June 20, 2006

Meeting Notes: The SEC’s Chief of M&A Speaks

Last Friday, Brian Breheny, Chief of Corp Fin’s Office of Mergers and Acquisitions was the guest speaker at a meeting of the Association of the Bar of the City of New York Special Committee on Mergers, Acquisitions and Corporate Control Contests. Brian discussed a number of topics of interest; following is a brief summary of those issues (as is always the case, Brian noted that his views were his own views and not the views of the Commission or his fellow staff members):

1. SEC proposed amendments to the tender offer best-price rule:

– the amendments to the tender offer best-price rule remain the office’s top priority;
– it is unclear as to when the Commission may adopt the final rule amendments, although Brian thought it was possible that the amendments might be adopted this year;
– the staff is in the process of considering the comments received to the proposed amendments;
– Brian noted that it is likely that changes will be made before adoption to address some of the comments;
– he noted that expanding the proposed compensation exemption and compensation committee safe harbor to issuer tender offers was uniformly recommended and that he thought those changes would be consistent with the Commission’s intention for proposing the amendments;
– he also noted, however, that certain of the other proposed changes, such as providing a carve out from the best-price rule for commercial arrangements or a de minimus ownership exemption, were given serious consideration during the proposing stage; and
– finally, Brian noted that he was keenly aware of the concerns raised by commentators about the need for the changes to result in an effective exemption and safe harbor.

2. Study of the cross-border tender offer rules:

– the office of mergers and acquisition continues to study whether recommendations should be made to the Commission to change certain of the cross-border tender offer rules;
– the data provided by bidders to date is that certain of the rules, such as the 30-day look back to determine share ownership levels, are difficult to comply with; and
– the office and, for purposes of Rule 14e-5, the staff of the Division of Market Regulation, is considering whether certain consistent relief granted since the adoption of the cross-border rules could be handled in a global exemptive order.

3. NASD proposed fairness opinion disclosure and policy/procedure rules:

– the staff of the office of mergers and acquisitions and the Division of Market Regulation is considering the comments received by the Commission to the NASD’s proposed Rule 2290;
– the comment period closed in May 2006;
– 7 comments were received;
– certain language changes to the proposed rules may be necessary to address potential inconsistencies in the proposed language of the rule; and
– the ABCNY Committee reiterated concerns regarding requirement for policy/procedure re: differential compensation to officers, directors and other employees.

4. Section 13(d)/ beneficial ownership reporting compliance:

– the staff continues to view compliance with the beneficial ownership reporting rules as a high priority;
– the staff has heard concerns that hedge funds and/or others may knowingly be crossing the line and acting in concert pursuant to an agreement or arrangement without filing a Schedule 13D to reflect the Group’s beneficial ownership and plans, etc.; and
– the staff will aggressively pursue willful violations of Section 13(d) if it becomes a aware of such conduct.

5. Fairness opinion disclosure:

– there may be a need to revisit the disclosure practices related to fairness opinions;
– the ABCNY Committee questioned the staff policy related to including a risk factor regarding contingent financial advisory fees and requesting (in a non Rule 13e-3 transaction) that filers provide the staff on a supplemental basis, copies of board materials not referenced in background section of the proxy/registration statement so that the staff could consider the need to refer to just board materials; and
– Brian and the Committee agreed to maintain a dialogue about these issues.