Notice2021-19292
Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change To Amend the Requirements of Section 102.06 of the NYSE Listed Company Manual To Allow an Acquisition Company To Contribute a Portion of Its Trust Account to a New Acquisition Company and Spin-Off the New Acquisition Company to Its Shareholders
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 8, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 171 (Wednesday, September 8, 2021)</title>
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[Federal Register Volume 86, Number 171 (Wednesday, September 8, 2021)]
[Notices]
[Pages 50408-50411]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-19292]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92839; File No. SR-NYSE-2021-42]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change To Amend the Requirements of
Section 102.06 of the NYSE Listed Company Manual To Allow an
Acquisition Company To Contribute a Portion of Its Trust Account to a
New Acquisition Company and Spin-Off the New Acquisition Company to Its
Shareholders
September 1, 2021.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on August 23, 2021, New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the requirements of Section 102.06
of the NYSE Listed Company Manual (``Manual'') for the listing of
acquisition companies and the provisions of Section 802.01B with
respect to the qualification of an acquisition company after its
business combination. The proposed rule change is available on the
Exchange's website at <a href="http://www.nyse.com">www.nyse.com</a>, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to modify Section 102.06 of the Manual to
allow an acquisition company listed under that rule to contribute a
portion of the amount held in its trust account to a trust account of a
new AC and spin off the new AC to its shareholders in certain
situations where the new AC will be subject to all of the same
requirements as the original AC.
In 2008, the Exchange adopted a rule to allow companies that have
no specific business plan or that have indicated their business plan is
to consummate the acquisition of one or more operating businesses or
assets (a ``Business Combination'') to list if they meet all applicable
initial listing requirements, as well as additional conditions designed
to provide investor protections to address specific concerns about the
structure of such companies (``Acquisition Companies'' or ``ACs'').\4\
[[Page 50409]]
These additional conditions generally require, among other things, that
at least 90% of the gross proceeds from the initial public offering
must be deposited in a ``trust account,'' as that term is defined in
the rule, and that the AC complete within three years (or such shorter
period specified by the AC's constitutive documents or by contract) one
or more Business Combinations having an aggregate fair market value of
at least 80% of the value of the trust account at the time of the
agreement to enter into the initial combination.
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\4\ See Securities Exchange Act Release No. 57785 (May 6, 2008),
73 FR 27597 (May 13, 2008) (SR-NYSE-2008-17).
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When an AC conducts its initial public offering, it raises the
amount of capital that it estimates will be necessary to finance a
subsequent business combination with its ultimate target. However,
because an AC cannot identify or select a specific Business Combination
target at the time of its IPO, it often turns out that the amount
raised is not optimal for the needs of a specific target. This has
resulted in the inefficient, current practice of AC sponsors creating
multiple ACs of different sizes at the same time, with the intention to
use the AC that is closest in size to the amount a particular target
needs. This practice creates the potential for conflicts between the
multiple ACs (each of which has different shareholders) and still fails
to optimize the amount of capital that would benefit the AC's public
shareholders and a Business Combination target. Moreover, this creates
the need for repetitive action throughout the ecosystem, including the
filing and SEC review of multiple registration statements and periodic
reports, formation of multiple boards of directors, multiple audits and
multiple company listings. This practice also can lead to confusion
amongst investors.
Accordingly, the Exchange proposes to modify Section 102.06 to
permit a more efficient structure whereby an AC can raise in its
initial public offering the maximum amount of capital it anticipates it
may need for a Business Combination transaction and then ``rightsize''
itself by contributing any amounts not needed to a new AC (the ``SpinCo
AC''), and spinning off this SpinCo AC to its shareholders. The SpinCo
AC will be subject to all the existing provisions of Section 102.06 in
the same manner, and subject to the same timeframes, as the original
AC.
It is expected that, if approved, the new structure will be
implemented in the following manner. If the listed AC determines that
it will not need all of the cash in its trust account for its initial
business combination, it will designate the excess cash for a new trust
account held by a SpinCo AC, which will be spun off to the original
AC's shareholders as described below. Until the spin-off described
below, the amount designated for the SpinCo trust account must continue
to be held for the benefit of the shareholders of the original AC.
Following the spin-off, the SpinCo trust account will be subject to the
same requirements as the trust account of the original AC.
