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.
Best-Price Rule (Rule 14D-10)
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.
Reference for “Best-Price Rule – Rule 14D-10”
Academic research on “Best-Price Rule – Rule 14D-10”
During the tender offer (Or some other time near it): Insider transactions under the all holders/best price rule, Ebert, M. D. (2002). During the tender offer (Or some other time near it): Insider transactions under the all holders/best price rule. Vill. L. Rev., 47, 677.
During the Tender Offer or Some Time around It: Helping Courts Interpret the Best-Price Rule, Akiva, M. A. (2005). During the Tender Offer or Some Time around It: Helping Courts Interpret the Best-Price Rule. Transactions: Tenn. J. Bus. L., 7, 353.
Employment Agreements and Tender Offers: Reformning the Problematic Treatment of Severance Plans under Rule 14D-10, Walher, B. (2002). Employment Agreements and Tender Offers: Reformning the Problematic Treatment of Severance Plans under Rule 14D-10. Colum. L. Rev., 102, 774. SEC Rule 14d-10, also known as the best-price rule, requires tender offer bidders to pay the same compensation to all shareholders who tender into the offer. Recent judicial opinions have allowed Rule 14d-10 to be applied to employment agreements between bidders and target company executives, on the theory that the agreements represent disguised compensation for the executives’ tender. Such applications have allowed specious allegations to reach trial where they carry huge settlement values, and have therefore hampered the utility of tender offers as acquisition vehicles. Other courts have declined to apply the rule to employment agreements, but their reasoning has introduced a loophole that threatens to eviscerate its enforcement. This Note proposes the creation of a strong, rebuttable presumption that employment agreements do not constitute compensation for tender, thus allowing egregious violations to be sanctioned but preventing such sanctions from having a chilling effect on tender offer use.
A Case of When Rather Than What: Tender Offers under the Williams Act and the All Holders and Best Price Rules, Fleming, R. A. (2002). A Case of When Rather Than What: Tender Offers under the Williams Act and the All Holders and Best Price Rules. S. Ill. ULJ, 27, 263.
Inconsistent application of the SEC’s “all holders-best price” rule continues to chill tender offers, Neimeth, C. E. (2002). Inconsistent application of the SEC’s “all holders-best price” rule continues to chill tender offers. Journal of Investment Compliance, 3(3), 43-47. This article addresses, in the third‐party acquisition context, how a series of U.S. Circuit Court of Appeals and District Court decisions have chilled the use of tender offers as an expedient, and often the optimum, method of business combination or sale of control. These decisions have disparately construed the applicability of the SEC’s “all holders‐best price” rule (contained in the federal tender offer regulations) to an increasing variety of compensatory and other management payment arrangements which, while often incidental and certainly related to the tender offer, may not necessarily have been intended as deal consideration paid to the recipients. Until there is resolution by the U.S. Supreme Court or definitive guidance from the SEC on the ambit of Rule 14d‐10, expedient and less costly tender offer structures are yielding to single‐step mergers. This is not always the best result for stockholders.