Rule 165 of the Securities Act of 1933 permits the offeror of securities in a business combination transaction to make public statements related to or in connection with the transaction, both before and after the filing of a registration statement related to the transaction, as long as the statement contains a legend:
- urging investors to read the relevant documents containing important information filed or to be filed with the Securities & Exchange Commission (the “SEC”);
- explaining that investors can obtain those documents for free from the SEC; and
- describing which of those documents can be obtained from the offeror free of charge.
As social media outlets have become widely used, the SEC has issued guidance for companies wishing to use social media to make these and other public disclosures. Because the required legend must accompany the social media post, questions arose regarding how such public statements could be made in compliance with Rule 165 on social media websites, like Twitter, that limit the number of characters in a single post.
On April 22, the SEC issued a new Compliance Discussion & Interpretation (“CDI”) to provide guidance on this issue, which also applies to legends required by Rules 14a-12 (proxy solicitations before furnishing a proxy statement), 13e-4(c), 14d-2(b) and 14d-9(a) (tender offer communications) of the Securities Exchange Act of 1934, but the CDI has raised more questions than it answers.
Commonly, when Twitter users want to tweet more information than would be permitted by the 140 character limit, they add a link to the tweet to separate websites containing additional text, articles and photos. The hyperlinks themselves take up approximately 10 of the 140 permitted characters.
The SEC has taken the position that a tweet can link to a separate page that contains the required legend, but the tweet must include language conveying that the hyperlink contains important information. Additionally, where a social media platform allows the offeror sufficient characters to include the legend in the post in its entirety, the offeror may not use the hyperlink method to meet the legend requirement.
Including both the hyperlink and the additional language conveying that the hyperlink is important eats up valuable “tweet-estate.” Since each character in a tweet, including hyperlinks, must be carefully chosen to stay within the 140 character limit, presumably, a hyperlink would not be included in a tweet if it were not important and intended to be clicked by the reader.
Questions remain regarding whether each tweet in a series of tweets that, together, constitute a single statement must include both the hyperlink and language conveying the importance of the hyperlink or whether their inclusion in the initial tweet will suffice.
Time will tell whether the SEC will relax its position on required legends in social media. In the meantime, companies should take a conservative approach and include both the hyperlink and language conveying its importance in each tweet or series of tweets that constitutes a public statement related to or in connection with a business combination transaction.