M&A shows SEC cross-border rules work

An increase in cross-border M&A deals is finally proving the Securities and Exchange Commission’s (SEC) M&A exemptions useful.

More than six months after exemption amendments to cross-border rules that allow foreign acquirers to use an average daily trading volume test (better known as the alternate test) in place of look-through requirements, the SEC is showing its ability to apply the exemptions more effectively.

The winter 2009 slowdown in cross-border deals let the SEC build a base of knowledge about the alternate test through more time-consuming examinations, but the recent increase in deals is allowing regulators to apply the exemption in new ways.

Christina Chalk, Senior Special Counsel at the SEC’s Office of M&A, told IFLR: “Common sense would tell you that we had more time to look at deals (over the past six months). We would like to think we look at every deal the same and more deals are going to help us identify new examples where the alternate test applies.”

The alternate test is used when look-through requirements that make an acquirer obtain information from brokers on more reliable whereabouts of the acquired company’s stock cannot be met. The rule identifies hostile presumption for non-negotiated transactions as one instance when the rule can be used.

“The SEC recognised that it’s not always feasible to do the look-through analysis, so it allowed the test,” said George Casey, partner at Shearman & Sterling. “This is a significant step forward.”

Chalk emphasised that, despite the SEC’s ability to use it in more transactions, the alternate test is not a way to avoid using the standard look-through requirements that cost more and require more time for acquirers.

“People shouldn’t start with the alternate test,” she said at the International Bar Association’s M&A Conference in New York. “When the look-through is available you must use it. The use and focus of the look-through test has not changed.”