders of the class must be treated equally
• Common uses: share buybacks at a premium, defensive measures against hostile bids, eliminating small shareholders

Going-Private Transactions (Rule 13e-3)

When a public company (or its affiliates) takes the company private:

• Schedule 13E-3 must be filed with the SEC
• Enhanced disclosure: purpose of the transaction, fairness of the terms, alternatives considered, reports/opinions obtained
• The "Entire Fairness" standard: In going-private deals, courts apply heightened scrutiny — the transaction must be fair both in terms of process (fair dealing) and price (fair price)

Rule 14e-3 — Insider Trading in Tender Offers

Rule 14e-3 is broader than general insider trading rules:

• It is illegal to trade on MNPI about a pending tender offer if you know or should know the information came from the bidder or target
• No "use" requirement: Unlike SEC Rule 10b-5, which requires that the trader actually used the MNPI, Rule 14e-3 makes it illegal to simply possess the information and trade — regardless of whether it influenced the decision
• Also prohibits "tipping" — sharing tender offer MNPI with others who are likely to trade

This broader standard reflects the heightened potential for abuse in the tender offer context, where the price premium is predictable and the information is highly time-sensitive.

The Williams Act — Statutory Architecture

The Williams Act was enacted in 1968 as a set of amendments to the Securities Exchange Act of 1934. Congress acted in response to a wave of cash tender offers in the mid-1960s that gave shareholders little time or information to decide. The statute takes a deliberately neutral stance between bidder and target — the goal is shareholder protection through disclosure and timing, not promotion or prevention of takeovers.

Five Core Sections

• Section 13(d): Beneficial ownership reporting. Anyone acquiring more than 5% of a class of registered equity must file Schedule 13D within 5 business days (reduced from 10 calendar days by the SEC in February 2024). Passive holders may use the shorter Schedule 13G.
• Section 13(e): Issuer repurchases and going- private transactions. Implemented by Rule 13e-3 (going private) and Rule 13e-4 (issuer tender offers).
• Section 14(d): Third-party tender offers where the bidder will own more than 5% after the offer. Implemented by Regulation 14D — Schedule TO filing, dissemination, proration, withdrawal, and equal treatment rules.
• Section 14(e): Anti-fraud and procedural protections that apply to all tender offers, regardless of size. Implemented by Regulation 14E — Rule 14e-1 timing, Rule 14e-2 target response, Rule 14e-3 insider trading, and Rule 14e-5 anti-manipulation.
• Section 14(f): Disclosure requirements when a tender offer results in a change of a majority of the target's directors outside a shareholder meeting.

The critical distinction: Regulation 14D only applies when the bidder will own more than 5% after the offer. Regulation 14E applies to every tender offer. This is why mini-tender offers (under 5%) escape Schedule TO filing and best-price obligations but still owe shareholders the 20-business-day minimum offer period and anti-fraud protections.

Schedule TO — Commencement and Filing Mechanics

When Does a Tender Offer "Commence"?

Under Rule 14d-2, a tender offer commences on the first date the bidder publishes, sends, or gives target shareholders the means to tender their shares — typically the day the offer to purchase and letter of transmittal are disseminated. Commencement is the trigger event for the 20-business-day clock and for the Schedule TO filing obligation.

What does not commence an offer: signing a merger agreement, obtaining financing commitments, preliminary SEC staff discussions, or announcing an intent to make an offer without providing the means to tender. Pre-commencement communications are permitted under Rule 14d-2(b) provided they include the required legend and the Schedule TO is filed when the offer actually commences.

Schedule TO Filing Timing — Rule 14d-3

A bidder that will own more than 5% of a class of equity after the tender offer must file Schedule TO with the SEC on the date of commencement — the same day the offer is first disseminated to shareholders. There is no pre-filing review period for routine offers. A copy must simultaneously be hand-delivered to the target and to any competing bidders.

