The Corp Fin staff continues to dribble out new CDIs, with the newest relating to circumstances when, under Rule 13d-1, shareholder efforts to influence management will affect the shareholder’s eligibility to use Schedule 13G. Rule 13d-1 provides, in part, that Schedule 13G may be filed in lieu of Schedule 13D to report an acquisition of shares if, among other things, the shareholder has “not acquired the securities with any purpose, or with the effect, of changing or influencing the control of the issuer….” In this new CDI, the staff first makes clear that, just because a shareholder is disqualified (due to its efforts to influence management on a particular topic) from relying on the exemption from the Hart-Scott-Rodino Act for acquisitions of securities made “solely for the purpose of investment,” without the intent “of participating in the formulation, determination, or direction of the basic business decisions of the issuer,” that disqualification would not, by itself, preclude a shareholder from filing on Schedule 13G. Rather, the staff advises, eligibility to use Schedule 13G will depend on, among other things, the shareholder’s control intent, that is, whether the shareholder acquired or is holding equity securities with the purpose or effect of changing or influencing control of the issuer. According to the staff, this fact-and-circumstances determination could turn on the subject matter of the shareholder’s discussions with management, although the context in which the discussions occur would also be “highly relevant.”
To illustrate, the staff provides three examples, all of which assume the shareholder is otherwise eligible to file on Schedule 13G:
- Generally, an engagement with management on topics such as executive compensation and social or public interest issues (e.g., environmental policies), without more, would not preclude a shareholder from filing on Schedule 13G so long as the “engagement is not undertaken with the purpose or effect of changing or influencing control of the issuer….” See Release No. 34-39538 (Jan. 12, 1998).
- Even engagement on such corporate governance matters as removal of staggered boards, majority voting in director elections or elimination of poison pills, without more, would generally not disqualify a shareholder from filing on Schedule 13G, so long as the discussion is undertaken as part of a broad effort by the shareholder “to promote its view of good corporate governance practices for all of its portfolio companies, rather than to facilitate a specific change in control in a particular company.”
- By contrast, Schedule 13G would not be available in circumstances where a shareholder engages on matters “that specifically call for the sale of the issuer to another company, the sale of a significant amount of the issuer’s assets, the restructuring of the issuer, or a contested election of directors.”