1.1.9. Going Private and Tender Offers: Schedule 13E-3, Schedule TO, and Schedule 14D-9
Sometimes a company may wish to buy back its own securities. This may be done as a defensive measure to counter a takeover threat, to benefit holders of stock options, to help stabilize the market price during a new issue, to alter the company’s debt/equity ratio, or to send a market signal that the stock is undervalued.
An extreme example of this is when a publicly held company attempts to “go private,” which is essentially the opposite of going public. Going private typically causes the company’s shares to no longer be traded on securities exchanges, as well as possibly reducing the number of shareholders to the point where a class of its securities is eligible for termination of registration requirements. A company may go private because it wants to avoid the scrutiny and reporting burdens imposed on public companies. Or a private equity fund or other private buyer may wish to acquire it.
Under certain circumstances, a company that goes private must file a Schedule 13E-3 transaction statement. This schedule requires disclosure of details such as the terms and purposes of the transaction, sources and amounts of funding, and information about the negotiations and the fairness of the transaction. The SEC requires the filing of a Schedule 13E-3 if the entity acquiring the equity is the issuer itself, or any affiliate of the issuer, such as a subsidiary, parent, major shareholder, or member of the management team.
As we mentioned above, a tender offer is an open solicitation to purchase a significant percentage of an issuer’s securities. The key term here is “open solicitation,” meaning that terms of the offer are public information and must be reported to the SEC. A tender offer may be conducted by a third party or the issuer itself, and this will determine which SEC filings are required. The main filings related to tender offers are:
• Schedule TO. A