Schedule TO Disclosure Items

Schedule TO consolidates the bidder's disclosures across Items 1001 through 1013, tracking Regulation M-A:

• Item 1003 — Identity and Background: Identity of the bidder, its executive officers and directors, their five-year employment history, and any criminal or securities law proceedings. This lets shareholders assess who is behind the bid and whether they can close.
• Item 1004 — Terms of the Transaction: Price, form of consideration, offer period, conditions, and any special arrangements with target officers or directors.
• Item 1006 — Purposes and Plans: The bidder's reasons for the offer and its plans for the target post-closing, including any contemplated merger, sale of assets, changes to the board, or material business changes.
• Item 1007 — Source and Amount of Funds: Financing structure, lender identities, and any material contingencies that could impair the bidder's ability to pay.
• Item 1008 — Interest in Securities: Any past transactions or current holdings in the target's securities by the bidder or its affiliates.
• Item 1010 — Financial Statements: Bidder financials, where material to shareholders' decisions.

Schedule TO vs. Schedule 13D

These two filings are frequently confused on the exam:

• Schedule 13D is triggered by beneficial ownership crossing the 5% threshold. It applies to ordinary stock accumulation — whether by open-market purchases, private block trades, or any other acquisition method. A passive accumulator with no tender offer plans files 13D (or the shorter 13G if eligible).
• Schedule TO is triggered by the launch of a tender offer where the bidder will own more than 5% after the offer. It is a launch-day filing, not an ownership threshold filing.

An investor who accumulates to 8% through open-market buying files Schedule 13D, not Schedule TO. A bidder who launches a tender for 40% of shares files Schedule TO even if it currently owns 0%.

Getting the Offer to Shareholders — Rules 14d-4 and 14d-5

Three Permitted Dissemination Methods (Rule 14d-4)

A bidder must physically get the offer to shareholders. Rule 14d-4 permits three methods:

1. Long-form publication: A newspaper advertisement containing all the required offer terms in full. The entire offer is communicated in the ad itself. Expensive but self-contained.
2. Summary publication plus stockholder-list mailing: A shorter summary ad in a newspaper, combined with direct mailing of the full offer documents to holders on the target's stockholder list and non-objecting beneficial owner list. The most common approach for mid-size deals.
3. Direct mailing: If the bidder already possesses a shareholder list — for example, from a prior proxy contest — it may skip publication entirely and mail directly.

Social media posts, press releases to journalists, and emails to investor relations do not satisfy Rule 14d-4. They are supplementary communications, not substitutes for the prescribed dissemination methods.

The Target's Role — Rule 14d-5

A bidder who elects summary publication must obtain shareholder contact information from the target. Rule 14d-5 requires the target to facilitate dissemination by choosing one of two options:

• Option 1 — Furnish the list. Deliver the stockholder list and non-objecting beneficial owner list to the bidder, who then mails the offer materials itself.
• Option 2 — Mail on the bidder's behalf. The target mails the bidder's offer materials to shareholders, with the bidder reimbursing the target's reasonable expenses.

Most targets prefer Option 2 — mailing on the bidder's behalf — to avoid handing a hostile bidder their shareholder list, which could be used to harass holders in future campaigns. Targets cannot simply refuse to cooperate; the choice is between furnishing the list or doing the mailing.

Rule 14e-1 — The 20-Business-Day Framework

Minimum Offer Period — 14e-1(a)

Every tender offer subject to Section 14(e) — meaning every tender offer, not just those governed by Regulation 14D — must remain open for at least 20 business days from commencement. Business days exclude weekends and SEC-recognized federal holidays, so a 20-BD offer typically runs about 28 calendar days.

This floor exists so shareholders have time to receive the offer, read the Schedule TO disclosures, review the target's Schedule 14D-9 response (filed within 10 business days), and make an informed tender decision.

Extension for Material Changes — 14e-1(b)

If the bidder changes either the price or the percentage of securities sought, the offer must remain open for at least 10 additional business days from the date of the change. The 10-day extension runs regardless of:

• How much of the original 20-BD period remains
• Whether the change is favorable or unfavorable to shareholders (a price increase still triggers the 10 days)
• Whether shareholders have already tendered

Non-material changes — typographical corrections, updates to immaterial offer conditions — do not trigger the 10-BD extension. Only price and percentage changes reset the floor.

Note the subtle point: a change in the percentage of shares sought counts even if the per-share price is unchanged. If a bidder raises its target from 40% to 50% of outstanding shares, that alters the proration math for every tendering holder and therefore triggers the full 10-BD extension.

Extension Notice — 14e-1(d)

When a bidder extends an offer, it must announce the extension by press release (or other public disclosure) no later than 9:00 a.m. Eastern Time on the next business day after the scheduled expiration. The notice must disclose the approximate number of shares tendered to date, giving the market visibility into whether the bidder is approaching its minimum condition.

