Amicus Brief — Piper v. Chris-Craft Industries, Inc.

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“ Suoreme Coart, U. & |

FILED

SEP 3 1976

Ju the Suyrreme Court of the Unite Seeee

OCTOBER TERM, 1976

S. 79-353, 75-354, and 75-355

HOWARD PIPER, ET AL., PETITIONERS

U-

CHRIS-CRAFT INDUSTRIES, INC., ET AL.

THE First Boston CORPORATION, PETITIONER

CHRIS-CRAFT INDUSTRIES, INC., ET AL.

BANGOR PUNTA CORPORATION, ET AL., PETITIONERS

Uv.

CHRIS-CRAFT INDUSTRIES, INC., ET AL.

ON WRITS OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

BRIEF FOR THE SECURITIES AND EXCHANGE

COMMISSION AS AMICUS CURIAE

Haagvey L. Pit,

General Counsel,

DAVID FERBER, RALPH C. FERRARA,

Solicitor, Special Counsel,

Securities and Exchan ge Commission,

Washington, D.C. 20549.

ANDREW M. KLEIN,

Special Counsel,

JACOB H. STILLMAN,

Assistant General Counsel,

EGON GUTTMAN,”

Attorney Fellow,

IRVING H. PICARD,

Assistant General Counsel,

LEWIS H. MENDELSON,

Special Counsel,

JAMES H. SCHRoprP,

Special Counsel,

KENNETH T. SPIRER,

Special Counsel,

RicnarD T. SHAR?,

SAMMY S. KNIGHT,

FRANK A. WILSON,

SUE AUERBACH,

JOHN P. SWEENEY,

VERNON I. ZVOLEFF,

Attorneys,

Securities and Exchange Commission,

Washington, D.C. 20549 **

* Professor Guttman is a member of the Middle Temple,

Barrister at Law.

“* Richard Weingarten, a May, 1976, graduate of the

Antioch School of Law, Linda W. Jarrett, a May, 1976,

graduate of the Georgetown University Law Center, and

Catherine Scanlon, a third year student at the American

University Washington College of Law, also assisted in the

preparation of this brief.

~ eg T Ser wy

-—— =

ee ee -—?

ee OE | Ae te

TABLE OF CONTENTS

Page

i clea allah caer IV

QUESTIONS ADDRESSED ....................cccc--0---2.--22------- 2

INTEREST OF THE SECURITIES AND EX-

MOUS GORI cccciccctnccccscnccenencncnnsnnnsnenscsnnnnen 3

I i aeeeiinaeeiibnientl 3

SUMMARY OF DISCUSSION ..................22--2222222-2-2-------- 5

I i tae 20

I. IN ADOPTING THE WILLIAMS ACT IN

1968, CONGRESS INTENDED TO PROVIDE

A COMPREHENSIVE SCHEME OF FEDER-

AL REGULATION FOR ALL TENDER OF-

FERS, AND TO CREATE FEDERAL RIGHTS

FOR, AND OBLIGATIONS UPON, ALL PER-

SONS PARTICIPATING IN, OR DIRECTLY

AFFECTED BY, CASH AND EXCHANGE

I re 20

A. The Dynamics of Tender Offers: The Contest

TT TIIIIIIITT ninicciciedeesandamestoiathneeiaadiiaemeeniasetnbebwaieiinienes 22

1. The emergence of the tender offer ............. 22

REISER See ara 27

EELS ae eecons ee 27

I 31

Sa i 35

d. The dealer-manager .............................. 38

B. Prior to the Adoption of the Williams Act,

Tender Offers Were Virtually Unregulated,

in Contrast to the Comprehensive Federal

Regulation of Proxies and Proxy Contests.... 42

C. Regulation of Tender Offers Was Needed

Because Significant Abuses Had Developed.. 48

DISCUSSION—Continued

Il.

D. In Passing the Williams Act, Congress In-

tended to Fill the Regulatory Gap by Enact-

ing a Comprehensive Scheme of Regulation

Comparable to That Which Governed Proxy

TEI <1 sushinitiatessnichindedimpietiesidianimmiaiiaaiasliatieel

EF. The Williams Act Provides a Pervasive

Scheme of Federal Regulation of Tender

EASA RE ah rine Sound! Rae aa ata te PN PMR emai

F. Congress Recognized that the Williams Act

Should Protect All Persons Interested in, or

Affected by, Tender Offers -............................

CONSISTENT WITH ITS PRIOR TEACH-

INGS, SOUND POLICY, AND UNDERLYING

CONGRESSIONAL INTENT, THIS COURT

SHOULD AFFIRM THAT A PRIVATE RIGHT

OF ACTION MAY BE IMPLIED UNDER

SECTION 14(e) OF THE SECURITIES EX-

CHANGE ACT ON BEHALF OF A COMPET-

ING TENDER OFFEROR AGAINST THOSE

WHOSE MISLEADING STATEMENTS HAVE

EY CEE cerksstnssmntdisaniennnmnssiinimmmesiamennee

A. Tender Offerors Are Within the Especial

Class for Whose Benefit the Williams Act

1. The Williams Act Is a Pervasive Legisla-

tive Scheme Governing the Relationship

Between a Tender Offeror and the Other

Participants in a Contest for Control, In-

cluding the Target, a Competing Tender

Offeror and Their Allies —................000.......

2. The Williams Act Creates an Articulated

Federal Right in Favor of Each of the

Participants in the Contest for Control,

Including Tender Offerors .......... ieeeeaaeneel =

B. Congress Was Aware of the Importance of

Private Remedies for Participants in Tender

Offers in Enacting the Williams Act -..........

Page

DISCUSSION—Continued

ITI.

C. It Is Consistent with the Underlying Pur-

poses of the Legislative Scheme of the Wil-

liams Act to Imply a Private Remedy for

I nn a

1. Private Rights of Action Are a Necessary

Supplement to Commission Action to

Make Effective the Congressional Pur-

pose in Enacting the Williams Act .........

2. Judicial Determinations Under the Proxy

Regulation Provisions of the Securities

Exchange Act Have Provided Those Pri-

vate Remedies Necessary to Make Effec-

tive the Congressional Purpose ................

3. Prior Judicial Determinations Under Sec-

tion 14(e) of the Williams Act Have

Mirrored Actions by the Courts in Pro-

viding Private Remedies to Proxy Con-

testants and Shareholders Necessary to

Make Effective the Congressional Pur-

pose in Enacting the Williams Act ...........

D. The Williams Act Is an Intrusion of Federal

Law into the Internal Affairs of Corporations

and a Federal Remedy Is Appropriate to

Effect the Congressional Purpose to Provide

Protections to Those Involved in a Tender

ge ESET SD Dap cteha nerd Bie ee

ANY LIMITATIONS THE COURTS IMPOSE

ON THE MAINTENANCE OF, OR ON THE

RELIEF GRANTED UNDER, AN IMPLIED

PRIVATE RIGHT OF ACTION, SHOULD

EFFECTUATE IMPORTANT PUBLIC POLI-

CY CONSIDERATIONS, AS GLEANED BOTH

FROM THE CONGRESSIONAL INTENT UN-

DERLYING THE STATUTORY BASIS FOR

THE IMPLIED PRIVATE ACTION AND

FROM THE JUDICIALLY-ENUNCIATED

PURPOSES THE IMPLIED REMEDY IS TO

SRD cermscscinshinissnintndintininenniteneeedamninnbinaintidininidesbeoiaitiais

Page

103

112

123

DISCUSSION—Continued

IV. SECURITIES EXCHANGE ACT RULE 10b-6

WAS ADOPTED TO PRECLUDE ACTUAL

OR POTENTIAL MANIPULATIVE CON-

DUCT IN CONNECTION WITH THE PUBLIC

DISTRIBUTION OF SECURITIES, INCLUD-

ING EXCHANGE TENDER OFFERS, AND

THERE IS A PRIVATE ACTION ON BE-

HALF OF ANY PERSON ADVERSELY AF-

FECTED BY VIOLATION OF THE RULE.......

CONCLUSION .............--0----0-ee-eeeeeeee- asabubinainnnanaemmenniten

CITATIONS *

Cases:

Abrahamson V. Fleschner, 392 F. Supp. 740 (S.D.

N.Y., 1975), appeal pending, Docket No. 75-7203

(fe 2 |

Affiliated Ute Citizens v. United States, 406 U.S.

Page

142

(BS 18, 84, 141, 142, 144-147

Alaska Interstate Co. v. McMillan, 402 F. Supp.

BE GA, Tete TID cecesceysesiccnsscnesensessennensnassictmncenet

American Power & Light Co. v. Securities and Ex-

change Commission, 329 U.S. 90 (1946) -............

Bailey v. Meister Brau, Inc., CCH Fed. Sec. L. Rep.

122

| 95,543 (C.A. 7, May 6, 1976) ...............---.--..---- 153, 189

Bath Indus., Inc. v. Blot, 427 F.2d 97 (C.A. 7,

a 85, 139

Beatty v. Bright, 318 F. Supp. 169 (1970), sup-

plemented, 345 F. Supp. 1188 (S.D. Iowa,

| 107, 110

Bell v. Hood, 327 U.S. 678 (1946) -................... 78, 107, 139

Berley v. Dreyfus & Co., 43 F.R.D. 397 (S.D.

4 Se) , aon

Berman v. Thompson, 312 F. Supp. 1031 (N.D.

ins. SIIIIID sccsenicdescseitepneiacisoniantinetenesesmanensiamsesatinstenitaitanes

Birnbaum v. Newport Steel Corp., 193 F.2d 461

(C.A. 2, 1952), certiorari denied, 343 U.S. 956

ae dil cee aucietluaaaieniasaeediiahadiaaiacssbieeieisdbeeit

142

* The Appendix volume of the Parties is divided into sec-

tions A through F. “A”, “B”, “C”, “D”, “E”, and “F” page

references are to the sections of that volume.

Cases—Continued Page

Bivens v. Six Unknown Federal Narcotics Agents,

4 __ ERE ENnnn aae 82, 107

Blue Chip Stamps v. Manor Drug Stores, 421 U.S.

I 16, et passim

Bound Brook Water Co. v. Jaffee, 284 F. Supp. 702

I I sinter 108

Britton v. Schweickart, CCH Fed. Sec. L. Rep.

7 91,029 (S.D. N.Y., 1961) 200 193

Broder Vv. Dane, 384 F. Supp. 1312 (S.D. N.Y.,

STI sasetecsnedabindieiienipmetereitasieta ticle i 113

Bruns, Nordeman & Co., 40 S.E.C. 652 (1961) _... 179

Butler Aviation International, Inc. v. Compre-

hensive Designers, Inc., 425 F.2d 842 (C.A. 2,

SUTIN? . suuibiebeneabeitsiesenietialisieeiastessnianinstiacett arene i al 94, 116

Canusa Gold Mines, Ltd., 2 S.E.C. 548 (1987) ........ 178

Casey V. Woodruff, 49 N.Y.S. 2d 625 (Spec. Term,

See TG SI secrernticiseesdieisencisieneteeeeemeensesiasitaieneeteiesens 46

Cattlemen’s Investment Co. v. Fears, 343 F. Supp.

1248 (W.D. Okla., 1972) 2... cece ccccccceeeeenee 116

Cauble v. White, 360 F. Supp. 1021 (E.D. Lz..,

a spilt eiiaeliat ia daiatataataeiiadites catalina 122

in re Caesars Palace Securities Litigations, 360 F.

Supp. 366 (S.D. N.Y., 1973) 00 142

Central Founding Co. v. Gondleman, 166 F. Supp.

429 (S.D. N.Y., 1968) 22. ecccccccecccccseenseeee 104

Cheff v. Mathes, 41 Del. Ch. 494, 199 A.2d 548

REET a IRAE ene ene ae 46, 72

In the Matter of Collins Securities Corp., 8 SEC

Docket 250, Securities Exchange Act Rel. No.

11766 (Oct. 23, 1975), appeal pending, No. 75-

BE? IU ecssesitinscenssncmeecensemassentassnsninetansianesse 180

Commonwealth Oil Refining Co. Vv. Tesoro Petro-

leum Corp., 394 F. Supp. 267 (S.D. N.Y.,1975).. 116

Condee Corp. v. Lunkenheimer Corp., 43 Del. Ch.

353, 220 A. 2d 769 (1967) 46

Copperweld Corp. v. Imetal, 403 F. Supp. 579

Sn: a 5, 116, 191

Corenco Corp. Vv. Schiavone & Sons, Inc., 498 F.2d

Be I Oe I rtescrtetieteeseacescesienshasebaneeeaneiatenines conte 116

° Page

Cases—Continued

Cort v. Ash, 422 U.S. 66 (1975) ..........-.------------ 8, et passim

Couch v. Steel, 3 E. & B. 402, 118 Eng. Reprint, ia

1193 (Q.B., 1854) .....---.--c---cc--ceceeeeeeeseeseenesnenseeenneeees

Crane Co. v. American Standard, Inc., 490 * i

se SS... |) es cosseeeecnneeescensess 1 — "

Crane Co. V. Westinghouse Air Brake Co., 41

2° Bit SS) ) 89, 93-94, 111, 117-118,

187, 192-194

D-Z Investment Co. V. Holloway, CCH Fed. See. L.

116

Rep. § 94,771 (S.D. N.Y., 1974) -....--------------------

Dale v. Temple Co., 186 Tenn. 69, 208 S.W. 2d o

a) | ae Se Ra ae

Dann V. Studebaker-Packard Corp. 288 F.2d 201

(C.A. 6, 1961) ........ _ ESTEE RED Be 104-105, 107, 124

Deckert v. Independence Shares Corp., 311 U.S.

BEB (1DGD) ......neccesencserceecscscccesescccsesssserecssseness 136, 139, 148

deHaas V. Empire Petroleum Co., 286 F. Supp. 809

(D. Colo., 1968) affirmed in part and vacated in

part, 435 F.2d 1223 (C.A. 10, ID csnicceddiliicad 141, 160

Denison Mines, Ltd. v. Fibreboard Corp., 388 F. -

Supp. 812 (D. Del., 1974) ..... .......---.---. ilies

DeSantis v. City of Troy, 371 N.Y.S. 2d 310 (Sup. i

Ct., Rens., Cty., 1975) ........------ce--ceceseeeseeneenereeeeeees

DiJulio v. Digicon, Inc., 339 F. Supp. 1284 (D. aad

_ £4 A Te MENTE PR ee

Dillon v. Berg, 326 F. Supp. 1214 (D. Del., 1971), “van

affirmed, 453 F.2d 876 (C.A. 3, 1971) ......... ....106,

Dodge Vv. Ford Motor Co., 204 Mich. 459, 170 N.W. es

GSS (1988) ............ saatiindtstnicsthindadenitanadanienieanaamesnnt

Donlon Indus., Inc. Vv. Forte, 402 F.2d 935 (C.A. ‘as

2. 1968) ...... CS ca a eetes

Doyle v. Milton, 73 F. Supp. 281 (S.D. “= sia

DIDDY cencenccnssccencncverceserascevacsocensasecsesensecesesossaspnoncese .

Dunn V. Decca Records, 120 F. Supp. 1 (S.D. N.Y., -

ID ccicccuniendabevets yaa ore Ly See sssseeeerecennnsseeceeese

Dyer Vv. Eastern Trust and Banking Co., 336 F. ‘

Supp. 890 (D. Me., 1971) ~..... PERO EOP 114, 118, 120,

122-123, 137

Electronic Specialty Co. v. International Controls

’ ; BF CCA. B, TROD ncecsesees 93-94, 110, 114-

Corp., 409 F.2d 937 ( an Sanaa, 199

— OOOO

Cases—Continued Page

Ellis v. Carter, 291 F.2d 270 (C.A. 9, | | 152-153

Emhart Corp. v. USM Corp., 403 F. Supp. 660

(D. Mass., 1975), vacated, 527 F.2d 177 (1975)... 122

Ernst & Ernst v. Hochfelder, 96 S. Ct. 1875

re ete es eee 17, et passim

Fabrikant v. Jacobellis, CCH Fed. Sec. L. Rep.

] 92,686 (E.D. N.Y., 1970) .......................... 114

Federal Corporation, 25 S.E.C. 227 ( BST 178

Federal Trade Commission vy. Klesner, 280 U.S.

ee RI ace ba ee he Mee 149-150

Fischman v. Raytheon Mfg. Co., 188 F.2d 783

TE peed els eke a a 152-153

Florida Lime & Avocado Growers, Inc. v. Paul, 373

SU I ta Sa er EN Ta Rhos 129

Fundamental Investors, Inc., 41 SEC 285 (1962). 103

GAF Corp. v. Milstein, 453 F.2d 709 (C.A. 2,

RASS ERA RI Reco ts aD a ee SOR ae aanhanaiinliebiaaes 85

General Time Corp. v. Talley Indus., Inc., 403 F.2d

Se a Ti 108

Gerdes V. Reynolds, 28 N.Y.S. 2d 622 (Sup. Ct.,

RERRRENTEL Sot PSS ATEN AIS toh el AE A PS 44

Gerstle Vv. Gamble Skogmo, Inc., 478 F.2d 1281

Dr ee I eee 8 ine Pa a 155

Glenn Vv. Point Park College, 272 A.2d 895 (Pa.,

Pe Reka SORE ae ee a aeadiiiiinane - 45

Globus v. Law Research Service, Inc., 418 F.2d

1276 (C.A. 2, 1969), certiorari denied, 397 U.S.

el. A RO Stace ne lee 142, 160

Goldman Vv. Bank of Commonwealth, 332 F. Supp.

699 (E.D. Mich., 1971), affirmed, 467 F.2d 439

eae ae ee Ee SS 143

Gould Vv. American Hawaiian Steamship Company,

523 F.2d 761 (C.A. 3, 1976) ............0.0. 153, 155

Greater Iowa Corp. v. McLendon, 378 F.2d 783

CS Se eee A ed 108

Green V. Wolf Corp., 406 F.2d 291 (C.A. 2, 1968),

certiorari denied, 395 U.S. 977 (1969)... 141-142

Gulf & Western Industries, Inc. v. Great Atlantic

& Pacific Tea Co., Inc., 476 F.2d 687 (C.A. 2,

1973)

VIII

Cases—Continued Page

H. K. Porter Company, Inc. v. Nicholson File Co.,

482 F.2d 421 (C.A. 1, 1978) ..... 13, 85, 89, 102, 114-115,

118, 120, 137, 139-140, 149

Halsey Stuart & Co., 30 SEC 106 (1949) ...........-.-..- 178

Hawaii v. Standard Oil Company of Cal., 405 U.S.

BB1 (1GTB) «......00--00c2enseceereeccseccrensecncssesasonscosssecosncsees 140

BB, BOT) annneecrnrescnevcnnseecececsesnencnoveverecvencossscssnsnnsnsnes 153, 189

Hiers v. Cohen, 329 A.2d 609 (Conn., 1973) .......... 45

Hill York Corp. v. American International Fran-

chises, Inc., 448 F.2d 680 (C.A. 5, 1971) ............. 142

Hughes v. Securities and Exchange Commission,

174 F.2d 969 (C.A.D.C., 1949) ........--..------------+-- 194

Insuranceshares Corp. Vv. Northern Fiscal Corp.,

35 F. Supp. 22 (E.D. Pa., 1940) ...............-------------+ 44

Intermountain Rate Cases, 324 U.S. 476 (1914)... 21

Iroquois Indus., Inc. v. Syracuse China Corp., 417

F.2d 963 (C.A. 2, 1969), certiorari denied, 399

if @ |). | a 93, 94

J. 1. Case Co. v. Borak, 377 U.S. 426 (1964) .7, et passim

Jaffee & Co. Vv. Securities and Exchange Commis-

sion, 446 F.2d 387 (C.A. 2, 1971) ...........------------- 190

Janigan V. Taylor, 344 F.2d 781 (C.A. 1), cer-

tiorari denied, 382 U.S. 879 (1965) ............. 18, 141-142

Jewelcor, Inc. v. Pearlman, CCH Fed. Sec. L. Rep.

7 95,096 (S.D. N.Y., 1975) ..........------------00- cae 116

Johns Hopkins University v. Hutton, 297 F. Supp.

1165 (D. Md., 1968), affirmed in part, reversed

in part, 422 F.2d 1124 (C.A. 4, 1970) ............--.-. 152

Kardon v. National Gypsum Co., 69 F. Supp. 512

kt DS 90, 130

Klaus v. Hi-Shear Corp., 528 F.2d 225 (C.A. 9,

BD vccnnacenncssssiessensetecesniansitacedacasinacenninenmmnendessieetstin 118-119

Kors v. Carey, 39 Del. Ch. 47, 158 A.2d 136

REISE? siaaiiedioaele A RORY Noe aE 46, 72

Kramer Vv. Scientific Control Corp., 365 F. Supp.

