Jurisdictional Statement — Edgar v. MITE Corp.

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JAN 15 1980

9 0- ‘ ss 4 soorore Coot us.

MICHAEL PODAK, JR., CLERK

IN THE

Supreme Court of the Anited States

Octoser Term, 1980

JAMES EDGAR,

Appellant,

vs.

MITE CORPORATION and MITE HOLDINGS, INC.,

Appellees.

ON APPEAL FROM THE UNITED STATES

COURT OF APPEALS FOR THE SEVENTH CIRCUIT

JURISDICTIONAL STATEMENT

TYRONE C. FAHNER

Attorney General of Illinois

160 North LaSalle Street

Suite 900

Chicago, Illinois 6060

(312) 793-3500

Counsel for Appellant

Pau J. BARGIEL,

Russe._ C. Grimes, Jr.

Assistant Attorneys General

160 North LaSalle Street, Suite 800

Chicago, Illinois 6060!

(312) 793-5635

Of Counsel

Printed by the Authority of the State of Ilinois— 1-81-40

QUESTIONS PRESENTED

Whether the Illinois Business Take-Over Act conflicts with

the Williams Act amendments to the Securities Exchange Act of

1934?

Whether the Illinois Business Take-Over Act regulates

evenhandedly to effectuate strong legitimate local interests that

outweigh the incidental effect on interstate commerce, and is

valid under the commerce clause?

TABLE OF CONTENTS

I ETI nc snd aasiekphorciosssesesoenevaisaosaiebinnbecnsetion

IIIT LE a hiaievi thi dhcncéstapsninvesqenceocictboseseseseddeséap

CONSTITUTIONAL AND STATUTORY PROVI-

EE PSII O MIE itch coca nisdnocerecenicckeroimevenbethtbseecicets

STATEMENT OF THE CASE .........00:ccccccscscescccssceoeesesseee

THE QUESTIONS ARE SUBSTANTIAL. ...............0000005

ITY Pandit cideiedhsihsecedescendinncsiansccovesiiptighieeisesiiibes

APPENDIX (separate Volume ) ...............cccccceeesseeeeeneenees

TABLE OF AUTHORITIES

Cases.

AMCA International Corp. v. Krouse, 482 F.Supp.

NEED, BERD viskedlidctannreccoersosescencsseeninanss

Great Western United Corp. v. Kidwell, 577 F.2d

RUPEE MEME DENIED D ccosnnesncthpumsdnibveoscccseessiatinanieress

Hall v. Geiger-Jones Co., 242 U.S. 539, 61 L.Ed.

NURIA TEE 7 Pa idacipkethstncsitintivcctndeccentegnesoesntqueccerienpietes

Hines v. Davidowitz, 312 U.S. 52, 85 L.Ed. 581

SE, Bidaakte that iecsihalbbpahalcetihessntedoccsccesceucessieanennices

LeRoy v. Great Western United Corp., 443 US.

173, 61 L.Ed. 2d 464 (-1979) oo..cccccccssesssesseeesenees

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

414 US. 117, 38 L.Ed.2d 348 (1973)... cccceeees

Pennsylvania v. Nelson, 350 U.S. 497, 100 L.Ed.

640 (1956)... 28 Nf CRE SS RAR a

Pike v. Bruce Church, Inc., 397 U.S. 137, 25

Ne OEE Nites cetesastanshbaibNicessanseeseqsseseonenne

Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 51

EG VAAL AO TID isis csicseetapenscceclnsnneni

Raymond Motor Transportation, Inc., v. Rice, 434

USS. 429, 54 L.Ed. 2d 664 (1978) .........ccccseeseeeees

Statutes.

Williams Act (15 U.S.C. §§ 78m(d)-(e), 78n(d)-

(f) noe

Securities Sidienes Act of 1934, § 28(a) (15

REET TE UIIEIE TD och tls doscsocecmhicenabsbiseescdebasceqdece

Illinois Business Take-Over Act, Ill.Rev.Stat. 1979,

ch.121%, § 137.51 et seg.)