Prompt Payment — 14e-1(c)

After the offer terminates, the bidder must promptly either pay for tendered shares it is accepting or return shares it is not accepting. "Prompt" typically means within a few business days, as soon as reasonably possible given the mechanics of share settlement and payment processing. Delay in payment or return is itself a violation of Rule 14e-1.

Extension vs. Subsequent Offering Period

The mechanical distinction between extending the initial offering period and opening a subsequent offering period is one of the most-tested areas on Series 79. They look similar but operate under completely different rules.

Why the structure matters

The logic behind the rule difference: in a subsequent period, the bidder must immediately accept and promptly pay for shares tendered. Withdrawal rights would create a paradox — a holder could tender, get paid, then withdraw. So withdrawal is eliminated in exchange for prompt payment. Exam questions frequently test this symmetry.

Withdrawal Rights — Rule 14d-7 and Section 14(d)(5)

Rule 14d-7 — Broad Withdrawal During the Offer

Throughout the initial 20-business-day offering period and any extension, a shareholder who has tendered may withdraw any or all tendered shares at any time. Rule 14d-7 does not require the shareholder to give a reason or to wait for a new development. Flexibility is the rule; lock-in is the exception.

Partial withdrawals are permitted. A shareholder who tendered 1,000 shares can withdraw 600 and leave 400 in the offer. Withdrawal rights apply equally to partial tender offers and any-and-all offers during the initial period.

How to Withdraw — Rule 14d-7(b)

Withdrawal requires a written notice delivered to the depositary — the bank or transfer agent acting as the bidder's receiving agent for tenders. The notice must identify the shareholder, specify the shares being withdrawn, and be signed by the tendering holder or an authorized representative. No court order, fee, or direct SEC filing is required.

When Withdrawal Rights End

Withdrawal rights are cut off by acceptance of the shares for payment, not by elapsed time or the closing of the offer. Once the bidder accepts tendered shares under the terms of the offer, the tender becomes irrevocable. This is a critical timing concept: a bidder that accepts shares at the expiration of the initial period locks in those tenders before opening any subsequent offering period.

Section 14(d)(5) — The 60-Day Statutory Backstop

The Exchange Act itself provides a separate statutory withdrawal right: tendered shares may be withdrawn at any time after 60 days from commencement if the bidder has not yet accepted them for payment. Rule 14d-7 makes this statutory right largely moot in practice — withdrawal already exists throughout the offering period — but it remains in the statute as a floor for unusual long-running offer situations (for example, an offer held up by regulatory review for several months).

No Withdrawal During Subsequent Offering Period

Rule 14d-7(a)(2) specifically eliminates withdrawal rights during a subsequent offering period under Rule 14d-11. This is the single most testable distinction between the two post-initial mechanisms. If an exam question involves withdrawal, first identify whether you're in the initial period (or an extension) — where withdrawal is available — or in a subsequent offering period, where it is not.

Rule 14d-8 — Pro-Rata Acceptance on Oversubscription

In a partial tender offer — one seeking less than all outstanding shares — the bidder announces both a target percentage and any minimum condition. When shareholders tender more shares than the bidder is willing to buy, the offer is oversubscribed. Rule 14d-8 controls what happens next.

Pro-Rata, Not First-Come-First-Served

Rule 14d-8 requires the bidder to purchase shares proportionally from all tendering shareholders. If a bidder offers to buy 40% of outstanding shares and 70% are tendered, each tendering holder sells roughly 40 ÷ 70 = 57% of their tendered amount. First-come, first-served acceptance is prohibited because it would punish holders who take time to evaluate the offer and reward those who tender immediately.

Full-Period Calculation

The proration math uses all tenders received through the expiration of the offer, including any extension. Early tenders and late tenders are treated symmetrically in the denominator. A bidder cannot calculate proration based on first-day tenders only, nor can it carve out a separate bucket for institutional holders.

This is a departure from pre-1986 practice, when certain offers used first-day-preferred proration that advantaged rapid tenderers. Modern Rule 14d-8 eliminates that distortion.

Worked Example

A bidder launches a tender offer for 1,000,000 shares (40% of 2.5 million outstanding) at $50 per share. By expiration, holders have tendered 1,750,000 shares (70% of outstanding).

