SEC Rule 165

Overview and Regulatory Purpose

Business combination transactions present a unique communications challenge within the Securities Act's regulatory framework. A merger or acquisition in which the acquirer offers its own shares as consideration for the target's shares is a transaction that requires registration of the acquirer's shares under the Securities Act — the target's security holders are being asked to exchange their existing securities for new securities of the acquirer, a transaction that Rule 145 characterises as requiring a new investment decision and therefore registration.

Yet the commercial reality of merger and acquisition transactions is that parties must communicate extensively about the proposed transaction from the earliest stages of announcement — through press releases, analyst calls, investor presentations, road shows, proxy solicitation materials, and numerous other communications — in order to inform security holders, maintain market confidence, and ultimately obtain the shareholder vote or tender necessary to complete the transaction.

Under the Securities Act's normal gun-jumping framework, this essential communication activity would be severely restricted. Section 5(c)'s pre-filing prohibition on offers would prevent the acquirer from making any offers to exchange its shares before the registration statement covering the merger consideration shares was filed — potentially requiring complete silence from the moment of announcement through the registration statement filing, a period that can span months in complex merger transactions.

Section 5(b)(1)'s requirement that transmitted prospectuses satisfy Section 10 would subject every investor presentation, press release, and road show material to the full content requirements of the statutory prospectus, making the communications entirely impractical in the formats that merger and acquisition practice employs.

Rule 165 resolves both of these problems by providing targeted exemptions that enable free communication from announcement through transaction completion, subject to the limited conditions of Rule 165(c) and the filing obligations of Rule 425 — ensuring that all written communications reach the Commission's files and are available to security holders through EDGAR while eliminating the formal content requirements that would make normal M&A communications unworkable.

Statutory Authority and Rulemaking History

Rule 165 derives its statutory authority from Sections 5(c), 5(b)(1), and 19(a) of the Securities Act — the pre-filing prohibition and post-filing prospectus requirement from which the rule's two exemptions operate — and from the Commission's general exemptive authority under Section 28 of the Act, which authorises the Commission to exempt any person, security, or transaction from any provision of the Act to the extent the exemption is necessary or appropriate in the public interest and consistent with investor protection.

The Commission adopted Rule 165 on October 22, 1999 — Securities Exchange Act Release No. 33-7760, published at 64 FR 61408, November 10, 1999 — as part of a comprehensive rulemaking that simultaneously amended Rules 13e-1, 13e-3, 13e-4, 14a-4, 14a-6, 14a-12, 14c-5, 14d-1, 14d-2, 14d-3, 14d-4, 14d-5, 14d-6, 14d-7, 14d-9, and 14e-1, and adopted new Rules 166 and 425 alongside Rule 165.

The rulemaking replaced a prior framework that had imposed substantial restrictions on pre-registration statement communications in business combination transactions — restrictions that had generated significant practitioner frustration and that the Commission determined were inconsistent with the legitimate information needs of security holders evaluating proposed transactions.

The adopting release specifically found that free communications relating to business combination transactions are in the public interest and consistent with the protection of investors, provided that appropriate conditions ensure security holders have access to the formal registration statement disclosure before voting or tendering.

Rule 165 has not been substantively amended since its 1999 adoption, with the eCFR confirming no changes after January 3, 2017 through June 2026.

Key Provisions and Operative Requirements

Rule 165(a) establishes the pre-filing communications exemption. Notwithstanding Section 5(c) of the Act, the offeror of securities in a business combination transaction to be registered under the Act may make an offer to sell or solicit an offer to buy those securities from and including the first public announcement until the filing of a registration statement related to the transaction, so long as any written communication — other than non-public communications among participants — made in connection with or relating to the transaction, constituting a prospectus under Section 2(a)(10), is filed in accordance with Rule 425, and the conditions of Rule 165(c) are satisfied.

Three elements of Rule 165(a) require emphasis. First, the exemption applies from and including the first public announcement — the rule does not impose any waiting period between announcement and the commencement of permitted communications, enabling the acquirer to make offers to exchange securities in the same communication through which it announces the transaction. Second, the exemption applies only until the filing of a registration statement — once the registration statement has been filed, communications shift from the Rule 165(a) pre-filing framework to the Rule 165(b) post-filing framework. 

Third, the exemption is conditioned on all written communications being filed with the Commission pursuant to Rule 425 — there is no communications freedom under Rule 165 without the corresponding transparency obligation of immediate public filing.

Rule 165(b) establishes the post-filing communications exemption. Notwithstanding Section 5(b)(1) of the Act, any written communication — other than non-public communications among participants — made in connection with or relating to a business combination transaction, constituting a prospectus, after the filing of a registration statement related to the transaction need not satisfy the requirements of Section 10, so long as the written communication is filed in accordance with Rule 425 and the conditions of Rule 165(c) are satisfied. 

