ALLEN & OVERY LLP ASHURSTLLP CLIFFORD CHANCE LLP FRESHFIELDSBRUCKHAUSDERINGER HERBERTSMITH LLP LINKLATERSLLP NORTON ROSE LLP
June23, 2008
NancyM. Morris Secretary US Securities andExchangeCommission 100FStreet, NE Washington, DC20549-1090 UnitedStates
File No.S7-10-08 œ Release 33-8917 œ Revisions to the Cross-Border Tender Offer, Exchange Offer,and Business Combination Rules and BeneficialOwnership Reporting RulesforCertainForeignInstitutions
DearMs. Morris:
This letter is submitted on behalfofthe PermanentCommittee (the "Committee") in response to the requestby the Securities and Exchange Commission (the "Commission") for comments inrespectofits May6, 2008releasereferencedabove(the"Release").
Based in London, the Committee is an informalgroup comprising US partners ofseven internationallaw firms - signatories ofthis letterœ headquarteredinLondonthathaveestablished US securities andmergers andacquisitions practices. Everymemberfirm has US-qualifiedpartners andassociates andfivememberfirms haveoffices intheUnitedStates, althoughthemajorityof ourattorneys areadmitted topracticelaw injurisdictions otherthan theUnitedStates andthe majorityofouroffices arelocatedoutsideoftheUnitedStates. Clients ofourfirms includea large numberofUS institutionalinvestors andforeignprivateissuers.
TheCommitteesupports andcommends theCommission's efforts torevisethecurrentrules inordertoaddress theareas ofconflictorinconsistencywithforeignregulations andpracticeto encourage the on-parparticipation ofUS holders ofthe securities offoreign private issuers in cross-bordertenderoffer, exchangeofferand business combination transactions. In particular, the Committee broadly welcomes and supports the proposals in the Releasethatare aimed to providegreatercertaintywithrespecttotheavailabilityofthecross-borderexemptions forboth hostileandnon-hostilecross-bordertransactions.
TheCommitteestronglybelieves thatinorderforthefinalruletobesuccessful, however, it mustaddress thehigh concentration ofUS institutionalinvestors thattypicallyhavesubstantial (thoughless than10%) shareholdings innon-reportingforeignissuers throughthelocalmarket.
As the Commission has recognized, US institutionalinvestors are often attracted to the foreigncapitalmarkets. Indecidingtoparticipatedirectlyinforeigncapitalmarkets withrespectto non-reportingforeignissuers, suchinstitutions electtorelyontheprotections oflocalsecurities regulation and disclosure standards ratherthan those ofthe United States. Non US-registered foreignissuers arenotsubjecttotheperiodicreportingrequirements oftheSecurities Exchange Actof1934, as amended(the"ExchangeAct"), andtheseinvestors shouldnotexpectsuchissuers tobesubjecttotheExchangeAct's tenderofferrules orfortheexchangeofanysecurityoffered
LONDON\PPJ\9803302.04 to them as consideration to be registered underthe Securities Actof1933, as amended (the "Securities Act").
Extra-territorialinvestments byinstitutionalinvestors (likelytobehighlysophisticatedand thus notrequiring the fullprotections ofUS securities regulations) may nonetheless subjecta foreigncompanythathas notdirectlyaccessedtheUS publicmarkets, listedontheUS securities exchanges orestablish ed anADRprogram toSECregulationinthecontextofcross-bordertender offer, exchangeofferandbusiness combinationtransactions. This oftencomplicates transactions withnootherUS nexus andleads tothelimitationorexclusionoftheUS securityholders'abilityto participateinthetransaction.
Werespectfullyrecommendthatlarge US institutionalsecurityholders beexcludedfrom the calculation ofthe levelofUS ownership ofnon US-registered foreign issuers forpurposes of determining eligibilityforthecross-borderexemptions. In determining thetypeofinstitutional investorthatshouldbeexcluded, itmayusefultolooktothedefinitionof"qualifiedinstitutional buyer" underRule144A oftheSecurities Act. Webelievethatsuchanexclusionwouldnotbea fundamentaldeparturefrom theCommission's hist oricview ofUS institutionalinvestors - insofar as theCommissionhas, inothercontexts (suchas Rule144A undertheSecurities Act, andRule 15a-6 undertheExchangeAct), recognizedtha tsuchinstitutionalinvestors donotneedthefull proceduralandotherprotections oftheUS securities regula tions beyondtheanti-fraudandanti- manipulationrules andcivilliab ility provisions.
