Konevsky_King_MA_Journal_Nov_2010

The notion that U.S. law may have any-
thing to say about a foreign acquisition by
one non-U.S. company of another non-U.S.
company is a tough pill to swallow, particu-
larly if the taarget does not even maintain a
listing on a U.S. securities exchange.2
In any
such transaction, however, consideration
should be given to whether and to what
extent U.S. federal tender offer rules and, if
securities are being issued to target share-
holders, U.S. federal registration require-
ments, affect the proposed transaction.3
This seemingly random cost of additional
regulation by a sovereign without a signifi-
cant nexus to the deal may seem high to the
foreign principals. Depending on a variety
of factors, compliance with these provisions
may affect the timing of the deal. In particu-
lar, in cases where registration of securities
is required, four to six months may have to
be added onto the timeline if the acquirer is
not already a reporting issuer in the United
States. Compliance may also be required
with the substantive and procedural provi-
sions of the tender offer rules, which may
conflict with local law and practice, as well
as with additional disclosure and filing
requirements.
Over the years, market participants
have typically developed an exclusionary
approach in cross-border transactions. If
permissible under the laws and market prac-
tices of the home jurisdiction,4
as well as suit-
able in view of tactical and investor relations
considerations, this approach seeks to avoid
compliance with U.S. tender offer rules and
registration requirements by:
• precluding the U.S. shareholders of the
target from tendering their shares, vot-
ing, and, in some cases, receiving the
transaction consideration;
• embargoing shareholder documenta-
tion and other communications from
the United States, and
• taking other measures aimed at mini-
mizing contacts with the United States.
The M&A JournalThe independent report on deals and dealmakers Volume 11 Number 1
America Sans Frontières?
CROSS-BORDER BUSINESS DEALS:
EXCLUDING U.S. SHAREHOLDERS AFTER MORRISON
Alan P.W. Konevsky and Jessica King 1
Reprinted with permission
1 Alan P.W. Konevsky (A.B., summa cum laude, Columbia, 1996; J.D., magna cum laude, Harvard, 1999) is a Special Counsel
at Sullivan & Cromwell LLP, specializing in mergers and acquisitions and private equity transactions. Until recently, he
was resident in the London office, where he focused on a variety of cross-border transactions. Jessica King (B.A. Cornell,
2002; J.D. Virginia, 2007) is an Associate at Sullivan & Cromwell LLP, also specializing in mergers and acquisitions. The
authors would like to thank Adam McLain, a European Counsel in the firm’s London office, for his comments. The views
expressed in this article are those of the authors, and may not be representative of the views of Sullivan & Cromwell LLP
or its clients.
2 One can imagine the frustration that would be caused if a merger of two U.S. domestic companies were to trigger, in addi-
tion to U.S. obligations, full compliance with takeover rules and securities registration requirements of a foreign jurisdic-
tion merely because some of the target shareholders reside there.
3 The applicability of procedural and substantive provisions of U.S. antitrust laws, as well as U.S. state securities, broker-
dealer and other laws and regulation, would also need to be examined. In addition, companies that operate in regulated
industries would need to give attention to the applicable banking, broker-dealer, utilities, telecommunications, and other
rules.
4 For example, certain non-U.S. jurisdictions enforce equal treatment, “all holders” and other analogous rules that prohibit
such exclusion, unless a hardship waiver is granted by the responsible regulator.
Sans Frontières

The M&A journal - VOLUME 11, number 1
2 Reprinted with permission
In doing so, acquirers stake out a position that
the transaction does not come within the territo-
rial scope of U.S. laws and enforcement authority,
and, consequently, may proceed without compli-
ance with the U.S. tender offer rules and registra-
tion requirements, while generally recognizing
the residual potential for liability for inaccurate
disclosure and other coercive or manipulative
practices under the antifraud provisions of U.S.
securities laws.
From the perspective of the U.S. shareholders
of the target company, the choice is then to fol-
low the path of least resistance and sell into the
secondary market at a discount to the deal price
(incurring transaction costs as well), or to do any
or all of the following:
• challenge the exclusion on a variety of
grounds in U.S. courts and with the U.S.
Securities and Exchange Commission (the
“SEC”) and other regulators and constituen-
cies;
• attack the transaction structure in the home
jurisdiction under its equal treatment, “all-
holders” and other principles, if available;
• attempt to attack the disclosure on antifraud
grounds in U.S. courts; and/or
• retain the securities and await the outcome
of the deal, risking the impact of reduced
liquidity and any compulsory squeeze-out
or similar transaction that occurs by opera-
tion of law at the back end (and perhaps also
attempt to dispute at that point as well).
Frankly, in some cases, shareholders may sim-
ply seek to circumvent the procedures put in
place to prevent their participation.5
In all of this,
the shareholders would generally have home
country disclosure and procedural and substan-
tive protections at their disposal. Attempting to
defeat exclusion has not proven to be a highly
successful strategy. Neither the courts nor the
SEC have been supportive, to date, of attempts
by targets or their shareholders to bring exclu-
sionary transactions within the scope of U.S. ten-
der offer rules and registration requirements.6
This approach long predates the adoption by
the SEC of the so-called “cross-border exemp-
tions.” Underpinned by the overarching princi-
ple of equal treatment of U.S. and non-U.S. share-
holders of the target companies, these exemp-
tions offer two tiers of relief from the U.S. tender
offer rules, as well as relief from U.S. registration
requirements.7
The genesis of the cross-border
exemptions – initially adopted in 1999 and fur-
ther liberalized in 2008 – lies, in large part, in the
SEC’s historical experience with, and reaction
to, exclusionary transactions. In the view of the
SEC, these exemptions (as well as deal-specific
relief granted on a case-by-case basis) reduce the
potential for conflicts between the home juris-
diction and U.S. laws in eligible transactions.
Consequently, from the SEC’s perspective, they
provide sufficient accommodation for value-
enhancing cross-border business combinations
in a way that should obviate the need to exclude
U.S. shareholders from most deals, while pre-
serving an appropriate level of U.S. oversight
and investor protection.
Yet, exclusionary transactions continue to be
relevant. The reasons are manifold. There are lin-
gering conflicts between U.S. and home country
rules. Other broader concerns with U.S. compli-
ance – ones which are not, to varying degrees,
directly addressed, or capable of being addressed,
by the cross-border exemptions and other relief –
involve liability under U.S. securities laws, timing
impact, disclosure burdens,8
added transaction
costs and other considerations.9
Aside from risk
of SEC action, the express and judicially-created
implied private rights of action under the U.S.
federal securities laws can result in litigation insti-
tuted by the target and/or its shareholders.10
U.S.
litigation is perceived as being more time-consum-
Sans Frontières
continued
5 They may do so either by misrepresenting their residency or domicile or co-opting the assistance of brokers, nominees
and other intermediaries, who may or may not be aware of the objective.
6 Part of this is bundled up with the courts’ general reluctance to use the tender offer rules and related provisions of the
Exchange Act, and the antifraud rules, as a tool to police the substantive fairness of business combinations and otherwise
interfere in the market for corporate control (which is more of a province of state law in domestic transactions).
7 The two levels of relief from the tender offer rules apply to transactions involving foreign targets with U.S. ownership
levels of 10% or less (so-called “Tier I”) and 40% or less (so-called “Tier II”), respectively. Tier I relief provides a broad
exemption from the tender offer rules, subject to certain limited conditions, while Tier II generally provides certain
accommodations aimed at relieving conflicts with home country laws and practices that have been brought to the atten-
tion of the SEC staff over the years. The broad exemption from the U.S. registration requirements under Rule 802 of the
U.S. Securities Act of 1933, as amended (the “Securities Act”) covers situations where U.S. shareholders own 10% or less
of the target’s free float.
8 This includes pro forma and historical financial statements and related information, although those requirements have
become somewhat easier to comply with over the years in view of SEC’s acceptance of the International Financial
Reporting Standards and other accommodations.
9 The requirement to bring in U.S. lawyers and their attendant costs never thrill a CFO of a non-U.S. company.

