Yesterday, the SEC announced approval of a change to the best-price rule, which requires that all shareholders receive the same price for their shares in a tender offer. The purpose of the change was to clarify application of the rule where a shareholder receives compensation for services.
Federal courts applied the best-price rule in different ways, with some applying the "integral-part test" and holding that the best-price rule applies to all integral parts of a tender offer including compensation, severance and other arrangements entered into in connection with the tender offer. Other courts applied a bright-line test and applied the best-price rule only to arrangements which were entered into and performed between commencement and closing of the tender offer. Application of the two different tests made it difficult for companies making a tender offer to know what should and should not be included in the pricing for purposes of the best-price rule.
The revised rule provides that "the consideration paid to any security holder for securities tendered in a tender offer is the highest consideration paid to any other security holder for securities tendered in the offer." The rule also "exempts compensatory arrangements from the rule so long as specific substantive standards are satisfied, and includes a safe harbor that hinges upon approval of independent members of the board of directors."
The SEC's press release announcing approval of the revisions is here. The text of the revised rule should be posted soon to the SEC's web site. The proposed rule is located here.