What is the All-Holders Rule

An SEC regulation that requires a tender offer to be made available to all holders of the identical class of the security. The All-Holders Rule is part of Rule 14d-10 of the Securities Exchange Act of 1934, which specifies equal treatment of security holders. This rule is especially important during takeover bids, ensuring that any tender offers made by the acquiring company cannot be directed to only those shareholders in favor of the takeover.

BREAKING DOWN All-Holders Rule

For example, if company ABC has tendered an offer to buy back its B class shares, then all holders of this class must be allowed to participate in the buyback. The SEC does not require ABC to offer this buyback to the shareholders of its other classes.

A corollary to the All-Holders Rule is that the consideration paid to all security holders who tender their securities should be the highest or "best price." This is intended to prevent some security holders receiving a lower price for their securities than others in a tender offer.

A tender offer is when an investor proposes buying shares from every shareholder of a publicly traded company for a specific price at a certain time. The investor normally offers a higher price per share than the company’s stock price, providing shareholders a greater incentive to sell their shares. For example, a stock’s current cost is $10 per share. An investor wanting to take over the company issues a tender offer for $12 per share on the condition he acquires at least 51% of the shares.

The all-holders rule is intended to level the playing field for smaller investors. Without it, a potential acquirer could approach institutional investors to buy their shares at a premium, freezing out the smaller investors.

Best-Price Rule

The best-price rule in the same section of the SEC code works in a similar fashion. It stipulates that consideration offered to any security holder in a tender offer must be equal to the highest consideration paid to any other security holder. The best-price rule is meant to provide equal treatment to all holders of securities in a tender offer.

in December 2006, the rule was amended to: "consideration paid to any security holder for securities tendered in the tender offer is the highest consideration paid to any other security holder for securities tendered in the tender offer."  A safe harbor was instituted in the rule for compensation arrangements approved by a committee of independent directors.