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This Morrison Foerster alert discusses a recent SEC enforcement action under Section 14(e) of the Exchange Act and Rule 14e-8 thereunder in connection with a failed tender offer. Here’s the background from the alert:

Esmark first announced its tender offer to acquire all issued and outstanding shares in U.S. Steel for $35 per share (equity value of $7.8 billion) in a press release on August 14, 2023. This announcement came a day after Cleveland-Cliffs Inc. (“Cliffs”) announced its offer to acquire U.S. Steel in a mixed cash and stock offer, with an implied total consideration of $35 per share ($17 in cash and 1.023 shares of Cliffs).

The next day, [its Founder/Chairman and former CEO] provided an interview on CNBC to discuss Esmark’s proposed tender offer. Mr. Bouchard emphasized that, unlike Cliffs, Esmark had provided an all-cash offer. He further noted that Esmark had “$10 billion in cash committed to the deal,” and that it would not put up any of Esmark’s assets as collateral in connection with the offer. The initial offer period was to run from August 14, 2023 to November 30, 2023. However, on August 23, 2023, Esmark withdrew its offer.

In its investigation, the SEC found that Esmark did not even have 1% of the required $7.8 billion in cash required to complete the tender offer as of August 31, 2023. Consequently, the SEC determined that Esmark and Mr. Bouchard lacked a reasonable belief that they would have the means to complete the tender offer and that their public announcements had violated Section 14(e) of the Exchange Act and Rule 14e-8 thereunder.

Esmark and its Founder/Chairman and former CEO agreed to civil penalties of $500,000 and $100,000, respectively.

The alert discusses numerous other enforcement actions arising out of Rule 14e-8 and notes that this most recent enforcement action appears to break the prior pattern of bringing these actions in conjunction with Rule 10b-5 or other sections of the Exchange Act and allegations of price manipulation:

The Esmark case is thus the latest indicator of the SEC’s vigilance towards ensuring the veracity of tender offer communications under Rule 14e-8, separate and additional to any obligations under Rule 10b-5. This shift is evident from recent SEC activities and comments, which could suggest a more proactive stance in scrutinizing the authenticity and feasibility of future tender offer announcements. The case aligns with the SEC’s commitment to maintaining investor trust by holding entities accountable for misleading announcements about their ability to complete a tender offer.

– Meredith Ervine