Amicus Brief — Edgar v. MITE Corp.

Office-Supreme oust, U.S.

No. 80-1168 FILED

Ix THE JUL 20 1981

Supreme Court of the United a wens

OCTOBER TERM, 1981

8

against

Appellant,

Mrre Corporation and Mrre Hotbrxos, Ixo.,

Appellees.

Ox Appeat From Tun Unrrep Srares Cover

Or Appears For Tun Seventra Cmcurr

BRIEF FOR THE STATE OF NEW YORK

AS AMICUS CURIAE

Roperr Asrams

Attorney General of the

State of New York

As Amicus Curiae

Office & P. O. Address

Two World Trade Center

New York, New York 10047

Tel. (212) 488-4487

Of Counsel

Sum Apetson Smont.

Solicitor General

Evan D. Berman

Assistant Attorney General

ILixba S. Martinson

Deputy Assistant Attorney General

Exvsaseta Brock

Assistant Attorney General

TABLE OF CONTENTS

PAGE

Interest of Amicus Curia 1

Summary of Argument 3

ARGUMENT

Pott I— The Illinois Act is not preempted by the

UU TED ‘abe ese 4

A. The Provision for State Substantive Review 6

B. The Potential for Delay; 9

Porst Il—The Illinois Act is valid under the Com-

SD Le had eee ee bee 12

A. The Illinois Act Evenhandedly Vindicates

Legitimate Local Public Interests 14

B. The Local Benefits Outweigh Any Incidental

Burden on Commerce 17

Pont I11—The governance of corporations within

their jurisdiction is a traditional area of State

regulation which must be preserved ........... 21

Conelusl ons eee e e 6006 000 6 26

Taste or AvrHorities

Cases:

AMCA Int'l Corp. v. Krouse, 482 F. Supp. 929 (S.D.

Ohio ann eee eee 12, 15, 16, 17, 20, 21

Burks v. Lasker, 441 U.S. 471 (19790))))) 15, 17

Cort v. Ash, 422 U.S. 66 (1970)))))))));: 15, 17,19

ii TABLE OF AUTHORITIES

PAGE

Curtiss-Wright Corp. v. Kennecott Corp., [Current]

Fed.Sec.L.Rep. para. 97,808 (CCH) (S.D.N.Y.

neee 20

DeCanas v. Rica, 424 U.S. 351 (1976) 11.12

Fleming v. Nestor, 363 U.S. 603 (19600))0 13

Florida Lime d Avocado Growers, Inc. v. Paul, 378

Wa SERENE er 6, 26

Great Western Corp. v. Kidwell, 577 F.2d 1256, rev'd

on venue grounds sub nom. Leroy v. Great

Western United Corp., 443 U.S. 179 8, 9, 21

Hall v. Geiger-Jones Co., 242 U.S. 539 (1917) ...... 13

Hines v. Davidowite, 312 U.S. 52 (1941) 6

Hi-Shear Industries, Inc. v. Neiditz, [Current] Fed.

Sec. L. Rep. (CCH) para. 97,805 (D. Conn. 1980). 13

Hughes v. Oklahoma, 441 U.S. 322 (1979) 13

Hunt v. Washington State Apple Advertising Com-

mission, 482 U.S. 888 (1977 22

Huron Cement Co. v. Detroit, 362 U.S, 440 (1960) .. 19

Jones v. Rath Packing Co., 430 U.S. 519 (1977) 6

Kassel v. Consolidated Freightways Corp., — US.

—, 101 S8. Ot. ——, 67 L.Ed.2d 580 (1981) .. . 17, 21,22

Leroy: v, Great Western United Corp., 443 U.S. 178

eee eee ee eb eee 5, 12, 13, 21

Lewis v. BT Investment Managers, Inc., — U.S.

——, 100 S.Ct. 2009, 64 L.Ed.2d 702 (1980) .... 12

McDonald v. Board of Elections Comrs., 394 U.S, 802

e.. Pr 13

Merrill Lynch, Pierce, Fenner d Smith, Ino. v. Ware,

GA Tas BAT LASTS) cdo vencccicdvenccesousoues 12, 24

Minnesota v. Clover Leaf Creamery Co., — US.

