On March 6, 2025, the staff of the Division of Corporation Finance (the “Staff”) of the U.S. Securities and Exchange Commission (the “Commission”) published several updates to its Compliance and Disclosure Interpretations (“C&DIs”) relating to merger transactions and tender offers. Key updates are set forth below.
Revised Guidance Regarding Lock-Up Agreements & Written Consents of Target Company Insiders
Revised C&DIs. One significant change in the Staff’s position relates to written consents obtained in connection with a merger or business combination transaction. The updates found in C&DI 239.13 and C&DI 225.10 are identical and referred to here as the “Lock-Up & Written Consent C&DIs.” Under the Lock-Up & Written Consent C&DIs, the Staff clarifies it will not object to the registration of an offer or sale of securities where lock-up agreements, such as voting agreements and support agreements, in support of such offer or sale are entered into under the following circumstances:
(i) the lock-up agreement involves only the “target company insiders” (i.e., executive officers, directors, affiliates, founders and their family members, and holders of 5% or more of the voting equity securities of the target);
(ii) such target company insiders collectively hold less than 100% of the voting equity securities of the target;
(iii) votes from non-locked-up security holders of the target will be solicited (if required by applicable law); and
(iv) the acquiror delivers a prospectus to all security holders entitled to vote on the transaction in accordance with the Securities Act.
In a change from its prior guidance, the staff clarifies that condition (iii) applies only if the target is required by applicable state or foreign law to solicit votes from non-locked-up security holders and emphasizes the attendant prospectus delivery requirements related to the transaction in new condition (iv).
Previously, the Lock-Up & Written Consent C&DIs noted the Staff would object to an offer or sale where a target company insider delivered a written consent approving the transaction prior to registration of the transaction on Form S-4 and require the Form S-4 to be withdrawn on the basis that delivery of written consents approving the transaction, unlike voting or support agreements to approve it at a later date, amounted to a completed offer and sale and that a transaction started privately must be completed privately. Under the Written Consent C&DIs, the Staff will no longer object in circumstances where a target company insider delivers a written consent prior to the filing of the applicable Form S-4 (or F-4) so long as:
(i) the target company insiders who delivered the written consents will be offered and sold securities of the acquiror only in an offering made pursuant to a valid Securities Act exemption; and
(ii) the registered securities will be offered and sold only to security holders of the target that did not deliver such written consents.
Takeaways. While practitioners should continue to be mindful of the conditions of the Lock-Up & Written Consent C&DIs when obtaining lock-up agreements and written consents when seeking stockholder approval of a business combination transaction, the Staff’s revised guidance provides parties to a business combination transaction with greater flexibility in obtaining support for the transaction via written consents prior to the effectiveness of the related registration statement. Assuming the conditions are observed, practitioners may obtain written consents prior to the effectiveness of the registration statement (e.g., concurrently with or promptly after execution of the related definitive agreement) without jeopardizing the ability to register the transaction on Form S-4 (or F-4). It is important to remember, however, that target company insiders that deliver written consents will receive restricted securities in the transaction, and will need to have the securities they receive registered for resale in the Form S-4 (or F-4) registration statement or a subsequently filed resale registration statement or otherwise comply with the holding period and other restrictions under Rule 144. A redline produced by the Commission showing the changes to C&DIs 239.13 and 225.10 (which are identical) can be found here.
“Material Change” Analysis and Transaction Financing
New Tender Offer Rules and Schedules C&DIs. Other updates to the C&DIs include a response from the Staff to C&DI 101.17, noting that the time period during which an all-cash tender offer must remain open following the disclosure of a material change may be shorter than five business days if such shorter period would give security holders sufficient time to consider and factor the new disclosure into their tender decision.
Of note, the Staff’s response to C&DI 101.18 confirms that, where an all-cash tender offer has commenced without the acquiror having first obtained sufficient funds or committed financing, the securing of financing would be considered a “material change” pursuant to which supplemental disclosure is required.
By contrast, the Staff noted in C&DI 101.20 that, where financing is lined up prior to the launch of a tender offer, the subsequent substitution of a funding source or available cash would not be considered a “material change.” Similarly, in response to C&DI 101.21, the Staff states that it would not consider it a “material change” where funds have actually been delivered pursuant to a previously disclosed binding commitment letter. However, the Staff indicates in C&DI 101.19 that a transaction will not be considered fully financed where an acquiror has received only a “highly confident” letter from a lender, as opposed to a binding commitment. Therefore, an acquiror should assume the move from a “highly confident” letter to a binding commitment letter rises to the level of a “material change,” and undertake a facts and circumstances analysis in determining the minimum period during which the offer must remain open.
Takeaways. These changes provide helpful guidance on what constitutes a “material change” in the context of an all-cash tender offer subject to a financing condition and confirms the Staff’s views that movement from a partially financed to fully financed offer constitutes a material change. Notably, the revised guidance provides offerors with added flexibility to determine, depending on the facts and circumstances of a material change and security holders’ ability to consider the new information, whether the offer must remain open for a period that is shorter than five business days following the material change.
This analysis was prepared by James Moloney, Mellissa Campbell Duru, Tull Florey, David Korvin, Tracey Tomlinson, and Jack Strachan.