• Proration factor: 1,000,000 ÷ 1,750,000 = 57.14%
• A holder who tendered 10,000 shares has 5,714 shares purchased at $50 and 4,286 shares returned
• A holder who tendered 1,000 shares has 571 shares purchased and 429 returned

All holders are treated by the same factor regardless of when they tendered or how many shares they hold.

What Happens to Returned Shares

Shares not accepted under proration are returned to the shareholder promptly after the offer terminates. The shareholder retains full ownership, including voting and dividend rights — the non-purchased portion is simply restored to the holder as if never tendered.

Rule 14d-10 — All-Holders and Best-Price

Rule 14d-10 is the heart of tender offer equal-treatment protection. It has two independent components that often appear together on the exam but test different mechanics.

All-Holders Rule — 14d-10(a)(1)

A tender offer must be open to every holder of the class of securities subject to the offer. The bidder cannot exclude holders based on:

• Identity (including affiliates of the bidder who hold the class)
• Tenure of ownership
• Domicile (subject to limited cross-border Tier I and Tier II exemptions for foreign private issuers)
• Investment account type

All-holders applies class by class. A bidder who launches a tender for Class A common need only extend the offer to Class A holders — it is not required to tender for Class B common, preferred stock, or convertible debt. Each class is evaluated separately.

Best-Price Rule — 14d-10(a)(2)

The highest consideration paid to any security holder in the offer must be paid to every security holder whose shares are purchased. If a bidder raises the price mid-offer from $40 to $45 per share, every tendered share — including those tendered at $40 before the increase — must receive $45. A side deal paying one holder a premium above the tender price is the classic best-price violation.

Pre-Commencement Purchases Are Outside Best-Price

Best-price applies only to consideration paid during the tender offer. A bidder who purchased 2% of the target's stock in open-market block trades at $48 two weeks before launching a $50 tender offer has not violated Rule 14d-10 — pre-commencement purchases are outside the scope. (Post-commencement outside purchases, however, are restricted by the separate Rule 14e-5 anti-manipulation rule.)

Employment Compensation Safe Harbor — 14d-10(d)

A recurring problem: target executives receive severance, retention bonuses, or accelerated equity vesting in connection with a tender offer. Are those payments "consideration" subject to best-price? Prior to 2006, plaintiffs argued yes — potentially requiring every shareholder to receive equivalent amounts.

The SEC adopted Rule 14d-10(d) in 2006 to provide a safe harbor. An employment compensation arrangement does not violate best-price if:

• The compensation is paid for past services performed, future services to be performed, or future services refrained from (such as a non-compete covenant)
• The amount is not calculated based on the number of shares tendered by the security holder
• The arrangement is approved by the independent directors or compensation committee of the relevant board (target or bidder)

All three conditions must be met. Shareholder proxy votes are not required, and equity awards and accelerated vesting are both permitted under the safe harbor if the substantive conditions are satisfied.

Two-Tier Offers Are Dead

Before Rule 14d-10 was adopted, some bidders used "two-tier" or "front-end-loaded" tender offers — paying a premium cash price to the first wave of tendering shareholders and a lower (or stock-based) price to the rest in a back-end merger. The all-holders and best-price rules kill this structure inside the tender offer itself. Modern practice pairs the tender and back-end merger at equal consideration to avoid both best-price problems and state-law fiduciary and appraisal litigation.

Schedule 14D-9 — The Target's Response in Detail

Schedule 14D-9 is the target's required response to a tender offer. It serves two functions: communicating the board's position to shareholders and providing the material information shareholders need to evaluate the offer alongside the bidder's Schedule TO.

Timing — 10 Business Days

Rule 14d-9(b) and Rule 14e-2 both require the target to publish, send, or give to security holders — and file with the SEC — its Schedule 14D-9 within 10 business days of commencement. The deadline applies regardless of whether the board ultimately supports, opposes, or takes no position on the offer.

Four Permitted Positions (Rule 14e-2)

The target board must state one of four positions and explain the reasons supporting it:

1. Recommend acceptance of the offer
2. Recommend rejection of the offer
3. Express no opinion and remain neutral
4. State that it is unable to take a position at this time

Silence is not permitted — the board must take one of these positions. But "neutral" and "unable to decide" are real options, typically used when the board needs more time to evaluate the offer or concludes there is insufficient information to commit.