Reprinted with permission 3
ing, intrusive and costly – this has a major chilling
effect on an acquirer’s willingness to extend the
transaction into the United States (on the other
hand, there have been relatively few successful
private challenges of exclusionary tactics).
An even more important factor is the knock-
on impact of U.S. registration requirements for
a non-U.S. acquirer that is not already listed or
otherwise reporting in the United States – regis-
tering its securities will subject such an acquirer
to a panoply of U.S. reporting requirements, the
Sarbanes-Oxley Act and other laws (until at least
such time as it is able to deregister as a public
company in the United States). More broadly,
acquiring or otherwise expanding the U.S. share-
holder base, even without U.S. registration of
the securities issued to target shareholders in the
business combination, may have a similar effect
of subjecting such an acquirer to these reporting
and other obligations under U.S. law. Cashing
out U.S. shareholders, if permitted, may solve the
registration issue, although not the applicability
of the tender offer rules.
The legal basis and process for exclusionary
transactions has not been firmly locked down in
laws or rules or “safe harbors” adopted by the
SEC. Over the years, the concept and its appli-
cation has been considered by the courts, leg-
islators, private litigants and the SEC, but no
bright-line rules have emerged. While the SEC
has generally avoided intervening in individual
exclusionary transactions, even those that were
aggressive from a bidder’s point of view, it has
expressed skepticism of these practices.11
So while
these transactions continue to occur, they do so
within a space that is, if not a legal grey area, then
at least more of a creature of practice and limited
common law and SEC guidance, than of formal
regulatory imprimatur. Most practitioners know
why excluding U.S. shareholders may be advis-
able in certain deals and what measures need to
be put in place in order to do so. But they do so
on the basis of a general understanding of the
jurisdictional and substantive limits of applicable
U.S. laws and an established market practice,
with a healthy dose of caution about the limits
and potential risks. This state of affairs gives
the regulators and the courts flexibility to drive
outcome-determined regulation by enforcement,
which is less than ideal from perspectives of
predictability, planning and risk management by
transaction participants.
The U.S. Supreme Court’s landmark 2010 deci-
sion in Morrison v. National Australia Bank Ltd.
overturned decades of precedent and imposed
limits on claims brought under the antifraud
provisions of U.S. federal securities laws by for-
eign investors against foreign issuers for losses
from transactions on foreign securities exchanges.
The decision outlined a rule of construction that
could set the territorial boundaries for other laws
as well. Lower courts are beginning to apply
Morrison’s conclusions on the geographic scope
of U.S. laws to other statutes that have previously
been applied extraterritorially, such as the federal
racketeering laws. It is important to examine the
impact of Morrison on the theory and practice of
exclusionary offers. Doing so presents a fresh per-
spective on the reach and limitations of the exclu-
sionary approach under U.S. law. While, at this
point in time, the analysis raises more questions
than answers, it may also lead to a firmer footing
for this long-standing practice, albeit one that is
not free from continuing risks and challenges that
must be managed from early on in a transaction.
Background
Section 14(d) of the U.S. Securities Exchange
Act of 1934 (the “Exchange Act”) and related SEC
regulations impose detailed rules on the conduct
of tender and exchange offers for equity securi-
ties12
of U.S. and non-U.S. issuers that are listed
on a U.S. securities exchange or are otherwise
reporting companies under U.S. federal securities
laws. These rules, among other things, require
that offers include terms aimed at proscribing
certain unfair and coercive practices, as well as
other elements.13
They also provide for detailed
timing, disclosure and public filing obligations.
The Exchange Act’s Section 14(e) and the related
rules, however, contain a sweeping prohibition
on “fraudulent, deceptive, or manipulative”
activities, supplemented with a narrower set
10 Civil liability and private rights of action (particularly on the part of targets and their shareholders) play a part in “regulat-
ing” corporate control contests in the United States; the net benefit of that depends, to some extent, on one’s philosophy.
In any event, in the cross-border context, the litigation spawned by the Endesa takeover battle (which is mentioned below)
is an example.
11 It did so while, at the same time, at least implicitly accepting that these transactions may occur in certain circumstances and
even providing limited guidance (such as in the releases relating to the adoption of the cross-border exemptions discussed
below and other literature).
12 This would generally also include convertible and certain other similar debt.
13 For example, by requiring that the offer be open to all holders of the relevant class of securities, provide for withdrawal
rights, require proration in cases of oversubscriptions, require bidders to pay the shareholders the same price for the
shares, etc.
Sans Frontières

of rules that apply to all tender and exchange
offers for equity or debt, irrespective, on their
face, of whether the target or bidder have any
U.S. nexus.14
Similarly, in the case of an exchange
offer, or a merger, amalgamation or similar busi-
ness combination transaction where the acquir-
er’s securities are issued to target shareholders,
registration with the SEC is required unless an
exemption is available.15
Lastly, in all cases, the
impact of the antifraud provisions of the statutes
and related rules (including Sections 14(e) and
10(b) of, and Rule 10b-5 under, the Exchange
Act), including the prohibitions on insider trad-
ing, have to be factored into the mix.16
Prior to the adoption of the cross-border
exemptions mentioned earlier, these require-
ments applied, by their terms, across the board
to all domestic and cross-border transactions,
irrespective of the degree of U.S. interest in the
principals or the transaction and any potential
conflicts between home market laws and prac-
tices and U.S. rules. The SEC, however, had and
continues to have statutory exemptive authority,
with certain ability to provide relief delegated to
its staff under the SEC’s rules and organizational
principles. Relief from conflicts generally had to
be individually negotiated with the staff of the
SEC behind the scenes on a case-by-case basis.17
Although the SEC was (and continued to be)
generally quick to act on these requests,18
it is still
a time-consuming and, to some extent, uncertain
process. Nonetheless, a varying degree of pre-
dictable accommodations developed over the
years, and these were eventually largely codified
in the cross-border exemptions.
Against this background, exclusionary transac-
tions developed more or less from the ground up,
initially in the English takeover arena.19
Broadly
speaking, the concept was that if a bidder and its
affiliates and representatives (and, in a negoti-
ated transaction, the target and its affiliates and
representatives) abstain from using “U.S. juris-
dictional means” during the course of the trans-
action (including the events and communications
leading up to it), then the tender offer rules, the
registration requirements and other relevant pro-
visions of the Exchange Act, the Securities Act,
related SEC rules and regulations and other fed-
eral and state securities laws should not apply.
There was a remaining question – now addressed
more definitively by Morrison – about the extent
to which, notwithstanding the exclusion, the
transaction participants would continue to bear
antifraud liability under U.S. securities laws for
any inaccuracies in the shareholder disclosure
documents and similar claims.
The question of whether to exclude or not
had an important predicate to it – whether home
country law and practice would permit the bid-
der to bar target shareholders from receiving the
documentation, tendering their shares, receiving
the consideration, voting, etc. There was also a
corollary issue of whether stopping U.S. inves-
tors at the door would generate adverse publicity
Sans Frontières
continued
14 These principally relate to the minimum offer period, process for payment of tendered securities, acquisitions of securities
by an acquirer (and, in negotiated deals, the target), affiliates and other related parties outside of the offer and other mat-
ters.
15 On-shore exemptions are generally difficult to implement in most public deals, although eligible schemes of arrangement
are not subject to the tender offer rules and are generally exempt from the registration requirements under Section 3(a)
(10) of the Securities Act (that exemption has been generally accepted for various Anglo-Saxon and certain other jurisdic-
tions that have codified court-supervised share exchanges and, depending on the facts, compliance with it may require
consultation with, and, possibly, grant of deal-specific relief from, the staff of the SEC). It is also worth noting that vendor
placings (where shares are sold on behalf of the target shareholders, who receive the cash proceeds) may be deployed in
certain circumstances in order to avoid issuing securities to U.S. shareholders, although that process generally requires
requests for relief from the staff of the SEC and is not available in all circumstances (in 2008, in connection with adopting
the amendments to the cross-border exemptions, the SEC issued additional guidance on availability of vendor placings).
16 In exchange offers, Regulation M would also impose limitations on the ability of certain acquirers (and, in negotiated deals,
the target), affiliates and other related parties to engage in repurchases of securities and other transactions during the
course of the offer.
17 Early trailblazers of that were Ford’s bid for Jaguar in 1989 and the Procordia-Volvo-Pharmacia deal about a year later.
18 As compared to requests for relief made outside of the public takeover context, which are generally viewed as less time-
sensitive.
19 The U.K. Takeover Code now generally requires that the transaction documents be made available to all persons, includ-
ing those who are located outside of the European Union, unless there is sufficient objective justification for not doing so.
In a note to that provision, the U.K. Takeover Panel observed that exclusion would not be generally allowed, unless local
laws may result in “a significant risk of civil, regulatory or, particularly, criminal exposure” for the transaction participants
(and certain additional criteria would also have to be fulfilled). In view of the SEC’s accommodations reflected in the
cross-border exemptions and its availability to requests for additional relief to the extent that other conflicts arise with
local practice, it would generally be difficult to justify exclusion of U.S. shareholders in context of this position under the
Code.

and reaction from the institutional or retail share-
holder base, increase litigation risk and chances
of regulatory intervention in the home market or
the United States, reduce the chances of achiev-
ing the required or desired acceptance levels, etc.
Varying weights were given to other factors, such
as the size of the U.S. float, the target company’s
listings, its reporting status under U.S. laws and
others – with the walking-around assumption
that the risk level was most contained for deals
involving unlisted targets with de minimis or
low U.S. ownership.20
In general, provided that
everyone stuck to the script and followed a series
of restrictive exclusionary measures – which we
will touch on later – the thinking was that the
transaction would proceed in accordance with
the laws and practices of the home market only,
more or less without great risk of a successful
challenge in the United States.
Evolution of Perspectives
The exclusionary approach was sporadically
examined in the U.S. courts, SEC statements
and the public arena beginning in the 1980’s,21
although without much conclusive guidance and
an attitude that went from ambiguous acceptance
to increasing skepticism. In 1986, in Plessey Co.
plc v. General Electric Co. plc, a U.S. District Court
came to the conclusion that the exclusionary offer
by General Electric Co. for a target with a small
U.S. float and U.S.-listed American Depositary
Receipts (“ADRs”) was not subject to the substan-
tive, procedural and disclosure requirements of
the U.S. tender offer rules. The court noted that
“where a foreign bidder has steadfastly avoided
American channels in its pursuit of a foreign tar-
get, the American interest … appears minimal.”
The plaintiffs argued that certain events – includ-
ing mailings of the offer documents to U.S. share-
holders by the target, information forwarded by
the ADR depository (as the shareholder of record,
it was required under the U.K. rules to receive the
documents), and second-hand reports about the
transaction in the U.S. media – effectively brought
the transaction under the ambit of U.S. jurisdic-
tion. The court responded that these arguments
push the Exchange Act “beyond the boundaries
of its intended purpose,” and that finding the use
of jurisdictional means in the deal “would be a
perversion of the principles” of the Exchange Act
principally aimed at delaying essentially a foreign
transaction and, also, would “raise serious con-
cerns of comity with British law and practice.”
A few years later, Minorco, S.A. challenged
a hostile bid by Consolidated Gold Fields PLC
amidst a similar fact pattern – a target company
with a small U.S. float and an acquirer employing
measures to minimize contacts with the United
States. Although the claims raised by Minorco
revolved principally around allegations of viola-
tions of U.S. antifraud rules,22
the U.S. Court of
Appeals for the Second Circuit in Consolidated
Gold Fields PLC v. Minorco, S.A., found that the
trial court had subject matter jurisdiction to hear
the claim. It reasoned that, unlike in Plessey, “the
antifraud provisions of American securities laws
have broader extraterritorial reach than American
filing requirements” and other regulatory provi-
sions. The trial court was consequently directed to
hear the merits of the claim, decide on any appro-
priate remedies and assess the effect principles of
international comity should have on the exercise
of U.S. authority. As an important reason for its
conclusion, the court cited the direct and foresee-
able effect on the United States stemming from
bidder’s knowledge that non-U.S. brokers, nomi-
nees and other intermediaries “were required by
[local] law to forward the tender offer documents
to Gold Field’s shareholders and ADR depository
banks in the United States.”23
So, in the words of
another court applying Gold Fields’s lessons, there
was “both the solicitation and the acceptance of
tenders by U.S. shareholders.”
A few other cases are worth mentioning. The
U.S. District Court for the Southern District of
New York, in a 1988 unreported decision in CDC
Life Sciences Inc. v. Institut Merieux S.A., observed
that “no federal court, district or appellate, has
ever issued an injunction which prevented a
foreign company from making a tender offer to
foreign shareholders merely because the securi-
ties were traded in the American market and
were held by American shareholders who might
tender their shares … although they were not
asked to.” The plaintiff questioned the efficacy
of the exclusionary procedures deployed by the
acquirer, but the judge expressed doubts about
the substantive merits of that allegation and, in
any event, noted comity concerns that would
counsel against issuing a broad remedy that
would impact the deal worldwide. In John Labatt
20 On the other end of the spectrum, as discussed below, is a “going private” transaction for a U.S.-listed target company,
which is unlikely to work on an exclusionary basis.
21 With questions about the extraterritorial reach of the antifraud rules and securities registration requirements in capital
markets transactions going back to the 1960’s and 1970’s.
22 The case also involved certain claims under U.S. antitrust laws.
23 As noted below, the SEC focused on this issue in its amicus brief in the case.
Sans Frontières