TBO (E.D. Pa., 1978) ....2-20-20.-0escce.cccescessernsessesccseses 143

Cases—Continued

; | Page

eonard Duckworth, Inc. Vv. Michael L. Field & C

516 F.2d 952 (C.A. 5, 1975) ....... AOSD ~ 45

Levy V. Fernberg, 29 N.Y.S. 2d 550 (N.Y. Sup. Ct

SUSHI aluhdiipicaiisatsiaiiciaeadca emit er er a 44

Los Angeles Trust Deed & Mortgage Exchange Vv.

Securities and Exchange Commission, 285 F.2d

5 See eee 150

Lowenschuss Vv. Kane, 520 F.2d 255 (C.A.2,1975).. 118,

war: 140, 148-149

Mack v. Mishkin, 172 F. Supp. 885 (S.D. N.Y.,

RE SSR A OS tee eee eA ID 104

Marbury v. Madison, v Cranch 137, 5 U.S. 87

EE SR emer hE eS ae 78

Martin v. American Potash Chem. Corp., 33 Del.

Ch. 234, 92 A.2d 295 (1952) ...................... 46

Martin v. Philips Petroleum Co., 445 S.W. 2d 429

(Ct. of Civ. App. of Tex., 1970)... 45

In the Matter of Masland, Fernon & Anderson, 9

| RE IEE ee ae ee 175

Matheson v. Armbrust, 284 F.2d 670 (CA. 9,

TATE RK LIT ae ee See Lees ee -

McCloskey v. Epco Shoes, Inc., 391 F. Supp. = on

IN Md I tare a ee ao 114

McClure v. Borne Chemical Co., 292 F.2d 824

STRELA he 153

Meisel v. North Jersey Trust Co. of Ridgewood,

216 F. Supp. 469 (S.D. N.Y., 1968) 142

Merrill Lynch, Pierce, Fenner & Smith v. Ware,

ee ee Se I cS | 120

Mesa Petroleum Co. v. Aztec Oil & Gas Co., 406

F. Supp. 910 (N.D. Tex., 1976) -

MGM, Inc. v. Transamerica sot 303 F. om ar

5566 (6.0. N.Y... 1669) .................................. 116

Middlesex Concrete, etc. v. Carteret Indus. Ass’n.,

ee Ge COO Cit BO vii 16

Miller vy. Steinbach, 268 F. Su 255 (S

1967) pp (S.D. N.Y.,

Cases—Continued Page ; Cases—Continued Page

Mills v. Electric Auto-Lite Co., 396 U.S. 375

(1970) ......-.-cecceeccenceneeee cecesencsnsesnessnssnnstsnseseesss 3, et passim

Mills v. Sarjem Corp., 183 F. Supp. 753 (D. NJ.,

1955) .....-..---c-ececcececsenee scensensenencsnennsnsenensenssasssssssssnsnse 43

Missouri Portland Cement Co. v. Cargill, Inc., 498

F.2d 851 (C.A. 2), certiorari denied, 419 USS.

BES (1974) ......--.-0..-nceccecenveesennennencseeansnnsnsensensnnsnsrsoes 116

Myzel v. Fields, 386 F.2d 718 (C.A. 8, 1967),

cetriorari denied, 390 U.S. 951 (1968) ............-.-. 141

Nagel v. Prescott & Co., 36 F.R.D. 445 (N.D. Ohio,

1964) .....-..-cecccocecsscsncenssessnceosenes sossneensenseosenssacnsennssees 142

National Railroad Passenger Corp. Vv. National

Ass’n of Railroad Passengers, 414 U.S. 453

.) |) a al ladaeaiabeibiil 15, 91, 133

Neuman Vv. Electronic Specialty Co., CCH Fed.

Sec. L. Rep. % 92,591 (N.D. Ill., 1969) .........-..-.-. 114

New York Central Securities Corp. v. United

States, 287 U.S. 12 (1932) ............--.-s-eceeeereneeeees 21

New York Department of Social Services V. Dub-

lino, 413 U.S. 405 (19738) ......-----------eseceeceeeeeeeees 129

Norte & Co. Vv. Huffines, 416 F.2d 1189 (C.A. 2,

1969), affirming, 304 F. Supp. 1096 (S.D.N.Y.,

BOGDB) .....-..erecceceseseeesecssscncconcascccssssesersersoscceseooerssosoes 106, 110

Ohio Drill & Tool Co. v. Johnson, 498 F.2d 186

ON § ——————————————————————— 106-107, 110

Orn v. Eastman Dillon, Union Securities & Co.,

364 F. Supp. 352 (C.D. Cal., 1973) -................... 152

Otis & Co. v. Pennsylvania, R. Co., 61 F. Supp.

905 (E.D. Pa., 1945), affirmed, 155 F.2d 522

(C.M. B, 1DOB) ..n<2ncce0-20022encencsoneeccesoncnnesnssessenssosssoses 44

Otis Elevator Co. v. United Technologies Corp.,

405 F. Supp. 960 (S.D. N.Y., 1975) -.................. 116

Peffer v. Bennett, 523 F.2d 1323 (C.A. 10, 1975)... 56

In re Penn Central Securities Litigation, 347 F.

Supp. 1827 (E.D. Pa., 1972) ........-.--..-.--ecsesseeeeeeees 191

Perlman v. Feldman, 219 F.2d 713, certiorari de-

nied, 349 U.S. 952 (1955) «........-...--.-secceeeeeeeeeeees 44

—_

Petersen Vv. Federated Development Co., 387 F.

Supp. 355 (S.D. N.Y., 1974) 20 114-115

Philips Chemical Co. v. Hulbert, 301 F.2d

(C.A. 5, 1962) re

adhe Dy BIOL) --nnnevenennnseerenensereecnnsenerennuesesennneveseccnnees 45

Phillips vy. Alabama Credit Corp., 403 F.2d 693

NN 152

Richardson v. MacArthur, 451 F.2d 35 (C.A. 10

RETESET eee eT ae ee 141

Richland v. Crandall, 262 F. Su 538 (S. D.

SEE Serra inna 155

Rondeau V. Mosinee Paper Co., 422 U.S. 49 (1975)... 15,

. et passim

Ronson Corp. v. Liquifin Aktiengesellschaft, 497

F.2d 394 (C.A. 8, 1974) ......................................... 116

Rosenberg V. Hano, 121 F.2d 818 (C.A. 3, 1941)... 193

Ross V. Bernard, 396 U.S. 531 Ee 27

Sargent v. Genesco, 492 F.2d 750 (C.A. 5, 1974)... 89

Sarlie v. E. L. B C _—

rue V. &. L. Bruce Co., 265 F. Supp. 371 (S.D.

a cw pee een 192

Schaefer v. First National Bank of Lincolnwood,

326 F. Supp. 1186 (N.D. Ill., 1970), appeal dis-

missed, 465 F.2d 234 (C.A. 7, 1972) _....... 142

Securities and Exchange Commission vy. Aldred In-

vestment Trust, 151 F.2d 254 (C.A. 1, 1945) ... 150

Securities and Exchange Commission v. B

. Bartlett,

422 F.2d 475 (C.A. 8, 1970) ;

Securities and Exchange Commission v. B

‘ . Bowler,

427 F.2d 190 (C.A. 4, 1970) 0.00 150

Securities and Exchange Commission vy. Captial

Gains Research Bureau, Inc., 375 U.S. 180

pa EE kOe a 77, 84

Securities and Exchange Commission v. CINKE

Int'l Corp., et al., (D. D.C.), SEC Lit. Rel. Nos.

5386 (Apr. 26, 1972) and 5465 (Jul. 17, 1972) .. 97

Securities and Exchange Commission v. G

Host, 73-Civ-275 (S.D. N.Y.) ............. — =

xIl

Cases—Continued Page

Securities and Exchange Commission v. Gondle-

man, 166 F. Supp. 429 (S.D. N.Y., 1958) -......... 104

Securities and Exchange Commission v. Healy,

74 C-4305 (S.D. N.Y., 1974), SEC Litiation Rel.

No. 6589 (Nov. 18, 1974) enceveessieasinntianiaa 39

Securities and Exchange Commission Vv. Henwood,

Cal., 1961) CCH Fed. Sec. L. Rep. {| 95,125 (S.D.

Cal., 1961), affirmed, 298 F.2d 641 (C.A. 9,

|) 104, 105

Securities and Exchange Commission v. Manor

Nursing Centers, Inc., 458 F.2d 1082 (C.A. 2,

DOTB) .nncceccececcccocssseceresensscsssessseesasssnassnannsnnn 150

Securities and Exchange Commission v. Medic-

Home Enteruprises, Inc., Civ. No. 75-6227 (S.D.

) & 9 ES 97

Securities and Exchange Commission V. Mize, Civ.

No. 75-H-1420 (S.D. Tex.) ..................ccccccccsscsronses 97

Securities and Exchange Commission v. National

Securities, Inc., 393 U.S. 453 (1969) .................. 130, 149

Securities and Exchange Commission Vv. Resch-

Cassin & Co., 362 F. Supp. 964 (S.D. N.Y.,

1973), appeal pending, Docket No. 73-2144 (C.A.

BD cneecnececscocesesenccsenenssnnsenssstssessnsnnssnnainnnnnnnnnE 190

Securities and Exchange Commission Vv. Roussel,

et al., Civ. Action No. 76-2571 (E.D. La.) -....... 97

Securities and Exchange Commission v. Roven,

Civ. No. 75-8418 (C.D. Cal.) ....cccccccccceccoccccsccccess 97

Securities and Exchange Commission v. Scott

Taylor & Co., 183 F. Supp. 904 (S.D.N.Y.,

DODD) onneccecececcacccessncevescscnnssssnnessunnsnnnnnnnnnnnnnnnE 180

Securities and Exchange Commission Vv. Sorg,

Printing Co., CCH Fed. Sec. L. Rep. £95,034

{2 Oe | ) 39

Securities and Exchange Commission Vv. Texas

Gulf Sulphur Co., 401 F.2d 833 (C.A. 2, 1968),

certiorari denied, sub nom., Coates v. Securities

and Exchange Commission, 394 U.S. 976

C2BGD) .ccceccecescoceccossscensnnnncsnesnnsunninnnnnnnnnnnnnnnnnn 131

Securities and Exchange Commission Vv. Texas

Gulf Sulphur Co., 446 F.2d 1801 (C.A. 2,

(1971)

Cases—Continued Page

Securities and Exchange Commission v. Thermal

Power Co., Civ. No. 75-2000 (LHB) (N.D. Cal). 97

Securities Investor Protection Corporation v. Bar-

bour, 421 U.S. 412 (1975)........ 15, 77, 79, 106-107, 133

Simon v. New Haven Bd. & Carton Co., Inc., 516

aE 141-142

Smallwood v. Pearl Brewing Co., 489 F.2d 579

(C.A. 5), certiorari denied, 419 U.S. 873

Ee 114-115, 118, 120, 137

Sonesta International Hotel Corp. v. Wellington

Assoc., 483 F.2d 247 (C.A. 2, 1973) ....13, 100, 116, 140

Spielman v. General Host Corp., 402 F. Supp. 190

(S.D.N.Y., 1975), affirmed, Docket 75-7538, No.

710, slip opinion (C.A. 2, July 12, 1976) ........... 114

Studebaker Corp. v. Allied Products Corporation,

256 F. Supp. 173 (W.D. Mich., 1966) 108

Studebaker Corp. Vv. Gittlin, 360 F.2d 692 (C.A. 2,

Ee 108

Superintendent of Insurance v. Bankers Life &

Casualty Co., 404 JUS. area! 77-78, 84, 130

Surowtiz Vv. Hilton’ Hotels Corp., 342 F.2d 596

(C.A. 7, 1965), reversed, 383 U.S. 363 (1966) 131-132,

Susskind v. IPCO Hospital Supply Corp., 373 m

N.Y.S. 2d 627 (App. Div., 1975) 45

Swanson v. American Consumers Indus., Inc., 475

F.2d 616 (C.A. 7, 1978) ........................................ 106

Swinney v. Keebler Co., 329 F. Supp. 216 (S.D.

Cal., 1971), reversed, 480 F.2d 573 (C.A. 4,

Ee 44

T.I.M.E. Inc. v. United States, 359 U.S. 464

I 91

Tcherepnin v. Knight, 389 U.S. 382 (1967) 77, 84

Texas & Pacifie Ry. Co. v. Rigsby, 241 U.S. 33

I 82

Texasgulf, Inc. v. Canada Development Corp., 366

F. Supp. 374 (S.D. Tex., 1978) .......... 116

Textron, Inc. v. American Woolen Co., 122 F. Supp.

305 (D. Mass., 1954) _........ Ee 104

Thompson Ross Securities Co., 6 S.E.C. 1111

XIV

Cases—Continued Page

Thrall Car Mfg. Co. Vv. Rhodes, et al., C-2-76-605 Cases—Continued Page

(S.D. OWiO) -.....-.----------------c-eeeneensnencnenerenrettarneenenses 129 Wilko v. Swann, 127 F.

TSC Indus., Inc. Vv. Northway, Inc., 96 S. Ct. 2126 ee et Supp. 55 (S.D. N.Y., -

(1976) .....--------------e-neneee soseeeesneseesensonnanansenensss 144-147, 194 Wolf v. Frank, 477 F.2d 467 (C.A. 5). corti eter: :

Tucker v. Arthur Anderson & Co., 67 F.R.D. 468 denied, 414 US. 1065 — 5), —, a

CBD. FET BE) nnnnnnnennnnrnonnnnneonenemneerrrnnnnnnsenrrsa 142 Wolfson v. Parkway Management Co.. CCH Fed.

Twentieth Century Fox Film Corporation V. Lewis, Sec. L. Rep. 91,967 (S.D. N.Y 1967) ' aad

334 F. Supp. 1383 (S.D. N.Y., 1971) -.......----------- 109 Wule v. Gulf & Western Indus. he CCH Fed

U.S. Smelting, Refining and Mining Co. v. Clevite Sec. L. Rep. § 95,361 (E.D. Pa 1978) 1 a

Corp., CCH Fed. Sec. L. Rep. " 92,691 (N.D. Wyandotte Co. v. United States 389 US. 191

Clale, 1967) .~..-c-a-cncceenecencescccscccseccsssscesesensscsonsonssees 111 ataaaabeie ten aisy ag , 0. a

Unicorn Field, Inc. v. Cannon Group, Inc., 60 Yakus v. United States. 821 US 414 (1944, ,

F.R.D. 217 (S.D. N.Y., 1973) ....---2---0--0---0-00oee-0= 152 » 821 US. 414 (1944) _... 21

Union Pacific Railroad Company v. Chicago and

North Western Railway Co., 226 F. Supp. 400

(ND. Til., 1964) ....-....-.....-.-cccencenncencecseennrensees 10, 89, 110

United Industrial Corporation v. Henwood, CCH

Fed. Sec. L. Rep. § 91,142 (S.D. Cal., 1962) ...... 104

United States v. Brown, 5 F. Supp. 81 (S.D.N.Y.,

1933), affirmed, 79 F.2d 321 (C.A. 2), certiorari

denied, sub nom. McCarthy v. United States, 296

is 2 ' 2). ) 164

United States v. Charnay, CCH Fed. Sec. L. Rep.

en banc denied (July 8, 1976) -..........---------------------- 153

United States v. Republic Steel Corp., 362 U.S.

8) ) 80

Universal Container Corp. v. Slade, CCH Fed. Sec.

L. Rep. © 93,005 (S.D.N.Y., 1971) -....-..------------- 109

Washburn Vv. Madison Square Garden Corp., 340 F.

Supp. 504 (S.D.N.Y., 1972) —......-------------------- 121

Water & Wall Assoc., Inc. v. American Consumer

Indus., Inc., CCH Fed. Sec. L. Rep. " 93,943

CD05, UDTB) -.2nnene~-nnnan-aosenneecocorenenscorsssenssensvecenooes 109

Wegman v. Dairylea Corp., Inc., 376 N.Y.S. 2d

728 (App. Div., 1975) ..........-...--- eee Rere a eee ae 45

Weitzen v. Kearns, 271 F. Supp. 616 (S.D. N.Y.,

DID eaccenccesneccsesessnscssnsetnsemnsenmnnenusstansnnacmesnansscnsnanss 180

In the Matter of White & Weld, 3 S.E.C. 466

a 172

Statutes and Rules:

Securities Act of 1933, 15 U.S.C. 77a, et seq.:

Section 11, 15 U.S.C. 77k 41, et }

i " S.C. suicinicliahdiamesiiaiatiall , et passim

Section 12, 15 U.S.C. 77 .......... 75, 142, 151, 154, 161

Section 12(2), 15 U.S.C. 771(2) _.......... 136, 139, 142,

151,

Section 2 2 Ce 75 —

Section 17(a), 15 U.S.C. 77g(a) 65

Section 22(a), 15 U.S.C. 77v(a) 136

Securities Exchange Act of 1934, 15 U.S.C. 78a

et seq.: )

Section 2, 15 U.S.C. 78b ............... 2

Section 9, 15 U.S.C. 781.18 - en

Section 10(b), 15 U.S.C. EE 18, et passim

Section 12, 15 U.S.C. 781 96

Section 13, 15 U.S.C. 78m 58

Section 13(d), 15 U.S.C. 78m(d) _....42, 88, 95-96

88, 101

XVI

Statutes and Rules—Continued Page

Section 14(d) (6), 15 U.S.C. 78n(d) (6) ..60, 99, 138

Section 14(e), 15 U.S.C. 78n(e) .............- 2, et passim

Section 14(f), 15 U.S.C. 78n(f)........................ 42

Section 15(c) (1), 15 U.S.C. 780(c) (1) -........ 65, 174

Section 16, 15 U.S.C. 78p _ ... --...----------- 56, 75, 87, 91

| @ 2S 8 sa 75, 91

i. © £8). & 7 75

Section 21, 15 U.S.C. 78u seaiealataddleaidaedaanis 104

Section 27, 15 U.S.C. 78aa -....................... 80, 103, 113

Section 28(a), 15 U.S.C. 78bb(a) -..75, 141, 148-149,

151, 154

Rules under the Securities Exchange Act of 1934:

Rule 10b-5, 17 CFR 240.10b-5 —........... 17, et passim

Rule 10b-6, 17 CFR 240.10b-6 — -........... 19, et passim

Rule 10b-7, 17 CFR 240.10b-7 -............... 176-177, 179

Rule 10b-8, 17 CFR 240.10b-8 _.............. 176-177, 179

Rule 10b-13, 17 CFR 240.10b-13 | ........... 39, 184, 188

Rule 14a-9, 17 CFR 240.14a-9 © .......... 17, 65, 144, 155

Rule 15¢e-1, 17 CFR 240.15e-1 .......................-.- 65

Rule 15¢c-2, 17 CFR 240.15¢e-2 .....................------ 65

Schedules:

Schedule 13D, 17 CFR 240.13d-101 ................. 95,118

Schedule 14D, 17 CFR 240.14d-101 ~.............. 95

State Statutes:

Alaska Stat. § 45.571.010 (1976) et seq. ......126, 127

Colo. Rev. Stat. Ann. § 11-51-5-105 (1975) ....127, 128

Conn. Gen. Stat. Rev. § 38-68(d) (1976) -...... 127

Del. Code Ann. Title 8 § 203(c) (2) (1976) ... 126

Hawaii Rev. Stat. § 417-E et seq. (1974) ....126, 127,

128

Idaho Code § 30-1504(1) (1975) . ............-..--. 127

Ind. Code § 23-2-3-1 et seq. (1971) -..-......... 127, 128

Kan. Stat. Ann. § 17-1276 (1976) ................ 126, 128

Ky. Rev. Stat. Ann., eff. July 1, 1976 (1A CCH

Blue Sky L. Rep. { 20,131, 20,136) -........... 126, 128

ee he A

XVII

Statutes and Rules—Continued’ Page

Md. Ann. Code, Art. 9, § 11-901 et seq.

III” sitchen teas See) 126, 127, 128

Mass. Gen. Laws Ann. Ch. 110C (1976) ...... 127, 128

Mich. Comp. Laws § 17 (1976) ........................ 128

Minn. Stat. Ann. § 80B.01 et seg. (1973) ....127, 128

Nev. Rev. Stat. § 78,376 et seq. (1978) _...... 126, 128

N.Y. Bus. Corp. Law § 1600 (1976) 125

Ohio Rev. Stat. Ann. § 107.041 et seq.

