Securities Exchange Act of 1934
Peter Kiewit Sons', Inc.
Dear Mr. Boston:
We are responding to your letter dated May 17, 2005 addressed to Brian V. Breheny and Nicholas P. Panos, as supplemented by telephone conversations with the staff of the Division of Corporation Finance, with regard to your request for no-action relief. Our response is attached to the enclosed photocopy of your letter to avoid having to recite or summarize the facts set forth in your letter. Unless otherwise noted, capitalized terms in this letter have the same meaning as defined in your letter.
Without necessarily concurring in your analysis, and based on your representations and the facts presented in your letter, the Division of Corporation Finance will not recommend that the Commission take enforcement action against Kiewit under Rule 13e-4(f)(3) of the Exchange Act if Kiewit conducts an issuer tender offer in the manner described in your letter.
In taking this no-action position, the Division, in addition to the policy considerations presented in your request, notes:
This no-action position under Rule 13e-4(f)(3) is based solely on the representations and facts presented in your letter. The transaction should be discontinued, pending presentation of the facts for our consideration, in the event that any material change occurs with respect to any facts or representations.
In addition, we direct your attention to the anti-fraud and anti-manipulation provisions of the federal securities laws, including Sections 10(b) and 14(e) of the Exchange Act, and Ru1e 10b-5 thereunder. Kiewit is responsible for complying with these and any other applicable provisions of the federal securities laws. The Division expresses no views with respect to any other issues the proposed transaction may raise, including but not limited to, the adequacy of disclosure concerning, and the applicability of any other federal or state laws to, the proposed transaction.
Brian V. Breheny
Office of Mergers & Acquisitions
Division of Corporation Finance
1934 Act/Rule 13e-4(f)(3)
May 17, 2005
Office of Mergers and Acquisitions
Division of Corporation Finance
Securities and Exchange Commission
100 F Street
Washington, D.C. 20549
Brian V. Breheny
Peter Kiewit Sons', Inc.
On behalf of Peter Kiewit Sons', Inc., a Delaware corporation ("Kiewit"), we are writing to request confirmation that the Staff of the Securities and Exchange Commission (the "Commission") will not recommend enforcement action under Rule 13e-4(f)(3) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), if Kiewit conducts a tender offer in the manner described below.
Kiewit currently intends to commence a tender offer in May 2005 under the provisions of Rule 13e-4. Kiewit desires to structure the tender offer in a manner that would afford each Kiewit shareholder the opportunity to tender up to an equal specified percentage of his or her Kiewit shares and assure each shareholder that the specified percentage of his or her shares would be purchased in the offer. Therefore, the tender offer would not require any proration as provided under Rule 13e-4(f)(3). Kiewit respectfully requests the concurrence of the Staff that the Staff will not recommend enforcement action under Rule 13e-4(f)(3) if Kiewit conducts a tender offer pursuant to which it offers to purchase only up to a specified percentage of each shareholder's shares, as further described below.
Kiewit is one of the largest construction contractors in North America. Although Kiewit's common stock ("Kiewit Common Stock") is registered under Section 12(g) of the Exchange Act, Kiewit's restated certificate of incorporation (the "Certificate") restricts ownership of Kiewit Common Stock to directors of Kiewit, employees of Kiewit and its subsidiaries, employees of KCP, Inc. (a former affiliate of Kiewit) and its subsidiaries and, with prior approval of the Board of Directors of Kiewit (the "Kiewit Board"), certain authorized transferees of such employees (i.e., fiduciaries for the benefit of members of the immediate families of employees, corporations wholly owned by employees or employees and their spouses and/or children, fiduciaries for the benefit of such corporations, charities, and fiduciaries for charities designated by any such persons). Kiewit's policy of employee ownership originated as a way of attracting and motivating top-quality employees. Historically, Kiewit has maintained a relatively low salary structure and few retirement benefits for its key employees in relation to its competitors, instead choosing to motivate and reward its employees by linking their personal economic well-being to the performance and growth in value of Kiewit Common Stock.