Treatises.

Shipman, Some Thoughts About The Role Of State

Takeover Statutes: The Ohio Takeover Act, 21

Case Western Reserve L.J. 722( 1970).................

Note, Securities Law and the Constitution: State

Tender Offer Statutes Reconsidered, 88 Yale L.J.

Fe Bee iasiiediaiinale dain niotliiptecnineseshngpstiabinecsass

9,12

IN THE

Hupreme Court of the Anited States

Octoser Term, 1980

JAMES EDGAR,

Appellant,

vs.

MITE CORPORATION and MITE HOLDINGS, INC.,

Appellees.

ON APPEAL FROM THE UNITED STATES

COURT OF APPEALS FOR THE SEVENTH CIRCUIT

JURISDICTIONAL STATEMENT

OPINIONS BELOW

The opinion of the United States District Court for the

Northern District of Illinois, Eastern Division, has not been

reported, but is included in the appendix at p. 32a. The opinion

of the United States Court of Appeals for the Seventh Circuit is

not reported, but is included in the appendix at p. la.

JURISDICTION

Appellees initiated this action in the United States District

Court for the Northern District of Illinois, Eastern Division,

pursuant to Section 27 of the Securities and Exchange Act of

1934 (15 U.S.C. § 78aa), 28 U.S.C. §§ 1332, 1337 and 42

U.S.C. 1983, and the district court held that the Illinois Business

Take-Over Act (Ill. Rev. Stat. 1979, ch. 121%, § 137.51 et. seq.)

was unconstitutional.

The judgment of the United States Court of Appeals for

the Seventh Circuit, affirming the district court, was entered on

October 17, 1980. See p. 42a. A notice of appeal to this Court

was duly filed on January 5, 1981, in the United States Court of

Appeals for the Seventh Circuit. See p. 43a.

This appeal is being docketed in this Court within 90 days

of entry of the order below. The jurisdiction of this Court is

invoked under 28 U.S.C. § 1254(2).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

Article 1, section 8 of the United States Constitution

provides in pertinent part that:

The Congress shall have Power ... [t]o regulate Com-

merce with foreign Nations, and among the several States,

and with the Indian Tribes;

Article VI of the United States Constitution provides in

pertinent part that:

This Constitution, and the Laws of the United States which

shall be made in Pursuance thereof; and all Treaties made,

or which shall be made, under the Authority of the United

States, shall be the supreme Law of the Land; and the

Judges in every state shall be bound thereby, any Thing in

the Constitution or Laws of any State to the Contrary

notwithstanding.

Illinois Business Take-Over Act, Ill.Rev.Stat. 1979, ch.

121%, § 137.51 et seq.

(See Appendix, p. 45a)

Williams Act amendments to the Securities Exchange Act of

1934 (15 U.S.C. § 78m(d)-(e), 78 n(d)-(f)(1976). The

pertinent sections are set forth in the Appendix at 65a.

STATEMENT OF THE CASE

Appellant, James Edgar, is the Secretary of State of Illinois

and is charged with the administration and enforcement of the

Illinois Business Take-Over Act (Ill. Rev. Stat. 1979, ch. 121%,

§ 137.51 et. seg.) (the “Illinois Act”). MITE Corporation and

MITE Holdings, Inc., (collectively “MITE” ) sought to make a

cash tender offer for the shares of Chicago Rivet and Machine

Co. (“Chicago Rivet”) without having to comply with the

Illinois Act. Chicago Rivet is a publicly-held Illinois Corpo-

ration with its principal executive offices in Bellwood, Illinois.

Chicago Rivet has 866,264 shares of common stock outstanding

and 2,181 shareholders of record. Of those shareholders, 589

are residents of Illinois, and they own 377,395 common shares.