ND. iia ea ae 126, 127, 128

Pa. Stat. Ann., eff. Mar. 3, 1976 (2 Blue Sky

L. Rep. { 41,183-41,193) 00. 126, 127, 128

S.D. Comp. Laws Ann. § 47-32-1 et seq. ........ 127

Tenn. Code Ann. § 48-2101 et seq. (1976) ....126, 127,

128

Utah Code Ann. ; eff. Feb. 5, 1976 (3 Blue Sky

L. Rep. { 47,331-47,345) 0a 127, 128

Legislative Material:

Bills:

Va. Code Ann. § 13-1-528 et seg. (1978) ........ 125, 126,

127, 128

Wis. Stat. § 552.01 et seg. (1973) ............... 127, 128

SS Seen 57, et }

avtentssnssencceecseenecenceneneD ly CL PASSIM

S. 2731 .. bo: =e gababunindiinaiontidemiatnsaeatistnes 56, 57, 58, 61

Hearings:

Senate Committee on Banking and Currency,

Stock Exchange Practices: Hearings on S.

Res. 84 (72d Cong.) and S. Res. 56 and S.

Res. 97 (73d Cong.), pt. 15, National Se-

curities Exchange Act of 1934, 73d Cong.,

MO 77

Senate Committee on Banking and Currency,

Hearings on Stock Exchange Practices,

73d Cong., Ist Sess. (1934)... 170, 173

Senate Committee on Banking and Currency,

Hearings before a Subcommittee of the

Committee on Banking and Currency on §.

879, 84th Cong., Ist Sess. (1956) ........ 48,101,112

House Committee on Interstate and Foreign

Commerce, Hearings on H.R. 6789, H.R.

6793, S. 1642, 88th Cong., 1st and 2d Sess.

(1964) 2. 48

XVIII

Legis:. ‘tive Material—Continued Page

Senate Committee on Banking and Currency,

Hearings Before the Subcommittee on Se-

curities on S. 510, 90th Cong., ist Sess.

(1967) sns-iiag apiiaiiiadiniieiaahaelaadeatadiiienitabiadal 7, et passim

House of Representative Committee on In-

terstate and Foreign Commerce, Hearings

Before the Subcommittee on Commerce

and Finance on H.R. 14475, S. 510, 90th

Cong., 2d Sess. (1968) _...................... 24, et passim

Senate Committee on Banking, Housing and

Urban Affairs, Hearings on Corporate

Takeovers, 94th Cong., 2d Sess., (Feb. 16,

1976) pic inte: abinaienminnemdiniddiaelll 23, 35, 37, 129

Reports:

H.R. Rep. No. 85, 73d Cong., Ist Sess.

STII | cc ietdbneses stick. sanaeealenannasieinmabenenemaiaiilldl 75, 165

H.R. Rep. No. 152, 73d Cong., Ist Sess.

(1933) eT TED CL a ST 75

H.R. Rep. No. 1383, 73d Cong., 2d Sess.

(1934) ac: cx ip. seadannalitieiaetians ninainiedeememamialieild 75, 165

H.R. Rep. No. 2508, 82d Cong., 2d Sess.

(1952) a © yan baneanabanaiiadaatadommmialbaaiaditiadicateen 177

H.R. Rep. No. 1711, 90th Cong., 2d Sess.

(1968) +>, Seitenende 8, 42, 49, 59, 73, 88, 138

S. Rep. No. 47, 73d Cong., Ist Sess. (1983) .... 75

S. Rep. No. 792, 73d Cong., 2d Sess. (1934) ....18, 164,

170-171

S. Rep. No. 1455, 73d Cong., 2d Sess. (1934).. 6, 48,

83, 109, 164, 167-168, 172, 192

S. Rep. No. 550, 90th Cong., Ist Sess. (1967).. 8, 42,

49, 59, 73, 88, 99, 1388, 155

Debates:

111 Cong. Rec. 28257-28259 (1965) ..0000000..... 55, 56

112 Cong. Rec. 19003-19007 (1966) ....... 10, et passim

113 Cong. Rec. 854-857 (1967) ......... 57, 60, 67, 68-70

113 Cong. Rec. 93840 (1967) 0.0.00. 85

Gait etic a

XIX

Legislative Material—Continued Page

113 Cong. Rec. 24664 (1967) ....................... 53, 84-85

116 Cong. Rec. 29252 (1970) .....2.22-....cccceceeeeee 24

Documents:

Securities and Exchange Commission, 37th

Annual Report (1971) ................---cccc--seeeeeees 25

Securities and Exchange Commission, 41st

Annual Report (1975) ............. 25

Report of the Securities and Exchange Com-

mission, Institutional Investor Study, H.R.

Doc. No. 92-64, 92d Cong., Ist Sess.

(1971)... sisues~anbibiieiidienainteenainnaemamsinaamindil 32, 185

Securities and Exchange Commission, Report

on Proposals for Amendments of the Se-

curities Act of 1933 and the Securities

Exchange Act of 1934, Comm. Print, 77th

Sn, BD TU GID <<. -~ ceconsncernsssscscssnanses 18, 166

Releases :

Securities Act Release No. 5731 (1976) ........ 33, 85-86

Securities Exchange Act Release No. 2363

I etait seine taiiatieaiataiiiaadadiaias 175

Securities Exchange Act Release No. 2446

SIETUIIID . desseusnladiundalinssstehaiacstiesiiiasiaisiddiasiiaiideisialgs ann

Securities Exchange Act Release No. 4163

RSS ERR DN Rare ESSE Dg Ee 176

Securities Exchange Act Release No. 5040

(1954) dss ~tsene iain aati aia ina 177

Securities Exchange Act Release No. 5159

(1955) __... ss ahead tials 178

Securities Exchange Act Release No. 5194

(1955) sa cledi-stdipshiinsnssebaidaiatinaeiaaamai ia taiadidid. 178

Securities Exchange Act Release No. 8595

(1969) Re Dee ee eh ae Ae funy ee AO 188

Securities Exchange Act Release No. 8712

(1969) icine aaa aa aad alli 184

Miscellaneous Statutes:

18 U.S.C. § 610 soso: eons'c- tveaaenetiaianniaemmemenineiaienttiias 134

Regulation X-QAG-1 — .ceeceeeeeeeeeneesceeeesneeenneeeeees 175-176

Miscellaneous:

American Law Institute, Federal Securities Code,

(1974) n....--cnccecceccenceceensensennensenernnssnsnachosenssnesnnseneees: 81

American Law Institute, Restatement of Torts

2d (1965) cavnaves~v ean -:tuitidbanpianiadaesmmmnitnnciicnisaibgins 45, 78

Anisman, Takeover Bid ‘Legislation in Canada

(1974) cécnantitsan cttecenctaatetanedtitibasnismamimmmmnannta 29

Aranow & Einhorn, Tender Offers for Corporate

Control (1973) sitainatateniddasaisiniiicmmmianaiiinas 26, 34, 36, 98

Aranow & Einhorn, Proxy Contests for Corporate

Control, (2d ed., 1968) ‘sandiaidiaddaniaddiintimeiibieen 22-23

Austin, Tender Offers Revisited, 8 Mergers &

Acquisitions, 16 (Fall, 1973) © ....--..----e+++++- 21-22, 25

Austin, Tender Offer Statistics, 10 Mergers &

Acquisitions, 9 (Fall, 1975) — .........c..s--e-esees++ 25

Austin & Fishman, Corporations in Conflict—The

Fender Ger (IGTO) ~....-... .ccccccerceccscesccccceses 25, 31, 34, 44

Baer & Sifka, Does Arbitrage Create Institutional

Opportunities? 1 Institutional Investor 24 (April

BOI cncaenncececnsncesescensecensesseqsnccsnenseonsessoneseonnssennnasansons 36

Berle, Liability for Stock Market Manipulation,

he Ban @ 8) |) 164, 167

Berle, Stock Market Manipulation, 38 Col. L. Rev.

393 (1938) sist nlahelalieeniaesieamiatniidiiaadaaaaientas 164

Binder, The Securities Law of Contested Tender

Offers, 18 N.Y.L.F. 569 (1973) -............... 19, 42-43, 57,

63-64, 180

Blair & Co., The Strategy of Tender Socilitation

(1967) seiasathian'essnsnaetitaiaaetaeubasiaiidaadiuicinadecaniatiainiciinn 25

Bromberg, The Securities Law of Tender Offers,

15 N.Y.LF. 469 (1969) _............... 22, 42-43, 63-64, 137

Bromberg, Tender Offers: Safeguards and Re-

straints—An Interest Analysis, 21 Case W.

OU IA SS ———————EEE 34

XXI

Miscellaneous—Continued Page

Brown, Corporate Defenses to Takeover Bids, 44

, FS § FE RessE een 34

Brudney & Chirelstein, Fair Shares in Corporate

Mergers and Takeovers, 88 Harv. L. Rev. 297

(1974) dosn16p a ab Se eaphaaadiliidaimiaiieiaiiiietibiiemiiata toe, 28

Cary, Corporations, (4th ee 25

Cary, Corporate Devices Used to Insulate Man-

agement from Attack, 25 Bus. Law 339 (1970).. 34

Note, Cash Tender Offers, 83 Harv. L. Rev. 377

SUITS cecidaitenraenilaatnasundiicdia seen train elaine 23, 42-43, 57

Cohen, Tender Offers and Takeover Bids, 23 Bus.

ee nn ee 26, 60

Note, Commerce Clause Limitation Upon State

Regulation of Tender Offers, 47 So. Cal. L. Rev.

1133 (1974) RSL piesa tae 3h Data nro on 129

Comyn’s Digest (1762) <<a. eoeiniaheameaiedmadddeceniogns 78

Conard, Corporations in Perspective (1976) ........ 27

Note, Current Problems Under the Securities Acts

—The Expanding Use of Rule 10b-5, 10 B.C.

Ind. & Com’]. Rev. 313 (1969) ......00 43

Note, The Developing Meaning of “Tender Offer’

Under the Securities Exchange Act of 1934, 86

Harv. L. Rev. 1250 (1973) — ............. 23, 42, 43, 63, 138

Evans, Arbitrage in Domestic Securities in the

United States (1965) (oo ceceecccceccecccececeseceeee 36

Fairer Deal for All in Takeovers Is the Aim,

The Times (of London), Sept. 6, 1967 ................. 71

Fleischer & Mundheim, Corporate Acquisition by

Tender Offer, 115 U. Pa. L. Rev. 317 (1967) ..... 22, 24,

26, 32, 42, 45, 93, 100

Flom, Lipton & Steinberger, Takeovers and Take-

outs—Tender Offers and Going Private (Law

A I sitiiicecaisicendtnintnniciterceiatccheel 28, 29, 98, 100

Foshay, Market Activities of Participants in Se-

curities Distribution, 45 Va. L. Rev. 907

(1959) . ines tdi <pdlatenmesdtesibaintbealbaenimaahbdanniideiaabaaines 188

Graham, Dodd & Cottle, Security Analysis: Prin-

ciples and Technique 408 (4th ed., 1962) .......... 4

————————————

XXII XXIII

Miscellaneous—Continued Page Miscellaneous—Continued Page

Halpern, Intentional Torts and the Restatement,

TF Bulk. L. Rev. 7 (1GGB) .....-ccceecee.-c.ce-cccccceccseeess- 45

Hamilton, Corporations, 549 (1976) .........-..-...--+-- 57

Hamilton, Some Reflections on Cash Tender ~oo4 ‘iit

ti 15 N.Y.L.F. 269 (1969) ...22, 2

Panay 63-64, 137-138

Harper & James, The Law of Torts, Vol. 1 (1950) .. 46

Hayes & Taussig, Tactics of Cush Takeover Pids,

Rev. 185 (Mar.-Apr. 1967) .......--- 25, 28,

45 Harv. Bus. ae as

Henry, Activities of Arbitrageurs in Tender Of-

fers, 119 U. Pa. L. Rev. 466 (1971) ..........-..------- 36-37

Herlands, Criminal Lew Aspects of the Securities

Exchange Act of 1934, 21 Va. L. Rev. 1389

(1934) Se aa eee STL ay Re Ee 172

Hickernel], What “Makes Stock Market Prices,

127 (1932) Se A Pa ete ee OT 192

Hill, The Sale of Controlling Shares, 70 Harv. L.

Rev. 986 (1957) - te 44

Hirsch & Lewis, Punitive Damages Under the Fed-

eral Securities Acts, 47 Notre Dame L. Rev. 72

(1971) EN RE MOTT aS NIE 142-143

Huge Profits Out of “Tiny Margins, Bus. Week,

May 28, 1966 is i, i teeth llalelideaighasindesieaiatite 35

Israels, Corporate Purchase of Its Own Shares—

Are These New Overtones, 50 Cornell L. Q. 620

(1965) sc a 2k or aeileneieiieieaalaaaiaacanendammmadneanantans 46

Israels, The Sacred Cow of Corporate Existence:

Problems of Deadlock and Dissolution, 19 U. Chi.

es ,. ope 27

Jennings, Trading in Corporate Control, 44 Cal.

L. Rev. 1 (1956) a a a dil da neaenialae 44

Kennedy, Tender Moment, 23 Bus. Law. 1091

(1968) saci) Saenecnl’ =o. allemiiabinpsieniciaasiomemminenniiin 44, 93

Lee, Tender Offer Defense, How to Short Circuit

the Corporate Raider, 10 Mergers & Acquisi-

tions 4 (Fall, 1975) J seiteahianeet lament aiiaadeabadicnhdaltabas 33

Leech, Transactions in Corporate Control, 104

2 2. -& 2 44

Loss, The Role of Rule 10b-5in Tender Offers,

Securities Regulation and Transfer Report

(Special Report, Jan., 1969) ooeeeeeeccceeccceeeeeeee 43

Loss, Securities Regulation (2d ed., 1961) ....... 48, 64, 172-

176, 192

Manne, Cash Tender Offers for Shares—A Reply

to Chairman Cohen, 1967 Duke L.J. 231 (1967)... 24, 27

Comment, Market Manipulation and the Seeuri-

ties Exchange Act, 46 Yale L.J. 624 (1937) ..... 166, 192

Mathias, Manipulative Practices and the Securi-

ties Exchange Act, 3 U. of Pitt. L. Rev. 7

(1934) spikes ba ek cA agindebaidaaiaagdmememaieaniacatenatee 166

Moore & Wiseman, Market Manipulation and the

Exchange Act, 2 U. of Chi. L. Rev. 46 (1934)... 129

Moylan, State Regulation of Tender Offers, 58

Marq. L. Rev. 687 (1975) 63

Mundheim, Tender Offers, 2 Rev. of Securities

Regulation 953 (1969) =a 38, 40-41

Mundheim, et al., ed. Sixth Annual Institute on

Securities Regulation P.L.I. (1975) ——............. 44

Note, 19 Chi.-Kent L. Rev. 198( 1941) ......... 44

Note, 26 Cornell L. Q. 8325 (1941) ssw 44

Note, 54 Harv. L. Rev. 648 (1941)... 44

Note 25 Minn. L. Rev. 335 (1941) ss «xs 44

Note, 27 Va. L. Rev. 546 ees 44

O’Boyle, Changing Tactics in Tender Offers, 25

Bus. Law. 863 (1970) seelsiahaae snsinieiiin 85

Prosser, The Law of Torts (4th ed. 1971) . hneiiseliblaies 45, 46

lenge Pr Rule 10b-5, 33 U. Chi L. Rev. 359

(1966) nD Pee NS Irae Le 23, 42

Comment, Regulation of Stock Market Manipu-

lation, 56 Yale L.J. 509 (1947) . ..164, 166, 169, 171-172

Ruder, Texas Gulf Sulphur—The Second Round,

63 N.W.L, Rev. 423 (1968) s-— =« 151

Ruthlessness by the Rules, 117 Forbes 24 (Feb. 1,

1976) ule

Miscellaneous—Continued Page

Schmults & Kelley, Cash Takeover Bids—Defen-

sive Tactics, 23 Bus. Law. 115 (1967) ............. 25, 33, 34

Swanson, S. 510 and the Regulation of Cash Ten-

der Offers: Distinguishing St. George from the

Dragon, 5 Harv. J. Legis. 481 (1968) ................ 93

Takeover Bids: Proceedings of Meeting Held in

Lloyd’s Writing Room, London on Tuesday, 20

July 1971, 27 Bus. Law. 243 (1971)... —__ ..... 28

The Takeover Titans, 85 Finance 8 (August,

1967) scmlaieaalbikiastciali sn si. bessta:.= tes -piaiiaiaaiieiailmmiasaD 30, 33

Taussig & Hayes, Are C Ca: sh Take-Over Bids Un-

ethical? Financial analysts J. 107 (Jan.-Feb.

I i a a i a 34

Thayer, Public Wrong and Private Action, 27

es . — lUl 78

Troubh, Purchased Affection: A Primer on Cash

Tender Offers, 54 Harv. Bus. Rev. 79 (Jul.-

SG, AEE Mereeree Mme een 31, 38-40

Twentieth Century Fund, Inc., The Securities

I OU i 167

Vorys, Ohio Tender Offer Bill, 43 Ohio Bar J. 65

ESSERE lye ee 125

Wall Street Journal, Feb. 26, BES ae 30

Weiss & Liebowitz, Rule 10b-6 Revisited, 39 Geo.

_. SS SE. _ ; | eeesseeeeen 180

Note, The Williams Amendments: An Evaluation

of the Early Returns, 23 Vand. L. Rev. 700

(1970) pind caiha eases haesid hae leaiiadaibidia adabcceanianaaad 23, 57, 188

Yoran, Advanced Defensive Ttactics Against Take

over Bids, 21 Am. J. Comp. L. 531 (1973) -........ 32

Iu the Supreme Court of the Anited States

OCTOBER TERM, 1976

No. 75-353

HOWARD PIPER, ET AL., PETITIONERS

CHRIS-CRAFT INDUSTRIES, INC., ET AL.

No. 75-354

THE FIRST BOSTON CORPORATION, PETITIONER

Vv.

CHRIS-CRAFT INDUSTRIES, INC., ET AL.

No. 75-355

BANGOR PUNTA CORPORATION, ET AL., PETITIONERS

Vv.

CHRIS-CRAFT INDUSTRIES, INC., ET AL.

ON WRITS OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

BRIEF FOR THE SECURITIES AND EXCHANGE

COMMISSION AS AMICUS CURIAE

(1)

The Securities and Exchange Commission files

this brief, amicus curiae, to express its views on the

effects the resolution of the questions addressed by

the parties will have on the Commission’s adminis-

tration of the federal securities laws.

QUESTIONS ADDRESSED

The Securities and Exchange Commission will dis-

cuss the following specific questions: *

1. Whether a private right of action should be

implied under Section 14(e) of the Securities Ex-

change Act on behalf of a competing tender offeror

against those who made misleading statements dur-

ing the course of a tender offer contest.

2. To what extent, and in accordance with what

principles, should the relief to be granted in such an

action be limited by either the express statutory lan-

guage of Section 14(e) or the express limitations on

liability imposed by the Securities Act of 1933.

‘We express no views concerning the numerous questions

of fact presented by the parties herein. For example, we take

no position regarding whether the violations claimed caused

the injury complained of and whether that injury has prop-

erly been shown, how liability should be apportioned among

the defendants, and whether the computation of damages by

the court of appeals adequately compensated the respondent

for its loss. Our concern, in sum, is with the proper principles

to be applied to the questions that this case presents rather

than with the manner in which the factual issues are re-

solved.

—— Oe ee ee en ee ee ee ee ee ae ee

sete tak i ee a

3. Whether Securities Exchange Act Rule 10b-6

is violated where a tender offeror engaged in a dis-

tribution of its own shares purchases securities which

represent a right to purchase the shares which are

the subject of the distribution, and, whether a pri-

vate right of action exists to remedy such a violation

of the Rule.

INTEREST OF THE SECURITIES AND

EXCHANGE COMMISSION

The Securities and Exchange Commission is re-

sponsible for the administration and enforcement of

the Securities Exchange Act of 1934, of which the

Williams Act and the rules thereunder are an impor-

tant part. While the Commission has no specific in-

terest in the precise outcome of the litigation between

the parties before this Court, the issues presented in-

volve the application and scope of private actions for

violations of the Williams Act which, as this Court

has observed with resyect to comparable issues under

the proxy provisions of the Securities Exchange Act,

may have a profound effect on the Commission’s abil-

ity to enforce the statutory obligations imposed by

that Act, Mills v. Electric Auto-Lite Co., 396 U.S.

375 (1970).

