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U.S. Securities and Exchange Commission

Speech by SEC Chairman:
Remarks on Proposals Concerning
Mergers and Acquisitions

by Chairman Arthur Levitt

U.S. Securities & Exchange Commission

Open Commission Meeting
SEC Headquarters, Washington, D.C.

October 19, 1999

Good morning. The Commission meets today to consider two proposals from our Division of Corporation Finance on the regulations concerning mergers and acquisitions.

Over the last fifteen years, takeover activity of public companies has reshaped entire industries of corporate America. A whole new lingua franca has developed: from "raiders" and "white knights" to "poison pills," "lock-ups," and price collars. The bust-up, front-end, loaded acquisition of the 1980s has given way to the strategic merger of equals of the 1990s.

When the Commission initially developed its regulatory scheme, much of the Commission's resources were focused on the fast-paced change of control transactions involving high-stakes bids by highly leveraged raiders. But as the landscape has changed, our regulations have remained relatively static. Today, the Commission is proposing rules that will modernize that regulatory scheme so that it better reflects the realities of the marketplace.

In deals structured in the current environment, stock is the acquisition currency of choice. Markets instantly render their judgments not only by bidding up the price of the acquiree's stock, as in the past, but impacting the acquiror's stock as well. The market's insatiable desire for information to render this judgment has led companies and their advisors to contort themselves to slip through a proverbial "regulatory knot" to get much needed information to the markets sooner rather than later.

The revisions we're considering today address those issues and equalize the regulatory approach so that the Commission's tender offer rules are no longer the determining choice whether a bidder offers cash or stock. We've also mandated that bidders add a plain English summary in offers to purchase so that investors can get a better understanding of the economics of the deal as well as a simplified explanation of how to tender their shares.

In another reflection of the dramatic changes that connect today's global markets and the pace of M&A activity, the Commission is being asked to codify a regulatory framework that gives U.S. investors a better chance to participate in an acquisition of a foreign company in which they are a shareholder. That's because companies making a bid for a foreign company are reluctant to comply with US regulations to buy shares from investors based here who own such an insignificant amount of that foreign stock.

These rule proposals represent a balanced approach so that US investors can avail themselves of the acquisition premiums when the facts clearly demonstrate that the interests in applying the US regulatory scheme are limited.

The proposals before us reflect the persistence of the staff of Corporate Finance to meld the regulatory structure to markets of the present, not the past. I would like to single out David Sirignano, the head of the Division's international corporate finance practice, for his efforts on the cross-border proposal, an effort that he has spent the better part of a decade working on. David, as many of you know, will be leaving the Commission for private practice later this month. Thank you David for staying to complete this important project.

And of course to Brian Lane, whose ideas for disclosure simplification nearly four years ago resulted in the M&A proposals and countless other efforts to clear the regulatory underbrush. For Brian, this meeting has added importance. This will his last open Commission meeting. It represents yet another milestone of the tremendous contribution Brian made to public service. Thank you.

Related Material

Fact Sheet: Regulation of Takeovers and Shareholder Communications/Cross-Border Tender and Exchange Offers, Business Combinations and Rights Offerings