Required Disclosure Items

Schedule 14D-9 consolidates the target's disclosures across Items 1000 through 1016 (Regulation M-A). Key items include:

• Item 1005 — Past Contacts: Material past contacts, transactions, negotiations, or agreements between the target and the bidder
• Item 1012(a)–(c) — Solicitation/Recommendation: The board's position on the offer, the reasons for that position, and any intent by target directors and officers to tender their shares
• Item 1012(d) — Fairness Opinion: Summary of any financial advisor opinion on the fairness of the consideration, including the advisor's analysis and any fees paid
• Item 1006 — Purposes: If the target participated in the negotiation, a description of the transaction's purpose and the target's plans
• Item 1011 — Additional Information: Any other material information needed for a shareholder to make an informed tender decision

Stop-Look-Listen Communications — Rule 14d-9(f)

The 10-business-day response window can feel tight when a board is evaluating a complex or surprise bid. Rule 14d-9(f) permits a limited "stop, look, and listen" communication — the board advises shareholders not to tender while the board completes its evaluation, without the communication constituting a solicitation or recommendation that triggers the full Schedule 14D-9 disclosure package.

The stop-look-listen is a buy-time mechanism, not a substitute for the 14D-9 filing. The target still must file the full schedule within 10 business days.

Amendment Duty

Schedule 14D-9 is not a one-shot filing. The target has a continuing duty to amend when material changes to previously disclosed information occur — for example, a shift in the board's position, a competing offer, the loss of a key customer contract, or new valuation analysis. Amendments must be filed promptly so shareholders have current information while the offer remains open. The amendment duty is independent of the bidder's Schedule TO amendments and does not wait for quarterly reporting cycles.

Pre-Commencement Communications

Schedule 14D-9 is a response to an actual commenced tender offer. Before a tender offer is commenced, the target has no 14D-9 obligation and may communicate normally with shareholders about strategy, valuation, and governance. If a target anticipates a hostile offer, it may make public statements about its standalone plan, investor-day presentations, or shareholder engagement materials without filing a premature 14D-9. Regulation 14D and anti-fraud rules still apply, but ordinary shareholder communications are permitted and do not require a response filing until the offer actually commences.

The Board's Fiduciary Framework — Unocal and Revlon

Delaware law provides the governing fiduciary framework for most M&A decisions involving publicly traded companies. Understanding which standard applies in a tender offer context — and when the standard shifts — is critical Series 79 material.

Business Judgment Rule — The Default

In most board decisions, directors receive deferential review under the business judgment rule: courts presume directors acted on an informed basis, in good faith, and in the honest belief that their actions served the company's best interests. Plaintiffs challenging a routine decision bear a heavy burden.

Unocal — Enhanced Scrutiny for Defensive Measures

Under Unocal v. Mesa Petroleum (1985), when a target board adopts defensive measures in response to a hostile offer (poison pills, white knight arrangements, deal-protection devices), the board must show:

1. Reasonable grounds to believe the offer poses a threat to corporate policy and effectiveness, and
2. The defensive response is reasonable in relation to the threat posed — neither preclusive (absolutely blocking a hostile bid) nor coercive (forcing shareholders to tender against their will)

Unocal is a proportionality test. Courts will strike down defensive measures that go too far, even in response to a genuine threat.

Revlon — Auctioneer Mode

Under Revlon v. MacAndrews & Forbes (1986), once a sale or change of control of the target becomes inevitable, the board's role shifts from long-term corporate strategist to auctioneer seeking the highest reasonably available price for shareholders. Revlon duties typically apply when:

• The target agrees to a cash sale of the company
• The target commits to a transaction that will result in a controlling shareholder emerging from a dispersed ownership structure
• Break-up of the company becomes inevitable

Revlon does NOT apply merely because the target's stock price has fallen, or because a 13D filer is accumulating shares, or because the SEC staff has commented on corporate actions. The trigger is the inevitability of change of control.

Competing Bidders and Fiduciary Out Clauses

When a friendly merger agreement is in place and an unsolicited competing bidder emerges with a higher price, the target board's fiduciary duties continue. Most modern merger agreements include a fiduciary out: a clause permitting the board to change its recommendation (and in some cases terminate the agreement, usually triggering a break-up fee) if the board determines in good faith, after consultation with legal counsel, that a competing proposal constitutes a "superior proposal."

Any change in recommendation must be promptly disclosed via an amendment to Schedule 14D-9. The original merger contract does not extinguish fiduciary duties — it structures how those duties can be exercised in the context of a competing bid.