Kiewit offers Kiewit Common Stock for purchase by employees annually. Sales of Kiewit Common Stock are made at a formula price, based on Kiewit's book value. The Kiewit Board and management select the employees to whom Kiewit Common Stock is to be offered and determine the number of shares to be offered to each such employee based upon consideration of a wide range of factors, including the employee's effort and relative contribution to Kiewit's economic performance, the employee's level of responsibility, the potential displayed by the employee, the employee's length of service, and the amount of Kiewit Common Stock already owned by the employee. As of May 13, 2005, approximately 32.4% of the outstanding Kiewit Common Stock was owned by or for the benefit of directors and executive officers of Kiewit and the remaining approximately 67.6% was owned by or for the benefit of other employees of Kiewit and its subsidiaries and KCP, Inc. and its subsidiaries.
There is no trading market for Kiewit Common Stock and shareholders are prohibited from transferring shares of Kiewit Common Stock except in a sale to Kiewit or a transfer to an authorized transferee (such as a charity). A holder of Kiewit Common Stock may offer to sell all or part of his or her shares of Kiewit Common Stock to Kiewit at any time at the then-applicable formula price and, subject to certain exceptions, Kiewit must accept each such offer. Upon death, retirement or termination of employment with Kiewit, a shareholder must sell all of his or her Kiewit Common Stock to Kiewit. All of these repurchases are for cash (or such other consideration as may be mutually agreed upon by the Company and the shareholder) and are made at the then-applicable formula price for Kiewit Common Stock.
The Certificate provides that Kiewit has the option, at any time, to repurchase shares of Kiewit Common Stock from any shareholder for cash at the then-applicable formula price upon a determination by the Kiewit Board that the amount of Kiewit Common Stock held by such shareholder is disproportionately high in view of Kiewit's policy that the level of any shareholder's stock ownership should reflect the factors described above in the second paragraph of this part A with respect to Kiewit's decision to offer shares of Kiewit Common Stock to its employees. In the event of such a determination, Kiewit may purchase from that holder an amount of stock sufficient to decrease the holder's ownership to a level that the Kiewit Board believes is appropriate.
Kiewit has determined that it is in the best interests of its employee shareholders to distribute a portion of the cash generated by its operations to holders of Kiewit Common Stock. Kiewit further believes that it is in the best interest of its employee shareholders that, in any such distribution of cash, each shareholder's aggregate equity interest in Kiewit be reduced by the same proportion. Although a proportionate reduction in aggregate equity interest could be achieved through a pro rata cash dividend rather than through a repurchase of shares in an issuer tender offer, a dividend would be taxed to Kiewit's Canadian shareholders at a higher rate than would a repurchase of shares (the U.S. federal income tax rate to Kiewit's U.S. shareholders is the same for a dividend as for a repurchase of shares in an issuer tender offer). As described above, Kiewit also has the right under the Certificate to repurchase shares of Kiewit Common Stock under certain specified circumstances. The availability of this repurchase right, however, is limited and could not be used alone to effect the pro rata cash distribution to all Kiewit shareholders.
Therefore, Kiewit is proposing a tender offer (the "Tender Offer") as the mechanism to effect this distribution of cash. The Tender Offer will enable Kiewit shareholders to receive cash for a portion of their shares of Kiewit Common Stock and thus have the opportunity to diversify their investment in Kiewit. In addition, the Tender Offer will provide Kiewit shareholders with the procedural and substantive protections of the issuer tender offer rules under the Exchange Act, including the disclosures required by Schedule TO. Kiewit has determined that the Tender Offer should be fair and equitable to all of its shareholders, and desires to give all of its shareholders, large and small, the same opportunity to participate in the Tender Offer on a proportionate basis to their ownership of Kiewit Common Stock. Kiewit is determined to avoid even the appearance that its larger shareholders could be treated more favorably than its smaller shareholders. To accomplish this goal, Kiewit proposes to structure the Tender Offer (1) to allow each shareholder the opportunity to tender up to an equal percentage of his or her Kiewit Common Stock and (2) to be able to guarantee each shareholder that Kiewit will purchase up to the full specified percentage. Kiewit believes that structuring the Tender Offer in this manner would result in all of its shareholders being treated equally since each shareholder would be assured that Kiewit would purchase the same proportion of his or her shares of Kiewit Common Stock, regardless of the amount of shares tendered by other shareholders.