— — 101 S.Ct. ——, 66 L.Ed.2d 659 (1981) 19

TABLE OF AUTHORITIES iii

PAGE

Pike v. Bruce Church, Inc., 397 U.S. 187 (1970) . .18, 14, 17

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

(G ůh)) „ 7, 10, 12, 21

Ray v. Atlantic Richfield Co., 435 U.S. 151 (1978) 24

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

og... ee eee e 12, 13. 14. 19

Santa Fe Industries, Inc. v. Green, 430 U.S. 462

CUBET) - soddecenync¥intievocccvccseccccuccanean 15, 17

Sharon Steel Corp. v. Whaland, —— N.H. ——, No.

80-333 (Sup. Ct. N. H. July 2, 1981) 10, 13, 15

Silver v. Néw York Stock Exchange, 373 U.S, 341

nnen. ee 24

South Carolina Highway ‘Department v. Barnwell

Bros., 303 U.S. 177 .. eee 13

Southern Pacific Co. v. “Arizona, $25 U.S. 761 (1945) 19

Strode y. Esmark, Inc. [Current] Fed. Sec. L. Rep.

(CCH) para. 97,538 (Ky.Cir.Ct. May 13, 1980) .. 15. 20

Telvest, Inc. v. Bradshaw, 618. F.2d. 1029 (4th Cir.

eee eee eee. 13

United States v. Vuitch, 401 U.S; 62 (197177 13

Zahn v. Transamerican Corp., 162 F.2d 36 (8rd Cir.

. Nene een 16

United States Constitution:

Art. I, Seo. 8, Cl. 3 (Commerce Clause 3,12

Art. VI, Cl. 2 (Supremacy Clause) 3

Statutos:

Bank Holding Company Act, 12 US, 0. 400. . caves 9

Denn 8

iv TABLE OF AUTHORITIES

PAGE

Federal Communications Act, 47 U.S.C. §310 ...... 9

renn f 8

Securities Exchange Act of 1934, 15 U.S.C. 56 78a

et seq. Section 28(a), 15 U.S.C. § 78bb(a) ...... 2,5

Williams Act, Pub.L.No. 90-439, 82 Stat. 454 (15

U.S.C. §§ 78m(d)-(e), 78n(d)-(f77)ʒꝛ 2

Te ary set 18

Illinois Business Take-Over Act, III. Ann. Stat. ch. 121

1/2, § 137.51 et seg. (Smith-Hurd Cum.Supp.

. 1, 2, 10, 17, 18, 22

cc 10, 17, 18

e 14

. Cas 2 14

D 14

D 14

c 20

/// ²˙ —e“ܼÄ01ĩrè⁰⁵ꝛi :. 18

, ene thcsecns 18

D dees beaibasadcbudiens 18

c es ee 2

. A ²˙· A 14

D STR lies cs PERE NP 17

o ouh deobeevucks 6, 7, 16, 17

§ 187.58 ..... V 8,14

Fc ĩ%ĩ˙% „%% 2

9187. 60%5 ......... n 14

New York Security Takeover Disclosure Act, N.Y.

Bus. Corp. Law Article 16, §1600 et seg.

EME ea Gorin cccbbenecdeeevessnviteden 1, 22

bels „ en 3, 25

eee nene 3, 25

TABLE OF AUTHORITIES Vv

PAGE

New York Bus. Corp. Law

7 0 ²˙⅛s6ĩtã— 19

, ůͤ . codhewenes 19

J 0 ͤ K* > vedeeebkwis oe 19

JJ ² ² A ˙¹ Ä ·;ĩ 19

State Takeover Statuts . 22

Rules:

Securities Exchange Act Rule 14d-2(b), 17 C. F. R.

%% „„ ö 12

. leine 2

Securities Exchange Act Rule l4e-l, 17 C. F. R.

CRS Vj! („„ 11

Treatises:

Chatlos, The SEC vs. Investors on Tender Offers, 56

Harv. Bus. Rev. 6 (Sept.-Oct. 1978) ............ 11, 21

Is the Takeover Game About to End? 150 Financial

World 59 (March 15, 1981777 11

Note, The Constitutionality of State Takeover

Statutes: A Response to Great Western, 53

Rls La Mee GEE CROCE .ccccccvccecdevocesee 11, 16

Shipman, Some Thoughts About the Role of State

Takeover Legislaiton: The Ohio Takeover Act,

21 Case W. Res. L. Rev. 722 (1970) ............ 16

Miscellaneous:

44 Fed. Reg. 70,326 (1979)9)99¶7 2

44 Fed. Reg. 70,330 (1979ùꝶßũ9ũũõ e eee eeeeees 8

S. Rep. No. 550, 90th Cong., Ist Sess. (1967) .. 16

No. 80-1188

Ix THE

Supreme Court of the United States

OCTOBER TERM, 1981

4

2

James Epoan,

Appellant,

against

Mire Corporation and Mire Ho xprnos, Inc.,

Appellees.

