What Is Schedule TO-T?

The term Schedule TO-T refers to a form that must be filed with the Securities and Exchange Commission (SEC) by any entity that makes a tender offer for another company's equity securities registered under the Securities Exchange Act of 1934. The filing must be made pursuant to Section 14dor 13d of the Act. The form replaced Schedule 14D-1 in January 2000.

Key Takeaways

  • Schedule TO-T must be filed whenever an entity makes a tender offer for another company's shares registered under the Securities Exchange Act of 1934.
  • The form must be filed with the Securities and Exchange Commission any time an entity plans to acquire more than 5% of another firm's shares.
  • The rules pertaining to the schedule are pursuant to Section 14d or 13e of the Act.

Understanding Schedule TO-T

Tender offers occur as part of public takeover bids. An investor or company may make a tender offer to purchase shares of another company from some or all of its shareholders when they want to take it over. The entity making the offer normally does so publicly, offering a premium to the market price.

By purchasing a controlling share of another company’s shares of stock directly from its stockholders, the acquiring company may be able to take control of the target firm, whether or not that company wants to be acquired. A third-party tender offer is usually performed as the first part of a two-step merger because it is unlikely that all of a company’s shareholders want to sell their stock pursuant to a third-party tender offer.

Third parties that make tender offers must disclose their intentions to the SEC if they intend to acquire more than 5% of the target's shares. This is done by filing Schedule TO-T. Share issuers, on the other hand, are exempt from filing the form. As mentioned above, this is pursuant to Section 14d or 13e of the Securities Exchange Act of 1934, which was established to oversee the exchange of securities on the secondary market. The act aims to provide the market with more accuracy and transparency while mitigating financial fraud.

Information on Schedule TO-T includes:

  • The entity making the tender offer
  • The subject company
  • The CUSIP number of the securities
  • The number of shares
  • The price per share as per the tender offer
  • The transaction valuation

Schedule TO-T also includes the total amount of the filing fee. The fee's calculation method is outlined in the form. The schedule may also include any amendments to a TO statement initially filed with the SEC.

Special Considerations

As per Regulation 14d, a completed Schedule TO-T, third-party tender offer statement, or third-party tender offer must also be sent to certain parties in addition to the SEC. These include the issuer of the security and any other entities that have placed competing bids for the target. The regulation also sets forth other requirements that must be complied with in connection with a tender offer.

Acquiring companies must also send a copy of the completed Schedule TO-T to the issuer of the shares along with others that have placed competing bids for the target.

Two-Step Mergers

If the bidder or acquiring company owns 90% of the stock in the company to be acquired, they can perform a short-form merger. This type of deal doesn’t require stockholder approval from the target company. It is unlikely, though, that a company is ever able to acquire 90% of another company’s stock through a tender offer. That's why mergers like these usually take place between a parent company and its subsidiary.

It is much more common, however, for a buyer to perform a back-end merger. This occurs when the buyer acquires a majority of stock during a tender offer, then acquires the company as a whole by using its influence as a majority shareholder to consent to the merger. The most common form of back-end merger is a reverse triangular merger, in which the target company continues as a subsidiary of the buyer. This kind of merger requires less paperwork in the form of third-party consents.