In a genuinely shocking display of regulatory hubris, the SEC just announced via an “Exemptive Order” the most significant change to the tender offer rules in a generation.  The Order shortens the minimum period of a cash tender offer for all of an issuer’s outstanding equity securities from 20 business days to 10.  In combination with the Delaware’s well-known statutory and common law, this change gives target management remarkable capacity to lock up a friendly deal and could usher in a new era of the “Saturday night special,” the quick takeover of “proud old companies” that provided rhetorical fuel for adoption of the Williams Act in 1968.

More generally, the exemptive order is likely to trigger a new wave of takeovers that seek to take advantage of the shortened period of deal exposure to potential competitors by lowering deal prices.

This exemptive order was promulgated entirely outside of the Administrative Procedure Act’s rule-making process and is unsupported by any study, any assessment of costs and benefits, any assessment of the impact on capital markets, any reported canvass of investor attitudes, or any relevant precedent.  It is textbook “arbitrary and capricious.”  It also seems to have been announced without deliberation by the Commission itself.

The current SEC Rule 14e-1 provides:

 As a means reasonably designed to prevent fraudulent, deceptive or manipulative acts or practices within the meaning of section 14(e) of the Act, no person who makes a tender offer shall: (a) Hold such tender offer open for less than twenty business days from the date such tender offer is first published or sent to security holders…

 The exemptive order announces that:

[T]o address market inefficiencies, better reflect technological advancements, and reduce exposure to market fluctuations the Division [of Corporation Finance] believes it is appropriate and consistent with investor protection goals to provide issuers and third parties with further flexibility to shorten the 20-business day minimum offering period [to 10 days in friendly arm’s length cash tender offers].[1]

Here is how this rule interacts with the law of Delaware, the dominant state (still) for incorporation, especially for firms that fancy themselves a possible target.  Delaware merger law includes a “medium form” merger statute, section 251(h), that permits  parties to enter into a merger agreement that dispenses with the need for a subsequent target-shareholder vote if the acquirer “consummates an offer for all of the outstanding [voting] stock [of the target]” and receives sufficient shares that, in combination with shares that the acquirer otherwise holds, equals the number of shares that would be required to approve a merger.  So in the common case, if an acquirer in a friendly deal comes to own 50% of the outstanding stock after the tender offer, the merger can be concluded without a shareholder vote and becomes immediately effective.  The non-tendering shareholders receive the same consideration as the tendering shareholders.

This medium-form merger has become a favored route for acquisitions that do not require regulatory approval because it quickly puts the acquirer in control of the target. It also shortens the time period during which a friendly merger can be challenged by an alternative bidder. By contrast, an actual shareholder vote requires circulation of a proxy statement, which  requires careful preparation, SEC review, and shareholder deliberation, several months in total.

Observe the interaction between the Exemptive Order and section 251(h).  The triggering medium-form “offer” is a tender offer, typically an any-and-all cash tender offer for the target’s shares.  Under Rule 14e-1, the quickest route to a medium-form merger took 20 business days (26 calendar days). The Exemptive Order changes that to 10 business days, 12 calendar days.

In these circumstances, for a cash merger the target board’s duty under Delaware fiduciary law is to achieve the maximum consideration for target shareholders, the so-called Revlon duty.[2]   But per subsequent doctrinal development, Revlon has no bite unless an actual second bidder shows up seeking to obtain a fair chance to compete for the target.  Revlon provides a basis for a second bidder to obtain injunctive relief against target defensive measures; it may not be invoked by target shareholders to enjoin target action that may dissuade a second bidder from making an offer while holding in place the original offer.[3]

Ten business days is a short period for a potential second bidder to evaluate its interest in the target, obtain target-relevant information, decide its reservation price is higher than the first offer (net of any deal protection that the first bidder may have obtained), and arrange financing for a competitive bid.