Ltd. v. Onex Corp. et al., a Canadian target sued in
U.S. courts to compel the acquirer to comply with
the provisions of Section 14(e) of the Exchange
Act and related rules (including by opening the
offer, and sending the offer documents, to all
U.S. shareholders and keeping the offer open for
20 business days).24
The court approached the
question from a slightly nuanced angle – “[a]
necessary predicate to a claim under Section
14(e) is the existence (either imminent, pending
or recent) of a tender offer.” After applying the
judicial test for what constitutes a tender offer,
the judge concluded that “neither of the defining
characteristics of a tender offer … is present inso-
far as U.S. shareholders are concerned” because
of the exclusionary measures implemented by
the acquirer.25
Consequently, “where a tender
offer is totally foreign and neither solicits nor
will accept tenders by U.S. shareholders, it is
not a tender offer directed to U.S. shareholders
and the threshold jurisdictional requirement of
Section 14(e) is not met.”26
In particular, the court
rejected the plaintiff’s argument (which echoed
positions previously taken by the SEC as we
discuss below) that U.S. law should apply solely
“because, despite the exclusion of U.S. persons
from the tender offer, [the offer] might influence
such persons to sell their shares on the open mar-
ket.” Citing another decision, it noted that “the
sole purpose of § 14(e) [of the Exchange Act] is
protection of the investor faced with decision to
tender or retain his shares” and, consequently,
“whatever the factors are that might influence a
shareholder to retain or sell on the open market,”
they are “not ‘proscribed pressures [the law] was
designed to alleviate.’” The factors relating to the
target not having a U.S. listing, no ADRs, and
a small U.S. float also figured in the opinion.27
Even if “there was jurisdiction in this case under
Section 14(e),” the target company would not
be entitled to the broad injunctive relief it seeks
because there are no allegations of material mis-
statements or omissions in the disclosure sent
into the United States.28
In the course of the battle for Spanish utility
Endesa, S.A., the courts also had an occasion
to chime in on extraterritoriality. In E.ON AG
v. Acciona, S.A., the district court, among other
things, examined whether U.S. tender offer rules
applied to the defendant’s share accumulation
program. In doing so, the court noted the U.S.
Court of Appeals for the Second Circuit in Europe
& Overseas Commodity Traders, S.A. v. Banque
Paribas London held that a “heightened” barrier
applies under the “conduct” and “effect” test
(now discredited by Morrison) to find U.S. juris-
diction for allegations of non-compliance with
the U.S. registration requirements and tender
offer rules.29
The court also made the point that it
can look at the regulations “adopted pursuant to
the legislation as further evidence of the extent to
which Congress intended its legislation to extend
extraterritorially” and “honor the agency’s rea-
sonable interpretation of a statute that Congress
has entrusted the agency to administer.” Aside
from the express provisions of the cross-border
exemptions, the court noted that “[n]othing in
the language of Section 14(d) itself or any provi-
sion of [the SEC rules promulgated thereunder]
makes a distinction between U.S. and offshore
transactions.”30
Consequently, the court went
on to analyze the applicability of U.S. law to the
stakebuilding.
In the 2007 dispute between Scor S.A. and
Converium Holding AG, the target company,
among other things, alleged that the acquirer’s
exclusionary offer implicated U.S. laws. The
deal turned friendly and the lawsuit was subse-
quently resolved without an opinion or, based
on the public record, formal input or intervention
from the SEC. Among other things, the plaintiff’s
pleadings flagged, in negative light, the internal
Sans Frontières
continued
24 No allegations of inaccurate or misleading disclosure were made.
25 The inadvertent distribution by some participants in the Canadian clearing system of the offer materials to all of their
underlying clients (including U.S. beneficial owners) did not tip the scales. The court noted that “there is no evidence this
was done on behalf of [the acquirer] or for purpose of extending the [offer] to U.S. residents. Indeed, the evidence is to
the contrary.”
26 Even though some intermediaries may have inadvertently forwarded the materials into the United States.
27 The court distinguished Gold Fields because (a) the offer in that case was made to shareholders who held ADRs and whose
shares “under express terms of the offering document, could be tendered into the offer” and (b) the acquirer in that case
provided the materials to non-U.S. nominees knowing they are required by law to forward the offer documents to U.S.
shareholders and the ADR depository.
28 General allegations of “fraud” would not suffice.
29 The extent “of conduct or effect in the United States needed to invoke U.S. jurisdiction over a claimed violation of the
registration provisions must be greater than that which would trigger U.S. jurisdiction over a claim of fraud.”
30 Unlike, as the court noted, in the capital markets context, where the SEC expressly adopted separate rules and circum-
scribed its jurisdiction with respect to securities registration requirements.

advice received by the acquirer from its U.S.
counsel to the effect that even if the U.S. holders
are excluded, they can still tender into the offer
by transferring their holdings to a Swiss or other
non-U.S. broker or nominee and requesting that
such broker tender their shares.
The SEC initially appeared to accept the the-
ory behind the exclusionary approach to cross-
border business combinations. It concurred
with the result of the Plessey court, noting that it
believes that “the law is clear with respect to the
application of [the Exchange Act] to tender offers
by bidders who are not citizens or residents of
the United States and who do not employ the
jurisdictional means of the United States” and,
consequently, recognizing that certain foreign
offers are, “for lack of use of jurisdictional means,
… not subject to … the Exchange Act.”31
In an
amicus brief submitted in the Gold Fields case,
the SEC focused on the “fundamental” differ-
ence between the dispute at hand and the Plessey
case – that “the antifraud provisions of the fed-
eral securities laws apply to many transactions
which are … [not] within the registration require-
ments.” The SEC observed that the registration
requirements and similar rules “vary consider-
ably in different countries,” unlike antifraud
provisions which are “designed to enforce funda-
mental notions of honesty,” are “universally pro-
scribed” and generally impose less of a burden
on non-U.S. companies than the other regulatory
requirements because the acquirer “would likely
be liable anyway, under the laws of the target’s
home country.”32
This view echoed the SEC’s
long-standing position that an expansive extra-
territorial application of the antifraud provision
of U.S. federal securities laws is appropriate and
does not pose the same issues as the broad appli-
cation of other laws.33
It is worthwhile to note that
the SEC paid particular attention to the point that
the acquirer forwarded the shareholder docu-
ments to U.K. intermediaries, even though “it
was surely foreseeable” that they would pass
them on to beneficial holders in the United States.
With all that, however, the SEC argued that the
claim should be dismissed for reasons of interna-
tional comity. In any event, while the SEC made
clear that fewer contacts suffice for an antifraud
claim, it did not indicate what the gap is between
that and the territorial scope of the registration
requirements and tender offer rules.
Outside of the litigation context, in 1989, an
exclusionary bid by Hoylake Investments Ltd.
for B.A.T. Industries plc attracted the attention
of the U.S. Congress for reasons principally relat-
ing to certain tax matters, potential redundancies
among the target’s U.S. employees and other
issues. The exclusionary nature of the deal was
tossed into the mix, however. In response to a
request from Congress to explain why the trans-
action is not subject to the substantive, procedural
and disclosure requirements of U.S. tender offer
rules and registration requirements, the then-
Chairman of the SEC noted that his agency “is
unable to require the bidder to extend its offers
to U.S. shareholders.” As the letter explained,
the jurisdiction to enforce these provisions – as
well as the antifraud rules – would generally not
be available where “the shares are not registered
and no other U.S. jurisdictional means appear to
have been triggered,” thereby divesting the SEC
of its authority to challenge the transaction.
In the years that followed, the SEC contin-
ued generally to avoid intervening to publicly
challenge exclusionary transactions.34
At the
same time, however, it has generally shifted to a
more cynical view of such transactions. In a 1990
concept release, where the SEC solicited public
comments on a suggested conceptual approach
to U.S. regulation of international tender and
exchange offers, it noted that:
Exclusion or discriminatory treatment of
U.S. holders in connection with multina-
tional cash tender and exchange offers is of
particular concern to the Commission. U.S.
investors not only can be deprived of the
31 The SEC made this observation in the release that adopted certain amendments to the tender offer rules in 1986 (princi-
pally the “all-holders” “and best price” rules). The SEC noted that the “all-holders requirements is not intended to affect
tender offers not otherwise subject” to the relevant provisions of the Exchange Act (and reflected that point in the rules
as adopted).
32 Securities fraud, however, is a more particular doctrine than common law fraud and deceit, and is often predicated on
nuanced and divergent domestic disclosure obligations, duties and standards. Consequently, it differs in substantive
and procedural respects materially among the jurisdictions. The degree to which the laws can be and are likely to be
enforced– both by private litigants and the authorities – is a key factor as well, as are cultural attitudes to litigation gener-
ally.
33 This view was articulated in prior statements and court briefs, including in the seminal Schoenbaum v. Firstbrook case.
34 The SEC can play a role, however, particularly behind the scenes. An commentary written by two members of its staff in
their personal capacities in 1991 refers to a transaction where the bidder for Vulcan Packaging Inc. voluntarily agreed to
make a separate offer to the U.S. holders of the target (if the exclusionary offer was successful) after the SEC staff and the
directors of the target raised concerns about the exclusion of U.S. citizens and residents.
Sans Frontières