The SpinCo AC will file a registration statement under the
Securities Act of 1933 for purposes of effecting the spin-off of the
SpinCo AC. Prior to the effectiveness of the registration statement,
the original AC will provide its public shareholders through one or
more corporate transactions with the opportunity to redeem a pro rata
amount of their holdings equal to the amount of the SpinCo trust
account divided by the per share amount in the original AC's trust
account (the ``redemption price'').\5\
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\5\ This redemption could occur, for example, through a partial
cash tender offer for shares of the original AC pursuant to Rule
13e-4 and Regulation 14E of the Securities Exchange Act of 1934, and
the redemption may be of a separate class of shares distributed to
unitholders of the original AC for the purpose of facilitating the
redemption.
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After completing the tender offer and effectiveness of the SpinCo
AC's registration statement, the original AC will contribute the SpinCo
trust account to a trust account held by the SpinCo AC in exchange for
shares or units of the SpinCo AC, which the original AC will then
distribute to its public shareholders on a pro rata basis through one
or more corporate transactions pursuant to the SpinCo AC's effective
registration statement.
The original AC will then continue to operate as an AC until it
completes its business combination and will offer redemption rights to
its public shareholders in connection with that business combination in
the same manner as a traditional AC. The SpinCo AC will operate in the
same manner as a traditional AC, except that it could effect a spin-off
prior to its business combination like the original AC. If it does not
elect to effect a spin-off, the SpinCo AC will either (1) proceed to
complete an initial business combination and offer redemption rights in
connection therewith like a traditional AC or (2) liquidate.
The Exchange proposes adopting a new subsection of Section 102.06
which will specifically permit this type of transaction by allowing the
Original AC to contribute (the ``Contribution'') a portion of the
amount held in the trust account to the trust account of a SpinCo AC in
a spin-off or similar corporate transaction where all of the conditions
described below are satisfied:
(i) In connection with the Contribution, each AC public shareholder
has the right, through one or more corporate transactions, to redeem a
portion of its shares of common stock or units, as applicable, for its
pro rata portion of the amount of the Contribution in lieu of being
entitled to receive shares or units in the SpinCo AC;
(ii) the requirement of Section 102.06 that the AC provide each
public shareholder voting against a Business Combination with the right
to convert its shares of common stock into a pro rata share of the
aggregate amount then on deposit in the trust account (net of taxes
payable, and amounts disbursed to management for working capital
purposes), provided that the Business Combination is approved and
consummated, will be considered satisfied by pro rata distribution to
such shareholders of the amounts in the trust account after having been
reduced by the Contribution;
(iii) the public shareholders of the AC receive shares or units of
the SpinCo AC on a pro rata basis, except to the extent they have
elected to redeem a portion of their shares of the AC in lieu of being
entitled to receive shares or units in the SpinCo AC;
(iv) the Contribution will remain in a trust account for the
benefit of the shareholders of the SpinCo AC in the manner required for
ACs listed under Section 102.06;
(v) the SpinCo AC meets all applicable initial listing requirements
for an AC listing in connection with an initial public offering under
Section 102.06; it being understood that, following such spin-off or
similar corporate transaction:
(A) The 80% described in the first paragraph of Section 102.06
shall, in the case of the AC, be calculated based on the aggregate
amount remaining in the trust account of the AC at the time of the
agreement to enter into the Business Combination as reduced by the
Contribution, and, in the case of the SpinCo AC, be calculated based on
the aggregate amount in its trust account at the time of its agreement
to enter into a Business Combination, and
(B) the right to convert and opportunity to redeem shares of common
stock on a pro rata basis required for ACs listed under this Section
102.06 shall, in the case of the AC, be deemed to apply to the
aggregate amount remaining in the trust account of the AC after the
Contribution to the SpinCo AC, and, in the case of the
[[Page 50410]]
SpinCo AC, be deemed to apply to the aggregate amount in its trust
account;
(vi) in the case of the SpinCo AC, and any additional entities spun
off from the SpinCo AC, each of which will also be considered a SpinCo
AC, the 36-month period within which a listed AC must consummate its
Business Combination under Section 102.06 (or such shorter period that
the AC specifies in its registration statement) will be calculated
based on the date of effectiveness of the AC's IPO registration
statement; and
(vii) in the aggregate, through one or more opportunities by the AC
and one or more SpinCo ACs, public shareholders will have the ability
to convert or redeem shares, or receive amounts upon liquidation, for
the full amount of the trust account established by the AC as described
in the first paragraph of this Section 102.06 (excluding any deferred
underwriters fees and taxes payable on the income earned on the trust
account).
