Before a Public Takeover Bid | United States | Global Public M&A Guide

3. Before a Public Takeover Bid

[Last updated: 1 January 2025, unless otherwise noted]

3.1 Obligations arising at certain ownership levels

Neither United States federal securities laws nor, with certain exceptions, state corporate laws impose acquisition-related obligations on minority shareholders as a consequence of reaching or exceeding any specified percentage of ownership in a public company (such as requiring that they either make a bid for shares held by other shareholders, or offer their shares to other shareholders, as is required in many non-US jurisdictions). Similarly, neither US federal nor state corporate laws provide specific rights to shareholders "automatically" upon obtaining a specific percentage of ownership in a company, other than the right to use the voting power accompanying that percentage interest in accordance with the company's corporate documents and applicable law (such as the right to appoint one or more directors). Such rights may be provided by contract or granted to one or more classes of securities in a company's corporate documents. However, certain disclosure obligations and other consequences arise for acquirers of public company securities (including possible limitations on such acquirer's rights as a shareholder), and for the public company whose securities are acquired, when certain shareholding ownership levels are achieved. These obligations and consequences are summarized in the table below.

For the purposes of the following table, under the SEC rules: (i) "beneficial ownership" means possession of the right to vote or to direct the vote, or the right to dispose or direct the disposition of, a security; and (ii) a person is the "beneficial owner" of a security if the person has the ability to acquire beneficial ownership within 60 days of the determination date by converting a convertible security, exercising an option, warrant, or other right to purchase or subscribe for a security, or by terminating a trust or similar arrangement. In addition, when two or more persons agree to act together for the purpose of acquiring, holding, voting or disposing of equity securities of a public company that issued the equity securities, the group that they form is deemed to acquire beneficial ownership of all equity securities of that public company beneficially owned by the group members. Some state "interested shareholder" or similar statutes mentioned in the table may provide a broader definition of "beneficial ownership" than the SEC rules.

Summary table of US percentage ownership consequences for acquirers and target public companies.

Acquisition Threshold or Ownership (%)	Applicable Regulatory or Other Legal Requirement	Brief Summary of Consequences
>5% beneficial ownership	Exchange Act Section 13(d); Regulations 13D and 13G; Schedule 13D or 13G filing Target public company reporting obligations	Acquiring greater than 5% beneficial ownership of a public company’s voting securities must be reported by the acquirer of such securities to the SEC on Schedule 13D. Institutional and other passive investors not seeking to control or influence the public company may file a "short-form" Schedule 13G (generally up to a 20% level of ownership). These filings are publicly available. Public companies must disclose in certain of their public filings the ownership interests of certain transactions with, and certain other information regarding, persons holding more than 5% of their outstanding voting securities.
Tender offer for >5% beneficial ownership	Exchange Act Section 14(d); Regulations 14D and 14E; Schedule TO Target public company shareholder communication obligations – Schedule 14D-9	A tender offer conducted by a party who will acquire beneficial ownership of more than 5% of a target public company's voting securities after completion of the tender offer (successful completion of the tender offer is assumed) must be conducted in accordance with the SEC tender offer rules. Tender offer rules require a target public company to recommend that its shareholders accept, reject or take other action regarding the tender offer, or state that the target public company is unable to make or makes no recommendation, and provide the reasons for its position. Section 13(d) reporting requirements remain applicable during a tender offer. Filings can be combined under cover of a single Schedule TO.
>10% beneficial ownership	Exchange Act Section 16(a) and (b); Forms 3 and 4	Acquiring greater than 10% beneficial ownership of a public company’s voting securities must be reported on Form 3. Changes in such ownership must be reported on Form 4. Such filings are publicly available. 10% beneficial owners are subject to forfeiture of profits on purchases and sales, or sales and purchases, of the public company’s shares within any six-month period (so-called “short-swing” profit forfeiture rules). Substantially the same reporting requirements and "short-swing" profit forfeiture rules generally apply to directors and executive officers (so-called 'insiders') of public companies. Public companies must disclose failures to make such required filings in their proxy materials for annual meetings.
10% of target public company's voting shares	Potential affiliate status under federal securities law principles	Public sales of securities by "affiliates" may be made only pursuant to a registration statement under the Securities Act or an applicable exemption from registration. Cashing out minority shareholders in a business combination with an affiliate may be subject to the SEC "going private" rule. A control person may be subject to certain additional potential liabilities under US federal securities law.
10%-15% of target public company's voting shares	State "interested shareholder" and other anti- takeover statutes	These statutes "freeze" and otherwise limit or condition business combinations, e.g., mergers, between the target public company and an "interested shareholder", i.e., a beneficial owner of a specified percentage (generally 10% to 15% or more), of a target public company's voting securities who acquired such ownership without the target public company's consent. Other state anti-takeover statutes focus on voting rights, pricing and constituencies, in addition to shareholders that may be affected by a takeover.
10%-20% of target public company's voting shares	Level of ownership at which shareholder rights, i.e., poison pill, plans are typically triggered (but see the discussion in 3.5, "Investor Rights and Restrictions").	Shareholder rights plans, (poison pills) are established by certain target public companies under state law and deter hostile (unfriendly) takeovers by making them impossibly expensive or impracticable by means of provisions that, if triggered, would drastically dilute the hostile party's ownership. (Note that in some cases, public companies have poison pills that trigger at about the 5% level. These are typically “Net Operating Loss (NOL) poison pills,” which are used by public companies to discourage acquisitions that could jeopardize the public company’s NOLs under Section 382 of the Internal Revenue Code.)
50%+ of the target public company's voting shares	Level of ownership at which a shareholder controls most or all decisions (including elections to the board of directors) Target public company reporting of the change of control is required (but can be required at a lower percentage if that lower percentage affords control) Threshold dependent on terms of the public company’s certificate of incorporation and bylaws or the public company’s comparable organizational documents	Most (but not all) fundamental decisions of US companies are decided by a vote of shareholders holding a majority of either the voting shares present (in person or by proxy) at a meeting and voting or by a majority of the outstanding voting shares. As a practical matter, de facto control is often achieved at lower thresholds. A target public company that has undergone a change of control must file a current report on Form 8-K with the SEC disclosing the change of control. Exchange Act Section 14(f) and SEC Rule 14f-1 require the filing and distribution to target public company shareholders of certain information if a majority of the board is selected by an acquiring party without a shareholders' meeting.
Majority of shares (or whatever applicable threshold required under a public company’s organizational documents) entitled to vote on a merger	Section 251(h) of the Delaware General Corporation Law	In most situations, an acquirer holding this threshold will be able to hold a shareholder meeting to approve a statutory merger to “squeeze out” minority shareholders (subject to fiduciary duties and appraisal rights and the go-private regulations described above). Under Delaware law, subject to satisfying the requirements of Section 251(h) of the Delaware General Corporation Law, a merger agreement between an acquirer and a target public company can provide that if the acquirer conducts a tender offer and, after completion of the tender offer, holds a majority of the target public company's outstanding shares entitled to vote on a merger (or any higher percentage required for such action by the target public company's charter), the acquirer or an acquisition subsidiary may complete the merger of the target public company into or with the acquirer without a target public company shareholder vote. This statute allows for a more streamlined tender offer/squeeze-out merger process.
90%+ of shares entitled to vote on a merger	Level of ownership at which a target company may be merged into an acquiring company on a "short-form" basis, e.g., under Delaware General Corporation Law Section 253	Under the laws of Delaware and many other states, an acquirer may merge a target company into itself or its subsidiary without a target company shareholder vote if the acquirer holds 90% or more of the voting securities of the target company (usually achieved through a tender offer) (subject to fiduciary duties and appraisal rights and the go-private regulations described above).