opportunity to realize significant value on
their investments in foreign securities by
tendering into a favorable offer, they also
must decide on whether to retain their secu-
rities or sell into the secondary market with-
out disclosure and procedural safeguards
afforded by the regulatory scheme applica-
ble in the U.S. or in the relevant jurisdiction.
To that end, the SEC commented that “the
tender offer provisions of [the Exchange Act]
are extraterritorial in scope [and even] in the
absence of an affirmative act of a foreign bidder
to invoke U.S. jurisdiction, ‘the requisite use of
jurisdictional means can be established … where
it is reasonably foreseeable that U.S. shareholders
of a foreign issuer that have been excluded from
an offshore offer will sell their shares into the
market in response to that offer.’”35
Consistent
with prior case law at that time, the SEC also
noted that the antifraud provisions of U.S. securi-
ties laws cast an even broader extraterritorial net.
After reviewing the public comments, the SEC
published proposed rules in 1991, with certain
relief, registration forms and schedules, and an
exemptive order for tender offers subject to the
U.K. Takeover Code.36
The SEC continued its wary view of exclusion
in the decade that followed, both in its official
positions and staff views. But it did so in a some-
what unclear way that appeared to acknowledge
the existence of these offers, provide limited guid-
ance on certain aspects of how not to do them
and, at the same time, question their validity both
at higher levels of abstraction as well as based on
presence or absence of various granular pressure
points. When the SEC adopted the cross-border
exemptions from U.S. tender offer rules and reg-
istration requirements in 1999, the rulemaking
was rolled out in an effort to reduce conflicts with
non-U.S. laws and practices and “facilitate inclu-
sion of U.S. security holders in offshore transac-
tions, rather than provide means to avoid U.S.
jurisdiction.”37
In doing so, the SEC sought to
balance – in its later view, with measurable suc-
cess – the “competing concerns” of encouraging
inclusion of U.S. shareholders and reduction of
“significant” ramifications of inclusion and full
compliance with U.S. rules to the acquirer. It did
so by “focusing relief in the areas where U.S.
ownership is smallest or where there is a direct
conflict between U.S. and foreign regulations.”
In adopting the new rules, the SEC noted that:
When bidders exclude U.S. security hold-
ers from tender or exchange offers, they
deny U.S. security holders the opportunity
to receive a premium for their securities
and to participate in an investment oppor-
tunity.… U.S. investors must react to these
transactions, which may significantly affect
their existing investment in the foreign pri-
vate issuer, without the disclosure or other
protections afforded by U.S. or foreign law.
Today, the Commission is adopting exemp-
tive rules that are intended to encourage
issuers and bidders to extend tender and
exchange offers … and business combina-
tions to the U.S. security holders of foreign
private issuers. The purpose of the exemp-
tions adopted today is to allow U.S. hold-
ers to participate on an equal basis with
foreign security holders. In the past, some
jurisdictions have permitted exclusion of
U.S. holders despite domestic requirements
to treat all holders equally on the basis that
it would be impracticable to require the
bidder to include U.S. holders. The rules
adopted today are intended to eliminate the
need for such disadvantageous treatment of
U.S. investors.
In the proposing release for the exemptions,
the SEC, reflecting back on its statements in 1990
and 1991, commented that “[e]ven though U.S.
security holders cannot participate in the tender
offer, they must react to the event by deciding
whether to sell, hold, or buy additional securi-
ties…. Indeed, to avoid triggering registration,
filing and disclosure requirements under U.S.
securities laws, bidders and issuers will often
take affirmative steps to prevent their informa-
tional and offering materials from being trans-
mitted to U.S. holders. Thus, U.S. holders receive
information about extraordinary transactions
affecting their interests only indirectly (for exam-
Sans Frontières
continued
35 The Labatt court, as discussed above, subsequently discounted the independent significance of this factor to the assess-
ment of the validity of an exclusionary transaction.
36 The release, as well as subsequent rule-making in 1999 which introduced the cross-border exemptions, also covered
rights offerings by non-U.S. companies, where similar concerns regarding exclusion applied in the SEC’s view.
37 The SEC noted that it was able to issue the rules “because recent legislative action granted [it] general exemptive author-
ity under the Securities Act and the Exchange Act … [which] provides greater flexibility to address these issues in a mean-
ingful fashion.”

ple, through the financial press) and often after a
significant delay.”
Almost ten years of deal experience sharp-
ened the point in the SEC’s view – encouraging
inclusion of U.S. shareholders was even more
important in 1998-99 than in 1991 because of the
broader ownership of foreign securities by U.S.
security holders and the increase in “both the
number and dollar value” of cross-border busi-
ness combinations (although exclusionary deals
continued to proliferate in the regulator’s view).38
But aside from noting, and reacting to, the funda-
mental defects of exclusionary deals – without,
importantly, saying that they inherently fail as
a matter of law in all cases – the SEC did not
provide clear guidance. It acknowledged several
times that “these exclusionary offers are common
practice,” especially when “U.S. security hold-
ers own a small amount of the securities of the
foreign private issuer.”39
While the cross-border
exemptions permitted the exclusion of share-
holders resident in any U.S. state that declines
to register or qualify the offer and sale of securi-
ties in that state after a good faith effort by the
acquirer, they did not provide any similar safe
harbors for foreign transactions.
When the SEC amended the cross-border
exemptions in 2008 in order to address what it
perceived were some unintended consequences
of the original rules and provide additional flex-
ibility and guidance, it went further in casting a
shadow on exclusionary transactions. In its view,
the interpretative guidance set out in the adopt-
ing release presented what the SEC indicated
was its historical position on the topic, developed
over the years of dealing with individual transac-
tions. The discussion, as before, at least implicitly
noted the continuing existence of, and – on some
level – rationale for, exclusionary transactions,
especially where the target U.S. float is small
and there is no U.S. listing. The SEC indicated,
however, that in the future, “[w]hen purportedly
exclusionary offers are made, [it] will look closely
to determine whether bidders are taking reason-
able measures to keep the offer out of the United
States” to determine whether SEC enforcement
action or other intervention is necessary. It did so,
in part because the SEC has, in its view, over the
years, sufficiently relaxed its rules (principally by
adopting the cross-border exemptions) to enable
most cross-border transactions to be extended
into the United States without undue burden.
The SEC also provided selected observations
and guidance on the limits of these transactions,
including the following:
• Where the target is “registered under … the
Exchange Act, and particularly where the
subject securities trade on a U.S. exchange,”
acquirers “should make every effort to
include U.S. holders on the same terms as all
other target holders.”
• Exclusionary transactions for U.S.-listed tar-
gets “will be viewed with skepticism where
the participation of those U.S. holders is nec-
essary to meet the minimum acceptance con-
dition in the tender offer” (or, it follows, sat-
isfy the squeeze-out threshold under home
country law).
• Where home country law does not allow the
acquirer to reject tenders from U.S. share-
holders, withhold transaction materials
from them, disenfranchise them from vot-
ing, include legends that the offer may not
be accepted by U.S. shareholders, etc., “it
may not be possible for the bidder to take
adequate precautionary measures to avoid
U.S. jurisdictional means.”
• An acquirer “may implicate U.S. jurisdic-
tional means if it fails to take adequate mea-
sures40
actually to prevent tenders by U.S.
target shareholders in practice, while pur-
porting to exclude them.”
• The SEC also expressed concern about sce-
narios where the acquirer announces that it
will exclude the United States before receiv-
ing approval from the home country regu-
lator to permit such exclusion, especially
where the U.S. shareholders sell into the
market in response to the announcement,
“thereby reducing their numbers to the point
at which an exemption to allow exclusion
of U.S. holders is acceptable to the foreign
regulator.”41
• Factors like including a U.S. bank account
for payment of the consideration, provision
38 In more recent years, because of continuing diversification of institutional portfolios, reduction of technological and other
barriers to investing in foreign securities and other reasons, in-bound and out-bound cross-border transactions that impli-
cate U.S. investors have only continued to increase in number, prominence and complexity.
39 Because the acquirers “do not file documents with the [SEC] when U.S. security holders are excluded, SEC [could not]
calculate the number of cross-border transactions that have excluded U.S. security holders with certainty.” It cited a 1997
study compiled by the U.K. Takeover Panel, where the bidders excluded U.S. persons in all of the offers where U.S. own-
ership was below 15%, as well as a number of second-hand statistics on the exclusionary deals, focusing on the premiums
involved and size and prominence of the transactions.
40 This limitation applies whether the failure is by choice or because the acquirer is unable to take adequate measures under
applicable foreign law.
Sans Frontières