INTRODUCTION

This action arises out of a contest for corporate

control of Piper Aircraft Corporation (‘Piper’).

As the target company, Piper management’s first in-

clination was to stave off any change in control. Ulti-

mately, however, Piper was the subject of two com-

peting tender offers. The first offer was inspired by

external market forces and factors, and it was made

by Chris-Craft Industries, Inc. (“Chris-Craft”). The

second offer, made by Bangor Punta Corporation

(“Bangor Punta”), was facilitated by First Boston

Corporation (“First Boston’), Piper’s financial ad-

viser, and generated, apparently, by Piper manage-

ment’s concern, and that of the Piper family, that the

inexorable destruction of Piper’s independent cor-

porate status (started by Chris-Craft’s offer) should,

at the least, occur at the hands of a suitor which was

aided, comforted, materially assisted by, and thus,

beholden to, Piper’s management.

In the seven years since this litigation commenced,

it has become a textbook classic on the broadranging

issues and interests both raised and affected by the

device of a contested tender offer, and has served as a

model for the courts and practitioners alike in estab-

lishing and resolving the obligations and responsibil-

ities of participants in tender offers. The practical

lessons to be learned from court decisions like the

three rendered in the court below cannot be over-

stated. For, as a respected textbook on security analy-

sis has noted, “Wall Street has never paid much at-

tention to theoretical thinking.” Graham, Dodd &

Cottle, Security Analysis: Principles and Technique

408 (4th ed., 1962).

Accordingly, and “for whatever reasons, * * * the

present day’s continuing saga of corporate warfare

has brought before this Court what may appro-

AO OCR ee ee RAO ee 6

ee cee

Re OWS SRO ete NR ae

OM OP my

priately be termed an epic battle.” * Chris-Craft, the

loser in the struggle for control of Piper, has been

the winner in the litigation that ensued. Bangor

Punta, the victorious combatant, was found to have

violated the federal securities laws in winning cor-

porate control of Piper and has been a loser in this

litigation. The Piper family and First Boston, the

allies of Piper and Bangor Punta, also found that

being on the victorious side did not necessarily ward

off extensive liability for the violations of federal law

that facilitated Bangor Punta’s successful campaign.

SUMMARY OF DISCUSSION

1. In 1968, one year before the events in issue

here first commenced, Congress enacted the Williams

Act “—comprehensive and pervasive legislation vest-

ing in the Securities and Exchange Commission

(“Commission”) broad rulemaking authority to

establish normative standards of conduct to gov-

ern the rights and obligations of the participants in,

and those persons affected by, tender offers.

Prior to 1968, there was little regulation of tender

offers. The Securities Act of 1933 did require regis-

tration of securities offered in tender offers which

involved exchanges of securities, but did not apply to

* Copperweld Corp. V. Imetal, 403 F. Supp. 579, 583 (W.D.

Pa., 1975).

* Act of July 29, 1968, Pub. L. No. 90-439, 82 Stat. 454.

cash tender offers. Neither state statutes nor the

common law provided effective relief Thus, tender

offer campaigns were waged without substantial regu-

lation or control and often without regard to fairness,

the accuracy of the information provided to security

holders, or the orderliness of the securities markets.

This was in sharp contrast to the comprehensive fed-

eral regulation of proxy contests, where rules had

been adopted by the Commission pursuant to author-

ity it had had since 1934 under Section 14(a) of the

Securities Exchange Act. Those rules were designed

to implement the congressional intent to protect

against “promiscuous solicitation of * * * proxies, on

the one hand, by irresponsible outsiders seeking to

wrest control of a corporation away from honest and

conscientious corporation officials; and, on the other

hand, by unscrupulous corporate officials seeking to

retain contro! of the management by concealing and

distorting the facts.” *

The Williams Act was designed to regulate tender

offers and remedy the significant abuses that had de-

veloped. The secrecy in which the takeover process

was enshrouded, the lack of adequate disclosure and

antifraud requirements, and the pressure on each

person affected by the process to act hastily without

adequate information wer: all matters of concern to

the Congress. And, the Congress found that the con-

testants sometimes engaged in other tactics that un- °

*S. Rep. No. 1455, 73rd Cong., 2d Sess. 77 (1934).

dermined the confidence of the public in the integrity

of the securities markets, including actual market

manipulation.

The Williams Act, accordingly, was drafted to fill

the regulatory gap by establishing a comprehensive

scheme of regulation comparable to that which gov-

erned proxy contests. Congress noted that tender

offers were “typically alternatives to proxy solicita-

tions, as methods of capturing or preserving con-

trol,” ° and patterned the protections afforded by the

Williams Act on the existing proxy regulation pro-

visions of the Securities Exchange Act.

The antifraud provisions of the Williams Act were

applied to all securities without regard to registra-

tion, and Congress substantially wrote into the law

with respect to tender offer contests the Commission’s

broad proxy and antifraud rules. Section 14(e) of

the Williams Act, for example, specifically bars any

person from engaging in manipulative acts or prac-

tices.

The legislative history of the Williams Act shows

that Congress intended to protect all persons inter-

ested in, or affected by, tender offers. While stressing

*Senate Committee on Banking and Currency, Hearings

Before the Subcommittee on Securities on S. 510, 90th Cong.,

Ist Sess. 16, 33 (1967) (hereinafter “Senate Hearings”).

the need to protect the shareholders of the target cor-

poration, the legislative history shows that Congress

was also concerned with the need to protect and to

place on an equal footing all participants in the mar-

ketplace, including those who make the tender offers,

those who oppose them, the target company’s current

stockholders, and potential investors. All of them were

not only to have available all material information,

but also the assurance that the contest would be fair.

Care was taken to provide an equal opportunity both

to the insurgents and to the entrenched to “avoid

tipping the balance of regulation either in favor of

management or in favor of the person making the

takeover bid.” ° In short, it was deemed as important

as protecting management against unfair raiding

attempts that incumbent management should not have

the ability to “frustrate an attractive and desirable

tender offer.” ’

2. The Williams Act creates the same “pervasive

legislative scheme governing the relationship between

* * *” the broad range of persons interested in, and

interests affected by, tender offerors as this Court re-

peatedly has found to exist in the area of proxy regu-

lation. Cort v. Ash, 422 U.S. 66, 82 (1975); J. I.

Case Co. v. Borak, 377 U.S. 426 (1964). In Borak,

this Court found that the need, justification and

authority for implied remedies under the Securities

®°S. Rep. No. 550, 90th Cong., lst Sess. 3 (1967) ; H.R. Rep.

No. 1711, 90th Cong., 2d Sess. 4 (1968).

’ Senate Hearings, pp. 184, 186.

Exchange Act is “clear,” 377 U.S. at 430. The appro-

priateness of implying private remedies stems in part

from Section 27 of the Act which, as Borak pointed

out, “specifically grants the appropriate district

courts jurisdiction over ‘all suits in equity and ac-

tions at law to enforce any liability or duty created

under the Act.’ ” Jd., at 430-431. It stems as well from

the long accepted concept that a person for whose

benefit a statute was enacted should have a remedy

for a violation by which he has been injured. On

that basis, standing should be accorded to defeated

offerors who seek to vindicate the requirements and

provisions of the Williams Act.

But, even if this Court’s decision in Borak were

not dispositive of the appropriateness of implying

private remedies for thwarted tender offerors, the

four factors this Court recently specified in Cort v.

Ash, 422 U.S. 66, 78 (1975), as “relevant” in “de-

termining whether a private remedy is implicit in a

statute not expressly providing one * * *,” militate

in favor of implying a private remedy here.

The first factor specified in Cort v. Ash is that the

plaintiff be “ ‘one of the class for whose especial bene-

fit the statute was enacted,’ * * * that is, [that] the

statute grant a federal right in favor of the plain-

tiff.’ * This depends upon whether there is “gener-

ally” either (1) a “pervasive legislative scheme gov-

erning the relationship between the plaintiff class and

the defendant class in a particular regard,” or (2)

® Cort v. Ash, 422 U.S. 66, 78 (1975) (emphasis in original).

“a clearly articulated federal right in the plaintiff.”

Id., at 82. A tender offeror seeking to enforce a vio-

lation arising under Section 14(e) meets both of

these tests. The Williams Act provides sweeping pro-

tections for .the contestants in a take-over battle,

including tender offerors, as well as for the share-

holders of the target corporation. Thus, Section 14(e)

provides protections against what the Commission

described as

“dissemination of inaccurate or incomplete in-

formation or fraudulent acts or practices by

persons who make or invite tender offers and

[to] affor[d] a more practical means of pre-

venting inaccurate or incomplete presentations

or fraudulent acts or practices by persons op-

posing or favoring such tender offers’’.’

The “clearly articulated federal right in the plain-

tiff” * is created by the Williams Act in favor of each

of the participants in a contest for control including

tender offerors. Just as after Borak, the courts have

concluded that a proxy contestant has “a genuine in-

terest” ’ in assuring that its efforts would not be

thwarted by the “prohibited” conduct of a rival, so

here a tender offeror has an equally “genuine inter-

est” in assuring that its success is not blocked by

*112 Cong. Rec. 19003 (1966) (emphasis supplied).

10 422 U.S. at 82.

- Union Pacific Railroad Co. v. Chicago and North Western

Railway Co., 226 F.Supp. 400, 406 (N.D. Ill., 1964).

violations of the Williams Act. Certainly the specific

references in favor of tender offerors in Sections 14

(d)(4) and 14(e) of the Act—establishing require-

ments of fairness and honesty for persons opposing

tender offers—support the ample evidence of a Con-

gressional intent to protect tender offerors.

A second relevant factor that has been employed

by this Court to imply a cause of action, as set forth

in Cort, is whether there is “any indication of legis-

lative intent, explicit or implicit, either to grant such

a remedy or deny one.” * This Court there pointed

out, 422 U.S. at 82 (emphasis in original), that:

“in situations in which it is clear that federal law

has granted a class of persons certain rights, it

is not necessary to show an intention to create

a private cause of action, although an explicit

purpose to deny such [a| cause of action would

be controlling.”

Not only is there no legislative history that can be

cited as evidencing “an explicit purpose to deny” ”

a cause of action to participants in tender offers, but

the legislative history of the Williams Act indicates

that Congress was aware of the need for such private

remedies, and that, in enacting the broad and inclu-

sive proscriptions of Section 14(e), comparable to

language in the Commission’s proxy rules, Con-

gress was aware that such language had been the

basis for implying private actions on behalf of the

12 Cort v. Ash, supra, 422 U.S. at 82.

13 Td., at 78.

various persons participating in, or affected by, proxy

contests.

A third test set forth in Cort is whether it is “con-

sistent with the underlying purposes of the legisla-

tive scheme to imply * * * a remedy for the plain-

tiff.” ** In Borak, this Court emphasized that a pri-

vate right of action was a necessary supplement to

Commission action to make effective the Congres-

sional purposes of the proxy provisions. Even more

necessary are such private rights of action to supple-

ment Commission actions to effectuate the Congres-

sional purposes in enacting the Williams Act.

The number of tender offers has been rapidly in-

creasing, and the economic, business and methodolog-

ical complexities of tender offers need closer attention

than even the most vigilant government agency can

hope to provide within the brief time of a contested

tender offer. Proxy statements must be submitted for

staff review and comment before a formal “‘filing’’ is

made, but the Williams Act provides no opportunity

for the Commission to examine materials before re-

quests or invitations for tenders are made to offerees,

and the contest can be won or lost within a matter of

days. In view of the extreme care employed by Con-

gress to avoid tipping the scales in favor of either

side, only where there are flagrant violations is the

Commission likely to bring court action against one

side or the other, since this in itself might tend to be

an important consideration to the stockholders solic-

4 Td.

ited. Moreover, rarely is the Commission in a posi-

tion to take court action before it is not already too

late to “unscramble the eggs.” ** On the other hand,

the contestants who have a significant economic stake

in the manner in which the contest is conducted also

have the greatest “incentive to detect violations and

vigorously pursue remedies,” all in furtherance of

the purposes of the Act.

In Borak, 377 U.S. at 433, this Court pointed to

the “duty of the courts to be alert to provide such

remedies as are necessary to make effective the Con-

gressional ‘purpose,’” and struck down artificial bar-

riers that might have interfered with meaningful re-

lief. In light of Borak and subsequent cases implying

causes of action under the proxy rules for all partici-

pants in proxy contests, the courts have similarly

implied causes of actions under the Williams Act for

all particinants in tender offers—the target com-

pany’s shareholders, the target company and compet-

ing tender offerors.

A fourth and final relevant factor set forth in Cort

is whether the cause of action is one “traditionally

relegated to state law, in an area basically the con-

cern of States, so that it would be inappropriate to

infer a cause of action based solely on federal law.” *’

15 Sonesta International Hotel Corp. v. Wellington Assoc.,

483 F.2d 247, 250 (C.A. 2, 1973).

1 H. K. Porter Co., Inc. v. Nicholson File Co., 482 F.2d 421,

424 (C.A. 1, 1973).

* Cort v. Ash, supra, 422 U.S. at 78.

The Williams Act, as this Court held was true of

the proxy provisions involved in Borak, is “clearly

an intrusion of federal law into the internal affairs

of corporations * * *” and the affairs of those seek-

ing to engage in contests of corporate control. Cort

v. Ash, 422 U.S. at 85. Committing a tender offeror

to state-provided remedies, if any, “might well prove

insuperable to effective relief.” Cf., Borak, supra,

377 U.S. at 434-435. State laws are often inconsist-

ent with the purposes of the Williams Act. The ju-

risdictional scope for state actions may be too narrow

to be effective. Procedural protections in state courts

for the tender offeror are more imaginary than real.

State remedies are generally inadequate. The real

policy behind some state statutes appears to be to

perpetuate local management and to induce incorpora-

tion in those states rather than risking tender offers

which may lead to the ousting of management. Hence,

even more than with respect to the proxy violations,

it is entirely inappropriate to relegate tender offerors

to state iaws where the Williams Act has been vio-

lated by their opponents.

3. Over the last thirty years, the federal courts,

encouraged by the decisions of this Court, consistently

have implied private actions for those whom the fed-

eral securities laws were “designed to protect.” * Of

late, however, the utilization of private remedies to

satisfy damages sustained as a result of illegal con-

duct has caused this Court to consider whether, and

* Mills v. Electric Auto-Lite Co., 396 U.S. 375, 396 (1970).

to what extent, limitations should be imposed on im-

plied private actions. That consideration has led this

Court to conclude that, just as the federal courts may

imply federal remedies under the federal securities

laws, so too may they imply limitations on those

remedies.

But, since implied private actions under the fed-

eral securities laws “vindicat[e] the statutory policy

* * *” and provide “an important means of enforce-

ment of the * * *” statute, Mills v. Electric Auto-

Lite Co., 396 U.S. 375, 396 (1970), “resolving doubts

in favor of those the statute is designed to protect

* * *” shows that the strong public policy considera-

tions supporting the implication of private actions

under the federal securities laws should only be bal-

anced against competing policy considerations of

equal strength.

Such an analysis suggests that limitations on im-

plied private remedies should be “consistent with the

legislative scheme” ’ and should not impede or frus-

trate the purposes which the statutory provisions in-

volved, and the private remedy implied thereunder,

seek to effectuate. Similarly, in giving content to the

Congressional policies in the Act, implied private

remedies should be delimited in a manner consistent

with the express language of the provision of the Act

** Rondeau V. Mosinee Paper Co., 422 U.S. 49, 62 (1975);

Cort v. Ash, supra, 422 U.S. at 78; National Railroad Passen-

ger Corp. V. National Ass’n of Railroad Passengers, 414 U.S.

453, 458-461 (1974); Securities Investor Protection Corp. v.

Barbour, 421 U.S. 412, 423-424 (1975).

pursuant to which a private action has been implied.

Where neither the express language nor the Congres-

sional intent underlying the sections of the Act in-

volved give clear guidance, limitations imposed on

implied private actions should conform to the “bounds

[Congress] delineated for comparable express causes

of action.” Blue Chip Stamps v. Manor Drug Stores,

421 U.S. 723, 736 (1975) (emphasis supplied).

These principles have their most important appli-

cation in assessing the relief to be granted in a pri-

vate suit, once a violation of the law has been estab-

lished. To effectuate the purposes of the Act, the

manner in which damages are calculated should both

implement the statutory scheme, and not cause undue

disruption in the methods by which those persons who

are regulated under the Act carry out their normal

business activities. Thus, if damages are denied in

the face of truly violative conduct, or are otherwise

inadequate where real injury has been suffered, so

as to diminish the likelihood that bona fide private

lawsuits will be brought, or conversely, if damages

are computed in a Draconian fashion, the Congres-

sional purposes underlying the federal securities laws

will not be effectuated.

In the instant case, the Commission, as a govern-

ment agency, is concerned solely with the principles

applied in arriving at an award of damages, not

the amount of damages that may in fact be awarded.

The Commission must rely on private parties to “sup-

plement” its own enforcement of the federal securi-

ties laws, and the performance of this function is

ATE, it. OR oir

assured if damages are awarded in an amount suffi-

cient to compensate an injured party fcr the full ex-

tent of its loss caused by the defendants. Of course,

where the Commission institutes its own enforcement

action, its success in obtaining remedies ancillary to

the award of an injunction should be considered by

the courts to determine whether the judgment ob-

tained by the Commission can restore private party

plaintiffs to their status quo ante, or otherwise make

them whole for any injury suffered. In such a case,

the award of damages to a prevailing plaintiff would

be inappropriate.

Section 14(e) of the Securities Exchange Act pro-

scribes misleading, as well as fraudulent, statements

in connection with tender offers, and does not pre-

sent the Court with a statute designed solely to pro-

scribe knowing violations of the law. Instead, Sec-

tion 14(e), like Rules 10b-5 and 14a-9, after which

it was patterned, should be “read as proscribing * * *

any type of material misstatement or omission, and

any course of conduct, that has the effect of defraud-

ing investors, whether the wrongdoing was inten-

tional or not.” Cf. Ernst & Ernst v. Hochfelder, 96

S. Ct. 1375, 1390 (1976). But, persons injured solely

by virtue of merely negligent conduct in derrogation

of Section 14(e), particularly if that conduct should

occur in connection with misleading statements in a

registration statement, should be compensated by

analogy to the remedies expressly provided in the

Securities Act for misleading statements in the sale

of securities. On the other hand, the public policy in

restoring injured parties to their prior status is

greater where they are the victims of knowing wrong-

doing. In such a circumstance, they should be com-

pensated for their actual damages, including all those

sustained as a consequence of the defendants’ wrong-

doing. See, e.g., Affiliated Ute Citizens v. United

States, 406 U.S. 128, 155 (1972); Janigan v. Taylor,

344 F. 2d 781, 786 (C.A. 1), certiorari denied, 382

U.S. 879 (1965).

4. “The very heart of the [Securities Exchange]

Act” *” is its proscriptions against manipulative de-

vices. Those proscriptions, contained in part in Sec-

tions 9(a) and 10(b) of the Act, were enacted in

1934, to counteract the broad abuses Congress had

seen in its intensive study of stock market practices.

Many of the manipulative practices Congress isolated

and identified served “no legitimate function,” ” ex-

cept the unjust enrichment of the perpetrators of such

acts, and thus were “specifically prohibited”; * in

other areas, however, Congress recognized that ‘“‘so

delicate a mechanism as the modern stock exchange

cannot be regulated efficiently under a rigid statutory

program,” ** and granted the Commission “discre-

*° Securities and Exchange Commission, Report on Pro-

posals for Amendments of the Securities Act of 1933 and the

Securities Exchange Act of 1934, H.R. Comm. Print, 77th

Cong., 1st Sess. 50 (1941).

718. Rep. 792, 73d Cong., 2d Sess. 7 (1934).

22 Td.

*8 Id., at p. 5.

tionary and elastic” ** powers to assure that those

trading activities not improper in and of themselves,

but carrying the potential for adverse manipulative

consequences, would be employed under carefully cir-

cumscribed conditions subject to monitoring by the

Commission.

One rule adopted by the Commission to fulfill this

latter function was Securities Exchange Act Rule

10b-6. It governs and proscribes efforts by persons

distributing securities to the public to bid in the open

market for either the same securities, or other securi-

ties convertible into the securities being distributed.

“The rationale [of the Rule] is that a potential pur-

chaser of the securities being distributed should not

be induced into buying them because of abnormal

market pressures driving the price up through secret

purchases by the issuer or [its] underwriters.” *

Particularly in situations involving competing ten-

der offers, anxious offerors, desirous of defeating their

competitors, have an incentive to engage in transac-

tions in violation of Rule 10b-6 in the hope of in-

creasing the market price for the target company’s

securities to a price just below their own bid, but

above the competing tender offer bid. Similarly, by

publicly announcing the acquisition of shares so

obtained, they hope to stampede undecided investors

in a close contest into tendering shares hastily, in the

* Id.

