Debevoise Discusses Third Circuit Decision on the Limits of the Best Price Rule

Key Takeaways

• Best Price Rule covers only shares actually taken up
• Offerors not forced to buy legally restricted shares
• Federal silence defers to private state law agreements
• M&A tender offers gain clearer compliance guidance
• Earnout shares deemed ineligible for tender

Pulse Analysis

The All Holders/Best Price Rule, codified in Rules 14d‑10 and 13e‑4(f)(8), was designed to ensure equal treatment of shareholders in tender offers. Historically, practitioners have grappled with whether the rule obligates an acquirer to purchase every tendered share, even when contractual or regulatory constraints prevent acquisition. Prior case law offered mixed signals, leaving a gray area for deals involving restricted or earnout securities that hinge on private agreements rather than pure market transactions.

In Abramowski v. Nuvei, the Third Circuit cut through that ambiguity by holding that the Best Price Rule applies solely to shares actually taken up and paid for. The court noted that the rule is silent on mandatory purchase obligations and therefore cannot compel an offeror to buy shares it is legally barred from acquiring. By anchoring the analysis to the parties' private agreements under state law, the decision reinforces a pragmatic approach: tender offers must be structured with clear eligibility criteria, and any share subject to transfer restrictions falls outside the rule’s reach. This reasoning provides a defensible framework for structuring tender offers that respect both federal securities law and contractual limitations.

For corporate counsel and dealmakers, the ruling signals a shift toward greater predictability in M&A financing. Companies can now draft tender‑offer terms that expressly require freely transferable shares, reducing the risk of Best Price Rule exposure. At the same time, issuers should review existing shareholder agreements to ensure consistency with the clarified legal standard. As regulators continue to focus on transparency and fairness in capital markets, this decision aligns with broader trends that favor clear, contract‑based governance over ambiguous statutory interpretations.