Wefurtherbelievethatsuch an exclusion would bestservethecross-borderexemptions' purposeofencouraging bidders toincludeUS investors in cross-bordertransactions from which theyotherwisemaybeexcluded. Underthecurrentcross-borderexemption, theholdings ofUS institutionalsecurity holders frequently cause transactions to be ineligible forthe cross-border exemptions. Cons equently, bidders continuetoexcludeUS securityholders from suchcross-border tenderoffer, exch ange offerandbusiness combinationtransactions. Underthesecircumstances, webelievethe"appropriatebalancebetweentheneedtoprotectUS investors . . . andfacilitating and enabling transactions thatmay benefitallsecurity holders, including those in the United States," is bestviewedbyreferencetothelevelofownership bythoseinvestors forwhom the protections of the US securities regulations would be most appropriate - non-institutional investors. Wedonotbelievethattherulerevisions as currentlyproposedadequatelyreflectthis balance. To the extentthatthe exclusion oflarge U institutionalsecurity holders from the determination ofeligibility forthe cross-borderexemptions results in broaderapplicability, we believethis is a moreaccuratereflectionofthetypes oftransactions thatshouldandshouldnotbe affordedthefullprotections ofUS securities regulations.
Twenty years ago, the Staffofthe Commission submitted report(the "Report") to Congress on the"Internationa lization oftheSecurities Markets." The Reportstated that"[a]s a resultofa numberoffactors, includingtechnologicaladvances andtheremovalofrestrictions on foreignparticipationbymanyoftheworld's securities markets, internationalizationis morethana developingtrend, itis a presentdayreality. Moreover, itis a phenomenonthathas a profound impacton theUS securities markets". The Report also indicated thatUS investors increasingly sought to invest in non-US companies for greater diversification and to benefit from an environmentinwhichthedollarwas falling(bothtrends thatarecurrent lyinevidence).
The Report was viewed as an importantstudy thatprovided the basis fortheSEC, the US investorcommunity, financialinstitutions, issuers and lega land accounting practitioners to considertheappropriatebalance betw een accom moda tion for non- US companies andUS investor protection. The Report, arguably, was one oftheprincipalsources fora fresh US approach to globalizationofthemarkets, andtheaccommodationinSECrulem aking (such as RegulationS and Rule144 A undertheSecurities Act) toadapttotheglobalenvironment. Theimplementationof theoriginalcross-bordertenderoffer, exchangeofferandbusiness combinationrules in2000were an importantstep in this direction. We are encouraged thatthe Commission is taking the opportunitytoreview theserules withthebenefitofeightyears ofpracticalexperience.
2 LONDON\PPJ\9803302.04 Muchhas happenedduringthelasttwentyyears;the"presentdayreality" ofnearlytwenty years agohas, as notedintheRelease, givenriseto"a revolutionininvestorparticipationinglobal capital markets." We urge theCommission to join withindustry and investor groups in undertakinga studytoinform futurerulemakingandrulerevisions.
The Committee appreciates the opportunity to commenton the Release, and thanks the Commission forconsidering its comments. We would be pleased to respond to any enquiries regardingourcomments. Pleasecontact:
Allen&OveryLLP: ChristopherBernard(T: +442030882808) AshurstLLP: DanielBushner(T: +442078592880) CliffordChanceLLP: JohnConnolly(T: +44207006 2096) Freshfields Bruckhaus Deringer: SarahMurphy(T: +44207832 7429) HerbertSmithLLP: AlexBafi(T: +44207466 2557) Linklaters LLP: Tom Shropshire(T: +44207456 2000) NortonRoseLLP: Thomas Vita (T: +442074443695)
Respectfullysubmitted,
Allen&OveryLLP AshurstLLP CliffordChanceLLP Freshfields Bruckhaus Deringer HerbertSmithLLP Linklaters LLP NortonRoseLLP
cc: JohnW. White(Director, DivisionofCorporationFinance) PaulM. Dudek(Chief, OfficeofInternationalCorporateFinance, Divisionof CorporationFinanc e) Ethiopis Tafara (Director, OfficeofInternationalAffairs)
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