of a U.S. taxpayer identification number, etc.
should put the acquirer on notice that the
holder may be a U.S. person.
• Care should be given to ensure that the bro-
kers, nominees, depositaries and other inter-
mediaries that hold shares in street name or
otherwise in a fiduciary or similar capacity
do not act on behalf of their U.S. clients or
forward information to them (although an
acquirer generally would not “be viewed as
having targeted the United States” merely
because the shareholders or intermediaries
misrepresent their status as a U.S. person in
order to participate in the exclusionary trans-
action, so long as the acquirer has instituted
sufficient procedures to verify compliance).
• “If, after implementing measures intended
to safeguard against tenders by U.S. persons,
the bidder discovers it has purchased securi-
ties from U.S. holders, it should consider
other measures that may avoid this lapse
in the future” – so passive implementation
of measures (even if they are fulsome) may
not suffice without proactive monitoring
and response to any expected or unexpected
attempts to go around the system or other
facts.
Linking back to its earlier guidance in the 1998
release on internet communications and addi-
tional interpretations, the SEC also reminded the
market about the precautions an acquirer needs
to take with respect to posting of materials on
websites in exclusionary transactions.
More broadly, the SEC repeated that, in its
view, “business combinations are fundamentally
different from capital-raising transactions outside
the context of a business combination,” requiring
a more robust approach to the extraterritorial
application of U.S. law than is permitted by its
safe harbors for offshore capital market transac-
tions under Regulation S under the Securities
Act.42
In the same 2008 release, the SEC indicated
that U.S. law, in certain circumstances, would
prohibit the exclusion of any non-U.S. sharehold-
ers from the transaction (if, for example, the laws
of country X require onerous registration proce-
dures or otherwise conflict with the terms of the
transaction). While this is an entirely separate
topic in and of itself, it may be reflective of the
general trend in the evolution of the regulator’s
view of the geographic scope of the tender offer
rules and similar requirements, at least until the
Morrison decision came along.
Exclusionary Procedures –
Current State of Practice
At present, the landscape pertaining to exclu-
sionary transactions is a somewhat mixed pic-
ture. On the one hand, most practitioners are rea-
sonably comfortable about the parameters of the
measures that must be put in place to back up the
theory. As a general matter, all transaction par-
ticipants are warned that all activities in connec-
tion with the deal should be conducted without
using the mails, or any means or instrumentality
(including fax, email, the internet and telephone)
of interstate or foreign commerce, or any national
securities exchange, of the United States. Since
the concept is very broad and largely undefined,
the process is as much an art as it is a science, but
in terms of application of this general principle,
this would typically involve:
• A prohibition on making the shareholder
documents available to U.S. shareholders or
brokers, nominees, depositaries and other
intermediaries, and otherwise in the United
States, electronically or otherwise (includ-
ing by posting on the acquirer’s or target’s
website without an active filter that checks
the city, country and postal code of each
user, displays appropriate legends, etc.).43
As
a general matter, letters of transmittal, prox-
ies and other documents that give means to
tender, vote or otherwise participate in the
transaction should not be included on any
website, whether restricted or not. In this
respect, websites should give care to dis-
claim any liability for information appearing
elsewhere on, or linked to by, that website.
• Informing all of the brokers, nominees,
depositaries and other intermediaries
(including the clearing systems and their
participants) of these restrictions.
• An effort to prohibit the forwarding or mak-
Sans Frontières
continued
41 In the context of such home country proceedings, given the increasing levels of real-time interaction between securities
regulators in business combination transactions, the SEC, if asked by the non-U.S. regulator, may challenge an attempt by
acquirer to characterize compliance with U.S. law as unduly burdensome in light of the available cross-border exemptions
and potential for individually-negotiated deal-specific relief.
42 This more constrained and clearly-defined approach in the capital markets arena goes back to the position the SEC took
on the scope of the registration requirements of the Securities Act in 1964. It is also worth noting, in this context, certain
accommodations provided for Canadian companies under the Multijurisdictional Disclosure System.
43 This is especially important if the materials are in English.

ing available the shareholder documents to
non-U.S. brokers, nominees, depositaries
and other intermediaries, if they are required
by local law, practice or contract (or are oth-
erwise expected, or reasonably likely) to
forward the materials to the beneficial hold-
ers resident in the U.S. or accept the offer on
their behalf.44
• Restricting in the relevant engagement doc-
uments the ability of the dealer manager,
information agent, paying or exchange agent
and other transaction participants from solic-
iting tenders or votes in the United States or
from U.S. persons, distributing materials in
violation of the foregoing restrictions, etc.45
• A prohibition on directing press releases
and other communications with respect to
the transactions to the United States or U.S.
persons.46
• A requirement to obtain adequate informa-
tion to determine whether the shareholder
is in the United States or a U.S. person at all
relevant junctures, including in responding
to inquiries and processing letters of trans-
mittal, proxies and other materials.
• A prohibition on accepting tenders or votes
from U.S. holders or otherwise from the
United States.
To flesh this out further, all documents and
communications (including any internet sites
where they are posted) should include appropri-
ate legends advising that the materials may not
be forwarded into the United States and/or to
U.S. persons.47
In some cases, under an existing
SEC safe harbor that may apply to exclusionary
transactions as well, press activities outside the
United States that involve members of the U.S.
press may take place so long as certain proce-
dures are followed.48
Of course, historical results
may continue to be announced and discussed
with analysts in a manner consistent with past
practice, provided that such discussions are lim-
ited to factual and historical matters that are in
the public domain. Analyst conferences ded-
icated to an exclusionary transaction may be
held outside of the United States, but no contacts
should be made with, or information provided to,
U.S. analysts relating to the transaction.49
Specific
procedures must also be put in place to limit
communications made to any U.S. employees,
suppliers, customers and other business partners
of the acquirer and/or the target.
While means to tender, vote or otherwise make
an investment decision with respect to the deal
should be prohibited, the treatment of payment
or issuance of the transaction consideration is
slightly more nuanced. For deals structured as
tender or exchange offers, the acquirer should
avoid forwarding cash consideration or issuing
securities to U.S. banks or brokerage accounts or
nominees, brokers or other intermediaries. To that
end, it should also maintain appropriate prophy-
lactic procedures to that effect, including putting
in place strict measures to ensure that tenders
are not accepted from U.S. holders, obtaining
adequate information (including in representa-
tions in the letters of transmittal) to spot and reject
U.S. shareholders and keeping an eye on other
indications that the shareholder is a U.S. person or
entity. For exclusionary transactions structured as
mergers, amalgamations or other transactions that
require a shareholder vote, however, while U.S.
shareholders should generally be barred from vot-
ing on the matter (and, consequently, from receiv-
ing the proxies), they may receive the merger con-
sideration if the transaction is otherwise approved
and occurs automatically by operation of law
(whether or not the shareholder documentation
was merely posted on the internet).
The reason for this disjunction in the approach
is somewhat uncertain,50
but can probably be
linked to the argument that, unlike in a tender
or an exchange offer, no investment decision is
being made by the shareholder prior to its receipt
of the consideration upon consummation of a
merger (and, perhaps, even a back-end squeeze-
out) in which it played no part. In share-for-share
44 If the home country law requires that all record shareholders receive the offering documentation, that could complicate
the process in this case.
45 All broker-dealers and other entities who participate or wish to participate in the dealer group should also be informed of
and agree to abide by these restrictions.
46 Limited regulatory filings on Form 6-K may be made with the SEC without violating that requirement so long as they do
not have the effect of promoting, and/or include the means to participate in, the transaction. Routine ordinary course
communications may also continue to be made consistent with past practice.
47 Mere reliance on passive legends, without more procedures designed to proactively filter out U.S. contacts that may seep
through the system, is unlikely to suffice, however.
48 Although, as a prudential matter, most acquirers would be well advised generally to exclude U.S. reporters, analysts and
others from press conferences and other similar activities.
49 In addition, any research published by connected analysts will be subject to restrictions under SEC rules.
50 The SEC has generally stated that “acquirers should not avoid payments to U.S. target holders in business combinations
other than tender offers, where the target company is being merged out of existence, because in these kinds of transac-
tions, unlike in tender offers, all target securities will be acquired in a single transaction.”
Sans Frontières

mergers, there is a contrast with the position that
statutory mergers and similar transactions that
do not require a vote (such as short-form merg-
ers) should nonetheless be registered under U.S.
federal securities laws.51
On the balance, however,
based on these recent views of the SEC, a reason-
able acquirer may come to a conclusion – although
one that is not entirely free from risk or doubt –
that, under the right circumstances, if it has taken
all other measures to prohibit the target share-
holders from voting, receiving materials, etc., it
may issue shares to former U.S. shareholders of
the target without registration with the SEC.
Residual Risks and Limitations –
A More Uncertain Picture
There are several overriding considerations
to be taken into account that may heighten or
reduce the advisability and risk of proceeding
with an otherwise satisfactorily-implemented
exclusionary transaction. On the acquirer side
of the equation, it is more or less clear that if the
acquirer is a U.S. person or entity, the SEC is
likely to be very skeptical a priori.52
With respect
to the target company, the situation is quite com-
plex.53
Most commentators agree that, if the non-
U.S. target is neither listed on a U.S. securities
exchange nor otherwise a reporting company
under the Exchange Act and has a small U.S.
float that the bidder does not need for purposes
of meeting the minimum acceptance condition
and/or squeeze-out threshold, then, provided
that these procedures are strictly followed and
there are no other “bad” facts discussed below, a
lawsuit compelling compliance with the U.S. ten-
der offer rules and/or registration requirements
is unlikely to succeed and the likelihood of an
SEC enforcement action is relatively remote.
Once you start deviating from this paradigm,
however, the ripple effect of the total mix of
the changes in the variables and introduction
of new elements, becomes quite uncertain. The
comfort level then begins to erode gradually,
and we move into areas that are much more gray
(especially if the plaintiffs follow the “kitchen
sink” theory of litigation). A target that is a U.S.
domestic company is likely to be a very difficult
candidate for an exclusionary transaction, even
if it has a mostly foreign shareholder base. If the
target company is a non-U.S. entity but has a U.S.
listing and/or a substantial U.S. level of owner-
ship, the likelihood of prevailing on the merits in
the event of a challenge by the target, the SEC or
another plaintiff may escalate. The precise level
of U.S. ownership that amounts to a negative
fact is up for debate. Based on a variety of rough
markers,54
anything over 5-10% may increase risk
(depending on other facts as well). The increasing
effect of arbitrage and other short-term players is
likely to skew the target’s shareholder base after
announcement or a leak.55
For some commenta-
tors and practitioners, the question remains just
how relevant the size of the U.S. float is (and as of
what date), at least in the absence of a U.S. listing.
As a related matter, existence and size of an ADR
facility may need to be factored into the mix – but
on the balance, the size of the overall direct and
indirect interest is likely to be more important
than prior actions with respect to accessing U.S.
capital markets taken by the target.56
One may
draw distinctions, however, between the impact
of having a sponsored or an unsponsored ADR
Sans Frontières
continued
51 The SEC took this position in the 1970’s in connection with its rejection of the “no-sale theory.”
52 As the SEC noted in 1999, “we believe that there will be very limited circumstances where a U.S. bidder would have a
reason to exclude U.S. holders of the foreign subject company from an exchange offer for that company.”
53 For completeness sake, it is worth noting that the ability of a foreign acquirer to commence an exclusionary tender or
exchange offer for the securities of a U.S. domestic company (even one that has a small U.S. float and/or is not listed
in the United States or otherwise reporting under U.S. federal securities laws) is quite doubtful. The Morrison analysis
discussed below is probably unlikely to change that view. When the SEC amended the cross-border exemptions in 2008,
it extended to domestic targets a few of the accommodations that were previously available only in foreign transactions
(although that was not indicative of a general trend towards relaxing the default rules applicable to transactions involving
U.S. principals).
54 These include the relatively low levels of ownership in the few cases that came up for review, the 10% level the SEC
settled on (after some empirical and policy analysis) for the broadest Tier I level of relief under the cross-border exemp-
tions (and its rejection of suggestions to raise that number), and the laws in many jurisdictions, especially those that have
transposed or otherwise followed to some extent the E.U. Takeover Directive that require 90-95% acceptance in order
to effect a squeeze-out.
55 It is worth noting in this respect that, partially in order to ameliorate this effect, the SEC now allows acquirers to select
a date for calculation of U.S. ownership for purposes of determining eligibility for the cross-border exemptions within a
90-day window around public announcement of the transaction. The SEC has so far declined, however, to move away, as
its default test for eligibility for cross-border exemptions, to one that is based on U.S. trading volume as a percentage of
the total market activity (as it has done in the context of rules governing deregistration by certain foreign private issuers
that are reporting companies in the United States).
56 An ADR facility did not seem to be dispositive, in and of itself, to the Plessey court.

