Q: Rule 13d-2(a) requires that "[a]n acquisition or disposition of beneficial ownership of securities in an amount equal to one percent or more of the class of securities shall be deemed 'material'" such that an amendment to Schedule 13D is needed. My question is about calculating the 1% for "an" acquisition or disposition. The literal reading appears to be if the 1% trigger is crossed on a transaction by transaction basis, without regard to time (not like the "2% in 365 rolling days" test under 1(d)(6)(B)). Are you aware of any guidance about collapsing multiple transactions that are close in time, or aggregating a series of related transactions, under this rule? I have checked the C&DIs, the Stephens Section 13D deskbook and other posts on this (fantastic) website, but I have not seen anything that explains the calculation in the context of multiple transactions. If useful, this is in the context of possible dispositions to lock in gains, where there would also be purchases. Thanks in advance!
RE: Let me be sure I understand your question. Say an investor holds 6% of the issuer's common. The investor then buys another 0.9%, and then the next day buys another 0.2%. Are you trying to determine whether a 13D/A is required, because neither purchase involved more than 1%? If that's the question, I see the ambiguity in the rule, but my understanding (perhaps based on my own failure to give the issue adequate thought) is that a 13D/A is required, because the investor's beneficial ownership has increased by more than 1% as compared to the investor's last filing. I will do a little looking into the question, though.
I thought your question might be whether purchases and sales may be netted. Say a 6% holder buys another 0.9%, then sells 0.5%, and then buys 0.3%. There, even though total purchases exceed 1%, the investor's beneficial ownership is never "up" by more than 1% as compared to the last filing, so I think no 13D/A would be required in that circumstance.
-Alan Dye, Section16.net 1/19/2014
RE: I am interested in either scenario (which seem related to me), although we'll likely have (1) aggregate sales exceeding 1%, followed by (2) aggregate purchases exceeding 1%. Your take that an amendment is not required if net holdings don't move 1% makes a lot of common sense to me, but I had a follow-up as to what you think the answer would be if one of the necessary transactions for the "net" amount to be under 1% happens last. For instance, if a holder of 5.7% on Day 1 sells 0.6%, on Day 2 sells another 0.6% (thus exceeding 1% in combined dispositions), then on Day 3 acquires 1.3% — so, only a net acquisition of 0.1%. On Day 2, there is no certainty that on Day 3 there will be a nettable acquisition (and if 13d-2(a) requires a transaction by transaction analysis the purchase on Day 3 would be reportable). I guess the transactions could be structured, so this is less of a concern under a netted approach (e.g., break it up into smaller sales followed by purchases, etc.), but that might just add complexity and transaction costs. Assuming the transactions are all part of a plan by the reporting person to keep aggregate holdings within 1%, they all happen within a reasonably short period of time, and in fact there is no aggregate movement up or down of more than 1%, do you think the "net" approach is reasonable regardless of the order and amount of the dispositions and acquisitions?
-1/19/2014
RE: I was hoping to find out if there has been a response to this follow-up question since it is exactly a situation I am currently facing. Thank you.
-11/5/2014
RE: I don't know of any guidance, but will ask a 13(d) guru what he thinks. I seem to recall that he told me once before that an amendment is triggered by reaching an ownership level that is more than 1% higher or lower than the last reported ownership level.
-Alan Dye, Section16.net 11/6/2014
RE: I was wondering if you ever got a firm answer to this. I have always taken the position that if the move is 1%, you file. I have also always understood it to be appropriate to use an end of day "snapshot" to determine the percentage change. Trying to do it intraday, especially at a large institution like an investment advisory firm or a banking enterprise with multiple entities, would be extraordinarily challenging. Possible, perhaps, with today's technology, but still very difficult in practice. (While I don't know for certain, I always assumed this was also the reason institutional investors were first given the exemption in 13d-1(b).)
Thus, in the scenario posted at the beginning of this thread, the investor would have crossed 1% as of the end of Day 2 and would be obligated to file "promptly." The next day, Day 3, the position changed by 1% again, triggering another amendment. I think because they occurred within 1 day (i.e., within the filing window for the first 1% move) you might be able to justify including both on one filing through careful text writing (and being sure to be "prompt"), but, analytically, you can't say that on Day 3 you were net up only 0.1% and not file anything.
Your thoughts?
-10/23/2015
RE: I agree with all of that. And, reporting both acquisitions on a single 13G/A is doable, as you suggest. There's a staff C&DI in the 13D context saying the filed amendment MUST show total ownership through the date of filing, not just ownership as of the trigger date.