2s Binder, The Securities Law of Contested Tender Offers,

18 N.Y.L.F. 569, 666 (1973).

belief that the violator’s te1.der offer is the one that

will succeed, and the public will be denied an oppor-

tunity to participate unless they tender immediately.

Either or both these consequences are undesirable,

disrupt the orderliness of the securities markets, and

are within the proscriptions of Rule 10b-6.

Once such violative conduct is demonstrated, any

person actually injured by a violation of Rule 10b-6

should be accorded standing to pursue a private rem-

edy. Such an action may be implied under generally

accepted judicial decisions, but more properly should

be recognized as one of several express remedies

granted by Section 9(e) of the Securities Exchange

Act, a section of the Act which embodies ‘“‘an overall

congressional intent to prevent ‘manipulative and de-

ceptive practices which fulfill no useful function’ and

* * * create[s] private actions for damages stem-

ming from ‘illicit practices,’ where the defendant has

not acted in good faith.” Ernst & Ernst v. Hoch-

felder, 96 S. Ct. at 1386-1387.

DISCUSSION

I. IN ADOPTING THE WILLIAMS ACT IN 1968, CON-

GRESS INTENDED TO PROVIDE A COMPREHEN-

SIVE SCHEME OF FEDERAL REGULATION FOR

ALL TENDER OFFERS, AND TO CREATE FED-

ERAL RIGHTS FOR, AND OBLIGATIONS UPON,

ALL PERSONS PARTICIPATING IN, OR DIRECT-

LY AFFECTED BY, CASH AND EXCHANGE

TENDER OFFERS.

While this case may present an “epic battle” for

this Court to resolve, it also presents the specific im-

plementation of strategies, weapons and procedures

- ee ee ore -

eh one

a re)

employed in tender offers generally ever since those

seeking corporate control commenced utilizing modern

tender offer techniques in 1920. Those techniques,

as well as those who employed them or were affected

by them, were at the core of the Congressional realiza-

tion in 1968, and again in 1970, that pervasive fed-

eral regulation of tender offers was a necessary com-

ponent of the basic legislative enactments of the Con-

gress in 1934, which were designed, among other

things, to regulate and control “inequitable and un-

fair practices on [securities] exchanges and [the

over-the-counter] markets * * *,”” and “to impose

requirements necessary to make such regulation and

control reasonably complete and effective * * *.”™

Accordingly, a recognition of the dynamics of the

tender offer phenomenon, the motivations of the Con-

gress in seeking to regulate it, and the results of that

Congressional effort—the Williams Act—must pre-.

cede any disposition of the issues raised by this case.

** Austin, Tender Offers Revisted, 8 Mergers & Acquisi-

tions 16, 17 (Fall, 1973).

27 Section 2 of the Securities Exchange Act, 15 U.S.C. 78b,

48 Stat. 818.

Through “the general policy declarations of Congress in

* * *” statutory provisions such as Section 2 of the Securities

Exchange Act, “a veritable code of rules reveals itself * * * to

follow in giving effect to the standards of * * *” the Act. Cf.,

e.g., American Power & Light Co. v. Securities and Exchange

Commission, 329 U.S. 90, 105 (1946) ; Yakus v. United States,

321 U.S. 414, 419-427 (1944); New York Central Securities

Corp. Vv. United States, 287 U.S. 12, 24-25 (1932); Inter-

mountain Rate Cases, 234 U.S. 476 (1914).

A. The Dynamics of Tender Offers: The Contest For Control

1. The emergence of the tender offer

Prior to 1968, tender offers were unregulated. Al-

though used as a device to obtain corporate control

since 1920,*° they were largely a foreign develop-

ment.” American competition for corporate control

had traditionally been waged through proxy contests,

a form of corporate combat pervasively regulated by

the federal gvernment since 1934.”

By 1968, however, former Commission Chairman

Manual F. Cohen, in his preface to Aranow & Ein-

horn’s classic treatise on proxy contests for corporate

control, felt constrained to comment on an untoward

and emerging trend in the takeover rage—a substan-

tial equivalent to the familiar proxy fight “—of con-

siderable concern and significance to the Commission,

corporate managers, investors, securities market pro-

fessionals and their advisors:

“One of the most striking phenomena on the cor-

porate scene in recent years has been the large

*° Austin, Tender Offers Revisited, 8 Mergers & Acquisi-

tions 16, 17 (Fall, 1973).

°° See, e.g., Aranow & Einhorn, Proxy Contests for Cor-

porate Control 585-586 (2d ed., 1968).

81 Jd., at xiii.

%? See, e.g., Fleischer & Mundheim, Corporate Acquisition

by Tender Offer, 115 U. Pa. L. Rev. 317, 320-323 (1967) ;

Hamilton, Some Reflections on Cash Tender Offer Legislation,

15 N.Y.L.F. 269, 293-301 (1969); Bromberg, The Securities

Law of Tender Offers, 15 N.Y.L.F. 459, 471-472 (1969).

——

number of mergers and other forms of acquisi-

tions—particularly mergers and acquisitions in-

volving companies in different fields. Informed

observers have stated that they consider the mer-

ger proxy statements prepared under the Com-

mission’s Proxy Rules to be the most useful and

informative documents available in evaluating to-

day’s “conglomerate” companies. But in the very

recent past, the situation has been getting away

from us. Statutory mergers and proxy contests,

traditional means of acquiring control of a pub-

licly held corporation, are being supplanted to

an increasing degree by cash purchases either

through tender offers or through private or open

market purchases.”

“Tender offers,” the process by which existing

shareholders are solicited to tender their shares to

the offering or bidding individual, group or corpora-

tion, have become an increasingly popular“ and ef-

fective * method of obtaining control of publicly-

°°’ Aranow & Einhorn, Proxy Contests for Corporate Con-

trol, xvii (2d ed., 1968).

** See Senate Committee on Banking, Housing and Urban

Affairs, Hearings on Corporate Takeovers, 94th Cong., 2d

Sess. 1 (1976). A more precise analysis of this development

appears at pp. 25-26, of this brief. See also, Note, Cash Tender

Offers, 83 Harv. L. Rev. 377 (1969); Note. The Developing

Meaning of “Tender Offer” Under the Securities Exchange

Act of 1934, 86 Harv. L. Rev. 1250, 1253 (1973).

* See Note, The Regulation of Corporate Tender Offers

under Federal Securities Law: A New Challenge for Rule

10b-5, 33 U. Chi. L. Rev. 359 (1966); Note, The Williams

Amendments: An Evaluation of the Early Returns, 23 Vand.

L. Rev. 700-704 (1970).

held “target” companies.”

The offer is normally extended for a limited and

specified period of time, and the offeror’s obligation

actually to purchase or “take down” the securities

“tendered” usually is contingent upon its ability to

acquire all or a specified number of the target’s se-

curities within that time frame. The offer may be

for cash, for an exchange of the offering company’s

securities, or a combination of both cash and se-

curities.

The complexities involved in the practical applica-

tion of tender offer principles are compounded by the

fact that the ingenuity of those involved on both sides

of a contested tender offer is boundless.** While

tender offerors may, and often feel they must, proceed

cunningly and aggressively in their efforts to secure

control of “target”? companies, they are frequently

opposed with equal vigor by the existing manage-

ments of those “targets.” Indeed, the ferocity of the

resulting conflict is often such that it has been likened

to nonviolent economic war.”

%° Although tender offers do not automatically encompass

attainment of control as their purpose, the offer is seldom

content to be mere stockholders in the target company.

Fleischer & Mundheim, Corporate Acquisition by Tender Of-

fer, 115 U. Pa. L. Rev. 317, 318 (1967).

°* See, e.g., House of Representatives Committee on Inter-

state and Foreign Commerce, Hearings Before the Subcom-

mittee on Commerce and Finance on H.R. 14475, S. 510, 90th

Cong., 2d Sess. 22 (1968) (hereinafter cited as ‘House

Hearings’’).

°° 116 Cong. Rec. 29252 (1970) (Remarks of Senator Wil-

liams) ; Manne, Cash Tender Offers for Shares—A Reply to

ee ee ee

In recent years, the use of the tender offer as a

means of seeking control has increased:* for example,

the number of tender offer notices and reports on

solicitations and recommendations by persons other

than the offeror filed with the Commission in fiscal

year 1975, was treble the number of similar reports

filed in fiscal 1971.*° This virtual explosion in tender

offers has dwarfed by comparison the number of

proxy contests waged in the same time frame.”’ The

Chairman Cohen, 1967 Duke L.J. 231, 236 (1967) ; Ruthless-

ness by the Rules, 117 Forbes 24, 25 (Feb. 1, 1976); Blair &

Co., The Strategy of Tender Solicitation (1967); Austin &

Fishman, Corporations in Conflict—The Tender Offer, 119

(1970); Austin, Tender Offer Statistics, 10 Mergers & Acqui-

sitions 9, 13 (Fall, 1975); Cary, Corporations 1633 (4th ed.,

1969). Schmults & Kelley, Cash Takeover Bids—Defensive

Tactics, 23 Bus. Law. 115 (1967).

8* See Hayes & Taussig, Tactics of Cash Takeover Bids, 45

Harv. Bus. Rev. 135 (Mar.-Apr., 1967), for “the only reason-

ably complete list of cash and stock tender offers made in the

United States between January 1, 1956 and December 31,

1966.” Id. at 148. Two similar studies of the growth of tender

offers from 1956 to 1975 were later conducted by Dr. Donald

V. Austin, Chairman of the Department of Finance, College

of Business Administration of the University of Toledo.

Austin, Tender Offers Revisited, 8 Mergers & Acquisitions

16, 17 (Fall, 1973) ; Austin, Tender Offer Statistics, 10 Mer-

gers & Acquisitions 9 (Fall, 1975).

*° Compare Securities and Exchange Commission, 37th An-

nual Report 56 (1971), with Securities and Exchange Com-

mission, 41st Annual Report 51 (1975).

*1 The Commission’s records disclose that proxy contests

have not substantially varied in the last eight fiscal years,

averaging approximately 24 per year. In approximately the

same time span, the number of tender offers has increased

significantly—three-fold, from 34 in fiscal year 1970 to 107

for fiscal year 1976.

ratio of tender offers to proxy contests increased dur-

ing this time period from about 1.5:1 to almost 5:1,

and the aggregate amount of cash or principal amount

of securities offered in exchange for target securities

plus brokerage commissions has increased almost nine

times in the same period—from approximately $299

million in fiscal year 1971, to over $2.6 billion in

fiscal year 1975.*

* These figures were compiled by the Commission’s Office

of Tender Offers, Acquisitions, and Small Issues.

Various factors appear to have contributed to the increased

utilization of tender offers, rather than proxy contests, as a

vehicle for gaining corporate control. The overall increase in

the use of the tender offer has been attributed by some com-

mentators to such factors as: increased corporate liquidity and

readily available credit; comparatively depressed price /earn-

ings ratios, book values, and cash or quick assets ratios,

making acquisition via the tender offer more attractive;

greater recognition, sophistication, and knowledge with re-

spect to the takeover by tender offer; lack of extensive fed-

eral or state regulation of tender offers; quicker and more

successful results when compared with a full-dress proxy

contest; greater flexibility—the ability to hedge by reserving

certain options against a final and irrevocable commitment;

psychology—the appeal to shareholders in straight dollars and

cents language, eliminating the need, as in a proxy contest, to

convince the shareholder that the insurgent can do a more

efficient job; and a new “respectability” for cash tender of-

fers. Aranow & Einhorn, Tender Offers for Corporate Control

65-66 (1973). See also, Fleischer & Mundheim, Corporate

Acquisition by Tender Offer, 115 U. Pa. L. Rev. 317, 317-323

(1967) ; Hamilton, Some Reflections on Cash Tender Offer

Legislation, 15 N.Y.L.F. 269, 269-275 (1969). Cohen, Tender

Offers and Takeover Bids, 23 Bus. Law. 611 (1968).

ee ee ee ee ee

Pee

2. The participants

The offeror—and those in competition with it—the

target company, incumbent management, market pro-

fessionals, and the allies of each, all have vital eco-

nomic interests in the outcome of the contest for

corporate control. In this case, the role of three par-

ticipants—the offeror, the target company, and the

dealer-manager—are paramount, and the techniques

they employ, as well as the techniques employed by

the arbitrageurs who are critical to the success of

tender offers, are discussed—although not condoned

where violative of the federal securities laws—below.

a. The offeror

For a tender offeror, the stakes—majority control

—are high: to the victor goes the spoils, including

the right to hire and set salaries, to negotiate con-

tracts and even to liquidate the corporation. And,

while such powers, if abused, may subject insurgent

management to a shareholder suit, “judges are not

business experts,” “ and the courts often give those

in power a wide range of discretion.“

* See, e.g., Ross v. Bernard, 396 U.S. 531 (1970).

“* Dodge Vv. Ford Motor Co., 204 Mich. 459, 465, 170 N.W.

668, 684 (1919).

5 See, Israels, The Sacred Cow of Corporate Existence:

Problems of Deadlock and Dissolution, 19 U. Chi. L. Rev. 778

(1952) and Manne, Cash Tender Offers for Shares—A Reply

to Chairman Cohen, 1967 Duke L. J. 231, 242-243 (1967) ;

Conard, Corporations in Perspective 199 (1976).

Professors Brudney and Chirelstein have noted that:

Once an offeror’s initial analysis of a target com-

pany is concluded, a strike force is assembled to

conduct the battle for control.“ Since the incumbent

management may employ “a variety of defensive

measures that are successful in direct proportion to

the speed of their execution,” *’ secrecy is essential

to assume the advantage of surprise and thereby to

minimize the time available for incumbent manage-

ment to prepare and execute its defense.“* As one

“It is extremely difficult to prove that management’s

judgment has been tainted by self-interest, or that ex-

pectations of personal gain have led to price concessions

at the stockholder’s expense. Employment arrangements

apparently entered into by parties dealing with each

other at arm’s length are hard to challenge on their own

terms, especially when the parties are prepared to testify

in support of the honest character of their undertak-

ings.”

Brudney, & Chirelstein, Fair Shares in Corporate Mergers

and Takeovers, 88 Harv. L. Rev. 297, 343 (1974).

tions and executive officers with the capacity and authority

to act quickly will direct the effort. Augmenting manage-

ment’s own resources will be a dealer-manager, soliciting

agent, outside counsel, independent accountant, depository

bank, forwarding agent and printer. 1 Flom, Lipton & Stein-

berger, Takeovers and Takeouts—Tender Offers and Going

Private 10-11 (Law Jl. Pr., 1976). See also Takeover Bids:

Proceedings of Meeting Held in Lloyd’s Writing Room, Lon-

don on Tuesday, 20 July 1971, 27 Bus. Law. 243, 259-263

(1971).

‘Hayes & Taussig, Tactics of Cash Takeover Bids, 45

Harv. Bus. Rev. 135, 139 (1967).

** A tender offer is typically made for a value in excess of

the market price; when the offer is disclosed, the market

price invariably increases. Accordingly, secrecy about a possi-

oi _ all

ets deleted 20k a lie er tee ee ne

commentator has noted, “The most important thing

in this business is to keep your mouth shut. Ac-

quisitions are made in dark rooms and strange

places.” “

An offeror will often need large sums to effect a

successful takeover. To minimize the outlay of cash,

some corporations offer to exchange their own shares,

ble takeover may also enable the offeror, through anonymous

open market purchases, to acquire a number of shares at a

lower price, resulting in substantial savings to the offeror

which can later be employed to purchase additional shares.

Pre-offer purchases, moreover, enable the offeror to get a feel

for the market and the best tender price, as well as to develop

a position in the target’s securities that can be used to “soften

management * * * and deter other bidders.” 1 Flom, Lipton

& Steinberger, Takeovers and Takeouts—Tender Offers and

Going Private 10 (Law Jl. Pr., 1976). Since heavy buying on

the market can drive up the market price of shares, however,

“Tk]nowing when to stop buying on the open market is (also)

an important element in the bidder’s strategy.” Hayes &

Taussig, supra, 45 Harv. Bus. Rev. at 139.

** Financial Post, January 10, 1970 at 10, Col. 2, also quoted

in Anisman, Takeover Bid Legislation in Canada, (1974).

or warrants, for shares in the target company. The

use of newly created warrants and notes—so-called

“funny money”—to accomplish a takeover was preva-

lent in the late 1960’s,” but has not kept pace in the

1970’s with the explosion of tender offers generally.

In other instances, corporations use cash from their

own reserves or third party financing.”

Timing must be considered from two vantage

points: first, the offeror must determine the length

of time within which it wishes to extend its offer;

and, second, the offeror must decide the date on which

the offer will be made. A sufficient amount of time

must be provided to allow shareholders to become

acquainted with and accept the tender offer; but

too much time will allow existing management the

opportunity to muster its defenses successfully.** Mon-

°° See Hamilton, Some Reflections on Cash Tender Offer

Legislation, 15 N.Y.L.F. 269, 295 (1973); Wall St. J., Feb.

26, 1969 at p. 3, Col. 2.

*! While an offeror may borrow against its own existing

assets, it is also possible to use the target company’s assets

effectively to refinance the takeover by collateralizing a loan

to buy control with the target’s securities previously purchased

quietly in the open market. “Arranging this kind of loan is

just like a corporation getting a line of credit, except that this

loan cannot be drawn down unless the deal goes through.”

The Takeover Titans, 85 Finance 8, 12 (Aug. 1967). “[Llike

most lines of credit arrangements, the bank is usually prom-

ised the company’s account when the new boys take over.”

Ibid.

“* The exact time period of the intitial tender offer varies

with the needs of the offeror. A recent survey of notable cash

tender offers in 1975 and early 1976 has indicated that 10 to

14 days is the usual length of time between the announcement

——

day mornings are considered to be the ideal selection

date, since five full trading days follow, without

providing management any nontrading weekends in

which to consolidate its defense.”

Once preparations are completed and the offer

extended, the twin burdens of planning and defensive

action shift to the target company’s management and

its allies. If there is a pre-arranged cooperative

agreement with the offeror for some type of merger,

very little activity on the part of the target’s man-

agement is necessary. However, if management re-

alizes that it will be displaced or the corporation is

to be liquidated, a persistent struggle often ensues.

b. The target

A target may erect a number of obstacles to dis-

courage a tender attack not yet made, but antici-

pated:

“Only the limits of one’s imagination restrict the

host of measures possible. The corporate con-

stitution may be fashioned to dilute the voting

power of a successful takeover bidder or to make

it impossible for the bidder to carry out the ob-

jective of the takeover. A freezing period on

franchises, an increased special majority for

of the initial tender offer and its termination. Of course, the

offeror always has the option of extending the time period

as often as he wishes, “and offers are usually extended at least

once.” Troubh, Purchased Affection: A Primer on Cash Ten-

der Offers, 54 Harv. Bus. Rev. 79, 80, 82-83 (Jul.-Aug., 1976).

8 Austin & Fishman, Corporations in Conflict: The T'ender

Offer 119 (1970).

mergers into a takeover bidder, and classifying

or staggering the board. if allowed in the juris-

diction, fall into this category. The incumbents

may equip themselves with service contracts that

would make their dismissal costly. Contracts

with a wide variety of interests may also dis-

courage takeovers by imposing burdens on the

corporation in the event of a change of manage-

ment. Labor contracts may provide for a wage

increase, rent contracts may raise the rent or

provide for renegotiation, and lending contracts

may call for acceleration.” ™

Once the tender offer is made, however, existing

management of the target usually communicates with

the target’s shareholders, initiating a public cam-

paign to convince them that the offer is not in their

best interests or those of the corporation.” Related

**Yoran, Advanced Defensive Tactics Against Takeover

Bids, 21 Am. J. Comp. L. 531, 534 (1973).

** Fleischer & Mundheim, supra, 115 U. Pa. L. Rev. at 321.

If management can effectively style the communication as be-

ing in the corporation’s (as opposed to management’s) best

interest, the resources of the corporation may be used to fi-

nance the distribution of that information to its shareholders.

Id. The communication may also appeal to stockholder loyalty

to the company.

“The problem with this type of defensive tactic is that

most shareholders do not feel any special allegiance to

the companies whose shares they own. This is perhaps

even more so in the case of institutional shareholders

where they are given a clear and relatively riskless oppor-

tunity to realize immediate profit.”