On January 19, 1979, MITE filed a Schedule 14D-1 with

the Securities and Exchange Commission (the “SEC”) con-

cerning its proposed tender offer, pursuant to section 14(d)(1)

of the Williams Act, 15 U.S.C. § 78n(d)(1) (1976), and

Regulation 14D promulgated thereunder. MITE’s proposed

tender offer of $28.00 per share for all the shares of Chicago

Rivet represented a premium of more than $4.00 per share over

the market price preceding announcement of the offer.

MITE initiated this action on January 19, 1979, seeking to

have the district court declare the Illinois Act null and void on

its face because it violated the supremacy and commerce

clauses of the United States Constitution. In addition MITE

sought injunctive relief prohibiting then Secretary of State Alan

J. Dixon and Chicago Rivet from enforcing the Illinois Act

against it in connection with its proposed tender offer.

On January 22, 1979, Chicago Rivet filed an action in the

Court of Common Pleas of Blair County, Pennsylvania, alleging

that MITE was in violation of the Pennsylvania Take-Over

Disclosure Law, 70 Pa. Cons. Stat. Ann. tit. 70, § 71 ef seg.

(Purdon Supp. 1978). The court issued an ex parte order

enjoining MITE from pursuing its tender offer pending further

hearing on January 26, 1979. On January 22, 1979, Chicago

Rivet also filed a complaint with the Pennsylvania Securities

Commission. MITE removed the action filed in the Court of

Common Pleas of Blair County to the United States District

Court for the Western District of Pennsylvania, and also filed a

complaint seeking to have the Pennsylvania Act declared

unconstitutional and to have its enforcement enjoined. On

January 31, 1979, the Pennsylvania Securities Commission

determined that it would not invoke the Pennsylvania Act, and

on the next day the District Court for the Western District of

Pennsylvania denied Chicago Rivet’s motion for a temporary

restraining order.

On February 1, 1979, Dixon executed a temporary cease

and desist order and notice of hearing regarding the proposed

tender offer and notified MITE that the order and notice would

be served February 5, 1979. On February 2, 1979, the district

court entered an order preliminarily enjoining Dixon from

enforcing the Illinois Act against MITE in connection with its

tender offer for the shares of Chicago Rivet. MITE published

its tender offer to all shareholders of Chicago Rivet in the

national edition of the Wall Street Journal on February 5.

The district court entered its final judgment order on

February 9, 1979, declaring the Illinois Act to be null and void.

The district court held that the Illinois Act was preempted by

the Williams Act and created an undue burden on interstate

commerce in violation of the commerce clause. The district

court also permanently enjoined Dixon from enforcing the

Illinois Act against MITE in connection with its tender offer for

the shares of Chicago Rivet.

Appellant appealed to the Court of Appeals for the

Seventh Circuit from the final judgment order of the district

court declaring the Illinois Act to be null and void. The Court

of Appeals for the Seventh Circuit affirmed, holding that the

Illinois Act was preempted by the Williams Act and also

constituted an undue burden on interstate commerce in viola-

tion of the commerce clause.

THE QUESTIONS ARE SUBSTANTIAL

THE ILLINOIS BUSINESS TAKE-OVER ACT IS NOT

INFIRM UNDER THE SUPREMACY CLAUSE BE-

CAUSE STATE REGULATION THAT PROVIDES ADDI-

TIONAL PROTECTION FOR THE SHAREHOLDER

CONFRONTED WITH A TENDER OFFER DOES NOT

CONFLICT WITH THE WILLIAMS ACT.

The question of whether the Illinois Act conflicts with the

Williams Act smendments to the Securities Exchange Act of

1934, 15 U.S.C. §§ 78m(d)-(e), 78n(d)-(f)( 1976), or is in-

valid under the commerce clause of the United States Con-

stitution is a substantial one as the great majority of states have

enacted analogous statutes regulating tender offers.' The vali-

dity of state regulation of tender offers under the Williams Act

and commerce clause has not been treated before by this

Court.?