program on the analysis.57
Lastly, the size of the
U.S. market for securities (whether on- or off-
exchange) may also be of some degree of interest
to the analysis.
If local law, as technical matter, does not allow
one to refuse to accept tenders, withhold share-
holder documentation, or prevent shareholders
from voting – thereby undercutting, in the SEC’s
view, the integrity of the exclusionary procedures
– then, notwithstanding any disclaimers to the
contrary, the risks escalate. A bit further down on
the totem pole are actions that transaction partici-
pants other than the bidder may take. While it is
critical that bidder’s affiliates and representatives
(such as officers, directors, employees, financial
advisors, exchange agents, information agents,
public and investor relations firms, dealer-man-
agers, brokers, and the like) stay on message and
follow the procedures, the target’s actions are
less important (at least, as the Plessey court noted,
in hostile deals). Having a foreign regulator, in
the exercise of its authority or discretion, post
the shareholder materials or other communica-
tions on its website or otherwise disseminate it is
likely to be a reasonably low-risk item. Failure to
ensure that non-U.S. brokers, nominees and other
intermediaries (including ADR and other deposi-
taries) refrain from sending the materials to their
U.S. accounts or otherwise contacting the U.S., on
the other hand, is a greater challenge and risk.58
Independent actions taken by the shareholders,
brokers, nominees, intermediaries and other par-
ticipants to work around the system are unlikely
to, in and of themselves, tip the scale. What would
be relevant are failures in procedures, willful
blindness in the face of such bad acts, private or
public acknowledgements by acquirers or their
advisers or other representatives that sharehold-
ers would find a way to participate anyway,59
and
failure to take any action to stop or prevent such
bad acts, if and when they become known or per-
haps even reasonably expected.
The extent of pre-offer accumulation of target
securities by or on behalf of the acquirer – and
the extent to which it occurred in the United
States, from U.S. persons and/or on U.S. securi-
ties exchanges – may likewise be raised as a fac-
tor at least in arguing for the depth of contacts
with the United States.60
Large transactions that
attract media attention are bound to be subject to
greater scrutiny as a general matter, although the
size of the deal is likely to matter mainly to the
extent that it is reflective of a coercive strategy.61
The commandment that price matters above all
may also play some limited role as well – a rich
premium that is not available to some sharehold-
ers will generate controversy and creative chal-
lenges, especially if the discount reflected in the
trading price in the secondary market is substan-
tial.62
The secondary market discount may not be
just a factor of time value of money and assess-
ment of deal certainty and execution risk, but
also reflect recent trends like “bumpitrage”63
and
other strategies played by professional investors
who quickly move in upon public announce-
ment, leaks or other market speculation regard-
ing a takeover. Based on prior court guidance,
however, the mere fact that a U.S. shareholder
may sell into the secondary market in response to
being excluded from the offer (thereby realizing
only a portion of the premium reflected in the
market price, less the time-value of money, exe-
cution risk and uncertainty and other pricing fac-
tors and discounts) is not likely to be dispositive
in isolation. Lingering uncertainty, in the mergers
and acquisitions context, about the status of U.S.
persons or entities resident or managed abroad,
as well as U.S. subsidiaries and affiliates of non-
U.S. parent entities and non-U.S. subsidiaries
and affiliates of U.S. parents, would also need
to be factored in while tailoring the exclusionary
procedures and any questions of application that
arise in real time.64
57 For example, the issue of blocking not just the tenders of the ADRs but also the underlying shares must be dealt with.
58 As explored in some of the cases, this is of particular concern if the acquirer knows, or should know, that such actors are
bound by law, or are otherwise likely to do so.
59 Encouraging words, winks or nods to that effect on the part of an acquirer or its representative would be even worse.
60 Although it is not clear whether those activities are enough to taint the entire transaction, especially if the stakebuilding
was conducted in a way that did not, in and of itself, amount to a de facto illegal tender offer (the Endesa litigation is illustra-
tive of that point).
61 An example of this might be an acquirer seeking to purchase less than all of the securities, leaving the excluded minority
with an illiquid stake that cannot be readily exited in the secondary market and/or subject to the mysteries of foreign back-
end squeeze-out and other compulsory procedures.
62 The SEC has focused on U.S. holders losing out on the upside, and footnoted double-digit premiums in certain exclusion-
ary transactions and secondary trading discounts as a policy matter.
63 This term refers generally to situations where activist investors publicly oppose a transaction, which has the effect of deep-
ening the trading discount, in order to get a sweetener. If the acquirer calls their bluff, target shares will frequently rally
over the deal price.
64 This question also relates to the issue of U.S. shareholders transferring their shares to their offshore affiliates in order to
be able to participate in the transaction (including after withdrawing them from the ADR facility).
Sans Frontières

If the acquirer decides to communicate to
the worldwide markets about the impact of the
financing to be raised in connection with the
transaction, it could be difficult to ensure that
the United States is insulated from communi-
cations about the acquisition transaction and
that the necessary procedures are complied with
(although, as noted above, ordinary-course peri-
odic reports filed with the SEC on Form 6-K that
do not include means to tender or vote should be
permissible, even if the acquirer makes the deci-
sion to furnish such information). The amount
of unsponsored publicity the deal receives in the
United States, as well as the attention it attracts
from shareholders, legislators and other con-
stituencies (including for reasons unrelated to the
exclusion) may conceivably be a factor, although
probably an unlikely one, unless it goads the
acquirer into contacting the U.S. media, etc.65
Finally, allegations of fraudulent or deceptive
actions66
and/or schemes to evade compliance
with U.S. law67
pose a complex overlay by pro-
viding alternate routes to attack exclusion (sub-
ject to impact of Morrison discussed below). A
claim for breach of the antifraud provisions could
provide an independent avenue for appearing in
U.S. courts.68
Accurate disclosure is key.69
Careful
and accurate recordkeeping, including appropri-
ate and timely advice received from U.S. counsel,
is also of utmost importance. Ignorance of the
law by an innocent non-U.S. company is unlikely
to be of much help.
These allegations may not necessarily be
limited to allegations of inaccurate disclosure.
Allegations of failure to comply with the tender
offer rules may be styled by plaintiffs as antifraud
claims, although they are less likely to succeed
without some showing of inaccurate disclosure,
misrepresentation and deception (rather than the
mere intent to exclude U.S. shareholders in all
circumstances, coupled with clear disclosure and
procedures). The SEC noted in connection with
its proposal of the cross-border rules that “a bid-
der who, for example, fails to provide any notice
to U.S. holders that it has extended the duration
of any offer and materially increased the amount
of the consideration, or that it may fail to pay
the consideration for an unreasonably long time
period could violate the anti-fraud provisions
including Section 14(e).” This is so because “[t]he
specific requirements of [the rules] are prophy-
lactic in nature, as ‘means reasonably designed to
prevent’ fraudulent or deceptive acts.” The U.S.
Supreme Court and lower courts have acknowl-
edged that Section 14(e) is a “broad antifraud
prohibition … modeled on the antifraud provi-
sions of § 10(b) of the [Exchange Act] and Rule
10b-5.”70
Its language and “sparse” legislative his-
tory, however, generally do not support the view
that Section 14(e) “serves any purpose other than
Sans Frontières
continued
65 Big-ticket M&A turns heads, whether or not the participants want the attention (as the Labatt court noted, “[m]edia inter-
est in the [transaction] announcement was inevitable”). Based on language in certain court cases like Plessey and Labatt and
other guidance, unprompted, second-hand publicity, on the balance, is unlikely by itself to result in a successful challenge.
66 This may include, for example, inaccurate disclosure, coercive or manipulative practices, or non-compliance with home
country laws, etc. On some level, publishing shareholder documents in English (where none is required by home country
law or marketing considerations), while at the same time purporting to exclude English-speaking shareholders, may poten-
tially be cast in similarly unfavorable light as well.
67 Characterizing an exclusionary transaction as an intentional scheme to evade U.S. law is a slightly nuanced variant on the
same theme that has cropped up in several disputes. For example, the target company in Labatt argued that the exclusion-
ary offer was “just being done with a very big wink,” meaning, as the court put it, that when the acquirer “says that U.S.
shareholders are not invited into the Offer, it really means they are.” The judge noted that the target “has demonstrated
neither a likelihood of success on that point nor that it presents a fair ground for litigation” (no evidence was introduced
that “is sufficient to negate the express terms” of the exclusionary offer). Similarly, in the pleadings in the Scor/Converium
litigation the plaintiffs alleged that Scor attempted to “evade United States securities laws while at the same time recogniz-
ing that US persons can – and will – take advantage of the [transaction], confirm Scor’s improper efforts to secure the
participation of US persons while avoiding protections afforded to US investors by the Exchange Act.” The allegation was
bundled up with the statements attributed to the acquirer and its advisors (discussed earlier) regarding the reality of cer-
tain U.S. shareholders finding a way to participate in the deal notwithstanding their exclusion. These arguments most likely
in the end take you back to the same analysis about the applicability of the relevant provisions of the Exchange Act and the
Securities Act to the transaction and the efficacy of the exclusionary procedures (although “atmospherics” and other facts
and circumstances may be more or less likely to influence the outcome).
68 This may include, depending on the facts, claims under Section 14(e), the same section of the Exchange Act that also gov-
erns substantive conduct of tender offers.
69 In situations where disclosure is sent into the United States, ensuring adequate dissemination and affording the sharehold-
ers enough time to review the materials would also be relevant.
70 The decisions in Schreiber v. Burlington Northern, Inc., Piper v. Chris-Craft Industries, Inc. and related cases are instructive on
these points. The Labatt court, in applying the law, noted that “Section 14(e) is designed to ensure that shareholders
confronted with a tender offer have adequate and accurate information on which to base their decision whether or not to
tender their shares.”