5 Securities and Exchange Commission, Report of the Insti-

tutional Investors Study, H.R. Doc. No. 92-64, 92d Cong. Ist

corporate actions to keep existing shareholders in

management’s camp may also serve to chill the bid-

der’s pursuit. Management, for example, may: raise

dividends, which has the side effect of depleting

corporate assets and making the corporation a less

desirable target; effect a stock split, which may in-

crease the value of each shareholder’s portion of the

target company,” while at the same time increasing

brokerage expenses involved in acquiring the target

securities; and refuse to disclose its stockholders

list.”

Taking the offensive, the target may initiate liti-

gation seeking a permanent or temporary injunction

against the takeover. Such action, even if unsuccess-

ful, will often serve to buy additional time for man-

agement to consolidate its counter-attack.“ In an

attempt to lessen the number of shares available on

the market, the target may enter the market place

Sess. 2839 (1971). This is not to imply that shareholder

loyalty can never be effective. See, e.g., The Takeover Titans,

85 Finance 8, 13 (Aug., 1967).

** Hayes & Taussig, Tactics of Cash Takeover Bids, 45

Harv. Bus. Rev. 135, 143 (1967). But compare, Schmults

& Kelley, Cash Takeover Bids, Defense Tactics, 23 Bus. Law.

115, 118 (1967).

’* But see proposed Securities Exchange Act Rule 14e-1, Se-

curities Act Release No. 5731 (Aug. 2, 1976).

* Lee, Tender Offer Defense, How to Short Circuit the

Corporate Raider, 10 Mergers & Acquisitions 4, 5 (Fall,

1975). Some companies, in an effort to stop a takeover, will

go to extremes to create a litigable issue. See, e.g., Ruthless-

ness by the Rules, 117 Forbes 24, 26 (Feb. 1, 1976).

to purchase its own securities.’ Such action can

have “‘the double effect of driving the market price

of the stock above the bid * * *,” and thus defeating

the offer ® and may make the target liable for a

violation of the federal securities laws. The target’s

management, often with the assistance of its invest-

ment banker, may also actively seek a merger with

another corporation more to management’s liking ”

—more of a lesser-of-the-evils approach than a solu-

tion.”

Innumerable other approaches are employed by

management.” Regardless of the defense or defenses

chosen, however, speed is essential. To be effective,

the response must come within hours, not days.

°° Schmults & Kelley, supra, 23 Bus. Law. at 124.

° Hayes & Taussig, supra, 45 Harv. Bus. Rev. at 193.

* Austin & Fishman, Corporations in Conflict: The Tender

Offer 135 (1970).

°* See Aranow & Einhorn, Tender Offers for Corporate Con-

trol 256 (1973).

°** See, e.g., Taussig and Hayes, Are Cash Take-Over Bids

Unethical? Financial Analysts J. 107 (Jan.-Feb. 1967) ; Brom-

berg, Tender Offers: Safeguards and Restraints—An Interest

Analysis, 21 Case W. Res. L. Rev. 613 (1970); Brown, Cor-

porate Defenses to Takeover Bids, 44 Tul. L. Rev. 517 (1970);

Cary, Corporate Devices Used to Insulate Management from

Attack, 25 Bus. Law. 339 (1970).

** Austin & Fishman, Corporations in Conflict: The Tender

Offer 127 (1970).

c. The arbitrageur

Stimulated market activity inevitably follows the

announcement of a tender offer, since the offer is

typically made at a premium over market. Other

purchasers, particularly the professional risk arbi-

trageur, then seek to join the offeror in purchasing

the target’s securities. Without these arbitrageurs,

“there [would be] no tender offer as we know it

today.” In fact, it has been estimated that ar-

bitrageurs are responsible for over half of all shares

ultimately tendered “ and that they may be respon-

sible for up to 90 percent of trading involved in an

uncontested exchange offer.”

The arbitrageur functions as an intermediary be-

tween the offeror and the shareholder. By purchas-

ing shares from the holder at a price between the

current market value and the price of the tender

offer, the arbitrageur assumes the risk that the

tender offer will not be consummated, or that all the

shares tendered will not be accepted, and, at the

6° Senate Committee on Banking, Housing and Urban

Affairs, Hearings on Corporate Takeovers, 94th Cong., 2d

Sess. 60 (1976).

** QO’Boyle, Changing Tactics in Tender Offers, 25 Bus. Law.

863, 866 (1970).

°* Huge Profits Out of Tiny Margins, Bus. Week, May 28,

1966 at 116.

same time, seeks the reward of additional profits if

the shares he holds are ultimately purchased.”

The role of the arbitrageur is an important one

for the offeror. The arbitrageur’s willingness to par-

ticipate in the market is dependent upon his ability

to turn over the securities he purchases quickly, to

prevent being caught with an unwanted position for

which he has paid a premium over market. By

rapidly buying and simultaneously selling, the ar-

bitrageur discourages shareholders from holding out

for a higher price.” For the offeror, “every share

tendered at a low price makes final acquistion that

much cheaper.” ” Offerors have, therefore, been ad-

vised to encourage arbitrage by offering a good pre-

mium, limiting the conditions of the offer, offering

a generous soliciting dealer’s fee, and periodically

checking the quantity of tenders received.’ As one

commentator expressed it:

“We evolve the strategy to incur the total sym-

pathy and cooperation and participation of two

°® See generally, Aranow & Einhorn, Tender Offers for Cor-

porate Control 173-191 (1973).

°° The technique described above has a number of more

sophisticated variations. See, e.g., Evans, Arbitrage in Do-

mestic Securities in the United States (1965); Henry, Activi-

ties of Arbitrageurs in Tender Offers, 119 U. Pa. L. Rev. 466

(1971); Baer & Sifka, Does Arbitrage Create Institutional

Opportunities? 1 Institutional Investor 24 (Apr., 1967).

7 Ruthlessness by the Rules, 117 Forbes 24, 25 (Feb. 1,

1976).

™ Aranow & Einhorn, Tender Offers for Corporate Control

191 (1973).

groups: our own private army of customers’

men who we are going to bribe [by offering them

a fee for every share of stock they induce in-

vestors to tender], and the arbitrageurs. We

try to make as fail-safe a deal for them as we

can so their risk is minimized, so they will be

motivated to buy the stock, and by the time they

get their hands on the stock they only have one

goal in mind, to convert it back to cash.” ™

Since the arbitrageur’s profit is largely dependent

upon the success of the offer, as soon as it appears

that a tender offer may fail, the arbitrageur will

quickly liquidate his position. The arbritrageur’s ac-

tivity in simultaneously buying and selling the same

security serves to reduce the price differential, and

the arbitrageur’s refusal to participate (or with-

drawal) serves to maintain the discrepancy between

the offered price and market price. A steady price

movement and a gradual narrowing of the price

spread, therefore, tends to indicate to sophisticated

investors that arbitrageurs believe the tender offer

will be successful. A stable or increased price dif-

ferential, on the other hand, may indicate that the

arbitrageur is skeptical about the ultimate success

of the offer.”

72 Senate Committee on Banking, Housing and Urban

Affairs, Hearings on Corporate Takeovers, 94th Cong., 2d

Sess. 60 (1976).

"? Henry, Activities of Arbitrageurs in Tender Offers, 119

U. Pa. L. Rev. 466, 470 (1971).

d. The dealer-manager

The “dealer-manager,” often referred to as the

“investment banker” of the offeror or competing

offeror,‘ functions as the chief assistant to the offeror

in the planning and execution of the campaign. “His

principal function is as an advisor to the issuer on

policy and tactics, including disclosure questions, in

planning the offer and in preparing the offeiing docu-

ments.” In the battle for control, he is the “ac-

knowledged general” “ who has the responsibility for

pushing the project to completion:

“THe] organizes, structures, evaluates, and co-

ordinates the deal. Usually the most experienced

person in the group, he is expected to prepare the

agenda, check lists, time schedules, and similar

guidelines as well as to recommend to the client

the names of appropriate lawyers, depositary

banks, soliciting agents, printers, and advertis-

ing agents. His stature must be such that it in-

spires confidence in the investment community

(particularly in the arbitrageurs) that the tender

offer will actually succeed.” ”

In addition to his obligation of soliciting and or-

ganizing other broker-dealers, he is expected to make

recommendations as to the premium necessary for

an effective tender offer, the contingencies of the offer

™*See Troubh, Purchased Affection: A Primer on Cash

Tender Offers, 54 Harv. Bus. Rev. 79, 87 (Jul.-Aug., 1976).

™> Mundheim, et al., ed., Sizth Annual Institute on Securities

Regulation 83 (P.L.I., 1975).

*° Troubh, supra, 54 Harv. Bus. Rev. at 84.

™? Ibid.

and the fees to be paid the solicting dealers.” Un-

like underwriters of securities offerings, the dealer-

manager’s obligation does not encompass personal

buying and selling; rather it relates primarily to

structuring the deal, soliciting stockholders, and or-

ganizing other broker-dealers to solicit tenders.

Because the dealer-manager is part of the pre-

tender offer planning process, he has access to privi-

leged inside information and, therefore, may not par-

ticipate in the market prior to the announcement.”

After the announcement, he also acts as an agent for

the offeror and must, therefore, limit his purchases

to that contained in the tender offer.”

The dealer-manager’s fee may be a flat sum or a

“»er-share”’ commission or a flat sum and an “over-

ride” fee on each share tendered. If the dealer-

manager acts as a soliciting dealer,’ he will be paid

additionally for each share he personally solicits.”

78 Id., at 79-87.

7 Cf., Securities and Exchange Commission Vv. Healy, 74

C-4305 (S.D. N.Y., 1974), SEC Litigation Rel. No. 6589 (Nov.

18, 1974; Securities and Exchange Commission Vv. Sorg

Printing Co., CCH Fed. Sec. L. Rep. { 95,034 (S.D. N.Y.,

1975).

8° See 17 CFR 240.10b-13.

*! The soliciting dealer is a broker-dealer who is paid a fee

for each share of stock he induces investors to tender.

*2 “The fee to soliciting brokers generally approximates 2%

of the purchase price of the tendered stock or 125% to 175%

of a New York Stock Exchange commission on an equivalent

Big Board Transaction.” Troubh, supra, 54 Harv. Bus. Rev.

at 86.

In addition to its fee, the typical agreement between

the offeror and the dealer-manager contains a pro-

vision for reimbursement of the dealer-manager’s ex-

penses—including indemnification for any liability

connected with the offer.“* Unlike underwriters,

whose fees are usually based on the number of se-

curities to be issued and, in a firm commitment un-

derwriting, purchased by him, a dealer-manager is

often compensated quite handsomely even though he

neither assures the success of the offer nor assumes

the risks of a purchaser.“

The dealer-manager may, in the accomplishment

of his goal, assume some of the characteristics of a

mere underwriter, but those characteristics are only

coincidental; his role, as general and tactician in an

exchange tender offer, encompasses much more than

the mere distribution of the offeror’s shares and his

total reimbursement usually reflects this difference.”

Nor are these unimportant distinctions, particularly

for the scope of the dealer-manager’s ultimate liabil-

ity for his actions. As one commentator recently

noted:

“The major difference between the underwriters’

liability in a normal “firm” underwritten public

offering and an exchange offer is that the dealer-

*’ Mundheim, et al., ed., Sixth Annual Institute on Securities

Regulation 85 (P.L.I., 1975).

8 “TF jees of $500,000 to $1,000,000 are not unheard of in

large tender-offers.” Troubh, supra, 54 Harv. Bus. Rev. at 86.

®° Troubh, Purchased Affection: A Primer on Cash Tender

Offers, 54 Harv. Bus. Rev. 79, 84-89 (Jul.-Aug., 1976).

manager in the exchange offer is potentially li-

able as sort of a ‘super underwriter’ for the

entire package. In the typical Securities Act

registration situation, the underwriting agree-

ment is between the issuer and each of the un-

derwriters severally, and the managing under-

writer receives his management fee from the

other participating underwriters. Therefore,

within the statutory framework of Section 11

(e) of the Securities Act, the managing under-

writer does not receive from the issuer any

benefit that all other underwriters do not re-

ceive and he is not liable for more than the price

at which he, the managing underwriter, sold his

securities.

“In the exchange offer, however, the dealer-

manager receives a fee that the soliciting dealers

do not receive, and, consequently, the benefits

afforded by Section 11(e) would not be appli-

cable and the dealer-manager would be liable

for the full amount of the offering, subject to

his right under Section 11(f) to receive con-

tributions from other persons found liable under

Section 11.” ©

*6 Mundheim, et al., ed. Sizth Annual Institute on Securities

Regulation 88-89 (P.L.I., 1975).

B. Prior to the Adoption of the Williams Act, Tender

Offers Were Virtually Unregw'ated, in Contrast to

the Comprehensive Federal Regulation of Proxies

and Proxy Contests.

Before the Williams Act,*’ few controls existed over

tender offers. The states had not been governing ten-

der offers,“ and existing federal law had only periph-

eral application to them. In those instances where

the tender offer took the form of an exchange of

shares—in essence, a sale of the offeror’s stock—the

transaction was subject to the disclosure require-

ments of the Securities Act of 1933.” However, that

** The Williams Act added new Sections 13(d), 13(e), 14

(d) (e) and 14(f) to the Securities Exchange Act of 1934. Act

of July 29, 1968, P.L. No. 90-439, 82 Stat. 454 (codified at

15 U.S.C. 78m(d)-(e), 78n(d)-(f) (1970).

** Only one State, Virginia, had, by that time, even passed

a statute regulating tender offers—that statute was enacted

in March 1968, just four months prior to the Williams Act.

Va. Code Ann. § 13.1-528, eff. Mar. 5, 1968 (3 CCH Blue Sky

Law Rep. © 49,228).

**See Fleischer & Mundheim, Corporate Acquisition By

Tender Offer, 115 U. Pa. L. Rev. 317, 328-349 (1967) ; Note,

The Regulation of Corporate Tender Offers Under Federal

Securities Laws: A New Challenge For Rule 10b-5, 33 U.

Chi. L. Rev. 359, 373-376 (1966); Binder, The Securities

Law of Contested Tender Offers, 18 N.Y.L.F. 569, 572-610

(1973).

* See S. Rep. No. 550, 90th Cong., 1st Sess. 2-3 (1967);

H.R. Rep. No. 1711, 90th Cong., 2d Sess. 3 (1968). See also

Bromberg, The Securities Law of Tender Offers, 15 N.Y.L.F.

462 (1969); Hamilton, Some Relections on Cash Tender Of-

fer Legislation, 15 N.Y.L.F. 269, 273-274 (1969) ; Note, Cash

Tender Offers, 83 Harv. L. Rev. 377, 379 (1969) ; Note, The

Developing Meaning of “Tender Offer’ Under the Securities

~<— ss ~* oe ee Ee ae

Act was not applicable when only cash, rather than

an exchange of securities was involved.” Nor was it

clear that a tender offeror was an “insider” for the

purpose of imposing disclosure obligations under Sec-

tion 10(b) of the Securities Exchange Act and Rule

10b-5 thereunder with respect to its future plans for

the target company or material information concern-

ing the issuer’s affairs prior to its becoming a con-

trolling shareholder.” And the disclosure requirements

were felt by some not to apply to the activities of

persons who opposed tender offers.”

Act of 1934, 86 Harv. L. Rev. 1250, 1254 (1973); Note, The

Williams Amendments: An Evaluation of the Early Returns,

23 Vand. L. Rev. 700, 702 (1970).

*1 See Hayes & Taussig, Tactics of Cash Takeover Bids, 45

Harv. Bus. Rev. 135, 137 (Mar.-Apr., 1967); Bromberg,

supra, 15 N.Y.L.F. at 462-463; Hamilton, supra, 15 N.Y.L.F.

273-275: Note, supra, 86 Harv. L. Rev. at 1253-1254; Note,

supra, 83 Harv. L. Rev. at 377-381; Note, swpra, 23 Vand. L.

Rev. at 700-704; Binder, supra, 18 N.Y.L.F. at 610.

% See, e.g., Mills v. Sarjem Corp., 133 F. Supp. 753 (D.

N.J., 1955); Senate Hearings, pp. 143, 183; House Hearings,

p. 59. For a discussion of the role of Section 10(b) and Rule

10b-5 in the setting of tender offers prior to adoption of the

Williams Act, see Binder, supra, 18 N.Y.L.F. at 572-599; Note,

Current Problems Under the Securities Acts—The Expanding

Use of Rule 10b-5, 10 B.C. Ind. & Com’l. Rev. 313, 328-334

(1969). Loss, The Role of Rule 10b-5 in Tender Offers, Se-

curities Regulation and Transfer Report (Special Report,

Jan., 1969).

*? Senate Hearings, p. 28; House Hearings, pp. 18, 59.

At common law, a person selling a controlling in-

teresi in a corporation, in certain instances, might

be liable under the so-called corporate asset theory ™

and, if he delivered immediate control, had to be

reasonably sure that the buyer was not intent upon

looting the corporate treasury;* but that was the

extent of common law restrictions on persons cooper-

ating with tender offerors.”

There were few, if any, effective controls on the

conduct of persons opposing tender offers, as well.

As the court below surmised (A. 30), the common

law recognized the tortious nature of a deliberate,

unreasonable, interference in an economic relation-

ship or prospective advantage, and thus imposed lia-

bility for such deliberate actions as the circulation

of a malicious misstatement involving some dispar-

* See, e.g., Perlman v. Feldman, 219 F.2d 713 (C.A. 2),

certiorari denied, 349 U.S. 952 (1955). See also, Jennings,

Trading in Corporate Control, 44 Cal. L. Rev. 1 (1956);

Leech, Transactions in Corporate Control, 104 U. Pa. L. Rev.

725 (1956); Hill, The Sale of Controlling Shares, 70 Harv.

L. Rev. 986 (1957).

* See, e.g., Insuranceshares Corp. V. Northern Fiscal Corp.,

35 F. Supp. 22 (E.D. Pa., 1940) and the discussions thereof

appearing in Notes, 19 Chi. Kent L. Rev. 193 (1941); 26

Cornell L. Q. 325 (1941); 54 Harv. L. Rev. 648 (1941); 25

Minn. L. Rev. 335 (1941); 27 Va. L. Rev. 546 (1941). See

also, Gerdes Vv. Reynolds, 28 N.Y.S. 2d 622 (Sup. Ct., 1941) ;

Swinney Vv. Keebler Co., 329 F. Supp. 216 (S.D. Cal., 1971),

reversed 480 F.2d 573 (C.A. 4, 1973); Levy v. Fernberg, 29

N.Y.S. 2d 550 (Sup. Ct., 1941) ; Dale v. Temple Co., 186 Tenn.

69, 208 S.W. 2d 344 (1948).

* Austin & Fishman, Corporations in Conflict 25-34 (1970) ;

Kennedy, Tender Moment, 23 Bus. Law. 1091, 1094 (1968).

agement of a plaintiff’s property, business or per-

son.” Conceivably, incumbent management might be

liable at common law for circulating a false state-

ment about an offeror in an effort to overcome a take-

over bid, but only if it could be shown that manage-

ment had acted intentionally and maliciously, had

deliberately lied, and had intended to cause the spe-

cific injury actually suffered.“ And, even then, the

cause of action was so limited that it presented no

viable remedy even for deliberate conduct in the

tender offer context.” Thus, prior state law regulated

* See Prosser, The Law of Torts, 919-969 (4th ed., 1971);

Fleischer & Mundheim, Corporate Acquisition by Tender Of-

fer, 115 U. Pa. L. Rev. 317, 321 (1967) ; Halpern, Jntentional

Torts and the Restatement, 7 Buff. L. Rev. 7 (1952).

** Fleischer & Mundheim, Corporate Acquisition by Tender

Offer, 115 U. Pa. L. Rev. 317, 321 (1967). Ang see, Peffer

v. Bennett, 523 F. 2d 1323, 1825 (C.A. 10, 1975); Susskind

v. [PCO Hospital Supply Corp., 373 N.Y.S. 2d 627, 629 (App.

Div., 1975) ; Wegman v. Dairylea Corp., Inc., 376 N.Y.S. 2d

728, 735 (App. Div., 1975); Leonard Duckworth, Inc. V.

Michael L. Field & Co., 516 F. 2d 952, 957 (C.A. 5, 1975);

Glenn Vv. Point Park College, 272 A. 2d 895, 899 (Pa., 1971);

Philips Chemical Co. v. Hulbert, 301 F. 2d 747, 750 (C.A. 5,

1962) ; DeSantis v. City of Troy, 371 N.Y.S. 2d 310, 315

(Sup. Ct., Rens. Cty, 1975) ; Hiers v. Cohen, 329 A. 2d 609,

612 (Conn., 1973) ; Martin v. Philips Petroleum Co., 445 S.W.