This exemption addresses the Section 5(b)(1) problem directly — by confirming that written business combination communications transmitted after the registration statement filing need not satisfy Section 10's requirements, the rule enables investor presentations, supplementary disclosure materials, and other formatted communications to be transmitted during the post-filing period without being prepared as full statutory prospectuses.

Rule 165(c) establishes the conditions applicable to both the pre-filing and post-filing exemptions. The conditions are: the offeror must be an Exchange Act reporting company, or the transaction is one in which the issuer is an Exchange Act reporting company, at the time of the communication; each written communication must include a specified legend directing recipients to read the full prospectus and other offering materials when they become available; and the communication must not, at the time it is made, contain information about the financial terms of the transaction unless the registration statement has been filed and such information is included in that registration statement or in a document filed pursuant to Rule 14a-12 or Rule 14d-2 under the Exchange Act.

The legend required by Rule 165(c)(2) is substantively important — it must inform recipients that the full transaction disclosure, including a registration statement containing a prospectus, will be available on EDGAR when filed and that they should read those documents before making any decision about the transaction because they will contain important information. 

This legend serves the same investor protection function as the legend required under Rule 163 for pre-filing WKSI free writing prospectuses — directing recipients to the Commission's disclosure infrastructure rather than allowing them to make investment decisions based solely on the informal communications that Rule 165 permits.

The financial terms restriction of Rule 165(c)(3) is the rule's primary substantive communications limitation during the pre-filing period. Before the registration statement is filed, all of the broad range of communications that Rule 165(a) permits — including press releases, investor presentations, road show materials, and analyst briefings — must avoid disclosing the financial terms of the proposed transaction. 

This restriction reflects the Commission's determination that the specific economic terms of the exchange — the exchange ratio, the valuation of the consideration, and other financial details — are sufficiently material that they should be disclosed only through the formal registration statement process that subjects them to Commission review, rather than through informal pre-filing communications that do not carry the same disclosure standards and liability framework.

Rule 165(d) establishes the anti-conditioning instruction. Rule 165 is available only to communications relating to business combinations. The exemption does not apply to communications that may be in technical compliance with the section but have the primary purpose or effect of conditioning the market for another transaction, such as a capital-raising or resale transaction. 

This anti-conditioning provision prevents Rule 165 from being used as a vehicle for conditioning the market for a concurrent or subsequent capital markets transaction under the guise of business combination communications, maintaining the rule's focus on the genuine communications needs of merger and acquisition transactions rather than allowing it to become a general pre-filing communications safe harbour for any transaction structured to include a business combination component.

Rule 165(f) provides definitions of the three key terms used throughout the rule. A business combination transaction means any transaction specified in Rule 145(a) — reclassifications of securities, mergers and consolidations, and transfers of assets — as well as any transaction in which securities of a company that is listed or required to be listed on a national securities exchange are to be registered under Section 12 of the Exchange Act in connection with the transaction. 

A participant means each entity that is a party to the transaction and each affiliate of each such party, as well as any person whose participation in the transaction is reasonably designed to or has the effect of conditioning the market for the securities to be offered. 

A public announcement means any oral or written communication by a participant that is reasonably designed to, or has the effect of, informing the public or security holders in general about the business combination transaction.

Scope of Application

Rule 165 applies to business combination transactions in which the acquiring company's securities must be registered under the Securities Act as merger consideration — the universe of stock mergers, stock-for-stock exchange offers, and similar transactions governed by Rule 145's registration requirement. 

The rule's availability is limited to situations in which the offeror is an Exchange Act reporting company, reflecting the Commission's determination that the free communications framework of Rule 165 is appropriate only for companies whose securities are already subject to the continuous disclosure obligations that give security holders a baseline level of information about the acquirer's business.

The rule specifically excludes non-public communications among participants — private negotiations, attorney-client communications, and similar internal or privileged communications — from the category of written communications requiring Rule 425 filing. This exclusion is essential to the practical functioning of merger and acquisition transactions, in which extensive confidential due diligence, negotiation, and planning activities occur before and during the public announcement period, none of which needs to be publicly filed simply because it relates to the contemplated transaction.

Relationship to Related Rules and Regulations

Rule 165's relationship with Rule 425 is operationally indispensable — Rule 165 provides the communications exemption, and Rule 425 provides the filing mechanism through which all written communications made in reliance on Rule 165 must be submitted to the Commission. Rule 425 requires that all written communications made in reliance on Rule 165 be filed with the Commission on the date of first use, making every investor presentation, press release, and analyst call script that falls within Rule 165's scope immediately publicly available through EDGAR on the day it is first distributed.

