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SEC PROPOSED "ALL-HOLDERS REQUIREMENT" FOR ISSUER TENDER OFFERS

Executive Summary

SEC PROPOSED "ALL-HOLDERS REQUIREMENT" FOR ISSUER TENDER OFFERS is supported by the Federal Trade Commission (FTC) in recent comments to a Securities and Exchange Commission (SEC) notice of proposed rulemaking pertaining to tender offers by issuers and by third parties. "The (proposed) amendments would eliminate the defensive tactic, which the Delaware Supreme Court recently endorsed in its Unocal decision, of target firms discriminating against a major stockholder making a 'hostile' takeover bid by excluding the stockholder from its offer to buy back a portion of its stock," FTC said. Under the "all-holders requirement," tender offers made by a corporation for its own shares, i.e., issuer or self-tender offers, or by a third party would be required to make the offer available to all shareholders of that class of security. In addition, all security holders must be paid the highest consideration offered to any other security holder at any time during the tender offer (the "best-price" rule). Recent takeover battles in the drug industry have involved the type of strategies which would be affected by SEC's proposal. For example, Revlon's recent declaration of a special dividend of note purchase rights, implemented as a defensive measure against Pantry Pride's hostile takeover attempt, would be disallowed. Revlon's plan allows shareholders to exchange their shares for company debt instruments at a premium value should a bidder acquire at least 20% interest in Revlon. However, any party acquiring 20% of the company would automatically forfeit its note purchase rights ("The Pink Sheet" Aug. 26, p. 6). According to the FTC, takeovers, both friendly and hostile, are generally beneficial to shareholders and the nation's economy because they shift assets to high-value uses, allow companies to realize economies of scale and distribution and provide an incentive for managerial excellence. The FTC also added that while it supports the SEC's recommendation that the waiting period for a corporation's self-tender offer should be the same as the period for a tender offer by a third party, it recommends shortening the periods for third-party offers rather than extending the waiting periods for offers made by target firms. "Excessively long waiting periods interfere with the economic efficiency of the takeover process,." FTC noted.

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