2d 429, 435 (Ct. of Civ. App. of Tex., 1970).

* See American Law Institute, Restatement of Torts 2d,

Sec. 768 (Tent. Draft No. 14, 1969); 1 Harper & James, The

Law of Torts 474-481 (1950); Prosser, The Law of Torts 955

(4th ed., 1971); Middlesex Concrete, etc. v. Carteret Indus.

Ass’n., 181 A.2d 774,.781 (N.J., 1962).

the takeover process only indirectly, with virtually

no restrictions on the takeover bid itself.” For ex-

ample, management, in opposing a tender offer with

corporate funds or purchasing shares of the corpora-

tion to thwart the offeror, merely had to be careful

not to give the appearance of acting in its own self-

interest; but, self-interest is difficult to prove, and

therefore such activities by management were gen-

erally upheld.

In short, in the absence of an occasional temporary

restraining order for a violation of state libel and

10° State law provided some safeguards for the improper

use of corporate assets to defeat the takeover bid, see, e.g.,

Condec Corp. v. Lunkenheimer Corp., 43 Del. Ch. 353, 220

A. 2d 769 (1967), but none to the use of corporate assets in

making a takeover bid Such use could always be justified on

the basis of the business juagment rule. See Casey v. Wood-

ruff, 49 N.Y.S. 2d 625, 642 (Spec. Terms, N.Y. Co. 1944),

cited with approval in Otis & Co. v. Pennsylvania R. Co., 61

F. Supp. 905 (E.D. Pa., 1945), affirmed, 155 F. 2d 522 (C.A.

3, 1946).

1 See Cheff v. Mathes, 41 Del. Ch. 494, 199 A.2d 54%

(1964) ; Kors v. Carey, 39 Del. Ch. 47, 158 A.2d 136 (1960) ;

Martin v. American Potash Chem. Corp., 33 Del. Ch. 234, 92

A.2d 295 (1952). See also, Senate Hearings, p. 121. Israels,

Corporate Purchases of Its Own Shares—Are There New

Overtones, 50 Cornell L. Q. 620 (1965).

federal fraud laws—to the extent applicable *“—

tender offer campaigns could be waged fast and furi-

ously, without regulation or control, and without re-

gard to the fairness, honesty and orderliness of the

securities markets.

This absence of regulation of tender offers was in

sharp contrast to the comprehensive federal regu-

lation of the more traditional means of capturing

control of corporations—the proxy contest. In 1934,

Congress, in Section 14(a) of the Securities Ex-

change Act, 15 U.S.C. 78n(a), had granted the Com-

mission sweeping authority to adopt rules to regu-

late and control proxy solicitations. Indeed, the wide

scope of the Commission’s authority under Section

14(a) is reflected in the statutory standard that the

Commission’s rules be “necessary or appropriate in

the public interest or for the protection of investors”

(emphasis added)**—a standard which contemplates

the protection not only of investors but also of others

involved in, or affected by the contest.’* As the Sen-

ate Report on Stock Exchange Practices noted:

“It is contemplated that the rules and regula-

tions promulgated by the Commission will pro-

tect investors from promiscuous solicitation of

their proxies, on the one hand, by irresponsible

outsiders seeking to wrest control of a corpora-

tion away from honest and conscientious cor-

22 House Hearings, pp. 18, 59; Senate Hearings, p. 210.

18 See Senate Hearings, p. 191.

104 See pp. 69-74, infra.

poration officials; and, on the other hand, by un-

scrupulous corporate officials seeking to retain

control of the management by concealing and

distorting facts.” **

The Commission, without attempting to affect con-

trol or interfere in the strategy of participants in a

proxy contest,’ evolved pervasive rules which re-

flect one of “the major accomplishments flowing

from the 1934 Act for the benefit of the investing

public and the market place generally.” *” As one

commentator has stated: “The proxy rules are very

likely the most effective disclosure device in the SEC

scheme of things.” *”

C. Regulation of Tender offers was Needed Because

Significant Abuses Had Developed.

As a result of the regulatory vacuum existing prior

to the Williams Act with respect to tender offers, a

number of abuses had developed—abuses which were

harmful to all the various participants in a tender

offer contest.

109 S. Rep. Nc. 1455, 73d Cong., 2d Sess. 77 (1934).

1° Senate Committee on Banking and Currency, Hearings

Before a Subcommittee on S. 876, 84th Cong., 1st Sess. 1695,

1696 (1956) (Remarks of former Commission Chairman

Armstrong).

1°? House Committee on Interstate and Foreign Commerce,

Hearings on H.R. 6789, H.R. 6793, S. 1642, 88th Cong., 1st

& 2d Sess. 165 (1964).

8 2 Loss, Securities Regulation 1027 (2d ed., 1961).

A major abuse—found to threaten public confi-

dence in securities as a medium of investment *” and

the integrity of the marketplace itself *°—was the

secrecy with which the process was enshrouded. Sen-

ator Kuchel, a co-sponsor of the Williams Act, la-

mented the futile position of both management and

shareholders, uninformed and caught within the

“tragedy” of the “rape” of the target by corporate

raiders acting under a “cloak of secrecy”." The

problem was compounded by the combatants’ dissemi-

nation of “a rash of charges and counter charges” ™

—neither clearly subject to existing disclosure re-

quirements nor susceptible to control under existing

antifraud provisions **—variously characterized dur-

0° S. Rep. No. 550, 90th Cong., Ist Sess. 2 (1967), (“Sen-

ate Report”), H.R. Rep. No. 1711, 90th Cong., 2d Sess. 3

(1968) (“House Report’’).

#10 Speech by Chairman Cohen before the Association of the

Bar of the City of New York, April 14, 1967, reprinted at

Senate Hearings, p. 203. Citing the “drastic effects” of secret

takeover bids on the price of the target’s securities, it was

noted in the Senate record:

“In these circumstances trading is characterized by

rumor, by speculation and by fear, characteristics which

are hardly conducive to public confidence in the securities

markets.”

See also, Senate Hearings, pp. 2, 42-43, 48, 49, 52.

411 Senate Hearings, p. 43.

112 Senate Hearings, pp. 19, 35.

113 Id.

ing the Senate Hearings as containing “inaccurate,” **

“overly enthusiastic promising statements,” ** and as

having “quite a bit of puff in them.”

Referring specifically to abuses by management in

opposing a tender offer, then Commission Chairman

Cohen emphasized:

“If management does oppose the offer, the pres-

ent lack of regulation leaves it with powerful

weapons, which it may wield with impunity,

provided its activities fall short of fraud."

Management tactics may include making all sorts

of predictions and extravagant claims * * *”

Another abuse involved the “undue pressure on

shareholders to act hastily and to accept the offer,

before management or any other group has an op-

portunity to present opposing arguments or compet-

ing offers.” ** The Congress was told that offers,

114 Senate Hearings, p. 31. Section 14(e) was conceived by

its drafters as preventing “inaccurate or incomplete” pres-

entations. See 112 Cong. Rec. 19003 (1966) and discussion,

infra, pp. 64-69.

125 Senate Hearings, p. 125.

116 Senate Hearings, p. 159.

117 Moreover, Chairman Cohen also cautioned the Congress:

“A majority of the district courts which have considered

the question have concluded that the antifraud provisions

of the Securities Exchange Act do not apply because the

misleading announcement was not issued ‘in connection

with’ trading in securities by the corporation.”

House Hearings, p. 59.

118 Senate Hearings, p. 196. See also, Senate Hearings, pp.

19, 31, 35, 38, 178; House Hearings, pp. 13, 18.

118 Senate Hearings, pp. 21, 35 (emphasis supplied).

made at a premium over market, were announced

under conditions creating the impression that a

“hasty deposit” was required to participate in a

transaction structured on a “first-come, first-served

basis.” **° Those who succumbed were predictably de-

prived of taking advantage of “later and better of-

fers, either from the same or a different source.” ™

And, Congress was cautioned that insurgents were

not the sole offenders—there existed a similar need

to stem the pressure exerted by “management or

others in opposition to a tender offer” through legis-

lation “which would make it more difficult to frighten

shareholders into refusing a tender offer on the basis

of unsubstantiated or irrelevant arguments.” *

Finally, tender offerors, target managements and

their allies were found to have engaged in manipula-

tive conduct as an integral part of their offensive

and defensive strategies. The activities of desperate

target managements, funded by corporate treasuries,

and assisted by “friendly” ** “outsiders who went

into the market and purchased shares with the im-

plicit purpose of driving up the price of the shares

and therefore making the tender offer bid look un-

29 Senate H~arings, p. 17. See also, House Hearings, p. 16.

#1 Senate Hearings, p. 17.

122 Speech by Chairman Cohen before Association of th

e Bar

of the City of New York, April 14, 1967, reprinted at Senate

Hearings, pp. 202, 204-205.

128 Senate Hearings, p. 60.

attractive to investors,” * were of particular con-

cern:

“Management * * * may go into the market us-

ing corporate funds to buy stock for the purpose

of frustrating the tender offer, either by reduc-

ing the supply available for tender, or by push-

ing up the price, or both.”

And, to further complicate matters and confuse the

marketplace, while target managements and their

allies were “arranging bids or purchases to raise the

market so as to defeat the tender offer,” tender of-

ferors were “arranging offers or sales * * * in order

to make the tender offer attractive.” ”

D. In Passing the Williams Act, Congress Intended to

Fill the Regulatory Gap by Enacting a Comprehen-

sive Scheme of Regulation Comparable to That

Which Governed Proxy Contests.

In seeking to remedy the abuses in the tender offer

area, Congress was acutely aware of the obvious

parallel between tender offers and proxy contests *”’

and that many of the same practical problems of

providing shareholders with a balanced presentation

existed: ***

124 Senate Hearings, p. 62. See also, Senate Hearings, p. 236.

225 Senate Hearings, p. 196. See also, Senate Hearings, pp.

38, 27.

226 Senate Hearings, p. 131 (as to target managements and

tender offerors) ; id., at pp. 60, 62, 236 (as to “allies’’).

#27 Senate Hearings, p. 206.

128 Id. See also, Senate Hearings, pp. 180-181.

“TA |equisitions of blocks of voting securities are

typically alternatives to proxy solicitations, as

methods of capturing or preserving control. In

either case there is involved a form of industrial

warfare in which the stakes are high, and two

or more groups are attempting to manipulate

the public security holder to their own advan-

tage.” 129

Congress recognized that the protections ultimately

afforded by the Williams Act were patterned on the

existing proxy regulation provisions of the feaeral

securities laws**” and designed to permit the Com-

mission to exercise the same sort of control over the

process." Broad rulemaking authority was granted

to the Commission to make effective the statutory

scheme and, in the cases of contested or competing

tender offers, to prevent “high pressure appeals and

procedures possible when no restraints, other than

the anti-fraud provisions of the securities laws, relate

to those activities.” *”

In short, as Chairman Cohen explained, the Wil-

liams Act would “fill a gap, a rather large gap in

the securities statutes”: **

“The procedures provided by the bill in the case

of contested tender offers are analogous to those

#29 Senate Hearings, pp. 16, 33; House Hearings, p. 11.

130 113 Cong. Rec. 24664 (1967).

131 Senate Hearings, p. 206.

132 Senate Hearings, p. 20.

188 Senate Hearings, pp. 20-21.

now followed when contending factions solicit

proxies under the Commission’s proxy rules.”

Congressional recognition of the similarity of ap-

proach between enforcement of the Williams Act and

enforcement of the proxy regulations—particularly

with respect to implied private rights of action—was

reflected in the references to this Court’s landmark

decision in J. J. Case Co. v. Borak, supra, upholding

implied private rights of action for damages under

the proxy rules. Professor Carlos Israels, a promi-

nent commentator on the securities laws, in discussing

the enforcement of the bill’s provisions and giving an

example of a situation in which a private action

would lie, stated:

“Presumably we may assume that the Commis-

sion will be able to enforce the provisions of this

Bill * * * and of its rules thereunder by pro-

ceedings for injunction in the Federal courts;

and that under J. I. Case Co. v. Borak, 377 U.S.

426 (1964) a private litigant could seek similar

relief before or after the significant fact such

as the acceptance of his tender of securities.” **

E. The Williams Act Provides a Pervasive Scheme of

Federal Regulation of Tender Offers.

The Williams Act, as finally adopted, embodies the

Congressional response to a significant area of pre-

viously unregulated securities activity affecting the

134 Senate Hearings, p. 6/. See also, Senate Hearings, p. 140.

control of publicly-held corporations. Its provisions

reflect the results of Congress’s attempts to resolve

the market problems attributable to tender offers and

the tactics used in opposing them, as described above,

and to establish standards of normative conduct for

all participants in, or persons affected by, tender

offers, without tipping the scales in favor either of

incumbent management and its allies, or in favor of

insurgent groups seeking to persuade existing share-

holders and the marketplace that a change in control

of the target of the takeover bid, and, perhaps, a

change in its management, would be desirable.

The legislation, as originally introduced in 1965,

had the somewhat limited objective of protecting tar-

get corporations and their shareholders from the ac-

tivities of “corporate raiders”.*** Subsequently, the

bill was dramatically revised, and, as finally enacted,

it was intended to provide comprehensive and even-

handed protection to all participants in the tender

offer process.

Senator Williams’ original tender offer legislative

proposal was S. 2731, introduced by him in October,

1965. Although in introducing that bill he expressed

broad concern about “orderly and honest markets,” *”

his main emphasis was upon imposing new obliga-

tions and duties upon persons making tender offers:

185 111 Cong. Rec. 28258, 28259 (1965).

6111 Cong. Rec. 28258 (1965) ; see also, Senate Hearings,

p. 132.

“In recent years we have seen proud old com-

panies reduced to corporate shells after white-

collar pirates have seized control with funds

from sources which are unknown in many cases,

then sold or traded away the best assets, later to

split up most of the loot among themselves * * *.

“The ultimate responsibility for preventing this

kind of industrial sabotage lies with the man-

agement and the shareholders of the corporation

that is so threatened. But the leniency of our

laws places management and shareholders at a

distinct disadvantage in coming to grips with

the enemy.” **’

The provisions of S. 2731 were viewed as working

“to the disadvantage of any corporate takeover spe-

cialists who could not stand the full glare of a public

spotlight.” ** S. 2731 would have attacked takeover

problems from the bill’s limited perspective in essen-

tially three ways. To protect the target company, it

would have (1) amended the reporting of insider

transaction provisions of Section 16 of the Securities

Exchange Act; ** and (2) imposed advance disclosure

and filing requirements on persons making cash ten-

der offers and certain other acquisitions of securi-

87 111 Cong. Rec. 28257-28259 (1965).

188 111 Cong. Rec. 28258 (1965).

1389 The amendment to Section 16 would have had the effect

of subjecting tender offerors and persons associated with them

to the reporting and short-swing profit liability provisions

in certain situations for the first time: the beneficiary of the

expanded short-swing liability would nave been the target

corporation.

ties.“ A third feature of the bill—the grant of rule-

making authority to the Commission to impose re-

quirements with respect to purchases by corporations

of their own securities ‘’—would have assisted tender

offerors.

Subsequent to the introduction of S. 2731, the Com-

mission submitted extensive comments on that bill to

Senator Williams, together with a proposed revision

of the bill embodying the changes which the Commis-

sion suggested.” This led to the introduction by

Senator Williams in 1967 of S. 510, which was es-

sentially the Commission’s proposed revision.“

The Commission’s suggested changes, together with

additional changes added during the hearings on the

bill, expanded the scope of the protections which the

legislation afforded, the range of persons benefiting

from the legislation’s protections and those subject to

0° The advance disclosure and filing provisions would have

prevented persons from making cash tender offers or certain

other acquisitions of securities until 20 days after filing in-

formation with the Commission and furnishing the informa-

tion to the target company.

1 This provision was limited to situations in which the

target corporation’s defensive tactics involved such repur-

chases.

142 112 Cong. Rec. 19003-19007 (1966).

43113 Cong. Rec. 854-857 (1967). See also, Note, Cash

Tender Offers, 83 Harv. L. Rev. 377, 381 at n. 28 (1969);

Binder, The Securities Law of Contested Tender Offers, 18

N.Y.L.F. 069, 610-611 (1973); Hamilton, Some Reflections

on Cash Tender Offer Legislation, 15 N.Y.L.F. 269, 275-276

(1969) ; Note, The Williams Amendments: An Evaluation of

the Early Returns, 23 Vand. L. Rev. 700 (1970).

duties and obligations under the legislation by adding

restrictions on the conduct of persons opposing tender

offers. In particular, they greatly expanded the pro-

tections afforced to tender offerors against defensive

tactics of their opponents. Further, in an effort to

avoid the imposition of greater obligations on pro-

ponents than on opponents of tender offers, it cut

back on some of the restrictions applicable to tender

offerors.

First, S. 510, as the Commission recommended,

deleted the original proposed amendments to the re-

porting and short-swing liability provisions of Sec-

tion 16 of the Securities Exchange Act, thus relieving

tender offerors of a considerable burden which the

original proposal, S. 2731, would have imposed. S. 510

further changed the focus of the original bill, by

transferring the provisions governing securities ac-

quisitions, as distinguished from tender offers, from

Section 10 to Section 13 of the Securities Exchange

Act—a reporting section*—and by transferring

those provisions dealing with tender offers to Section

14 of the Act, in accordance with the Commission’s

suggestion that “it would be appropriate to place

these matters in Section 14 of the Securities Exchange

Act of 1934, the proxy section, and incorporate in the

4 With respect to acquisitions, S. 510 also changed the 20-

day advance filing requirement to a requirement that the

filing be made within 7 days after the acquisition (a 10-day

interval was ultimately permitted). The Commission had

suggested that a requirement for subsequent, rather than ad-

vance, filing “would be less burdensome. * * *” 112 Cong. Rec.

190°* (1966).

proposed statute administrative machinery to handle

tender offers similar to the Commission’s proxy

rules.”’ 145

S. 510 also abandoned any provision for advance

filing, removing a requirement which could have de-

layed and otherwise burdened tender offers.“ And,

in accordance with the Commission’s suggestion, a

provision was added to S. 510 permitting a tendering

shareholder to withdraw his securities at any time

during the first 7 days of the tender offer and at any

time after 60 days from the commencement of the

tender offer. As its history makes clear, this 7-day

provision was intended not only to give shareholders

who tender their shares immediately “‘a short period

within which to reconsider,” *’ but also to promote

competing tender offers at higher prices by enabling

the shareholder to withdraw his shares and accept a

higher bid."

45112 Cong. Rec. 19005 (1966).

148 Senate Report p. 4. See also, Senate Hearings, at pp. 74-

75, 88-89, 98, 108, 111, 151, 163; House Hearings, at pp. 45,

52-53.

47 Senate Report, p. 10; House Report, p. 10.

48 In this regard, in response to ~1estioning from Congress-

man Stuckey about whether competitive bidding was some-

thing “we ought to get away from,” Mr. West of the New

York Stock Exchange replied: “We think competition is the

life of trade, and if they want to increase * * * [the bid], let

them do it. It is a healihy thing.” House Hearings, p. 47.

Chairman Cohen promptly agreed, stating: “We think that

competition is the life of trade, too.” Jd.

A pro-rata acceptance provision (ultimately Sec-

tion 14(d)(6)) also was added by S. 510, in accord-

ance with the Commission’s suggestion,” to provide

fairness for shareholders and to promote competition

by facilitating competing tender offers. This was

accomplished by precluding the tender offeror from

using a “first-come, first-served” basis in accepting

tendered shares, removing the pressures on share-

holders to make hasty, ill-considered decisions and,

to some extent, encouraging shareholders to wait for

a better offer. The Senate Committee modified the

pro-rata acceptance requirement, which, as intro-

duced, would have applied throughout the life of the

tender offer, by limiting the requirement to those

shares which are tendered during the first 10 days

of a tender offer or during the first 10 days after

any increase in the tender offer—a provision opposed

by the Commission as overly protective of tender

offerors at the expense of the shareholders.’” Con-

4° As recommended by the Commission and introduced by

Senator Williams, this provision would have required that,

where a greater number of securities is deposited during the

tender offer than the offer calls for, the securities shall be

taken up pro rata according to the number deposited by each

shareholder. 112 Cong. Rec. 19005 (1966) ; 113 Cong. Rec. 856

(1967).

**° House Hearings, p. 42. Milton Cohen, writing in April

1968, after passage of the Senate version but before passage

of the House version, confirmed the view that the changes

made as a result of the presentation by the commentators at

the hearings “avoid undue impediments to tender offers * * *.”

