When the private equity firm 3G Capital took Burger King private in 2010, it used an innovative “dual-track” acquisition structure to minimize the amount of time to consummate the acquisition. This involved 3G simultaneously pursuing both a friendly tender offer to Burger King shareholders as well as a traditional merger that would need to be approved by shareholders at a special meeting. Since the Burger King deal, nearly 20 other companies have used this structure.
In basic terms, a tender offer allows the acquirer to make a direct offer to shareholders to purchase shares of the target company at a specified price. Consummation of the tender offer is usually contingent upon the target shareholders tendering a minimum number of shares so that the acquirer can take advantage of a subsequent short-form merger to squeeze out any non-tendering shareholders thereby resulting in the acquirer being the 100% shareholder of the target company. On the other hand, a traditional merger involves the solicitation of shareholder votes to approve the acquisition by proxy or in person at a special shareholder meeting.
From a timing perspective, acquirers typically prefer to use tender offers to accomplish acquisitions because it normal takes less time to complete because, among other things, it does not require a special meeting of the shareholders to approve the transaction. Where a traditional merger can take upwards of three to six months to complete (depending on the circumstances), a tender offer can be completed in as few as 20 business days following the date the tender offer is initiated (the minimum period that a tender offer must remain open). However, if shareholders of a target company do not tender the minimum number of shares necessary to consummate the acquisition, the acquirer would be forced to abandon the tender offer and switch over to a traditional merger structure.
In the Burger King deal, rather than waiting to see whether the tender offer was successful, 3G simultaneously prepared documents and made filings to proceed with a traditional merger concurrently with the tender offer. By doing this, 3G would have a head start on the traditional merger transaction if the tender offer ultimately failed, thereby saving significant time. However, public companies considering this type of approach should be aware that the timing of certain key events when undertaking a dual-track approach could result in an inadvertent violation of the Exchange Act rules.
Specifically, Rule 14e-5 issued under the Exchange Act prohibits an acquirer from Continue Reading Acquirers beware! New expedited acquisition method could violate the Exchange Act