16 CFR 801.4 - Secondary acquisitions.
(a) Whenever as the result of an acquisition (the “primary acquisition”) an acquiring person controls an entity which holds voting securities of an issuer that entity does not control, then the acquiring person's acquisition of the issuer's voting securities is a secondary acquisition and is separately subject to the act and these rules.
(1) No secondary acquisition shall be exempt from the requirements of the act solely because the related primary acquisition is exempt from the requirements of the act.
(2) A secondary acquisition may itself be exempt from the requirements of the act under section 7A(c) or these rules.
1. Assume that acquiring person “A” proposes to acquire all the voting securities of corporation B. This section provides that the acquisition of voting securities of issuers held but not controlled by B or by any entity which B controls are secondary acquisitions by “A.” Thus, if B holds more than $50 million (as adjusted) of the voting securities of corporation X (but does not control X), and “A” and “X” satisfy Sections 7A (a)(1) and (a)(2), “A” must file notification separately with respect to its secondary acquisition of voting securities of X. “X” must file notification within fifteen days (or in the case of a cash tender offer, 10 days) after “A” files, pursuant to § 801.30.
2. If in the previous example “A” acquires only 50 percent of the voting securities of B, the result would remain the same. Since “A” would be acquiring control of B, all of B's holdings in X would be attributable to “A.”
3. In the previous examples, if “A's” acquisition of the voting securities of B is exempt, “A” may still be required to file notification with respect to its secondary acquisition of the voting securities of X, unless that acquisition is itself exempt.
4. In the previous examples, assume A's acquisition of B is accomplished by merging B into A's subsidiary, S, and S is designated the surviving corporation. B's voting securities are cancelled, and B's shareholders are to receive cash in return. Since S is designated the surviving corporation and A will control S and also hold assets or voting securities it did not hold previously, “A” is an acquiring person in an acquisition of voting securities by virtue of §§ 801.2 (d)(1)(ii) and (d)(2)(i). A will be deemed to have acquired control of B, and A's resulting acquisition of the voting securities of X is a secondary acquisition. Since cash, the only consideration paid for the voting securities of B, is not considered an asset of the person from which it is acquired, by virtue of § 801.2(d)(2) “A” is an acquiring person only. The acquisition of the minority holding of B in X is therefore a secondary acquisition by “A,” but since “B” is an acquired person only, “B” is not deemed to make any secondary acquisition in this transaction.
5. In previous Example 4, suppose the consideration paid by A for the acquisition of B is in excess of $50 million (as adjusted) worth of the voting securities of A. By virtue of § 801.2(d)(2), “A” and “B” are each both acquiring and acquired persons. A will still be deemed to have acquired control of B, and therefore the resulting acquisition of the voting securities of X is a secondary acquisition. Although “B” is now also an acquiring person, unless B gains control of A in the transaction, B still makes no secondary acquisitions of stock held by A. If the consideration paid by A is the voting securities of one of A's subsidiaries and B thereby gains control of that subsidiary, B will make secondary acquisitions of any minority holdings of that subsidiary.
6. Assume that A and B propose through consolidation to create a new corporation, C, and that both A and B will lose their corporate identities as a result. Since no participating corporation in existence prior to consummation is the designated surviving corporation, “A” and “B” are each both acquiring and acquired persons by virtue of § 801.2(d)(2)(iii). The acquisition of the minority holdings of entities within each are therefore potential secondary acquisitions by the other.
(1) A cash tender offer, the waiting period procedures established for cash tender offers pursuant to sections 7A(a) and 7A(e) of the act shall be applicable to both the primary acquisition and the secondary acquisition;
(2) A non-cash tender offer, the waiting period procedures established for tender offers pursuant to section 7A(e)(2) of the act shall be applicable to both the primary acquisition and the secondary acquisition.
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