Kiewit proposes to conduct the Tender Offer, in which each holder of Kiewit Common Stock would have the right to tender up to a specified percentage of his or her Kiewit Common Stock for $37.55 per share (the fixed formula price of the Kiewit Stock determined pursuant to the Certificate), in cash. Kiewit currently anticipates that the specified percentage will be 38%. Each holder would be assured that Kiewit would purchase the full specified percentage if he or she tendered up to the full specified percentage of his or her shares. This approach would not require any proration because each shareholder would be allowed to tender only up to that percentage of his or her Kiewit Common Stock that Kiewit offered to purchase. Kiewit would accept for purchase all shares that a shareholder tendered up to the specified percentage and, promptly after Kiewit's acceptance of such shares for purchase, deliver payment to tendering Kiewit shareholders by check. The price to be paid for tendered shares would be set and fixed at the time of commencement of the Tender Offer and would not change while the Tender Offer was pending. The determination of whether all conditions to the Tender Offer were satisfied (or waived) would be made by Kiewit prior to the expiration date for the Tender Offer.
For purposes of determining the number of shares of Kiewit Common Stock that each shareholder is eligible to tender, Kiewit will measure each shareholder's ownership of Kiewit Common Stock as of the commencement date of the Tender Offer, which will be the record date for this purpose.
All shares of Kiewit Common Stock are held in physical, certificated form, and Kiewit maintains records of Kiewit Common Stock ownership and transfers through its internal stock office. Kiewit is registered as a transfer agent under the Securities Exchange Act of 1934, as amended, and maintains a system of internal controls and procedures as required thereunder. Since Kiewit Common Stock cannot be owned other than by Kiewit employees and certain permitted transferees and is subject to strict limitations on transfer, with no public trading market, Kiewit believes its internal record keeping procedures have historically provided it with certainty in determining Kiewit Common Stock ownership. Therefore, Kiewit believes that it will be able to determine with certainty the number of shares of Kiewit Common Stock owned by each Kiewit shareholder at the time of the Tender Offer and, as a result, determine with certainty the number of shares that each such shareholder will be eligible to tender.
As part of the proposed Tender Offer, each Kiewit shareholder will receive a statement that reflects the number of shares of Kiewit Common Stock he or she owns, and each will be informed of the number of shares that he or she is eligible to tender. Kiewit will not offer any additional shares of Kiewit Common Stock for sale during the Tender Offer period. No shareholders will benefit from tendering more than the specified percentage because Kiewit will not accept for purchase any excess number of shares tendered.