On AppeaL From Tue Unirep Srares Court

Or Appears For Tue Seventa Cmcurr

—

*

BRIEF FOR THE STATE OF NEW YORK

AS AMICUS CURIAE

Interest of Amicus Curiae

The State of New York has a significant interest in

the issues presented by this appeal since the decision of

this Court may affect the validity of the New York Se-

curity Takeover Disclosure Act, New York Business Cor-

poration Law (“N. V. B. C. L.“) Article 16, § 1600, et seq.

(McKinney’s) (the“ New York Act’’).

The New York Act is similar in purpose to the Illinois

statute that is challenged in the case at bar, Illinois Busi-

ness Takeover Act, Ill. Ann. Stat. ch. 121 4%, §§ 187.51

et seq. (Smith-Hurd Cum. Supp. 1980) (the“ Illinois Act’’),

2

in that both Acts serve to provide investors with full and

fair disclosure in connection with a tender offer, There

are, however, substantial differences in the two Acts. For

example, the Illinois Act contains several provisions that

are not embodied in the New York Act, including a twenty

business day pre-offer filing requirement, III. Ann. Stat.

ch. 121 1/2, § 137.54(E) (Smith-Hurd) ; a requirement that

the offer remain open for twenty days, III. Ann. Stat.

ch. 121 1/2, §137.59(B) (Smith-Hurd); and a provision

allowing the State to deny the registration of the takeover

offer or condition its registration if the State determines

the takeover offer is, inter alia, inequitable, III. Ann. Stat.,

ch. 121 1/2, § 137.54(E) (Smith-Hurd).

Congress first entered the field of tender offers in 1968

when it amended the Securities Exchange Act of 1934,

15 U.S.C. §§ 78a et seq. by enacting the Williams Act,

Pub. L. No, 90-439, 82 Stat. 454, codified at 15 U.S.C.

§§ 78m(d)-(e), 78n(d)-(f). In 1979, pursuant to its rule-

making authority under the Securities Exchange Act and

the Williams Act, the Securities and Exchange Commission

(the ‘‘S.E.C.’’) promulgated rules that apply to certain

tender offers. Securities Exchange Act Release No. 16384,

44 Fed Reg. 70,326 (1979). Among those rules recently

promulgated is Rule 14d-2(b), 17 C.F.R. § 240.14d-2 (b),

which provides that a public announcement of a tender

offer constitutes the commencement of a tender offer and

that the offeror must, within five days of such public an-

nouncement, either withdraw the offer or disseminate cer-

tain information to security holders, which date of dis-

semination is then deemed the date of commencement.“

One Rule 14d-2(b) became effective in 1980 the time

frames contained in the state statutes no longer cor-

responded to those in the federal statute. In 1980 New

*Since this rule was promulgated subsequent to the tender

— 4 the instant case, the rule is not applicable to the facts

erein.

3

York amended its takeover statute, inter alia, to conform

to the new S.E.C. rules. Among those revisions to the

New oYrk Act was the deletion of the pre-commencement

filing period, L. 1980, ch. 733, § 2,* with the result that the

New York Act was the deleiton of the pre-commencement

in concert.

The State of New York has an interest in protecting

the validity of its statute. The State of New York strongly

believes in the need for state takeover statutes and is

satisfied that the New York Act is valid under the Com-

merce and Supremacy Clauses of the United States

Constitution.

The State of New York also supports the constitution-

ality of the Illinois Act.

Summary of Argument

The IIinois Act does not stand as an obstacle to the

accomplishment and execution of the full purposes and

objectives of Congress under the Williams Act, hence is

not preempted. Even assuming that the Illinois Act regu-

lates questions of substantive fairness in tender offers,

such regulation is consistent with Congressional enact-

ments. Any incidental delay which may result from the

Illinois Act enures to the benefit cf investors and is there-

fore consistent with Congressional objectives with respect

to the Williams Act.