Informed Evaluation Is Mandatory

Across all three standards — business judgment, Unocal, and Revlon — the board must be adequately informed. In practice this means retaining:

• Financial advisors to perform a valuation analysis (comps, precedent transactions, DCF) and deliver a fairness opinion
• Legal counsel to assess deal mechanics, fiduciary duties, and regulatory requirements

Automatic rejection of a hostile offer or automatic acceptance based on premium alone would breach the duty of care. Delegation to counsel alone is not sufficient informed deliberation — the board itself must engage.

Rule 14e-5 — Anti-Manipulation Outside the Tender Offer

Rule 14e-5 prohibits "covered persons" from purchasing the subject securities — or certain related securities — outside the tender offer itself, during the period the offer is pending. The rule is an equal-treatment backstop that reinforces the all-holders and best-price principles of Rule 14d-10.

The Prohibition

Under Rule 14e-5(a), covered persons may not directly or indirectly purchase or arrange to purchase subject securities or related securities except as part of the tender offer. Without this prohibition, a bidder could pay select large holders a higher off-tender price to lock up their shares while paying the rest of the shareholder base the lower official tender price — precisely the discriminatory treatment the Williams Act is designed to prevent.

Who Is a Covered Person?

Rule 14e-5(c) casts a wide net. Covered persons include:

• The offeror and its affiliates
• The dealer-manager and its affiliates
• Any advisor to either group whose compensation depends on the completion of the offer (typically success-fee financial advisors)

The broad definition exists to prevent the bidder from routing outside purchases through affiliates or advisors to circumvent the rule. Target directors and unaffiliated market makers are not covered persons by virtue of those roles alone.

Subject Securities and Related Securities

The prohibition reaches two categories of instruments:

• Subject securities: the class of securities being tendered for
• Related securities: instruments immediately convertible into, exchangeable for, or exercisable for the subject securities — convertibles, warrants, options, and derivatives whose value is linked to the target's underlying stock

Industry peers, non-convertible debt, and preferred stock not linked to the common would generally not be related securities.

Timing

Rule 14e-5 attaches at the public announcement of the tender offer, not at formal commencement under Rule 14d-2. The rule recognizes that the market reacts to an announcement even before Schedule TO is filed. The prohibition runs through expiration of the offer, with a specific carve-out: purchases during a subsequent offering period under Rule 14d-11 are permitted if the consideration is the same form and amount as the tender offer itself.

Pre-announcement purchases are outside Rule 14e-5 but may raise separate Rule 10b-5 concerns if made on MNPI.

Rule 14e-5(b) Excepted Transactions

Rule 14e-5(b) lists specific excepted activities that do not violate the rule:

• Exercises of securities: Converting, exchanging, or exercising related securities the covered person owned before public announcement
• Plan purchases: Purchases by or for a plan made by an agent independent of the issuer (for example, routine ESOP contributions handled by a plan trustee)
• Qualifying odd-lot offers: Purchases pursuant to an odd-lot tender offer under Rule 13e-4(h)(5)
• Intermediary activity: Purchases by or through a dealer-manager or its affiliates in the ordinary course on an agency basis not for a covered person, or as principal if not a market maker and the purchase offsets a contemporaneous sale

Broad open-market purchases, bulk block trades from large holders, and private placements from the target at the tender price are not excepted. These transactions would violate Rule 14e-5 if executed during the offer period.

Policy Rationale Recap

Rule 14e-5 is equal treatment with teeth. Rule 14d-10 defines the substantive equal-treatment obligation for consideration paid inside the offer. Rule 14e-5 prevents covered persons from evading that obligation by paying differently outside the offer. Together, the two rules form a closed loop that forces all purchases of the subject securities during the offer period to go through the tender structure at the tender price.

Why Two-Step? — Tender Offer Plus Back-End Merger

For acquirers of public companies, the classic deal structure is a two-step: a tender offer followed by a back-end merger that converts any shares not tendered into the same consideration paid in the offer. This structure has dominated friendly public-company deals for decades. Understanding why reveals the mechanical advantages of tender offers over one-step statutory mergers.

