"Burger King" May Not Allow You to Have it Your Way. . . Is the Two-Tier M&A Deal Ending?

Posted by Ernest E. Badway on March 01, 2013

A popular two-tier merger and acquisition structure may trigger certain prohibitions under the Securities Exchange Act of 1934.  In particular, this problem relates to the so-called "Burger King" structure, arising from the private equity fund acquisition of the fast-food chain by a private equity fund, and its simultaneous pursuit of a tender offer and a traditional one-step merger. 

The Burger King deal required that the PE firms agree that, if they could not reach a share majority in the tender offer of generally 90 percent, the PE firms could swith to the one-step merger in the middle of the transaction.  Such a practice would allow the PE firms to save time as well as move faster on the ultimate acquisition.  This practice has been adapted in several other transactions.

Nonetheless, there are always issues.  This dual structure may violate Exchange Act Rule 14e-5.  This Rule prohibits buying or offering to buy the target company's securities outside of the tender offer.  This happens in the Burger King process although a preliminary proxy statement is actually filed with the SEC, triggering this problem.

Subsequently, the SEC has warned of this potential predicament.  However, the SEC has not offered any clarity on this point or if there will be a Staff statement on this potential problem.  That leaves those who wish to pursue this method in a bind.  If they seek no-action relief from the SEC Staff, they will have to address the Staff's concerns or outright refusal to go along with the transaction.  In any event, those working on these transactions should be careful with the timing of the filing of these proxys with the SEC, and consider contacting the SEC prior to any filing in the hope the Staff may offer some "pre-clearance."

Well, as Chaucer said, "all good things must come to an end," however, we still have the Whopper.

Internet Crowd Funding Websites Spike Although There Are No Rules

Posted by Ernest E. Badway on January 25, 2013

An intriguing phenomenon has occurred.  Regulators have recently noticed that there is a sharp rise in Internet crowd-funding sites. 

Ironically, the SEC still has not promulgated rules for allowing small businesses to raise capital online.  The SEC believes that those rules are months away.  Nonetheless, regulators estimate that there are almost 9,000 websites already dedicated to crowd-funding.

Regulators are deeply concerned that the proliferation of these sites could create more trouble for regulators, who are charged with enforcing thse rules and ensuring investor safety.

You Gotta Be A Big Boy To Play In The Private Investment Transaction Game

Posted by Ernest E. Badway on January 25, 2013

“Big Boy Letters” are usually used to identify that the buyer in a transaction has made its own independent assessment of certain risks involved and that certain information has not been disclosed to the buyer by the seller.  In particular, this means that a party is not relying upon certain representations or the lack of representations.

The critical step in these letters is considering the application of these non-reliance provisions are received by the courts and the SEC.  In particular, the SEC has taken the position that such a letter will not foreclose an insider trading liability case under a misappropriation theory  However, courts and private litigants could effectively eliminate or at least limit the potential liability from these letters.

Essentially, the use of these letters is somewhat uncertain depending upon the context.  Nonetheless, these letters are certainly not a complete "get out of jail free" card, and will depend upon the facts and circumstances of each situation.