Three Tender-Offer Frameworks

Three statutory hooks govern three different fact patterns. The same tender offer can fall under more than one (an issuer self-tender that takes the company private), in which case the issuer files BOTH schedules. Knowing which framework applies tells you which form gets filed and what disclosure depth is required.

What Is a Third-Party Tender Offer?

The third-party framework is the classic case: an outside bidder makes an offer to the target's shareholders.

The bidder does not have to be a stranger to the target, though. An affiliate of the target, such as a controlling shareholder, can also be a bidder under this framework.

What matters is whose account the affiliate tenders for, not whether it is affiliated with the target. An affiliate tendering for its own account is a bidder under this framework, not under the issuer self-tender rule below.

• Filed under Schedule TO (under the third-party tender offer rules)
• Subject to ALL of the third-party and universal tender offer rules
• Target must respond on Schedule 14D-9 within 10 business days of commencement

The third-party tender offer rules apply only when the bidder will own more than 5% of the class after consummation. An offer that leaves the bidder at 5% or less after the offer, counting shares it already owns (a mini-tender), escapes the third-party tender offer rules entirely but still owes anti-fraud compliance under the universal tender offer rules.

Exam Tip: Gotchas

• The third-party tender offer rules' threshold is over 5% beneficial ownership AFTER consummation. If the bidder already owns 3% and tenders for 3% more, post-consummation ownership is 6% and the full third-party tender offer regime applies. Pre-existing ownership counts.
• A controlling shareholder's tender offer for the target's own shares files Schedule TO, not Schedule TO-I. Regulation 14D's scope reaches a tender offer made by an affiliate of the issuer, not only an outside bidder, so the target files Schedule 14D-9 in response, the same as against an outside bidder.
• Schedule TO-I is reserved for the issuer itself, or an affiliate tendering on the issuer's behalf. If the controlling shareholder's purchase also crosses a going-private trigger, Schedule 13E-3 is added on top of Schedule TO.

What Triggers a Going-Private Transaction?

The going-private rule is the consequence-based trigger. It applies when an issuer or its affiliate engages in a transaction that has a reasonable likelihood (or a purpose) of taking the company out of public-company status.

The test looks past a single isolated step. SEC staff guidance evaluates a transaction standing alone, or as the first step in a planned series of related transactions. A step that would not by itself cross a trigger can still require Schedule 13E-3 if the series as a whole is reasonably likely to produce (or is undertaken with the purpose of producing) one of the defined effects below.

Four consequence triggers:

Triggering transaction types:

• Issuer purchase of its own equity (in the open market or through a tender offer)
• Issuer tender offer
• Proxy solicitation in connection with an M&A transaction (cash-out merger, freeze-out, reverse stock split designed to cash out small holders)

When the going-private trigger fires, the issuer or affiliate must file Schedule 13E-3 with enhanced fairness disclosure on top of whatever other form would normally apply (Schedule TO-I for an issuer self-tender, Schedule 14A for a proxy-solicitation merger).

What Enhanced Disclosure Does Going-Private Require?

Schedule 13E-3 is not just a notice filing. It carries substantive disclosure obligations designed to protect unaffiliated shareholders from being squeezed out at an unfair price.

Each filer must:

• State whether it reasonably believes the transaction is fair or unfair to unaffiliated security holders, and provide the material factors supporting that belief
• Describe and file as exhibits all reports, opinions, or appraisals materially related to the transaction (including fairness opinions and valuation reports)
• Disclose funding sources, contractual relationships, and past contacts with unaffiliated holders

Think of it this way: The going-private rule turns the standard tender-offer disclosure regime into something closer to a securities offering prospectus. Because the affiliate has an information advantage and is forcing minority shareholders out, the SEC requires a much higher standard of disclosure and substantive fairness analysis.

Exam Tip: Gotchas

• The going-private rule's trigger is the 300-holder, reporting-suspension, or delisting threshold, NOT the 2,000-holder registration threshold. Going private is about getting OUT of public-company status; the 2,000-holder line is the gate for getting IN. Easy to confuse on the exam.
• Termination and suspension of reporting are two separate effects. A transaction with a reasonable likelihood of merely suspending (not ending) the company's Exchange Act reporting obligations still triggers the going-private rule; it does not need to reach full termination.
• Schedule 13E-3 is filed IN ADDITION to the underlying form, not instead of it. An issuer self-tender that takes the company private files Schedule TO-I AND Schedule 13E-3.
• A single step is not judged in isolation when it is part of a planned series. If an issuer or affiliate undertakes one transaction as the first step toward a larger plan, the reasonable-likelihood test looks at the whole planned series, not just that one step.

What Is an Issuer Self-Tender Offer?

The issuer tender offer rule applies when the issuer itself, or an affiliate tendering on the issuer's behalf (for example, a subsidiary retiring shares with the issuer's own funds), tenders for the issuer's own securities.

An affiliate that tenders for its own account instead, such as a controlling shareholder buying out the minority, is a bidder under the third-party framework covered above. Being affiliated with the issuer does not by itself make a tender an issuer self-tender.

• Filed under Schedule TO-I (the "I" variant)
• Subject to its own version of the 20-business-day minimum offering period, withdrawal rights, prompt payment, proration in oversubscribed partial offers, and equal-treatment requirements
• The parallel all-holders and best-price rules live inside the issuer tender offer rule (the third-party rules are mirrored)
• Withdrawal-rights revival differs from the third-party rule: securities not yet accepted for payment become withdrawable again after 40 business days from commencement, not the third-party offer's 60-calendar-day figure
• The issuer or affiliate must also file all written communications relating to the offer, starting with the first public announcement, and neither may purchase the security outside the offer until 10 business days after termination, an issuer-specific tail on top of the general outside-purchase prohibition

Common reasons an issuer runs a self-tender:

• Return capital to shareholders without a regular dividend
• Buy back stock at a fixed premium (rather than gradually through open-market repurchases)
• Modified Dutch auction to find a clearing price for a buyback
• As a step in a going-private transaction

When the self-tender is going-private, both Schedule TO-I and Schedule 13E-3 get filed.

Exam Tip: Gotchas

• Going-private vs issuer self-tender is a frequent trap. The issuer tender offer rule is the MECHANISM (issuer buying back through tender procedure). The going-private rule is the CONSEQUENCE (transaction designed to take the company out of public-company status).
• An issuer self-tender that takes the issuer below 300 holders or off-exchange is ALSO a going-private transaction. Schedule 13E-3 gets filed in addition to Schedule TO-I.
• An affiliate is not automatically an issuer self-tender. A controlling shareholder is an affiliate, but a controlling shareholder buying shares for itself files Schedule TO under the third-party framework, not Schedule TO-I. Schedule TO-I applies only when the issuer itself, or an affiliate acting on the issuer's behalf, is the one retiring the shares.

How Do the Three Frameworks Compare?

What Should You Check on Exam Day?

• Ask which framework governs before answering: third-party (outside bidder), issuer tender offer rule (issuer buys its own stock), or going-private rule (consequence of dropping below 300 holders, ending reporting, or delisting).
• Do not treat the going-private trigger as a bare "below 300 holders" shortcut; apply the full effects-based test (reasonable likelihood or purpose), including reporting suspension as well as termination.
• Remember Schedule 13E-3 is filed in addition to, never instead of, the underlying Schedule TO-I or Schedule 14A.
• Watch for an issuer self-tender that also crosses a going-private trigger; it requires both schedules.
• Remember an issuer tender offer can be made by the issuer OR an affiliate, and both are barred from buying the security outside the offer until 10 business days after termination.