Exchange Offer Qualifies for Exemption From SEC Blackout Period Rules

In a no-action letter, the SEC stated its view that officers and directors may participate in an exchange offer during a blackout period. Pfizer’s request for SEC interpretive relief is here.


Pfizer owns a bunch of shares of Class B supervoting common stock of Zoetis, which recently went public.  The companies expect to convert these shares into plain vanilla shares of Class A common stock.  Pfizer wants to give its shareholders the chance to own Zoetis shares through an exchange offer without forcing them to take the Zoetis shares, such as through a spin-off.  To get the Zoetis shares, the shareholder would have to affirmatively participate in the exchange offer by giving up a certain number of Pfizer shares.

The Problem

Regulation BTR prohibits an officer or director from certain transactions with the company’s stock during a blackout period, a period when the ability to sell to engage in transactions in an individual account plan is suspended by the company or a fiduciary of the plan.  Pfizer said it looks like the exchange offer will run headlong into a blackout period.  This would prevent Pfizer officers and directors from participating.

Exemptions from Reg BTR include M&A deals and divestitures, but exchange offers are not necessarily included.  Pfizer thinks they should be saying that Reg BTR purpose to  equalize the treatment of corporate executives and rank-and-file employees and align the interests of directors and executive officers would be served through a transaction conducted pursuant to the SEC’s tender offer rules.

The Result

The SEC agreed, noting that:

  • the exchange offer is solely for the purpose of divesting Zoetis from Pfizer;
  • the exchange offer is subject to, and will comply with, Exchange Act Rule 13e-4 or Regulation 14D under the Exchange Act;
  • a suspension of activity in the plan participants’ accounts (as communicated by the administrators to Pfizer) is imposed by the administrators to enable them to allow participants and beneficiaries of the plans to elect to participate in the exchange offer while maintaining an accurate accounting of the account balances of such participants and beneficiaries; and
  • Pfizer directors and executive officers would continue to be permitted to tender into the exchange offer during a blackout period, but would not otherwise be permitted to directly or indirectly purchase, sell or otherwise acquire or transfer Pfizer common stock during the blackout period if the shares involved were or would be acquired in connection with service or employment as a director or executive officer.