disclosure” or that it “be read as an invitation to
the courts to oversee the substantive fairness of
tender offers” without a concomitant misrepre-
sentation, nondisclosure, or deception.71
So, an
antifraud challenge to the substantive “fairness”
of the exclusion may not be that robust.72
In sum, even in a conservative scenario we
started with, any advice would be presaged with
a health warning – one that is not just a lawyer’s
hedge – that any time a bidder excludes the U.S.
shareholders of a target company, there is risk
that a U.S. shareholder, the SEC or the target
company may bring an action, or seek to per-
suade the SEC to bring an action, in a U.S. court
to challenge the exclusion, and that risk (and the
merit of any such action) is difficult to handicap
or quantify. While some of these factors are, a
priori, less bad than others, lack of bright-line
guidance, in a sentence, makes the entire exercise
not free from doubt. The SEC and the courts will
have the benefit of 20/20 hindsight in any such
decision, and while some comfort may be gath-
ered from lack of enforcement or successful pri-
vate lawsuits to date, past performance is never a
guarantee of future returns.
Nevertheless, it is important to remember that
exclusionary business combinations are alive and
well. Depending on the total mix of factors, they
are an important and viable structuring alternative
that is used by market players.73
But there is uncer-
tainty, risk and doubt, some manageable, some
less so. To say that this uncertainty flows from
lack of clear law on the point is, of course, a tautol-
ogy. Getting back to first principles as in all things
helps; at the heart of the issue is that the theory
behind the exclusionary approach and, also, the
territorial reach of the U.S. tender offer rules and
registration requirements, is far from clear.
A Look Back at the Theoretical
Underpinnings
As noted earlier, rather than reflecting a prac-
tical application of an express statutory or regu-
latory exemption or safe harbor (as in offshore
capital raisings), exclusionary transactions stem
from a general view of the scope of U.S. author-
ity and, to some extent, an interpretation of the
incomplete guidance on the fundamental ques-
tion of extraterritoriality of the relevant provi-
sions of the Exchange Act, the Securities Act and
the rules and regulations of the SEC promulgated
pursuant to them. The question of whether a law
applies extraterritorially – that is, whether courts
of the enacting jurisdiction would provide relief
for purported violations that involve foreign
actors and/or conduct – can be sliced into six
principal categories. First, whether the courts
have subject matter jurisdiction to receive the
litigants and hear the cause of action. Second,
whether the underlying statute – by its terms
and/or after the application of the relevant
canons of construction – provides, and/or was
intended by the legislature to provide, relief for
such causes of action. Third, what remedy, if any,
may and should be granted (including whether
any such remedy, such as a worldwide injunction
of the transaction, is likely to have extraterritorial
effect that is disproportionate to the harm to U.S.
interests). Fourth, whether difficulties enforcing
the judgment will render the exercise of authority
largely meaningless.74
Fifth, whether principles of
comity and related concepts grounded in inter-
national law, policy and principles of regulatory
cooperation should lead the court to abstain, as
a matter of policy and prudence, from granting
relief given the essentially foreign nature of the
transaction.75
Sixth, whether considerations relat-
ing to the extraneous effects on the jurisdiction
– whether in terms of policy, otherwise lawful tax
structuring, job losses, competitive impact, for-
eign investment concerns, etc. – should lead the
court or the regulators in an opposite direction to
apply their authority as broadly as possible. As
an overlay to all this, there are logistical issues
relating to the gathering of evidence where the
71 As one decision noted, “the quality of any offer is a matter for the marketplace.”
72 This is similar to the attempts to attack the substance of takeover attempts and target company defenses under the same
provision in domestic transactions.
73 Even the SEC has made statements in the past that exclusionary transactions may be appropriate in certain circumstances
(although it is unclear if the SEC still feels that way, or what those circumstances are, given its views on the effect of the
accommodations reflected in the cross-border exemptions).
74 For example, in proposing the cross-border exemptions in 1999, the SEC noted that “[i]t may be difficult, however, for
a security holder to enforce any judgments under the U.S. federal securities laws against the foreign private issuer whose
assets, senior management and directors may be located in a foreign country.” Requiring the non-U.S. acquirers in some
exempt cross-border transactions to file a Form FX designating an agent for service of process in the United States was
one response to that concern.
75 The reality and perception of the “fairness” of the expansive nature of U.S. jurisdiction has led to conflicts with foreign
regulators, criticisms from private actors and a variety of other alleged negative effects on U.S. competitiveness and capital
markets. The courts, the American Law Institute in the Restatement of Foreign Relations Law of the United States and
others have sought to balance these considerations. The SEC has also entered into memoranda of understanding with
various foreign regulators, as well as undertaken other activities aimed at fostering cooperation, information sharing, etc.
Sans Frontières

witnesses are not subject to the personal jurisdic-
tion of the U.S. courts, and similar concerns.
As discussed above, exclusionary business
combination transactions have touched on most
of these issues, without resulting in a single crisp
basis for their validity and parameters. Some
cases and arguments suggest that the question is
one of subject matter jurisdiction – that is, a U.S.
court may not hear the dispute to begin with if
certain criteria are present. The caselaw and the
SEC’s statements also take the position that the
statutes themselves have certain extraterritorial
effect, as a substantive matter, although, as noted
on a number of occasions, one that is probably less
extensive than that of the antifraud provisions of
the same laws. But again, it is not clear what the
test for that reach is. The principle of international
comity was a policy that overlay the jurisdictional
and substantive analyses to no clearly predictable
effect. For example, the Labatt court noted the
comity and public interest concerns relating to the
Canadian interest in the transaction. But policy
concerns do not lend themselves to predictable
application or advance planning by market par-
ticipants. The exclusionary nature of the Hoylake
bid was questioned before U.S. Congress princi-
pally because concerns about loss of tax revenue
and jobs brought the deal to the legislator’s atten-
tion in the first instance.
The reason the list of potential countervail-
ing risks and uncertainties discussed above is so
long and inconclusive flows from the confusion.
Part of the difficulty in trying to reconcile this
body of law now – and thinking about where it
is heading – is that most of it occurred against
the now-moot background of the extraterritorial
reach of the antifraud provisions of U.S. federal
securities laws. The Supreme Court’s decision in
Morrison rejected that body of law and, in many
respects, scaled back the extraterritorial effect of
those provisions. If, under the same set of facts
involving the same level of contacts with the
United States, a court may have found violation
of the antifraud provisions, but not the tender
offer rules or registration requirements before,
then, a fortiori, the boundaries of the latter may
have retreated as well. To that end, it is impor-
tant to see how Morrison sheds more light on the
geographic scope of the tender offer rules and
registration requirements and helps to settle the
theoretical basis for exclusionary transactions.
This may help to winnow down the questions
that have proliferated.
Morrison and its Relevance to
Exclusionary Business Combinations
Much has been written about the Morrison
decision in the so-called “foreign-cubed” claims.
The purpose here is not to restate that commen-
tary. The U.S. Supreme Court held that the anti-
fraud provisions of the Exchange Act concerning
misstatements and omissions do not cover the
claims of “foreign plaintiffs suing foreign and
American defendants for misconduct in connec-
tion with securities traded on foreign exchanges.”
Importantly, the majority began its discussion by
first noting that the question of whether such
claims may proceed is not one of subject matter
jurisdiction of the U.S. trial court – the power to
hear such cases was granted to the courts by stat-
ute. Rather, it is a question of merits. The major-
ity then rejected the long-standing “conduct”
and “effects” test developed by the U.S. Court of
Appeals for the Second Circuit since the 1960’s
and 1970’s in response to growing international-
ization of the securities markets.76
The test was a fact-sensitive doctrine that
sought to gauge and balance the level of alleged
malfeasances that occurred in the United States
and their impact in the United States and/or on
U.S. persons. It generally followed the premise
that a U.S. court may hear foreign-cubed claims
only if activities in the United States “were more
than merely preparatory to a fraud and culpable
acts or omissions occurring here directly caused
losses to investors abroad.” In noting the “unpre-
dictable and inconsistent application” of the
extraterritoriality standards under the “conduct”
and “effects” test, the majority’s opinion held that
the question of a law’s geographic scope is one of,
first and foremost, statutory construction. Given
the presumption that, “unless a contrary intent
appears, [a statute] is meant to apply only within
the territorial jurisdiction of the United States,”
it stated that “there is no clear indication in the
Exchange Act that [the relevant antifraud provi-
sion applies] extraterritorially, and we therefore
conclude that it does not”.77
Instead, the test for whether a claim is covered
by the Exchange Act turns upon purchases and
sales of securities in the United States having
taken place. Consequently, as the majority noted,
Sans Frontières
continued
76 Two justices also concurred in the outcome, but argued for the retention of the existing test.
77 The relevant portions of Section 10(b) state that “[i]t shall be unlawful for any person, directly or indirectly, by the
use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities
exchange...”.