-Alan Dye, Section16.net 10/23/2015
RE: I think the staff's position is that an acquisition that increases the holder's ownership by more than 1% of the class as compared to the number owned in the holder's last filing triggers the amendment. A holder could, for example, report ownership of 7%, sell down to 6.1%, and then buy 1.5% in a single transaction, taking the holder up to 7.6%, without ever filing an amendment. I am at the San Diego conference without access to my files, so I will check this position with someone else or when I am back in DC.
-Alan Dye, Section16.net 10/26/2015
RE: Thanks. I think that in general that is probably the right way to go, but in certain circumstances I could see someone (the SEC?) arguing that a purchase or sale by a 13D filer on a single day of 1.5% or 2% (or more?) could itself be material, which is why I have sometimes suggested a more conservative approach here, especially if the person's 13D indicates some real control purpose or the filer is a Section 16 insider.
-10/27/2015
RE: Understood. I will try to run down some authority, for one position or the other, later this week.
-Alan Dye, Section16.net 10/27/2015
RE: Thank you. Enjoy the conference.
-10/27/2015
RE: I was wondering if you ever heard anything further about this. I have been thinking about a situation where a 13D filer, for a number of years, has periodically increased and decreased his position, all within the 1% "band" discussed in this thread, and therefore has never had to update his 13D. However, having gone down .9% from the amount beneficially owned as of his last filing, he purchases 1.8% in a single block trade. The result will be that the filer's position will be .9% above his previous filing and therefore he would not appear to be required to file, notwithstanding that on a single day he purchased nearly 2% of the company's outstanding shares.
Thanks again.
-12/8/2015
RE: I did follow up with Joe Connolly, who agrees that the 1% change is measure against the ownership reported in the most recent 13D or 13D/A. So, if a filer reports ownership of 8%, then sells .9% to go to 7.1%, then buys 1.8% to go to 9.9%, no filing is required (unless a .9% change is material for some other reason).
-Alan Dye, Section16.net 12/8/2015
RE: Thanks again. Always appreciated.
-12/10/2015
RE: Thank you very much for the helpful guidance.
I interpret that to mean that if an investor (i) filed a 13D disclosing ownership of 7% on Monday, (ii) bought 0.5% on Tuesday, (iii) sold 0.5% on Wednesday and (iv) bought 0.6 on Thursday, it would not be required to amend its 13D, notwithstanding that it acquired 1.1% on a gross basis.
However, in SEC v Sand (902 F Supp 1149 (Cal 1995)), the court stated, "The defendants argue that a Schedule 13D amendment is not required unless the purchaser increases his net position, relative to all outstanding shares, by more than one percent. This argument is unpersuasive. Section 13(d) imposes a duty on a person who owns more than five percent of a company issuing stock. When such an owner acquires, by absolute number, an additional one percent or more of the issuer's stock, he must disclose to the SEC the acquisition. It is the amount of stock purchased, not the effect on the purchaser's ownership percentage, that triggers the reporting requirement."
Also, in the JP Morgan NAL (NAL 5/7/93) and George K Baum & Company (NAL 10/4/86) the SEC permits netting in the context of the 2% test, but in narrow circumstances.
From the case and the NALs (though the NALs are by analogy), I believe the SEC's default position is that in the case I described above, an amendment would be required. The Stephens treatise appears to agree.
I would greatly appreciate any thoughts you (or Joe) may have on this.
Thank you.
-6/4/2018
RE: Similar to this topic, under Rule 13d-2(c), an amendment to Schedule 13G is required within 10 days of the end of a month in which beneficial ownership "increases or decreases by more than five percent of the class of equity securities." If the shareholder participates in an offer to repurchase, by the issues, that is implemented on a pro rata basis across all shareholders, whereby the shareholder disposes of more than 5% of the class of securities but its percentage ownership is unchanged, would such an amendment be required? Or, could this simply be reported in the end of year Schedule 13G amendment (although 13d-2(b) also speaks only of a "change in the percent of class outstanding")?
Thank you in advance!
-4/24/2020
RE: I don't know of anything to point to for an answer to the question other than the language of the rule you've noted. I consulted with Tiffany Posil, who is taking over as my 13(d) guru now that Joe Connolly is retiring (Tiffany, too, worked in Corp Fin's Office of M&A), and her reaction was the same as mine. If the shares owned by the filer represent the same percentage of outstanding shares as before the exchange, there should be no need to file an amendment at the end of the month.
-Alan Dye, Section16.net 4/24/2020