As described above, Kiewit has the option, at any time, to repurchase shares of Kiewit Common Stock from any shareholder for cash at the then-applicable formula price upon a determination by the Kiewit Board that the amount of Kiewit Common Stock held by such shareholder is disproportionately high in view of Kiewit's policy that the level of any shareholder's stock ownership should reflect certain factors, including the employee's effort and relative contribution to Kiewit's economic performance, the employee's level of responsibility, the potential displayed by the employee, the employee's length of service, and the amount of Kiewit Common Stock already owned by the employee. To the extent that any shareholder (including any officer or director) does not participate in the Tender Offer up to the maximum specified percentage, Kiewit believes that such shareholder's proportionate ownership of Kiewit Common Stock following the consummation of the Tender Offer would be disproportionately high in view of Kiewit's policy and such factors when compared to the proportionate ownership of participating holders. The Kiewit Board believes that it is appropriate to make an assessment of relative ownership levels following the completion of the Tender Offer because relative ownership levels could change substantially as a result of the Tender Offer. For example, if most but not all Kiewit shareholders participate in the Tender Offer up to the maximum specified percentage, the relative ownership percentage of the non-participating holders in Kiewit would be disproportionately high compared to what they were prior to the Tender Offer and to that of the participating holders. Therefore, the Kiewit Board has indicated that it will utilize its existing discretion, pursuant to the terms of the Certificate, to redeem for cash from any such shareholder, the number of shares of Kiewit Common Stock sufficient to reduce such shareholder's ownership percentage of Kiewit Common Stock from what it was immediately prior to the expiration of the Tender Offer to what it would have been at the closing of the Tender Offer had such shareholder participated in the Tender Offer up to the maximum specified percentage. In calculating the number of shares of Kiewit Common Stock owned immediately prior to the expiration of the Tender Offer, any shares donated to charitable organizations in accordance with the terms of the Certificate during the pendency of the Tender Offer will be treated as being owned by the transferring shareholder. Kiewit will effect such redemption eleven business days following the expiration of the tender offer. The redemption price per share will equal $37.55, the formula price of a share of Kiewit Common Stock on the redemption date and will be payable in cash. Kiewit will include disclosure in the Tender Offer materials of the Kiewit Board's intention to redeem such shares.
Rule 13e-4(f)(3) under the Exchange Act provides that if an issuer "makes a tender offer for less than all of the outstanding securities of a class, and if a greater number of securities is tendered pursuant thereto than the issuer or affiliate is bound or willing to take up and pay for, the securities taken up and paid for shall be taken up and paid for as nearly as may be pro rata, disregarding fractions, according to the number of securities tendered by each security holder during the period such offer remains open."
As set forth in Section IV(E)(4) of Release No. 34-16112, Rule 13e-4 is designed to ensure equal opportunity for all securityholders to participate in an issuer tender offer without feeling pressured to tender:
The pro rata acceptance requirements of the Rule are based on the policy underlying Section 14(d)(6) of the Act, which was designed to allow all securities an opportunity to participate in the offer. Moreover, as a means reasonably designed to prevent fraudulent or deceptive conduct, the pro rata acceptance requirements are intended to prevent an issuer from pressuring security holders, who might otherwise assume that all tendered securities will be accepted on a first come, first served basis, into making hasty, uninformed investment decisions.
Kiewit believes that the proration mechanics under Rule 13e-4(f)(3) were designed for and work well in a typical partial tender offer where an issuer is seeking to acquire a certain percentage of its securities. In such a tender offer, the issuer seeks to maximize the possibility that the percentage sought is actually tendered and has less interest in which holders tender or how much any individual holder tenders so long as the aggregate percentage is acquired. The standard proration mechanics provide a means to deal fairly with oversubscription in such situations. The Tender Offer is different in that Kiewit's primary goal is not to purchase a certain aggregate percentage of the Kiewit Common Stock. Rather, Kiewit is conducting the Tender Offer to afford each of its shareholders the opportunity to diversify a portion of their investment in Kiewit Common Stock, on a basis proportionate to their ownership in Kiewit.