Cohen, Tender Offers and Takeover Bids, 23 Bus. Law. 611,

61S (1968). However, he warned: “I think that the proof will

gress disagreed and acted to assure equality of treat-

ment to the “competing interests”:

“(Disadvantages to the original] approach * * *

are that stockholders are encouraged to sit on

the fence until the last moment and it tips the

scales further in favor of management by af-

fording it the life of the tender offer to marshall

its considerable resources. A rule along the lines

of the New York Stock Exchange policy should

satisfactorily resolve the competing interests.” *™

Unlike S. 2731, which provided little protection

against unfair activity by management or others in

opposition to a tender offer, S. 510, in accordance

with the Commission’s suggestions, contained detailed

provisions designed to provide broad protection not

only against the improper conduct of tender offerors

but also against that of persons opposing tender

offers. For example, Section 14(d)(4),’* added by

S. 510, was proposed by the Commission to enhance

its rulemaking authority to place the opposing parties

come in the actual administration of the law by the SEC, and

it is here that vigilance will be required on the part of those

concerned with the protection of offerees as well as those con-

cerned with fostering freedom of enterprise.” /d.

151 Senate Hearings, p. 131 (footnotes omitted).

182 “Any solicitation or recommendation to the holders of

* * * 4 security to accept or reject a tender offer or re-

quest or invitation for tenders shall be made in accord-

ance with such rules and regulations as the Commission

may prescribe as necessary or appropriate in the public

interest or for the protection of investors” (emphasis

supplied).

“on a more nearly equal footing.” ** The broad scope

of this rulemaking authority and the wide range of

persons whose conduct would be subject to regula-

tion thereunder were recognized in the Senate and

House Reports, which stated:

“Under this provision the Securities and Ex-

change Commission could specify the informa-

tion to be included in any recommendation by

management or others in favor of or in opposi-

tion to a tender offer and could regulate the

solicitation of investors by brokers and dealers

who are often compensated for shares tendered

as a result of their activities. It would also en-

able the Securities and Exchange Commission

to regulate the activities of persons who make

competing tender offers or seek to influence the

investor's decision on a tender offer.” **

And, in accordance with the Commission’s sugges-

tion, S. 510 added a self-operative provision—ulti-

mately enacted as Section 14(e)—which, like Section

14(d)(4), expanded the legislation’s protections

against the conduct of persons who oppose tender of-

fers.” In recommending this provision, the Com-

153 112 Cong. Rec. 19005 (1966).

154 Senate Report, p. 9; House Report, p. 10 (emphasis

supplied).

155 Section 14(e), as enacted in 1968, provided:

“It shall be unlawful for any person to make amy untrue

statement of a material fact or omit to state any material

fact necessary in order to make the statements made, in

light of the circumstances under which they are made, not

misleading, or to engage in any fraudulent, deceptive, or

manipulative acts or practices, in connection with any

mission recognized that its function under it, as its

function under Section 14(d)(4), was to furnish

broad protection against the conduct of persons both

opposing and favoring a tender offer.’ The Commis-

sion stated:

“The Commission believes that a provision such

as this presents an additional protection, beyond

the rule-making power suggested in other parts

of the bill, against possible dissemination of in-

accurate or incomplete information or fraudulent

acts or practices by persons who make or invite

tender offers and affords a more practical means

of preventing inaccurate or incomplete presenta-

tions or fraudulent acts or practices by persons

opposing or favoring such tender offers than

would be provided by additional rulemaking

tender offer or request or invitation for tenders, or any

solicitation of security holders in opposition to or in favor

of any such offer, request, or invitation.

15 U.S.C. 78n(e) (1968) (emphasis supplied).

See also Mundheim, Tender Offers, 2 Rev. of Securities Regu-

lation 953, 956 (1969); Binder, The Securities Law of Con-

tested Tender Offers, 18 N.Y.L.F. 569, 626-627 (1973) ; Brom-

berg, The Securities Law of Tender Offers, 15 N.Y L.F. 459,

470.474 (1969); Hamilton, Some Reflections on Cash Tender

Offers, 83 Harv. L. Rev. 377, 382 (1969) ; Note, The Develop-

ing Meaning of “Tender Offer’’ Under the Securities Exchange

Act of 1934, 86 Harv. L. Rev. 1250, 1259-1260 (1973).

#6 As originally proposed, this provision would have been

part of Section 2 of S. 5)". and therefore would not have

reached solicitations in opmosition to exehange offers, which

had been exempted from Section 14(d). However, the pro-

vision became applicable to all tender offers when it was

placed in a separate subparagraph of Section 14—Section

14(e).

power with respect to acts and practices of such

persons or to materials emanating from them in

their efforts to get existing shareholders to ac-

cept or not to accept tender offers.” *”

Congress borrowed heavily from existing antifraud

and misleading statement provisions in the federal

securities laws, and the rules adopted under them by

the Commission, in enacting Section 14(e), to assure

the success of its attempts to require the fullest possi-

ble disclosure by tender offerors and those opposing

them, as well as to assure the success of its attempts

to proscribe conduct which might unfairly influence

the outcome—one way or the other—of cash or ex-

change tender offers for corporate control.’

Unlike the other provisions of the Williams Act,

however, Section 14(e), “in the tradition of the gen-

eral fraud provisions of the [Securities Act of] 1933

157 112 Cong. Rec. 19005 (1966). The Commission went on

to explain that a provision like Section 14(e) would provide

“a more practical means” of protection than additional rule-

making authority, stating:

“This would appear to be especially true in view of the

shortness of time for * * * persons [opposing or favoring

tender offers] to act after the tender offer is made and

the fact that possible grounds for opposing or favoring

varying types of tender offers are so wide and unpre-

dictable in scope as to make it a difficult area to deal with

on a rule-making basis.” Jd.

** 6 Loss, Securities Regulation, 3660-3661 (Supp., 1969) ;

Bromberg, The Securities Law of Tender Offers, 15 N.Y.L.F.

462, 468, 470-474 (1969); Hamilton, Some Reflections on

Cash Tender Offer Legislation, 15 N.Y.L.F. 269, 289-293

(1969); Binder, The Securities Law of Contested Tender

Offers, 18 N.Y.L.F. 569, 610-611, 626-641 (1973).

and [the Securities Exchange Act of] 1934 * * *,

applies to all securities without regard to registra-

tion.” ** But, in adapting the Commission’s broad

proxy and antifraud rules to tender offer contests,

Congress did not simply proscribe only “fraudulent,

deceptive or manipulative acts or practices, in con-

nection with any tender offer” or “any solicitation

in opposition to or in favor of any such offer * * *,”

as it had done in other provisions of the federal se-

curities laws. Rather, as the Commission had done

in adopting Securities Exchange Act Rule 14a-9, for

proxy materials, Congress also intended to, and did,

reach and prevent any misleading, inaccurate, inade-

quate or overly optimistic statements used by any of

15° Section 14(e) is broad and sweeping in its proscriptions.

It governs conduct by any person involving either misleading

statements or omissions of material facts, similar to the pro-

scriptions contained in

—Section 17(a) of the Securities Act — fraud

in the offer or sale of securities) ;

—Section 10(b) of the Securities on Act, and the

Commission’s Rule 10b-5 adopted under the latter section

(barring fraudulent, deceptive or ma: :pulative conduct

in connection with the purchase or sale of any security) ;

—Security Exchange Act Rule 14a-9, (proscribing mis-

leading statements in proxy soliciting materials) ; and

—Section 15(c) (1) of the Securities Exchange Act and

Rules 15c-1 and 15c-2 under the latter section (governing

the conduct of brokers and dealers in securities).

The borrowing from these sections and rules was not inad-

vertent. See, e.g., Senate Hearings, p. 140 (testimony of

Professor Painter).

the participants in the tender offer process—whether

deliberately or inadvertently made.*”

Section 14(e) also reflects the widespread recogni-

tion, as demonstrated by the allegations and findings

of the Court below in this case (A. 7-A 18), that the

success of a tender offer, management’s opposition to

a tender offer, or the outcome of a competing bidder’s

offer, often depend on manipulative activities in the

marketplace to affect the market price of the target

company’s securities.’ Accordingly, Section 14(e)

10° See, e.g., Senate Hearings, p. 178 (testimony of then

Chairman Cohen):

“(T]he management may wish to put out literature op-

posing the bid. That literature may not be subject to

easy establishment as being outright fraudulent, but it

may be inadequate. It may omit material information.”

See also, id., p. 196 (testimony of Chairman Cohen) (“If

management does oppose the offer, the present lack of regula-

tion leaves it with powerful weapons, which it may wield

with impunity, provided its activities fall short of fraud’) ;

id., p. 31 (testimony of Chairman Cohen) (analogizing the

bill to the proxy rules and emphasizing the need for a pre-

filing provision to avoid inadvertent or advertent misleading

statements) ; House Hearings, p. 17 (to the same effect) ;

Senate Hearings, p. 159 (testimony of Donald Regan) ; id.,

p. 99 (testimony of Ralph Saul (“the accuracy of the infor-

mation [disseminated] is assured by the sanctions of [the

substantially identical predecessor of Section 14(e)] of the

bill * * *”)); id., p. 125 (testimony of Professor Mundheim).

‘1 See, e.g., 113 Cong. Ree. 855 (1967) (Remarks of Sena-

tor Williams) ; Senate Hearings, p. 3 (Remarks of Senator

Williams) ; id., p. 60 (testimony of Professor Hayes) (‘“‘we

fully concur with the intent of the bill to eliminate the man-

ipulation of the stock prices during the period that a tender

offer is outstanding”). And see id., p. 131 (testimony of

Arthur Fleischer, Jr.).

bars any person from engaging in manipulative acts

or practices generally, and, as amended in 1970, it

also authorizes the Commission to define, and to adopt

additional regulations to “prescribe means reason-

ably designed to prevent, such acts and practices as

are fraudulent, deceptive or manipulative.”

Nor did Congress intend its general proscription

against manipulative conduct in connection with

tender offers to suffice. Recognizing that manage-

ment, either directly or through its allies, had often

engaged in repurchasing its own securities—deliber-

ately or unintentionally—affecting the market price

of its securities, and, concommitantly (or consequen-

tially), deflating the attractiveness of an unfriendly

tender offer, Section 13(e) of the Act was adopted to

govern such repurchases and strip them of their in-

tended or unintended manipulative effects.'” It ac-

162 See, e.g., 118 Cong. Rec. 856 (1967) (Remarks of Sena-

tor Williams) :

“Such stock purchase programs, however, may involve

substantial amounts of securities and can have a sub-

stantial effect on the market price. There have been dis-

turbing instances, where, it has been suggested, that

such programs may have been utilized as a device to

manipulate the market to serve the purpose of the cor-

poration or of those who control it. Hven where no

manipulative purpose exists, market impact can be sub-

stantial and, particularly where the corporations’ in-

cursions into the market occur sporadically, unnecessary

and undesirable price fluctuations can result” (emphasis

supplied).

[Footnote continued on page 69]

complishes this task by making it unlawful for an

issuer to purchase any of its own equity securities

in contravention of Commission rules adopted to de-

fine and “to prescribe means reasonably designed to

prevent” any “fraudulent, deceptive or manipulative”

practices."

162 [Continued]

See also, Senate Hearings, p. 3 (remarks of Senator Wil-

liams) ; id., pp. 27, 37 (testimony of Chairman Cohen).

The concern over manipulative purchases of the target cor-

poration’s stock extended to situations in which management

had “no improper motive” (id., p. 27) as well as to ““pur-

chases by a parent or subsidiary of the issuer, or anyone

else in a control relationship with the issuer * * *” (id., p.

28). And to “friends” of management, see id., pp. 60, 62

(testimony of Professor Hayes).

*°* Commission rules under Section 13(e) may also require

the issuer to furnish whatever information the Commission

deems necessary or material with respect to such matters as

the reasons for purchases; the source of the funds to be

used; the number of shares to be purchased; the price; and

the method of purchase.

F. Congress Recognized that the Williams Act Should

Protect All Persons Interested in, or Affected by,

Tender Offers.

The legislative history of the Williams Act is, as

petitioners assert, replete with statements about the

need to protect the shareholders of the target corpo-

ration.“ But, the legislative history, as well as the

specific language of the Williams Act, also demon-

strates that Congress was well aware that “share-

holders alone are not the only persons concerned” *”

and that there was a need to protect, and it intended

to protect, a much broader range of interests and

persons.

Detriment to the marketplace generally was force-

fully before the Congress, and it sought to avoid that

evil. Since “the confusion that develops [where there

are competing offers at different prices] can have

a very serious adverse affect on the public confidence

in the integrity and openness of the securities mar-

kets,” ** Congress was concerned with the need to

protect, and to place on an equal footing, all par-

ticipants in the marketplace, including the business-

men who make tender offers, current stockholders

and potential investors.’

Congress wanted to assure all participants not only

that all material information would be available, but

164 See, e.g., Senate Hearings, pp. 2, 15, 16, 42, 43, 107.

65 Senate Hearings, p. 178.

166 Senate Hearings, p. 18.

6 Senate Hearings, pp. 70-71; see also, 113 Cong. Rec.

854-855 (1967).

70 |

also that they would be participating in a fair con-

test in which all such information would also be

available to the persons with whom they deal. As

Senator Williams emphasized at the opening of the

Senate hearings on S. 510.

“It is our Nation’s legitimate businessmen as

well as the more than 20 million American share-

holders who have the most to gain from this

legislation. This bill will put all on an equal

footing with respect to the availability of sig-

nificant facts about a tender offer or a corporate

stock purchase program. All will be able to deal

in the securities markets knowing that all of the

pertinent facts are available. This is the pre-

mise under which our securities markets are sup-

posed to work.” **

Among the nonshareholder participants expressly

recognized by Congress as needing protection were

the target corporation and its management.’ Sena-

tor Williams stressed that the Senate Committee had

taken “extreme care” *” to protect the legitimate

interests of the corporation and its management.’”

*** Senate Hearings, p. 3 (emphasis added). See also 113

Cong. Rec. 856 (1967). The foregoing concern for equality

among participants has particular relevance to the provision

involved in this case—Section 14(e)—which is expressly di-

rected both to persons opposing and to those favoring a

tender offer.

“* 113 Cong. Rec. 854-855 (1967).

7° Senate Report, pp. 3-4.

2113 Cong. Rec. 854-855 (1967). See also, Senate Hear-

ings, pp. 43, 46.

Similar protections were intended for the tender of-

feror. As noted, Congress expressed its interest in

assuring the fairness of the competition for corporate

control by providing equal rights and treatment in a

tender offer contest so that “the forces in contention

can have full play.” ** And the Congress emphasized

that it had also taken “extreme care” to provide an

equal opportunity to both the insurgents and the

entrenched, “to avoid tipping the balance of regula-

tion either in favor of management or in favor of

the person making the takeover bid.” ** Providing

that equality of opportunity was critical, Congress

was told, because the “scales [were] pretty unbal-

anced * * * and unbalanced in the favor of manage-

ment,” ‘* management, which one commentator ob-

served, had “ess and less responsibility and account-

ability to shareholders.” *”

Thus, the tender offer was seen as an alternative

device to permit shifts in corporate control '” from

managements that had become smug and complacent

in office.’ Critics of early versions of the bill”

172 House Hearings, pp. 47-48; see also, House Report, p. 4;

118 Cong. Rec. 854 (1967); Senate Hearings, pp. 25, 204-

205; Fairer Deal for All Jn Takeovers Is The Aim, The

Times (of London), Sept. 6, 1967.

178 Senate Report, p. 3.

174* Senate Hearings, p. 117.

175 Senate Hearings, p. 120; Senate Hearings, pp. 133-134.

176 Senate Hearings, pp. 115-116.

177 Senate Hearings, pp. 133-134.

178 Professors Kaplan, Mundheim and Painter were the pri-

mary critics of the bill.

argued that it would discourage and impede tender

offers, which served salutary purposes. Indeed, in

their view, tender offers presented the only realistic

opportunity to oust inefficient management.’” Those

entrenched were seen to be virtually unassailable

through their control of the proxy machinery, and the

challenging proxy solicitor was required to make a

very costly investment without much chance of win-

ning the fight." The problem was compounded by the

observable inertia of stockholders ™ and the fact that

management had the use of corporate funds to pur-

chase the securities of a disagreeing shareholder ‘“‘to

protect corporate policy” *’ and had “strong allies—

banks with which the corporation keeps its deposits,

insurance companies with which it places business,

suppliers and customers.” ™

The results were predictable: proxy contests had

become less effective *** and management had been

successful in over two-thirds of the tender offers at-

17° Senate Hearings, p. 116.

#0 Senate Hearings, pp. 116; 120, 121; 133-134.

81 Senate Hearings, p. 121, citing Kors v. Carey, 39 Del.

Ch. 47, 158 A. 2d 136 (1960) and Cheff v. Mathes, 41 Del.

Ch. 494, 199 A. 2d 548 (1964).

82 Senate Hearings, p. 121.

168 Senate Hearings, pp. 137-138.

** Senate Hearings, p. 120.

tempted prior to 1966. The commentators criticized

S. 510 as tipping the scales even further in favor

of management.”

As a result, Congress amended the draft bill to

make it less burdensome to tender offerors—it elimi-

nated any advance filing requirement for tender offers

and it limited an offeror’s obligation, in cases where

more shares are tendered than requested, to accept

shares tendered on a pro-rata basis to those shares

tendered within the first ten days. Significantly, both

of these changes were strongly opposed by the Com-

mission, which believed that, in these areas, the in-

terests of shareholders outweighed the interests of

tender offerors.’ Notwithstanding this objection,

Congress made both changes, specifically indicating

its desire to protect the tender offeror’s “opportunity

to fairly present [its] case.” ** In this regard, the

Congress took some comfort from the Commission’s

concession that, if the bill did not adequately protect

5 Senate Hearings, p. 117.

18¢ Senate Hearings, p. 127.

187 Senate Hearings, p. 31; House Hearings, pp. 17-18, 42,

50, 53.

18 Senate Report, p. 3; House Report, p. 4. During the

House Hearings, for example, Chairman Cohen had noted

“that in trying to take care of the company or the offeror we

have to remember that the exercise here is to protect the in-

vestor. * * * the person to which this whole game is directed.”

But Congressman Stuckey disagreed: “I also think we have

an obligation to the corporations of the United States.” Chair-

man Cohen quickly concurred: “I could not agree with that

more.” House Hearings, p. 52.

the interests of tender offerors, particularly against

management opposition to takeover efforts, the criti-

cism of the bill—that it inadequately concerned it-

self with the interests of offerors—“would have con-

siderable merit.” **” As §S. 510 finally was enacted,

Congress perceived that it had fulfilled the need for

comprehensive legislation “substantially” to reduce

“the ability of incumbent management to frustrate an

attractive and desirable tender offer” ‘’—even if the

legislation would, as Chairman Cohen indicated, also

“serve to help the takeover bidder.” ™

II. CONSISTENT WITH ITS PRIOR TEACHINGS,

SOUND POLICY, AND UNDERLYING CONGRES-

SIONAL INTENT, THIS COURT SHOULD AFFIRM

THAT A PRIVATE RIGHT OF ACTION MAY BE

IMPLIED UNDER SECTION 14(e) OF THE SECUR-

ITIES EXCHANGE ACT ON BEHALF OF A COM-

PETING TENDER OFFEROR AGAINST THOSE

WHOSE MISLEADING STATEMENTS HAVE IN-

JURED IT.

As the foregoing discussion demonstrates, the Wil-

liams Act legislation adopted by the Congress in

1968, and strengthened by the amendments to it in

1970, creates the same “pervasive legislative scheme

governing the relationship between * * *” the broad

range of persons interested in, and interests affected

18° Senate Hearings, pp. 183, 184.

1 Senate Hearings, pp. 184, 196.

1 Senate Hearings, p. 178.

by, tender offers as this Court repeatedly has found

to exist in the area of proxy regulation, Cort v.

Ash, 422 U.S. 66, 82 (1975); J. I. Case Co. v. Borak,

377 U.S. 426 (1964). And, as “[i]n Borak, the

statute involved [here is] * * * clearly an intrusion

of federal law into the internal affairs of corpora-

tions * * *” and the affairs of those seeking to en-

gage in contests for corporate control. Cort v. Ash,

supra, 422 U.S. at 85.

In adopting the Securities Exchange Act of 1934,

Congress was acutely aware of the need for private

civil enforcement of violations of the Act.’” It recog-

nized that the duties it had created in turn created

rights in favor of persons injured by a breach of

those duties, and that simple justice required recog-

nition of the right cf those so

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