The recent Allergan litigation in California District Court involved the allegation that Pershing Square Capital Management, LP (together with certain of its affiliates, “Pershing Square”) had violated the prohibition, under Rule 14e-3 of the Securities Exchange Act of 1934 (the “Exchange Act”), against trading on certain information related to tender offers obtained from the offering person. In its defense, Pershing Square analogized to Section 14(d) of the Exchange Act and Regulation 14D thereunder (which contemplate the possibility of two persons or entities (“Persons”) acting together as co-bidders) to argue that Pershing Square was a co-offering person for purposes of Rule 14e-3 and therefore could not have violated the rule. The arguments, and the court’s analysis, provide a timely reminder of the rules regarding whether a Person is a co-bidder for purposes of Regulation 14D. In this article, we discuss the limited available guidance on this topic and factors to consider when determining whether a Person is a co-bidder under Regulation 14D.

Whether a Person is a co-bidder will determine if it is required to file a Schedule TO and disclose certain information about itself to shareholders. The minimum disclosure requirements that must be satisfied by each co-bidder for a tender offer include: (a) its identity and background, including information regarding civil and criminal lawsuits involving the co-bidder and its affiliates during the past five years; (b) any borrowings by the co-bidder for the purposes of the tender offer; (c) the purpose(s) of the tender offer and any plans or proposals regarding, among other things, the sale of a material amount of assets of the target company or its subsidiaries, changes in the present board of directors or management and changes in the present capitalization; (d) any contracts, arrangements or understandings between a co-bidder and any other Person with respect to the target company’s securities; and (e) financial statements of the co-bidder where those statements are material to a decision whether to sell, tender or hold securities. Additionally, since each co-bidder must individually satisfy the disclosure, filing and dissemination requirements of Schedule TO and Regulation 14D, the U.S. Securities and Exchange Commission (the “SEC”) staff has stated that adding new bidders may require the co-bidders to extend the tender offer and disseminate new offering materials to shareholders, depending on the materiality of the new disclosures provided.