M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Thursday, January 10, 2008

Wanted M&A Regulator (Deal Junkies Preferred)

The SEC has posted up on their website the job opening for Brian Breheny - Chief of the Office of Mergers and Acquisitions. The pay is $119,731-$185,393 which is about what a first year associate in M&A makes these days. Hopefully, the attraction of being at the center of federal regulation of takeovers is more than recompense. The application deadline is January 22nd for those who want to apply, and according to the website the SEC was selected the third best federal workplace in 2007 -- this begs the question of who numbers 1 and 2 are. 

Having never worked or interviewed at the SEC I have no idea of the process or how things work there. But presumptuously I've prepared a medium-term agenda for the new chief. Perhaps it might come in helpful in the interviewing process. 

  1. Fairness Opinions.  You finally need to force the SEC to sit down and take a hard look at fairness opinion practice.  These opinions are subjective and not prepared using best practices or to any definitive standards; problems which are exacerbated by the conflicted nature of the investment bank in rendering these opinions.  Moreover, SEC rules need to be updated in this area (e.g., fairness opinion disclosure is required in proxies but not for cash tender offers). 
  2. Merger/Tender Offer Parity.  The poison pill has sterilized the use of the tender offer as a takeover device.  Consequently, there is no significant difference between the tender offer and merger structure any more.  You should undertake a comprehensive review to end the disclosure, timing and other regulatory differences between tender offers and mergers to put them on parity.  (e.g., a company who is not current in its financial reporting can be the subject of a tender offer but, because of an SEC staff proxy rule interpretation, may not be able to issue a merger proxy, a particular problem in options back-dating cases).  There is no reason for this. 
  3. Updating the Cross-Border Rules.  The Cross-Border Rules were a significant step by the SEC to attempt to accommodate cross-border acquisitions.  Yet, because of a number of technical problems with the rules (detailed here), they have not been fully utilized and instead issuers have increasingly relied on the exclusionary offer to avoid wholesale application of the U.S. securities laws.  You should take the easy steps to fix these problems and again encourage these transactions to include U.S.-based holders.  It would also help if the SEC looked at the scheme of arrangement exemption under Section 3(a)(10); most U.K. acquirers now use it as the preferred method to largely avoid the U.S. securities laws in acquisitions, and I am not so sure that it functions the way the SEC thinks intended it should when it first permitted this exemption.
  4. Abolish Rule 14e-5 as it applies to tender offers.  My pet-peeve.  Rule 14e-5 was promulgated in 1969 as Rule 10b-13 to prohibit bidder purchases outside of a tender offer from the time of announcement until completion.  The primary reason put forth by the SEC for barring these purchases in 1969 was that they “operate[] to the disadvantage of the security holders who have already deposited their securities and who are unable to withdraw them in order to obtain the advantage of possible resulting higher market prices.”  This is no longer correct; bidders are now obligated to offer unlimited withdrawal rights throughout the offer period.  Moreover, Rule 10b-13 was issued at a time when targets had no ability to defend against these bidder purchases.  Not true anymore either -- the poison pill and other regulatory bars limit or inhibit bidder purchases outside an offer.  And Rule 14e-5 applies to tender offers but not mergers (the parity issue again).  But the Market Reg. division of the SEC has assiduously protected this rule despite its obsolescence.  You would do better to convince your fellow regulators to deregulate and leave the possibility or actuality of bidder toeholds and  post-announcement purchases to be regulated by targets through a low-threshold poison pill or other takeover defenses as well as through bargaining with potential bidders (For more on this see here).
  5. SPACs. The new force in our capital markets, these are a problem waiting to happen.  You need to convince the SEC to take a hard look at these vehicles and to modify Rule 419 to ensure that SPACs are covered by the rule (they currently sidestep its application through a net asset test loophole).  In particular, consider looking at the gun-jumping rules and how SPACs avoid them and limitations to impose since as of now SPACS have become an arb dream due to the limited information available prior to consummation of the acquisition.

Thanks to Deallawyers.com for pointing out the job post.   


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