For the avoidance of doubt, the conditions above will similarly
apply to successive spinoffs or similar corporate transactions.
Under Section 102.06, a majority of the AC's independent directors
must approve its Business Combination and a majority of the independent
directors of the SpinCo AC must approve the SpinCo AC's Business
Combination.
The structure allows public shareholders an additional, early
redemption opportunity with respect to a portion of their holdings,
before the time they would be able to do so in a traditional AC, and
public shareholders would maintain the ability to redeem the portion of
their investment attributable to each specific acquisition after
reviewing all disclosure with respect to that acquisition. All other
protections provided under Section 102.06 would continue to apply, with
adjustments only to reflect the potential for a spin-off of a new AC
that is subject to all of the requirements of Section 102.06. Moreover,
the proposed structure would also provide shareholders the opportunity
to invest with a sponsor without spreading that investment across the
sponsor's multiple ACs.
Finally, the Exchange proposes to amend the subsection of Section
802.01B of the Manual setting forth the continued listing criteria
applicable to ACs to specify that those criteria are also applicable in
their entirety to SpinCo ACs. In addition, the Exchange proposes to add
a new subsection to Section 102.06 stating that the applicable
continued listing criteria for both ACs and SpinCo ACs are set forth in
Section 802.01B.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\6\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\7\ in particular, in that it
is designed to promote just and equitable principles of trade, to
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general to protect
investors and the public interest, by establishing the means through
which an AC can complete more than one business combination resulting
in separate operating companies.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
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The Commission has previously concluded that listing an acquisition
company that satisfies the requirements of Section 102.06 is consistent
with the investor protection goals of the Act.\8\ The proposed rule
change will extend these important investor protections to a new
structure that addresses inefficiencies and potential conflicts of
interest in the AC market. Specifically, as proposed, a SpinCo AC will
be required to satisfy all applicable initial listing requirements,
like any other AC listing on the Exchange. In addition, the provisions
of Section 102.06 will apply to the SpinCo AC in the same manner as
they apply to any other AC, except the trust account will be
contributed to the SpinCo AC by the original AC.
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\8\ See Securities Exchange Act Release No. 57785, supra note 3.
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The existing requirements of Section 102.06 with respect to the
consummation of a business combination and the related redemption
rights will also apply to each of the original AC and the SpinCo AC in
the proposed structure in the same manner as they apply to any other
AC, except that the 80% test will be applied to the amount retained by
the original AC after public shareholders have had an initial, early
redemption opportunity and the original AC has contributed a portion of
its trust account to the SpinCo AC. The Exchange believes that this
proposed difference does not adversely affect shareholders because the
shareholders will still have the opportunity to redeem for the entire
pro rata share of the trust account prior to completion of the business
combination. The primary difference is that the redemption right may be
effected through two decisions, one of which is accelerated to allow an
earlier redemption than would be available to the public shareholders
of a traditional AC and the other will come at the time of the business
combination, just as in a traditional AC.
As with the existing rules, each business combination must be
approved by the AC's independent directors, as required by the existing
provisions of Section 102.06, and following each business combination,
the combined company must satisfy all initial listing requirements, as
required by Section 802.01B.
Accordingly, in this manner, the Exchange believes that the
proposed rule change satisfies the requirements of Section 6(b)(5) of
the Act in that it is designed to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general to protect investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The proposed rule would be
available in a non-discriminatory way to any company satisfying its
requirements, as well as all other applicable NYSE listing
requirements. In addition, the Exchange faces competition for listings
but the proposed rule change does not impose any burden on the
competition with other exchanges; any competing exchange could
similarly adopt rules to allow listing ACs using such a structure.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or up to 90 days (i) as the Commission may designate
if it finds such longer period to be appropriate and publishes its
reasons for so finding or (ii) as to which the self-regulatory
organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
[[Page 50411]]
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#a2d0d7cec78fc1cdcfcfc7ccd6d1e2d1c7c18cc5cdd4"><span class="__cf_email__" data-cfemail="3745425b521a54585a5a525943447744525419505841">[email protected]</span></a>. Please include
File Number SR-NYSE-2021-42 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2021-42. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSE-2021-42, and should be submitted on
or before September 29, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-19292 Filed 9-7-21; 8:45 am]
BILLING CODE 8011-01-P
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