Suppose shareholders get wind that a potential second bidder needs more time before making an actual bid and want an injunction to freeze the status quo.  Applicable Delaware law makes clear that the court will not issue an injunction to require the first bidder to keep its offer open while a potential second bidder deliberates.[4]

But the target board has a duty to maximize for the shareholders under Revlon.   In not obtaining additional time for potential second bidders in light of the compressed 10-day time schedule, aren’t directors liable for damages?  Under Delaware law, the answer is probably “no.”  The most potent shield, Corwin, holds that in the case of an arm’s length merger, a majority vote of disinterested shareholders can sanitize a breach of fiduciary duty if the circumstances of that breach are fully disclosed.[5]  A further case, Volcano, indicates that the tendering of shares would count as a cleansing “vote” for these purposes.[6]

So assume a rush to consummation of a friendly merger: If the target fully discloses that use of the 10-day tender offer minimum has foreclosed the potential arrival of a higher-valuing bidder (such disclosure to include any preliminary overtures), the tender offer that delivers the necessary majority vote to approve the merger agreement will also deliver exculpation to the board from potential liability for its rush to the transaction.  In this scenario, since there is only one actual offer outstanding, if the premium is reasonable, majority shareholder approval via the tender offer is highly likely, bundled with forgiveness of the board.

How does this reincarnate the Saturday night special?  After all, a precondition for the medium-form merger of section 251(h) is a merger “agreement,” a friendly deal.  The additional ingredient in today’s merger environment is the “golden parachute,” a feature of executive and board compensation that, in the case of a merger, provides accelerated vesting of stock-based compensation.  The parachute payouts (particularly for otherwise out-of-the-money options) are often “platinum” for CEOs, “golden” for the rest of management, and, crucially, “golden” for the directors.[7]

Now: An unsolicited bidder shows up on a Thursday with a take it-or leave it offer at a reasonable premium over market, conditional on a signed merger agreement by Sunday, providing for a medium-form merger (with market-typical deal protection, including a termination fee) pursued through a tender offer launched on Monday, to be concluded the following Friday, 12 days later.  The golden parachute provides strong incentives for the target management to accept this deal, even though the rush-to-sign could well deprive target shareholders of an opportunity for a higher premium.

The underlying empirical claim is that the shortening of the minimum tender-offer period will encourage a new wave of takeovers, fueled by bidders who see the shortened period of deal exposure as providing the opportunity for takeovers at a lower deal price because of reduced actual or potential competition for the target.  Some might dispute this claim.  Some might want to point to the impact of Hart-Scott-Rodino filing requirements.  We can debate the plausibility of the scenarios I’ve described and implications for the M&A landscape.  This is what notice-and-comment rule-making is all about.  To proceed by Exemptive Order here is simply “arbitrary and capricious.”

One final thought.  A significant regulatory measure does not escape the requirements of the APA simply because labeled as an “exemptive order” rather than a “rule.”  Otherwise, for example, the SEC could announce a change to the filing requirements of the 1934 Act as simply “exempting” firms from the need to file a 10Q at the end of the first and third quarters. An “exemptive order” presumably addresses the circumstances of a particular firm or perhaps a narrow category of transactions subject to a general rule.  In this particular case the Exemptive Order seems tailored by the SEC’s sophisticated CorpFin staff to work in synchronization with DGCL section 251(h), which in turn is the dominant mode of the two-step cash tender offer, “a linchpin of Delaware M&A.”[8]  Here the exemption swallows up a material element of the rule. [9]

ENDNOTES

[1] Office of Mergers and Acquisitions, Division of Corporation Finance, Exemptive Order for Tender Offers for Equity Securities, April 16, 2026.

[2] Revlon, Inc. v MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986).

[3] C&J Energy Services, Inc. v. City of Miami Gen’l Employees’ and Sanitation Employees’ Ret. Trust, 107 A.3d 1049 (Del. 2014).

[4] Id.

[5] Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015)

[6] In re Volcano Corp. Shareholder Litig., 143 A.3d 727 (Del. Ch. 2016).

[7] See Jeffrey N. Gordon, Too Many Mergers?: the Golden Parachute as a Driver of M&A Activity in the 21^st Century, 30 Stan. J. LEB 172 (2025).

[8] Piotr Korzynski, “Forcing the Offer”: Considerations for Deal Certainty and Support Agreements in Delaware Two-Step Mergers, Harv. LS Forum on Corp. Gov (Monday, April 2, 2018).

[9] It also appears that the Exemptive Order is invalid under the Commission’s rules governing “exemptions.”  The relevant provision, 17 CFR §200.30-1(f)(16)(ii), delegates authority to CorpFin “To grant requests for exemptions from: The tender offer provisions of Rules 14e-1…”  The Exemptive Order does not report the existence of any such request. Instead, the Exemptive Order “hereby grants exemptions…”; yet the rules of delegation do not permit such prospective exemption granting, only in response to a “request.”

Jeffrey N. Gordon is Richard Paul Richman Professor of Law and co-director of the Ira M. Millstein Center for Global Markets and Corporate Ownership at Columbia Law School.