“it is the foreign location of the transaction that
establishes” whether the Exchange Act applies.
To that end, only “transactions in securities listed
on domestic exchanges, and domestic transac-
tions in other securities” are actionable under the
law. Predictability and certainty of extraterrito-
rial application of laws adopted by Congress, free
from judicial casuistry and confusion criticized
by the majority, was the goal. The law either says
that it extends beyond the borders, or it does not.
If it is ambiguous, the scale is likely to tip in favor
of limiting the extraterritorial impact. In other
words, the judges do as Congress wrote.
There were a number of non-textual concerns
that motivated the majority opinion.78
But at the
heart of the decision is a key conclusion – the
relevant antifraud provision of the Exchange
Act should not apply extraterritorially because it
does not say that it does. The lower courts are just
beginning to apply Morrison outside of the anti-
fraud context. For example, in September 2010,
the U.S. Court of Appeals for the Second Circuit
held that the Racketeer Influenced and Corrupt
Organizations Act (“RICO”) does not apply to “a
widespread racketeering and money laundering
scheme” that “primarily involved foreign actors
and foreign acts” because RICO is “silent as to
any extraterritorial application.”79
Provisions included in the historic Dodd-Frank
Wall Street Reform and Consumer Protection
Act somewhat confuse the picture, however.
The law appears to grant the SEC and the U.S.
Department of Justice power to regulate foreign
violations in language that resembles the old
“conduct” and “effects” test. 80
The net impact of
the new provisions is somewhat unclear at this
time (keeping in mind that the SEC has, to date,
never publicly blocked an exclusionary transac-
tion for failure to comply with the tender offer
rules or registration requirements). Moreover,
the law as adopted does not provide for a private
right of action;81
the SEC is mandated, however, to
study the extent to which a private right of action
should be expanded. Setting that aside, what does
Morrison mean for the scope of the provisions of
the Exchange Act relating to the conduct of tender
offers, the provisions of the Securities Act relating
to the registration of securities issued in business
combination transactions and related SEC rules
and regulations? More precisely, what does it do
to the plethora of factors that complicate the anal-
ysis, make it turn on the total mix of nuanced facts
and introduce inherent uncertainty and risk?
These questions are both deceptively sim-
ple and complex at the same time. The ques-
tion is not one of subject matter jurisdiction,
choice of law, prudence, policy, international
comity or any number of other nuanced “total
mix” factors. If the statute as a whole does not
have language providing for broad extraterrito-
rial effect82
and everything turns on whether, as
78 The two main ones include “the fear that [the United States] has become the Shangri-la of class-action litigation for
lawyers representing those allegedly cheated in foreign securities markets,” as well as the risk that U.S. courts may issue
decisions that conflict with the laws of relevant foreign jurisdictions.
79 On the other hand, the SEC recently settled charges under the Foreign Corrupt Practices Act of 1977 (the “FCPA”)
against Panalpina World Transport (Holding) Ltd., an entity that is neither a U.S. issuer not affiliated with one. The SEC
proceeded against the company “as agent of its issuer customers and acting on their behalf” and on grounds that it “aided
and abetted” its customers (which were issuers) in violating the anti-bribery, record-keeping and internal controls provi-
sions of the FCPA. The SEC’s jurisdictional theory appeared expansive (as it has in other FCPA-related matters as well as
prosecuted by the U.S. authorities).
80 One law firm expressed its view that the newly-enacted provisions do not overturn Morrison and should not
“extend the substantive reach of the securities laws extraterritorially at all.” These commentators noted that:
As actually worded [the statute] unambiguously addresses only the “jurisdiction” of the “district courts of the United
States” to hear cases involving extraterritorial elements; its language clearly does not expand the geographic scope of any
substantive regulatory provision. That is a crucial, and likely fatal, omission. In [Morrison], the Supreme Court reiterated
the longstanding principle that the territorial scope of a federal law does not present a question of “jurisdiction,” of a “tri-
bunal’s power to hear a case,” but rather a question of substance—of “what conduct” does the law “prohibit”? The new
law does not address that issue, and accordingly does not expand the territorial scope of the government’s enforcement
powers at all. To be sure, given the drafters’ extra-statutory statements, some judges may be tempted to find substan-
tive extraterritorial reach in [the statute]. But as the Supreme Court has made clear, it is “beyond [the courts’] prov-
ince to rescue Congress from its drafting errors,” and so “if Congress enacted into law something different from what
it intended, then it should amend the statute to conform it to its intent.” Congress will probably have to do that here.
With respect to the SEC study mandate, these commentators also observed that, while “there is no way to know what
the agency will recommend, let alone whether Congress, in whatever political environment may prevail in 2011 or 2012,
will change the law,” it now “behooves interested parties – such as the many amici curiae, including foreign governments,
who so emphatically urged the Supreme Court to reject extraterritoriality in Morrison – to make their views known once
again, this time to the SEC.”
81 Contrary to some proposed amendments to the bill that did not survive.
Sans Frontières

Justice Scalia wrote for the majority, there is “an
affirmative indication” that the specific section
“applies extraterritorially,” then the answer can
be reasonably straight forward. On their face,
neither Section 14(d) nor Section 14(e) of the same
Exchange Act examined in Morrison, nor Section
5 of the Securities Act, expressly stake a claim to
extraterritoriality.83
This dovetails, as some courts
and commentators have noted, with the U.S.
Congress’s focus on domestic matters and repair-
ing the damage to the economy and the securities
markets through uniform national regulation by
the federal government at the time of the laws’
enactment in the 1930’s. Nor do the amendments
to the Exchange Act, which codified the tender
offer and other provisions of the Williams Act in
the 1960’s, shed more light.
There are references to “interstate commerce”
in Section 14(d) – “[i]t shall be unlawful for any
person, directly or indirectly, by use of the mails
or by any means or instrumentality of interstate
commerce or of any facility of a national securi-
ties exchange or otherwise.” This nexus was, as
discussed earlier, the basis for the theory behind
exclusionary transactions. But, under the major-
ity view in Morrison, a mere reference to the use
of “interstate commerce” does not defeat the
presumption against extraterritorial effect (par-
ticularly since Section 10(b) of the Exchange Act
examined in Morrison has the same provision).84
Does the presence of the “or otherwise” language
in Section 14(d), which does not appear in Section
10(b) of the Exchange Act examined by Morrison,
amount to “a clear statement of the extraterrito-
rial effect” demanded by the majority? Given the
example of Section 30(a) of the Exchange Act,
this may be too ambiguous to survive the canon
of construction/presumption against extrater-
ritoriality.85
But the question does remain. Since
Section 14(d) and the related rules apply to secu-
rities of listed or reporting companies, the poten-
tial implication may be somewhat consistent
with the SEC’s view that excluding holders of a
listed or reporting company is a more onerous
and uncertain exercise. The textual distinction,
however, may be less relevant in any event if the
domestic exchanges are involved as a practical
matter, but it is a question whether the mere fact
that the excluded U.S. shareholders are forced
to sell on a domestic exchange suffices to trig-
ger the application of the statute to an otherwise
soundly-executed exclusionary transaction.
On the other hand, Section 14(e) states its pro-
hibition only by reference to actions taken “in
connection with any tender offer or request or
invitation for tenders, or any solicitation of secu-
rity holders in opposition to or in favor of any
such offer, request, or invitation” and omits even
the “interstate commerce” nexus. But that may
not help to tease out extraterritorial effect under
Morrison either. The SEC has stated in the past
that it believes that Section 14(e) is fully appli-
cable to business combinations involving foreign
principals and foreign securities. By way of anal-
ogy, Section 13(e) of the Exchange Act, which
serves as the anchor for rules dealing with issuer
tender and exchange offers (rather than those
undertaken by third parties) and certain “going
private” transactions involving issuers and their
affiliates, also omits the “interstate commerce”
language, with uncertain implications. In light of
that, to date, it was unclear whether issuers and,
potentially, their affiliates, who undertake exclu-
sionary transactions would come under U.S.
scrutiny with even fewer U.S. contacts than third-
party bidders for various reasons.86
Since these
rules are predicated on a U.S. listing or other
reporting obligation in the United States on the
part of the subject company, however, the general
view is that it is very difficult to avoid U.S. juris-
diction in these transactions. On one occasion, the
SEC appeared to have considered taking enforce-
ment action in an exclusionary “going-private”
transaction by a U.S.-listed/reporting issuer and
justified it, at least in part, because Section 13(e)
did not have the same “jurisdictional means” ele-
Sans Frontières
continued
82 This was the reason for the lower courts stepping in and developing, as a matter of policy, the “conduct” and “effects” test
and similar approaches.
83 Other provisions of the statute expressly do so, such as Section 30(a) noted by the Morrison majority.
84 This should hold even though the definition picks up “foreign commerce” as well. The preamble to the Securities Act
expressly states that the objective is to “[t]o provide full and fair disclosure of securities sold in interstate and foreign com-
merce and through the mails, and to prevent frauds in the sale thereof, and for other purposes.”
85 Section 30(a) of the Exchange Act states that it applies to “use of the mails or of any means or instrumentality of interstate
commerce for the purpose of effecting on an exchange not within or subject to the jurisdiction of the United States, any
transaction….”
86 These include Section 13(e)’s silence on the interstate commerce predicate and other factors like the fact that the rules
only apply to companies that are U.S.-listed (so that transactions on a U.S. securities exchange are likely to occur), the
issuer having voluntarily accessed the U.S. markets by listing in the first place, the potential for self-dealing in such transac-
tions, etc.

Konevsky_King_MA_Journal_Nov_2010

Konevsky_King_MA_Journal_Nov_2010

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