Remember the Google interview in Playboy? In case you missed it, it was with Larry Page and Sergey Brin, the two Stanford University science graduates who founded the company. The problem? The interview had been granted in April, a week before the company filed for its multibillion-dollar IPO, and appeared in the September issue, just as the stock was about to go on sale to the public.
For a US securities lawyer, that episode injected a rare bit of spice into the depressingly familiar problem of controlling publicity in connection with securities offerings. While the problem was typically confined to buttoned-down business publications rather than top-shelf magazines, the basic issue is the same: a collision between the strict limitations on publicity in connection with securities offerings in the US, and the desire for investors and journalists for information – not to mention standard market practice in the UK and the rest of Europe. To paraphrase the recent comments of an official of the US Securities and Exchange Commission (SEC), whatever sense the rules may have made in 1933, when the US Securities Act was signed into law, they have long since been left behind in the information and internet age.
On 26 October 2004, the SEC announced a package of proposed reforms that promises to bring the process of offering securities to the public in transactions registered with the SEC into the 21st century. The proposals go well beyond publicity, and would modernise the US securities laws in a number of key areas. In particular, among other items, the proposals address:
l liberalising communications in the context of public securities offerings, including the rules governing ‘gun jumping’ and other communications released after filing a registration statement;
l reducing certain regulatory burdens for very large, well-known seasoned issuers (WKSIs), which will enable them to access the public capital markets with greater ease and efficiency;
l the timing and manner of the delivery of information to potential investors by establishing an access-equals-delivery system; and
l the rationalisation and clarification of liability for issuers and underwriters in public securities offerings.
Issuers that meet the WKSI qualifications, which as proposed would require a minimum public float of $700m (£378m) for equity issuers, or $1bn (£540m) of debt securities sold in the last three years for debt-only issuers, would have maximum flexibility in their ability to offer and sell securities publicly. However, the offering process would also be liberalised for other public companies. The proposed reforms will mark a dramatic change in the way public securities offerings are conducted, especially for issuers that meet the WKSI qualifications.
The full text of the proposals was only recently published (3 November) and ran to 389 pages. But it is clear they fail to address certain key questions (including, notably, how the public float will be calculated for non-US issuers). Following their publication in the Federal Register, there will be a 75-day public comment period. But the announcement represents an important step in the right direction, particularly in recognising that communications by companies in securities offerings cannot be rigidly confined to the prospectus.
This is not the first time the SEC has tried to reform the offering process. Securities law aficionados may recall the ill-fated ‘aircraft carrier’ proposal of the 1990s, which (depending on the nautical metaphor you prefer) either got stuck on a sandbar, failed its sea trials or simply sank without much of a trace. But there is real momentum behind the SEC’s latest offerings. I am confident that the proposals, at least in broad outline, will ultimately be adopted.