Quick Answer
This unit covers four SEC rules on going-private and issuer tender-offer disclosure (mechanics come later): the issuer-purchase restriction during a pending tender offer, the going-private regime triggered by dropping below 300 holders of record or delisting, the scope framework under Regulations 14D and 14E, and the target's duty to state its position within 10 business days.
The four rules below define when an issuer or affiliate has crossed a disclosure threshold during a buyback or change-of-control transaction. Each one anchors a specific fact pattern bankers encounter in precedent review.
When Is an Issuer Restricted From Buying Its Own Securities?
When a third party launches a tender offer for an issuer's securities, the issuer is restricted from buying its own securities outside the tender process. The restriction forces the issuer to disclose its purchase activity so the market sees the issuer as a competing buyer (or knows the issuer is sitting out).
- Trigger: A pending third-party tender offer for the issuer's securities
- Effect: Issuer may not purchase its own securities outside disclosed channels
- Analytical use: When reviewing past buyback patterns, gaps in activity often coincide with a pending hostile bid
Think of it this way: If a hostile bidder is offering shareholders a premium, the issuer can't quietly hoover up shares in the open market and tilt the playing field. The disclosure requirement keeps the contest fair.
What Triggers Going-Private Disclosure?
A "going-private" transaction is any transaction (or series) by an issuer or affiliate that has a reasonable likelihood or purpose of:
- Causing the equity class to be held by fewer than 300 holders of record, which makes it eligible for deregistration or suspension of Exchange Act reporting, OR
- Causing delisting of the equity class from a national securities exchange
When the trigger is hit, each filing person must file Schedule 13E-3 and state whether it reasonably believes the transaction is fair or unfair to unaffiliated security holders, with the material factors supporting that belief. If the subject company or affiliate received a materially related outside report, opinion, or appraisal, that work must also be disclosed, but a fairness opinion is not required in every going-private transaction.
Common fact patterns that trigger going-private treatment:
- Management buyout (MBO)
- Sponsor take-private (private equity acquisition of a public company)
- Squeeze-out merger (controlling shareholder eliminates minority holders)
Exam Tip: Gotchas
- 300 holders of record is the going-private threshold for most issuers. The 500 threshold applies in narrower fact patterns. The exam tests recognition that 300 is the standard number.
- Going-private always requires the Schedule 13E-3 fairness statement, but NOT always an outside fairness opinion. Each filing person must say whether it believes the deal is fair and why. An outside fairness opinion, appraisal, or report only has to be disclosed if one was actually obtained.
- The trigger is "reasonable likelihood OR purpose." A transaction structured with the purpose of causing deregistration or delisting can trigger the rule even if that outcome is not the most likely result.
What Sets the Scope of the Tender-Offer Rules?
A framework rule sets the scope and key terms used throughout the two tender-offer regulations:
- The third-party tender offer rules govern third-party tender offers for registered securities (full procedural disclosure regime)
- The universal tender offer rules set broader anti-fraud and procedural rules for tender offers in non-exempt securities, subject to provision-specific exemptions and exclusions, including specified cross-border relief
The framework rule defines what counts as a "tender offer" in the first place: the boundary that determines whether the third-party tender offer rules' formal disclosure regime applies.
Exam Tip: Gotchas
- The third-party tender offer rules apply only to third-party tender offers for registered securities and carry the full disclosure regime.
- The universal tender offer rules are the broader anti-fraud and procedural framework for tender offers in non-exempt securities, but provision-specific exemptions and exclusions, including cross-border relief, can take a given offer out of a specific requirement.
- "Broader" does not mean "unlimited." The universal tender offer rules cover more offers than the third-party rules, but they still apply only to non-exempt securities and remain subject to their own exemptions.
What Must the Target Board Disclose?
When a third party launches a tender offer, the target (subject company) must publish, send, or give holders its position no later than 10 business days after commencement. A covered recommendation or solicitation is filed on Schedule 14D-9 when communicated.
Schedule 14D-9 states the board's position:
- Recommend acceptance: Board endorses the offer; explains why the price is fair
- Recommend rejection: Board opposes the offer; explains why the price is inadequate
- Remain neutral: Board takes no position; explains the basis for neutrality
- Unable to take a position: Board acknowledges the offer but cites lack of information or deliberation time
Schedule 14D-9 is one of the richest single documents in precedent M&A analysis. It typically discloses the fairness opinion, the defensive measures considered, and the board's deliberations.
Exam Tip: Gotchas
- 10 business days is the standard window for Schedule 14D-9. The target must publish, send, or give its position within that window from the offer's commencement.
- The board has four position options, not three. Recommend, reject, neutral, AND "unable to take a position" all count as proper Schedule 14D-9 responses.
How Do the Issuer-Purchase Restriction and Going-Private Regime Differ?
The two SEC requirements with similar numbering and similar fact patterns are easy to confuse.
| Regime | When It Applies | What It Triggers |
|---|---|---|
| Issuer-purchase restriction during a pending third-party offer | Third party is bidding; issuer wants to keep buying its own shares | Purchase-during-tender disclosure restriction |
| Going-private disclosure regime | Issuer or affiliate is taking the company private | Schedule 13E-3 with fairness disclosure |
Exam Tip: Gotchas
- Going private (issuer or affiliate is the buyer) vs issuer purchase during a third-party offer (issuer is sitting alongside a hostile bidder). Mix-ups between the two are a common exam trap. Going private produces Schedule 13E-3. The issuer-purchase restriction is a behavior restriction, not a separate schedule filing.
What Should You Check on Exam Day?
- Identify which of the four rules applies from the fact pattern: who is buying, who is selling, and what triggers the disclosure.
- Recall the 300-holders-of-record and delisting triggers for going-private treatment.
- Remember Schedule 14D-9 is due within 10 business days of tender-offer commencement, with four possible board positions.
- Distinguish the universal tender offer rules (apply to all tender offers) from the narrower third-party disclosure regime (registered securities only).