Rule 165's categorical relationship with Rules 164 and 433 reflects the architecture of the Securities Act's complete offering communications framework. Rule 164 and Rule 433 provide the post-filing free writing prospectus framework for conventional registered capital-raising offerings, while Rule 165 provides the specialised framework for business combination transactions — and Rule 164(f) specifically excludes business combination transactions from Rule 164's and Rule 433's scope, confirming that the two frameworks are mutually exclusive rather than cumulative.

Rule 165 connects directly to Rule 145, which establishes that business combination transactions require Securities Act registration by characterising them as offers and sales involving new investment decisions. Rule 145 triggers the registration requirement that Rule 165's communications framework is designed to accommodate — without Rule 145's registration requirement, there would be no Section 5 gun-jumping restrictions from which Rule 165 needs to provide relief.

The Rule 165 communications framework also intersects with Exchange Act Regulation 14A's proxy solicitation rules and Regulation 14D's tender offer rules, since business combination transactions typically involve either a proxy solicitation seeking target shareholder approval or a tender offer seeking tender of target shares, each of which is separately governed by the Exchange Act's own communication and disclosure frameworks. 

Rule 165 coordinates with these Exchange Act frameworks by providing that Rule 425-filed communications satisfy the concurrent filing obligations of Exchange Act Rule 14a-12 in the proxy solicitation context and Rule 14d-2 in the tender offer context.

Amendment History and Regulatory Evolution

Rule 165 has remained substantively unchanged since its 1999 adoption, reflecting the Commission's sustained confidence in the framework it established — free communications from announcement through completion, subject to the filing discipline of Rule 425 and the limited conditions of Rule 165(c). The rule's stability across a quarter century of M&A practice, which has seen dramatic changes in the volume, complexity, and structure of merger and acquisition transactions, demonstrates the durability of the rule's core design.

The broader M&A communications landscape has evolved significantly around Rule 165 through the development of digital communications, social media, and real-time financial news distribution, each of which has expanded the categories of communications that fall within the rule's scope and the speed at which Rule 425 filing must occur to maintain contemporaneous public availability of business combination communications. 

The Commission's ongoing monitoring of M&A communications practices through the Division of Corporation Finance's M&A review function has addressed specific questions about Rule 165 compliance through interpretive guidance and comment letter practice without requiring formal rule amendment.

Enforcement Context and SEC Action Patterns

Rule 165 enforcement arises primarily through the Division of Corporation Finance's review of business combination registration statement filings — specifically Form S-4 and Form F-4 for stock mergers — where the Division assesses whether the parties have complied with Rule 425's filing obligations for all written communications made after announcement and before the registration statement filing, and whether those communications satisfied Rule 165(c)'s conditions including the prohibition on disclosing financial terms before the registration statement is filed.

The anti-conditioning provision of Rule 165(d) has generated enforcement and interpretive attention in circumstances where companies attempted to use Rule 165's business combination communications framework in connection with capital-raising activities structured to include a nominal business combination component — situations where the Division has determined that the primary purpose of the communications was market conditioning for the capital-raising rather than genuine business combination disclosure, and that Rule 165's exemption was therefore unavailable.

Examination Relevance and Key Takeaways

Rule 165 is examined at the Series 7 and Series 65 levels in the context of the Securities Act's communications framework for M&A transactions and the specialised exemptions available to business combination communications that are not available through the standard free writing prospectus framework of Rules 164 and 433. 

The two-phase structure of the rule — the pre-filing exemption from Section 5(c) available from first public announcement through registration statement filing, and the post-filing exemption from Section 10's prospectus requirements applicable to written communications after filing — is the primary structural concept examined.

The connection between Rule 165's communications exemptions and Rule 425's mandatory filing obligation — all written communications made in reliance on Rule 165 must be filed on the date of first use — is a consistently examined practical requirement reflecting the rule's transparency-for-flexibility design philosophy.

The key points to retain are these. Rule 165 provides business combination-specific exemptions from the Securities Act's normal communications restrictions: a pre-filing exemption from Section 5(c) enabling offers from first public announcement through registration statement filing, and a post-filing exemption from Section 10's prospectus requirements for written communications made after the registration statement is filed. Both exemptions are conditioned on the offeror being an Exchange Act reporting company, inclusion of a required legend directing recipients to full offering disclosure, and — for pre-filing communications — no disclosure of the transaction's financial terms until the registration statement has been filed.

All written communications made in reliance on Rule 165 must be filed with the Commission on the date of first use pursuant to Rule 425. The rule applies only to genuine business combination communications and not to communications whose primary purpose is conditioning the market for a concurrent or subsequent capital-raising or resale transaction. Rule 165 was adopted October 22, 1999, has not been substantively amended since, and no amendments are pending through June 2026.