Summary
The U.S. Court of Appeals for the Third Circuit affirmed dismissal of shareholders’ claim that Nuvei violated the SEC’s Best Price Rule by refusing to purchase restricted Earnout Shares tendered in a merger offer. The court held that the Best Price Rule requires equal consideration for securities that are taken up and paid for, but does not require an offeror to purchase every tendered share or prohibit enforcement of valid transfer restrictions. The court did not reach whether Nuvei breached the merger agreement under the parties’ private agreements.
Topics
Practice areas
Questions Presented
- Whether the SEC's Best Price Rule, 17 C.F.R. § 240.14d-10(a)(2), requires a tender offeror to purchase tendered shares that are subject to self-imposed transfer restrictions under prior private agreements.
- Whether the District Court properly dismissed the Best Price Rule claim for failure to state a claim.
Holdings
- The Best Price Rule does not require a tender offeror to purchase tendered shares that are subject to self-imposed transfer restrictions when the offeror has not accepted or paid for those shares.
- The District Court properly dismissed Appellants' Best Price Rule claim, and its order was affirmed.
Key quotations
“This appeal presents a novel question of law: Whether the Best Price Rule requires the acquiring company in a tender offer to purchase any tendered shares, even those that are subject to self-imposed transfer restrictions. We hold that it does not.” (4)
“But it would contort the Best Price Rule beyond recognition to suggest that the Rule requires offerors to purchase every tendered share, even those restricted by the parties’ prior agreements.” (5)
“We are unable to rewrite the Best Price Rule to say something that it does not; that is a job for Congress and the SEC.” (5)
Factual background
Appellants were sponsors of a special purpose acquisition company that merged with Paya Holdings, converting their sponsor promote shares into Paya Earnout Shares. Under a Sponsor Support Agreement, the Earnout Shares were subject to transfer restrictions and could be forfeited upon a change of control if the price per share was below $15.00. Nuvei later made a tender offer for Paya shares at $9.75 per share, but rejected Appellants' Earnout Shares because they were not tendered free and clear of restrictions. Appellants alleged that paying them zero dollars while paying other shareholders $9.75 violated the SEC's Best Price Rule.
Procedural history
Appellants tendered shares in Paya Holdings in response to Nuvei's tender offer. Nuvei rejected the shares as invalidly tendered under a Sponsor Support Agreement, and Appellants sued. The U.S. District Court for the District of Delaware dismissed the complaint for failure to state a claim, concluding that the Best Price Rule was not triggered because no consideration was actually paid for the rejected shares. The Third Circuit affirmed on the Best Price Rule issue.