October 10, 2006
Corp Fin’s Modified Dutch Auction Letter
From Jim Moloney of Gibson Dunn: Here is a no-action letter that is somewhat novel and recent, Alliance Semiconductor Corporation (9/22/06). In this letter, the SEC Staff granted relief to Alliance Semiconductor under Rule 13e-4 permitting the issuer to do a modified Dutch auction tender offer without specifying the “exact” number of securities sought in the offer.
This requirement was made clear in an old no-action letter issued to Janet Thiele in 1987). Since that time, the Staff’s longstanding position has been that a bidder in an issuer tender offer must specify the exact amount of securities sought in the offer to comply with the disclosure requirements.
In the Dutch auction context. it is fairly standard to specify a range of prices within a narrow bandwidth that stockholders can elect to tender at and that will ultimately be used in determining the number of shares purchased and the price paid. In many cases, issuers have tried to say in their offers that they will purchase “up to” some specified number of securities. In this instance, Alliance was seeking to spend a fixed dollar amount ($30m) without specifying an exact number of shares sought.
Counsel (Paul Hastings) was able to convince the Staff that specifying an exact number of shares is unnecessary and should not be required by the tender offer rules. Rather, if a range of prices is specified and a total dollar amount that the issuer is willing to spend in the offer is disclosed, that should be sufficient for investors to make an informed decision as to whether to tender or not.