There’s no escaping it – US securities and tender offer laws are implicated in essentially every public M&A deal, no matter where in the world the bidder and target are located and whether the consideration is cash and/or shares. This is because the relevant US rules are concerned not with the location of the bidder and target or the governing law of the transaction, but instead with the location of the target’s shareholders. So, if the target has any US-resident beneficial shareholders (and let’s face it – it will), the bidder will need to be cognizant of the US securities and tender offer regime.
Don’t worry, there are exemptions from the US rules available in many cases, especially where the target is not listed on a US exchange. The table below sets out, at a very high level, the exemptions and structures most commonly used in this scenario. As you can see, transactions involving only cash consideration generally present fewer US issues than those involving share consideration; and schemes of arrangement (or similar court-sanctioned proceedings) in many jurisdictions are exempt from the relevant US rules altogether.
The last decade has seen a substantial amount of cash-only M&A activity, supported by strong stock market performance. And where schemes of arrangement are available, these have been a popular structure for friendly M&A transactions. The upshot of all this has been that US considerations in M&A structuring have often taken a back seat.
So what about going forward? With less frothy share prices and opportunistic buyers on the hunt, we anticipate that the next M&A cycle is going to see more deals featuring share consideration, as well as more hostile and contentious activity (and therefore proportionally fewer schemes of arrangement). US issues in public M&A are therefore going to be more salient than ever, and bidders should make sure these are considered at the earliest possible stage.
If you’d like more detail on this topic, get in touch with us or your usual Freshfields contacts to discuss.
US Tender Offer Rules
US Securities Act*
Tier I Exemption
(target share capital <10% US)
Tier II Exemption
(target share capital <40% US)
Schemes of Arrangement
*Absent an applicable exemption, it is unlawful to offer or sell securities into the US without an effective SEC registration statement. The SEC registration process is lengthy, resource-intensive and results in onerous ongoing filing and corporate governance requirements.
Note: This blog post assumes the target is not an SEC registrant. Where the target is registered with the SEC, additional considerations will apply and US counsel should be involved from the start.