Speed Is the Central Advantage

A one-step statutory merger requires:

1. Board approval of the merger agreement
2. Preparation and SEC staff review of a proxy statement (typically 2–3 months, longer if staff has comments)
3. Mailing the definitive proxy to shareholders
4. A stockholder meeting with a vote on the merger
5. Closing — usually 4–6 months total from signing

A two-step tender offer compresses the same deal:

1. Sign the merger agreement
2. Launch the tender offer (Schedule TO filed on commencement day) with the 20-business-day minimum offer period
3. Accept and pay for tendered shares at expiration
4. Consummate the back-end merger — instantaneously under DGCL §251(h) or §253 — that cashes out any remaining non-tendering holders at the same price
5. Total timeline: 4–6 weeks from signing

The savings — often 60–90 days — matter intensely to acquirers who need financing-commitment certainty, regulatory clearance timing, or competitive protection against rival bidders. Sellers benefit too: cash lands in shareholders' accounts weeks earlier.

Other Considerations That Are NOT the Advantage

Students sometimes guess incorrectly at the two-step's benefit. For clarity:

• Disclosure: Schedule TO disclosure is substantial — it is not materially lighter than a proxy statement. Bidders do not avoid disclosure by going the tender-offer route.
• Antitrust: Hart-Scott-Rodino review applies to both structures equally. HSR is triggered by the acquisition itself, not by the form of the transaction.
• Institutional shareholders: The all-holders rule means institutional and retail shareholders must be treated identically. There is no structure that excludes institutions from a public-company tender offer.
• Appraisal rights: DGCL §251(h) mergers preserve appraisal rights under DGCL §262, even when the consideration is publicly traded stock. The two-step does not eliminate dissenters' rights.

Speed is the driver. Everything else is roughly constant.

Delaware Back-End Mergers — DGCL §253 and §251(h)

Once a tender offer closes, the acquirer typically holds a large stake but not 100% of the target. The back-end merger "squeezes out" any remaining non-tendering shareholders by converting their shares into the same consideration paid in the tender. Two sections of the Delaware General Corporation Law provide the mechanics.

DGCL §253 — Short-Form Merger at 90%

Under DGCL §253, a parent corporation that owns at least 90% of each class of a subsidiary's outstanding voting stock may effect a "short-form" merger without any stockholder vote. The parent's board approves the merger, a certificate of merger is filed, and the minority is cashed out at the specified consideration.

For decades, reaching 90% through a tender offer was the central aim of two-step acquisitions. Bidders either set a 90% minimum tender condition and hoped holders responded, or they negotiated top-up options in the merger agreement — rights to purchase newly issued authorized-but-unissued target shares to push ownership above 90% when the tender fell short.

DGCL §251(h) — The 2013 Reform

Section 251(h), effective August 1, 2013, fundamentally changed Delaware practice. It permits the back-end merger to close without a shareholder vote when the bidder owns, post-tender, only the percentage required to approve a long-form merger — typically a simple majority under §251(c) unless the target's charter requires more. This effectively replaces the 90% threshold with a simple majority for qualifying deals.

Key conditions for §251(h):

• The target's shares must be listed on a national securities exchange or held of record by more than 2,000 holders immediately prior to execution of the merger agreement
• The merger agreement must expressly opt in to §251(h) — the statute is not automatic
• The tender offer must be for any and all of the target's outstanding stock that would otherwise be entitled to vote on the merger
• The non-tendered shares must be converted into the same consideration (amount and kind) paid in the tender offer
• The back-end merger must be effected as soon as practicable after the tender closes
• The target's certificate of incorporation must not expressly require a stockholder vote or a supermajority / separate class vote that §251(h) cannot satisfy

The §203 Interested Stockholder Exclusion

Section 251(h) is not available if, at the time the target's board approves the merger agreement, any party to the agreement is an "interested stockholder" of the target as defined in DGCL §203 — generally a 15% or greater holder. The exclusion targets situations where an already-significant holder could use §251(h) to squeeze out other minority shareholders without a vote, situations that implicate entire-fairness concerns and are more likely to involve conflicts.

The practical effect: §251(h) is available for genuine arm's-length third-party acquisitions but not for most going-private transactions by existing large holders, management buyouts involving significant executive equity, or follow-on squeeze-outs by a 15%+ holder. Those transactions must use a long-form merger with a full shareholder vote (or Rule 13e-3 going-private disclosure where applicable).

