Schedule 14D-9

What Is Schedule 14D-9?

Schedule 14D-9 is a filing with the Securities and Exchange Commission (SEC) when an interested party, such as an issuer, a beneficial owner of securities, or a representative of either, makes a solicitation or recommendation statement to the shareholders of another company with respect to a tender offer. The company that is the subject of the takeover must file its response to the tender offer on a Schedule 14D-9.

Understanding Schedule 14D-9

A company may want to buy another company for a variety of reasons, which include synergies resulting from the merger, the new company being a more competitive player in the market, or perhaps the possibility of the acquiring company running the target company better.

When an acquiring company sees these benefits, they make a tender offer for all or a large portion of a target company's shares. A tender offer is a public offer to buy some or all of the shares in a corporation from the existing shareholders. The SEC stipulates that a tender offer be a purchase of a significant portion of a company's shares that is offered at a fixed price. The fixed price offered should typically be above the current market price.

The response of the target company is then conveyed to the acquiring company via Schedule 14D-9, also functioning as a notice by management to the shareholders. It will contain pertinent information to the tender offer, such as the response, the fairness of the valuation, the proposed corporate structure, and any other pertinent information.

Schedule 14D-9 is utilized in all types of mergers and acquisitions, including a leveraged buyout and a management buyout. Any transaction that requires shareholders to sell their shares in exchange for cash or other securities will require a Section 14D-9.

Real World Example

On Dec. 6, 2011, Pharmasset Inc., a biotechnology firm, filed a Schedule 14D-9 in response to a tender offer made by Royal Merger Sub Inc., a wholly-owned subsidiary of Gilead Sciences Inc., to purchase all of the issued and outstanding shares at a price of $137 per share.

The filing contained important details regarding past contacts, transactions, agreements, and negotiations between the parties. It also contained the solicitation timeline, the recommendation of the board of directors, the reasons for the recommendation, the fairness opinion of Pharmasset's financial advisor, Gilead's list of board designees, corporate governance, including executive compensation information, a list of major shareholders, and other salient information for shareholders to make a decision on whether or not to tender their shares.

The two companies agreed upon a merger, which was finalized in 2012.