Best Price Rule - 14D-10 - Explained
What is the Best Price Rule?
Written by J. Mance Gordon
Updated at April 20th, 2024
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What is the Best-Price Rule (Rule 14D-10)?
The Best-price rule (Rule 14D-10) is a regulation that stipulates that an entity giving certain considerations to some stockholders in a tender offer must make the same offer to all stockholders. This rule is simply called the Rule 14D-10, it is a regulation by the Securities Exchange Commission which states that the highest consideration paid to any security holder in a tender offer must be paid to all other security holders.
How Does the Best-Price Rule Work?
This regulation was established to guarantee equal treatment of all security holders in the same class of shares and in a tender offer. The Best-price rule (Rule 14D-10) holds that during a tender offer, the maximum consideration given to any security holder must also be accorded to all other security holders in that category.
Diverse criticisms were raised against this rule ranging from its failure to capture certain conditions that might make a company not accord the same benefits to all security holders in the same class. The Best-price rule (Rule 14D-10) also gave rise to disputes in the context of employee compensation, it was argued that if top-executives and high-ranking employees in a company receive additional compensation, will the same benefit be accorded to all other employees holding the same class of securities?
Amendments to Rule 14D-10
The disputes that arose because of the Best-price rule (Rule 14D-10) created the need for its amendment. Rule 14D-10 was amended by the SEC in 2006 in other to accommodate some of the concerns raised in the rule. The amendment touched three core areas which are; The language of the rule:
The old language of the rule was amended to; "consideration paid to any security holder for securities tendered in the tender offer is the highest consideration paid to any other security holder for securities tendered in the tender offer." The second amendment to the rule was that compensations arrangement were exempted such as compensation for future or past duties performed. Third, the rule created a room for compensation arrangements.