§253 Is Still on the Books

§251(h) did not repeal §253. When a bidder does reach 90%+ through the tender, §253 remains available and is often the simpler path — it does not require the §251(h) opt-in, eligibility conditions, or §203 analysis. Most modern deals plan for §251(h) primacy but keep §253 in reserve.

Top-Up Options Today

Top-up options remain legal and are occasionally negotiated, but they are largely obsolete in §251(h)-qualifying deals. The simple-majority post-tender threshold under §251(h) is usually met through the offer itself, so the 90% squeeze is no longer the operative constraint. Top-ups persist mainly in non-Delaware deals, §203-blocked deals, and deals where the charter requires a stockholder vote that §251(h) cannot eliminate.

Special Tender Offer Situations

Mini-Tender Offers (< 5%)

A mini-tender offer is a tender offer where the bidder will hold less than 5% of the target's outstanding shares after consummation. The 5% post-offer threshold matters because it sits below the Section 14(d) trigger for Regulation 14D.

What mini-tenders escape:

• Schedule TO filing obligation (no public disclosure of terms or bidder identity)
• Regulation 14D dissemination requirements
• Rule 14d-10 all-holders and best-price protections
• Rule 14d-7 withdrawal rights during the offer
• Rule 14d-8 pro-rata acceptance on oversubscription

What mini-tenders still owe shareholders:

• Rule 14e-1(a) — 20-business-day minimum offer period
• Rule 14e-1(b) — 10-business-day extension for price or percentage changes
• Rule 14e-1(c) — prompt payment or return of securities
• Rule 14e-2 — target's 10-business-day response obligation (if the target becomes aware of the offer)
• Rule 14e-3 — tender offer insider trading prohibition
• Rule 14e-5 — anti-manipulation outside-purchase prohibition
• Section 14(e) — the general anti-fraud provision

The SEC has publicly warned investors that mini-tenders are frequently priced below market and often marketed in ways that obscure their lack of normal protections. Broker-dealer back- office systems sometimes do not distinguish mini-tenders from SEC-registered tender offers, and solicitations on broker letterhead can mislead retail holders. For Series 79 purposes: mini-tenders are federally regulated — just not by Regulation 14D.

Odd-Lot Tender Offers — Rule 13e-4(h)(5)

Rule 13e-4(h)(5) permits issuer tender offers limited to holders who own fewer than 100 shares (an "odd lot"). These offers are exempt from certain Rule 13e-4 requirements — notably the all-holders rule — because the narrow scope is understood to reduce the issuer's administrative cost of managing small-balance accounts rather than discriminate against larger holders.

Odd-lot offers are issuer offers, not third-party bids, and do not require case-by-case SEC staff approval. They frequently appear as voluntary buyback programs for long-tail shareholders whose small positions cost more to service than the shareholder equity they represent.

Exchange Offers — Dual Compliance

An exchange offer is a tender offer where the bidder offers its own newly issued securities — typically common stock — rather than cash in exchange for target shares. Exchange offers are subject to dual regulation:

• The offer itself is a tender offer governed by the Williams Act under Regulation 14D and 14E (Schedule TO, 20-BD minimum, withdrawal, proration, all-holders/best-price)
• The issuance of the new bidder securities in exchange for target shares is a "sale" of securities that must be registered under the Securities Act of 1933, typically on Form S-4

Tender offer status does not exempt the issuer from Securities Act registration. The bidder must be eligible to use Form S-4 (generally requires the bidder to be a current Exchange Act reporting company). If the bidder is not S-4 eligible, an exchange offer is not a viable structure — the bidder would need to use cash or register under a different form.

Issuer Self-Tenders — Rule 13e-4

When a public company repurchases its own shares via a tender offer, Rule 13e-4 applies. The issuer must file Schedule TO and comply with dissemination, minimum offer period, withdrawal, pro-rata, and equal-treatment requirements that largely parallel Regulation 14D. Common uses include:

• Large one-time capital returns at a premium to market
• Dutch auction structures (the issuer specifies a price range and buys back within the range at a single clearing price)
• Defensive measures against hostile bidders (reducing the float and concentrating ownership)
• Odd-lot clean-ups under Rule 13e-4(h)(5)

Rule 13e-4 operates separately from Rule 10b-18, which is a safe harbor for ordinary open-market stock buybacks outside a tender offer structure. Self-tenders are tender offers and run through Rule 13e-4; open-market repurchase programs are not tender offers and run through Rule 10b-18.