In a previous article, we discussed the basics of the Williams Act. We have discussed in detail how it came to be, who made this Act possible, and how it helps companies and corporations protect themselves against takeovers.
In this article, we will talk about the Time Period of the Williams Act. But first, let’s have a quick refresher. The Williams Act was created and designed to protect both parties in a possible acquisition.
There have been a few changes and alterations to the Williams Act to make it better for everybody. Now, it’s time to move on to the Time Periods of the Williams Act and other details of the Act.
Time Periods of the Williams Act
Let us discuss the time periods of the Williams Act and when these periods should take place. We will also talk about how the process is for each period.
Required Time of Bid
Any tender offer must be kept open for at least 20 business days, in compliance with the William Act. 20 business days is the bare minimum. During that period, it is a must for all acquiring firms to accept all the shares that are tendered.
However, that doesn’t mean that they must actually buy any of these shares until the offer period ends. This minimum offer period was added and designed to discourage shareholders from being pressured into tendering their shares. This is an option rather than risking losing out on the offer.
With the help of the minimum offer period, shareholders and both parties can actually have the time to consider the offer. This time can be spent comparing the terms of the offer with other offers and other options.
Additionally, on the 20-day offer period, the offering firm has the option to get an extension. For instance, if the offering firm highly believes that there is a better chance of getting the shares it needs should they have an extension, then it will be granted.
Tendered Shares at the Offer Price
The shares tendered at the offer price must be purchased by the acquiring firm as well. At least on a pro-rate basis, this can be achieved. This is true unless the firm does not receive the total number of shares it requested in the terms of the tender offer. However, the acquirer still has the option or the choice to purchase the tendered shares.
Moreover, a tender offer may also be written and worded to contain other escape clauses. For instance, when there is an issue with antitrust considerations, there may be a contingency option on attaining the regulatory agencies’ approval. If that is the case, the offer night is so worded as to state that the bidder is not bound to buy if there is an objection to the merger by the Justice Department or the FTC.
You’re probably thinking that if there is a minimum offer period, there should also be a maximum offer period. While that may be true in other countries, it is not the same in the United States. In the U.S., there is no maximum offer period.
Exchange Offers
This term usually refers to an offer that is a stock-for-stock. There is an exchange between both parties, hence the exchange offer. It can also refer to a cash and stock combination for a stock transaction.
After a registration statement for the shares being offered has been filed with the SEC, an exchange offer can commence according to the rules. At the time, the offered is not yet in effect or “effective,” the commencement will be considered as “early.”
However, in order for the early commencement to take place, the bidder must be the one to do the filing, disseminates a prospectus to all the security holders and file the Schedule TO.
Keep in mind that there shouldn’t be any actual purchase of the shares yet. They still have to wait until the 20-day minimum offer period is done after the commencement.
Withdrawal Rights
The shareholders also have their own withdrawal rights thanks to the Williams Act. This act has given the shareholders to power to withdraw their shares at any given time during the entire period as long as the offer remains open.
As we said in a previous article, the Williams Act gives the shareholders an ample amount of time to evaluate the offer. That is the goal of the Withdrawal Rights rule. With this rule in effect, shareholders can evaluate the offeror offers (should there be multiple bids.)
After the expiration of the 20-day period, the bidder may also provide an option to extend for an additional three days to accept additional shares tendered. This is all under the new 14d-11 Rule of the Williams Act. This is all assuming that the bidder promptly pays for the shares that are already tendered. It is also a must for the bidder to give the shareholders who tender during the same three-day period the same consideration and prompt payment.
Partial and Two-Tiered Tender Offers
Now we have the partial and two-tiered tender offers. Partial tender offers are when there is a bid for less than 100%. For instance, the bidder bids for 51% of the company. This will usually afford the acquirer control of the target firm, but it is still considered a partial offer.
On the other hand, we have two-tiered tender offers which are bids that provide one type of compensation for the first tier and other compensation for the remaining shares. Generally, courts consider these types of bids to be coercive and opposing the spirit of the Williams Act.
This is because the shareholders in the backend may find that their shares trade for less than before the bid. It also means that the shareholders will be in constant fear that their stock positions will be frozen out. Fortunately, the Best Price Rule exists, and when combined with similar state laws as well as other similar corporate charter amendments, coercive offers such as the ones mentioned above are much less effective.
These coercive rules and types of bids are not illegal in the United States. However, courts have found that targets may be freer to take aggressive defensive measures should they face such offers.
© image credits to Johannes Plenio