This Court has said that the sole purpose of the Williams

Act was to protect investors confronted with a tender offer.

Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 35, 51 L.Ed.2d

124 (1977). The Williams Act is the product of the increasing

use of the cash tender offer during the 1960’s as a virtually

unregulated method of corporate acquisition. Jd. at 22. When

Congress enacted the Williams Act the first state takeover

statute had already been enacted ( Va. Code §§ 13.1-528 ef seg.

(1978), effective March 5, 1968). It is significant that despite

the proliferation of state takeover statutes the use of the tender

offer mechanism for corporate acquisition has not been de-

'See, Note, Securities Law and the Constitution: State Tender

Offer Statutes Reconsidered, 88 Yale L.J. 510, 514-515, n 29( 1979)

(hereinafter “Tender Offer Statutes Reconsidered”), which lists the

analogous statutes enacted in 36 States.

2 In Leroy v. Great Western United Corporation, 443 U.S. 173, 61

L.Ed. 2d 464( 1979), this Court reversed on grounds of improper

venue and did not pass on the validity of the Idaho statute.

terred. AMCA International Corp. v. Krouse, 482 F.Supp. 929,

938 (S.D. Ohio, 1979); Tender Offer Statutes Reconsidered,

supra, n.1, at 523.

The Seventh Circuit Court of Appeals did not hold that

Congress has expressly barred the states from regulating tender

offers. This Court has said that § 28(a) of the Securities”

Exchange Act of 1934? “was plainly intended to protect, rather

than to limit, state authority.” Leroy v. Great Western United

Corp., 443 U.S. 173, 182, 61 L.Ed. 2d 464 (1979). The

Williams Act does not contain language expressing direct

preemptive intent, and on the occasions that Congress has

amended the Williams Act it has not expressly preempted

concurrent state regulation. AMCA, supra, 482 F.Supp. at 935.

Nor did the Seventh Circuit Court of Appeals hold that the

federal scheme of regulating tender offers is sufficiently per-

vasive to infer an implicit congressional intent to preempt state

legislation. It is also clear that the field of securities regulation

is not an area of paramount federal importance, such as

national security or foreign wffairs, in which federal legislation

that is not pervasive will nevertheless preempt state legislation.

See Pennsylvania v. Nelson, 350 U.S. 497,504-505, 100 L.Ed. ©

640( 1956); Hines v. Davidowitz, 312 U.S. 52,67, 85 L.Ed.

581( 1941). The coexistence of federal and state regulation of

securities transactions is established. Merrill Lynch, Pierce,

Fenner & Smith v. Ware, 414 U.S. 117, 127, 38 L.Ed.2d

348( 1973).

Absent explicit or implicit preemption, the validity of the

Illinois Act depends upon whether it “stands as an obstacle to

the accomplishment and execution of the full purposes and

3Section 28(a), as set forth in 15 U.S.C. § 78bb(a)( 1976),

provides in pertinent part:

Nothing in this chapter shall affect the jurisdiction of the

securities commission (or any agency or officer performing like

functions ) of any State over any security or any person insofar as

it does not conflict with the provisions of this chapter or the rules

and regulations thereunder.

objectives of Congress.” Hines v. Davidowitz, 312 U.S. 52,67,85

L.Ed. 581(1941). The Seventh Circuit Court of Appeals

concluded that the Williams Act protects investors by a “market

approach” and is also designed to preserve a neutral balance

between incumbent management and offeror. See Great West-

ern United Corp. v. Kidwell, 577 F.2d 1256( 5th Cir. 1978),

rev'd on venue grounds sub nom. Leroy v. Great Western United

Corp., 443 U.S. 173, 61 L.Ed.2d 464( 1979). This Court has

said that “Congress was indeed committed to a policy of

neutrality in contests for control, but its policy of evenhanded-

ness does*not go . . . to the purpose of the legislation . . .” which

was to protect investors. Piper, supra, 430 U.S. at 29. As the

Illinois Act provides the investor confronted with a tender offer

with additional protection, supplementing that provided by the

Williams Act, the fact that the balance between the respective

positions of incumbent management and offeror might be

affected, or that a particular offeror might not prevail in a

particular tender offer does not thwart the purpose of Congress

in enacting the Williams Act.