3.2 Disclosure of beneficial ownership of shares

A party that makes an "acquisition" that results in the party becoming the beneficial owner of more than 5% of a class of a public company’s voting securities must report its beneficial ownership on either a Schedule 13D or, if the investor meets certain criteria and disclaims intent to control or influence the public company, Schedule 13G. Schedule 13G is a simplified filing and generally will trigger less of a market reaction – as it is a lower signal of future control intent – however, it is not available once the investor crosses 20% ownership. These forms report the identity and intentions of the acquirer and can be due as quickly as five business days after the acquisition initially triggering the need for a Schedule 13D (or, with respect to an amendment to an existing Schedule 13D, two business days after a material change to existing disclosure).

3.3 Insider trading and anti-manipulation rules

General – Several provisions of the US federal securities laws operate to prohibit the purchase or sale of shares of a public company while an insider is in possession of material, non-public information and to provide civil and criminal remedies for breaches of these laws. An "insider" generally includes officers and directors of a target public company and may, depending on the circumstances, include an owner of more than 5% of the target public company’s shares. An insider or other person in possession of such information must either disclose the information before making a sale or purchase of the target public company’s shares, or refrain from trading in the shares. In addition, under certain circumstances, disclosure by an insider to a person who trades on the basis of the information can result in "tipper/tippee" liability. "Materiality" of information depends on the facts and circumstances but, generally, information is material if it would be important to an investor in making a decision to buy or sell a security.

Importantly, a bidder’s knowledge of its own intent to seek control of a target public company through the acquisition of shares is not itself restrictive of that bidder’s ability to acquire shares of such target public company under US insider trading laws – in other words, US insider trading law would not prohibit a potential bidder from buying shares of a public company in the open market solely on the basis of such bidder’s knowledge of its own intent. However, this information can be considered material non-public information if shared, giving rise to liability if acted upon improperly (for example, could result in “tipper” liability for the bidder if another party trades on the basis of the information).

FINRA – In addition, as part of its market surveillance function, the Financial Industry Regulatory Authority (“FINRA”), will routinely examine trading in the shares of a target public company prior to and immediately following announcement of an acquisition or other significant event, and may conduct a formal or information investigation if it detects unusual activity suggesting improper use of confidential information by parties with access to that information.

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