• $15 Million Penalty for Failure to Disclose Negotiations with White Knight Following Tender Offer Bid
  • March 27, 2017
  • Law Firm: Greenberg Traurig LLP - New York Office
  • On Jan. 17, 2017, the SEC settled claims that a target of a hostile tender offer failed to disclose negotiations with third parties following the announcement of the tender offer.

    In response to a hostile bid, the target filed a Schedule 14D-9 recommending that the target’s shareholders reject the tender offer. It further stated that it was not in negotiations with any other party with respect to a merger or other transaction. Subsequently, the target engaged in negotiations, including on price, with (i) “A” about a possible acquisition of A by the target (which would have complicated the hostile bid by making the target a larger company) and (ii) “B”, a potential “white knight” (which ultimately acquired the target). The target never disclosed the negotiations with A and only disclosed the negotiations with B when it entered into a merger agreement with B.

    The SEC stated that with respect to A, the target was obligated to update its Schedule 14D-9 to indicate that negotiations were underway and were in the preliminary stages once the target received a counterproposal from A on price. With respect to B, the target’s counter-proposal on price to B triggered an amendment to the Schedule 14D-9 to disclose that negotiations had begun, even though they were in the preliminary stages.

    While Schedule 14D-9 does not require disclosure of the names of the parties or the terms of the transaction until an agreement in principal is reached if the target board believes disclosure would jeopardize the negotiations, the target is required to disclose that negotiations are underway and are preliminary. Further, the SEC noted that if the negotiations ripen into an agreement in principal, disclosure of the agreement would be required.

    As part of the settlement, the target agreed to pay a $15 million penalty.