Apart from the disclosure requirements in sections 13(d)

and 14(d) of the Williams Act, investors are afforded certain

substantive protections. 15 U.S.C. §§ 78m(d), 78n(d).

Tendering shareholders can withdraw stock within the first

seven days of an offer or any time after sixty days. 15 U.S.C.

§ 78n(d)(5)(1976).4 When a tender offer is for less than all of

the outstanding shares, those shares tendered during the first

ten days must be taken up pro rata by the offeror. 15 U.S.C.

§ 78n(d) (6)( 1976). Finally, if the amount of consideration is

later increased all tendering shareholders will receive the higher

price. 15 U.S.C. § 78n(d)(7)(1976). The Seventh Circuit

*The SEC has extended the seven day withdrawal period

contained in the Williams Act to fifteen business days. 17 C.F.R.

§ 240.14d-7 (1979).

Court of Appeals held that the following provisions of the

Illinois Act would unduly aid incumbent management and

would deter the making of tender offers to the detriment of the

investor. The Illinois Act requires that an offeror file a

registration statement with the Secretary of State, and that the

offer will automatically become registered after 20 business

days, unless the Secretary accelerates or delays the period or

calls a hearing (Ill.Rev.Stat.1979, ch. 121%, § 137.54.C.,E.).§

The Illinois Act provides for a hearing if the Secretary deems it

necessary for the protection of Illinois offerees, or if one is

requested by a majority of the outside directors or by Illinois

residents who hold at least 10% of the shares (Ill. Rev.Stat. 1979,

ch. 121%, § 137.57.A.). The hearing is to commence within ten

days, unless extended by the Secretary for the protection of

Illinois offerees or the convenience of the parties, and the

Secretary is to issue a decision within fifteen days of the hearing

unless the protection of Illinois offerees requires an extension

(Ill. Rev.Stat.1979, ch. 121%, § 137.57.C.,E.).

Although a tender offer will proceed at a slower pace under

the Illinois Act, this does not conflict with the congressional

purpose of protecting the investor, even though it may affect the

respective positions of incumbent management and offeror.

The element of surprise is eliminated by the pre-effective filing

requirement. The element of surprise is unquestionably benefi-

cial to the offeror. If the target company is successful in finding

another bidder, the original offeror is detrimentally affected, but

the Williams Act was not enacted to protect the offeror.

The closer scrutiny of an offer under the Illinois Act and

the provision for a hearing before the Secretary of State

necessitate some delay, but this is necessary to protect the

5 The 20 day pre-offer filing required under the Illinois Act

conflicts directly with the SEC’s new Rule 14-d-2. 17 C.F.R.

§ 240.14d-2b. The Seventh Circuit Court of Appeals did not rely on

the new SEC rules because those rules do not apply to tender offers

made prior to their effective date. 44 Fed. Reg. 70326 (1979). Cf.

AMCA, supra, 482 F. Supp. at 933-34, n.4.

shareholder and does not unduly inhibit the making of tender

offers. Although the respective ten and fifteen day periods for

holding a hearing and issuing a determination can be extended

by the Secretary if necessary, they certainly constitute a guide-

line within which the Secretary would act in an ordinary case.

Of course during the whole period the activities of incumbent

management are also covered by the Illinois Act (Ill.Rev.Stat.