If the Tender Offer were to be conducted with proration on the basis of shares tendered, any holder tendering more than the specified percentage would cause all holders tendering exactly the specified percentage to have fewer than the specified percentage of their shares accepted for purchase. Due to the operation of the relatively complex proration rules, the only way for a shareholder to ensure that he or she would have the specified percentage of shares accepted for purchase would be to tender all his or her shares in the Tender Offer. If larger, more sophisticated shareholders preferred to diversify a larger percentage of their holdings of Kiewit Common Stock, they could take advantage of those proration rules to the detriment of the smaller shareholders by tendering in excess of the number of shares that they ultimately desire to have purchased and having such number reduced through the operation of the standard proration rules. Because Kiewit is only seeking to purchase up to a specified percentage of the shares of Kiewit Common Stock held by each holder, the Tender Offer, by its terms, cannot be oversubscribed and there is no possibility that such a shareholder could take advantage of the proration rules. Since each shareholder will be guaranteed in the Tender Offer that Kiewit will purchase up to the specified percentage of his or her Kiewit Common Stock, there is no danger that shareholders will assume that shares will be accepted on a first come, first served basis and feel pressure to make a hasty decision to tender.
We believe that, in these unusual circumstances, an offer structured as outlined above, that is, one that offers to purchase only a specified percentage of each holder's shares and does not require any proration of tendered shares, would be consistent with Rule 13e-4, the policies underlying the promulgation of Rule 13e-4 and positions taken by the Staff in analogous situations.
We note the issuer tender offers by United Parcel Service, Inc. (File No. 005-57699), ARAMARK Corporation (File No. 005-42118), Journal Communications, Inc. (File No. 005-79262), Reuters Holdings PLC (File No. 005-36888) and Imperial Oil Limited (File No. 005-35902).
In 2000, United Parcel Service, Inc. ("UPS") undertook an issuer tender offer for up to a specified percentage of each of its holders' shares of a class of non-publicly traded common stock, rather than prorating tendered amounts among participating shareholders. Similarly, in 2003, Journal Communications, Inc. ("JCI") and, in 2001, ARAMARK Corporation ("ARAMARK") each undertook an issuer tender offer for a guaranteed amount of each of its holders' shares of a class of non-publicly traded common stock.1 Like Kiewit, UPS, JCI and ARAMARK had cultures of extensive employee ownership.2
Kiewit is motivated by the same desire to achieve an equitable result as UPS, JCI and ARAMARK - the purchase of the same percentage of each shareholder's ownership in a process that by definition treats all holders identically and eliminates the possibility that larger, more sophisticated holders could take advantage of the proration rules to the detriment of smaller shareholders.
We submit that the following factors that were present in the UPS, JCI and ARAMARK also exist in connection with the proposed Tender Offer:
We note that the Staff has also permitted similar tender offers in other instances. In 1993, the Staff granted an exemption from Rule 13e-4(f)(3) to Reuters Holdings PLC to permit the purchase of tendered ordinary shares up to a specified "entitled amount" from each shareholder and the purchase by Reuters of additional shares tendered by a shareholder in excess of the shareholder's "entitled amount" to the extent the offer was not fully subscribed. In addition, in 1996, Imperial Oil Limited, a Canadian corporation, undertook a "proportionate" issuer tender offer. In its proportionate offer, Imperial Oil purchased from each participating shareholder that number of shares necessary to maintain the shareholder's proportionate ownership interest in Imperial after giving effect to both the proportionate offer and a simultaneous Dutch auction tender offer. Imperial's offer to purchase did not state that the proportionate offer was required by Canadian law.
We believe that a tender offer structured in the manner desired by Kiewit: (1) would be the fairest, simplest and most equitable means of treating all holders of Kiewit Common Stock, a security for which there is no trading market; (2) will fulfill Kiewit's objective of treating its shareholders identically; and (3) will be entirely consistent with the purposes and intent of Rule 13e-4. We request that the Staff confirm that it will not recommend enforcement action under Rule 13e-4 if Kiewit makes a tender offer in which each holder of Kiewit Common Stock will be invited to tender not more than a specified percentage (presently anticipated to be 38% of the outstanding shares of Kiewit Common Stock held by such owner) for cash.
Should members of the Staff have any questions or comments or require any additional information, please call the undersigned or John S. D'Alimonte of this office at 212-728-8000.
Very truly yours,
David K. Boston
Tobin A. Schropp
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