1979, ch. 121%, §§137.55., 137.58.(1)-(3), 137.62.B.,

137.63.A.,B.). As noted earlier the use of the tender offer as the

preferred method for corporate acquisition has not diminished

during the proliferation of state takeover legislation. The

opponents of the Williams Act predicted it would have a

crippling effect upon offerors, but it has been suggested that the

Williams Act had no impact on the relative strength of manage-

ment and the offeror.®

The protection afforded investors from review by the

Secretary of State is consistent with the purpose of the Williams

Act, and any shift in the respective positions of incumbent

management and offeror is immaterial when the longer dura-

tion is not inimical to the interests of the shareholder. The type

of review by the Secretary of State under the Illinois Act cannot

be deemed a deviation from a market approach. The Seventh

Circuit Court of Appeals, however, said that the Illinois Act

replaced the autonomy of the investor with a “benevolent

bureaucracy” because section 137.57.E. provides in pertinent

part that:

If the Secretary finds that the take-over offer fails to

provide full and fair disclosure to the offerees of all

material information concerning the take-over offer, or that

the take-over offer is inequitable or would work or tend to

work a fraud or deceit upon the offerees, ... the Secretary

shall by order deny the registration of the take-over offer or

condition its registration upon certain changes or modi-

fications ... (emphasis added) Ill.Rev.Stat.1979, ch.

121%, § 137.57.E.

*Shipman, Some Thoughts About The Role Of State Takeover

Legislation: The Ohio Takeover Act, 21 Case Western L. Rev. 722,

760-61( 1970).

The Seventh Circuit Court of Appeals said that inclusion of “or

that the take-over offer is inequitable” empowers the Secretary

to pass on the substantive fairness of the offer. The foregoing

section does not empower the Secretary of State to judge the

substantive fairness of the amount of the premium over the

market price, which remains the unfettered decision of the

investor. The word “inequitable” is coupled with “fraud” and

“deceit” and simply does not put the Secretary in the position of

looking at the amount of the offer. Review by the Secretary of

whether there has been full disclosure, or whether the offer

would be inequitable or work a fraud or deceit protects the

shareholder who, in the absence of incomplete or misleading

disclosure or fraud, will decide whether to tender his shares.

Protecting the shareholder against fraud is not inconsistent with

the Williams Act, which contains anti-fraud provisions. 15

U.S.C. §§ 78m(e), 78n(e)( 1976).

STATE TAKEOVER LEGISLATION WHICH REGULATES

EVENHANDEDLY TO EFFECTUATE LEGITIMATE

LOCAL INTERESTS, THAT OUTWEIGH THE IN-

CIDENTAL EFFECT ON INTERSTATE COMMERCE,

DOES NOT CONTRAVENE THE COMMERCE

CLAUSE.

State legislation serving legitimate local interests that does

not discriminate against interstate commerce is valid under the

commerce clause even though it affects commerce. Raymond

Motor Transportation, Inc. v. Rice, 434 U.S. 429, 440, 54

L.Ed.2d 664( 1978). In Raymond this Court quoted the estab-

lished rule that:

*[1]n areas where activities of legitimate local concern

overlap with the national interests expressed by the Com-

merce Clause—where local and national powers are con-

current—the Court in the absence of congressional guid-

ance is called upon to make “delicate adjustment of the

a state and federal clits.” (citations omitted )

. at 440.

The test used in making the “delicate adjustment” is contained

in Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 25 L.Ed.2d

174( 1970), in which this Court said that:

Where the statute regulates evenhandedly to effectuate a

legitimate local public interest, and its effects on interstate

commerce are only incidental, it will be upheld unless the

burden imposed on such commerce is clearly excessive in

relation to the putative local benefits. Huron Cement Co. v.

Detroit, 362 U.S. 440, 443. If a legitimate local purpose is

found, then the question becomes one of degree. And the

extent of the burden that will be tolerated will of course

depend on the nature of the local interest involved, and on

whether it could be promoted as well with a lesser impact

on interstate activities.

In its decision, the Seventh Circuit Court of Appeals said

that Illinois’ interest in protecting resident shareholders and

regulating control transfers are tenuous and cannot justify the

Illinois Act's effect on interstate commerce. Chicago Rivet is an

Illinois corporation with its principal executive office in Illinois.

Over 43% of Chicago Rivet’s common stock is held by the 27%

of its shareholders who are residents of Illinois. The Seventh

Circuit Court of Appeals said that the Illinois Act would have

applied even if no shareholder of Chicago Rivet resided in

Illinois. A “target company” under the Illinois Act is one in

which 10% of the shares are held by securityholders located in

Illinois, or that meets two of the following conditions: (a) has

its principal executive office in [ Illinois}; (b) is organized under

the laws of [Illinois]; (c) has at least 10% of its stated capital

and paid-in surplus represented in [ Illinois} (Ill.Rev.Stat. 1979,

ch. 121%, § 137.52-10). If no shareholders resided in Illinois,

however, the Secretary could exempt the offer from registration

as not necessary for the protection of Illinois securityholders

(Til. Rev.Stat.1979, ch. 121%, § 137.52-9(5)). Protecting in-

vestors residing in a state has long been recognized as a

legitimate state objective. Hall v. Geiger-Jones Co., 242 U.S.

539,551, 61 L.Ed. 480( 1917); AMCA, supra, 482 F. Supp. at

939.

Illinois has a second legitimate local interest in regulating

the internal affairs transactions of Illinois or Illinois based

corporations with substantial contacts in the State. Illinois can

regulate the internal affairs of an Illinois corporation in matters

such as a merger or other fundamental corporate changes,

shareholder liability and election of directors. See Shipman,

Some Thoughts About the Role of State Takeover Legislation:

The Ohio Takeover Act, 21 Case Western Reserve L.Rev. 722,

742-5 (1970). A tender offer is sufficiently analogous to

traditional internal a“ irs transactions of a corporation which

are the subject of state regulation. A successful tender offer

means a shift in control in which the initial step is a change in

the directors or their policies. A tender offer is like a de facto

proxy solicitation because the securityholder who retains some

of his sh.res is also “electing future directors and determining

future board policy to govern the remainder of his securities.”

Shipman, supra, at 744. Congress recognized that tender offers

are functionally equivalent to proxy fights. H.R. Rep. No.

1711, 90th Cong. 2d Sess (1968). A securityholder who retains

his shares in effect receives new shares with a reduction in his

voting power. A tender offer does not, however, result in a

change in the formal corporate structure, and there is an

absence of action contractually binding all shareholders at the

corporate level such as in a merger. But a successful offeror will

acquire a fiduciary relationship to the corporation and its

securityholders. The offeror will obtain control through the

securityholders acting in unison via the mechanism of the

tender offer. The cumulative effect of a tender offer so closely

resembles a proxy solicitation that Illinois can regulate a tender

offer as an internal affair of an Illinois or Illinois based

corporation. Shipman, supra, at 745.

In its decision the Seventh Circuit Court of Appeals said

that had the Secretary of State not been enjoined over 23

million dollars of interstate commerce would have been affect-

ed. The burden of compliance with the Illinois Act, however, is

not such that would prevent the free flow of interstate com-

merce. Although the possibility exists that in a particular case

more than one state would invoke jurisdiction, the Illinois Act

contains a comity provision, which provides that when the

Secretary determines that another jurisdiction is applying a

statute which affords substantially equal protection, the regis-

tration and filing requirements of the Illinois Act will not apply

(Tll.Rev.Stat.1979, ch. 121%, 137.53.). The unavoidable extra-

territorial effect of the Illinois Act is also tempered by the fact

that the vast majority of states also have takeover statutes. The

requirements of the Illinois Act do not impose a substantial

burden on interstate commerce because they are hardly of a

magnitude to dissuade a company from proceeding with such a

major business decision as that of acquiring another company.

CONCLUSION

For these reasons, this Court should note probable jurisdic-

tion of this appeal.

Respectfully submitted,