»The 1980 amendments also deleted the friendly offer“ ex-

emption, L. 1980, ch. 733, f 1 and the Attorney General's author-

ity to halt the continuation of a tender offer or its commencement,

L. 1980, ch. 733, §2. The amendments further added N. V. B. C.

L. § 1614, L. 1980, ch. 733, §3, commonly referred to as the

**eomity’’ provision, which authorizes the Attorney General to defer

the filing of the registration statement (and administrative review)

to a sister state having a greater interest than New York in

regulating the tender offer when the target company is not organ-

ized under the laws of New York. Additional limitations placed

upon the Attorney General include reductions in the amount of

time in which he must complete his review. N.Y.B.C.L, §§ 1604,

1605; L. 1980, ch. 733, § 2.

4

Congress has specifically permitted state regulation of

‘tender offers.

Two legitimate local public interests are furthered by

the Illinois Act since a tender offer involves two kinds

of transactions. A tender offer is on the one hand an

internal corporate affairs transaction, which is tradition-

ally governed at the state level, and on the other hand,

a securities transaction, which is traditionally governed

at both the state and federal levels. In effectuating both

of these interests in the regulation of tender offers, Illinois

is concerned with the protection of Illinois shareholders.

The benefits conferred on shareholders by the Illinois Act

clearly outweigh any alleged burdens of compliance with

the Illinois Act.

The decision of this Court should acknowledge the ef-

forts of states such as New York to harmonize their

statutes with the federal law regulating tender offers. If

this Court finds any provision of the Illinois Act to be in

conflict with the Williams Act, it should limit its decision

in order to preserve those portions of the state statutes

which are constitutional and which complement the federal

regulatory scheme.

ARGUMENT

POINT I

2 Illinois Act is not preempted by the Williams

The Court of Appeals based its conelusion that the

Illinois Act is preempted by the Williams Act on its inter-

pretation of the Congressional intent underlying the

Williams Act:

We therefore conclude, purely in light of the con-

gressional judgment and analysis, that tender offers

may not be unduly hindered (by grossly extended

delay under state law) to the detriment of investors.

We reiterate that we possess no independent insight,

5

based on evidence or research, about what the effect

of slight or interminable delay may be. But we think

the perspectives informing congressional legislation

are reasonably clear and are binding upon us. There-

fore, we conclude that the Illinois Act is preempted by

the Williams Act because the former (1) tends in-

ordinately to substitute regulatory control for investor

autonomy, (2) provides for hearings the institution of

which may be indirectly delegated to incumbent man-

agement and which are potentially interminable in

length, (3) provides for other delays and mechanisms

for delay which are potentially grossly in excess of

the delay mandated by Congress and deemed by Con-

gress to be appropriate to the protection of investors

and (4) provides for lengthy prenotification delay, a

requirement Congress specifically rejected. 633 F. 2d

498.9.

It is submitted, however, that the Court of Appeals erred

in its conclusion because it misinterpreted the intent of

Congress in enacting the Williams Act and misconstrued

the effect the Illinois Act would have on a tender offer.

The amicus agrees with the Court of Appeals that Con-

gress has neither expressly barred the states from regu-

lating tender offers, nor enacted so pervasive a regulation

that implicit preemption may be inferred. 633 F. 2d 491.

Congress has declared that states may regulate tender

offers provided that such regulation is not in conflict with

the Williams Act. Securities Exchange Act § 28(a), 15

U.S.C. § 78bb(a).* Where there is no explicit or implicit

* Section 28(a) of the 1934 Act, 15 U.S.C. § 78bb(a) 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 chap-

ter or the rules and regulations thereunder, (Emphasis added.)

This Court has held that ‘‘section [28(a)] was plainly intended to

a rather than limit, state authority.’’ Leroy v. Great

estern United Corp., 443 U.S. 173, 182 (1979).

6

preemption, the Illinois Act must be upheld absent a show-

ing that it is in conflict with the Williams Act:

Congressional enactments that do not exclude all

state legislation in the same field nevertheless over-

ride state laws with which they conflict, U.S, Const.,

Art. VI. The criterion for determining whether state

and federal laws are so inconsistent that the state

law must give way is firmly established in our deei-

sions. Our task is ‘to determine whether, under the

circumstances of this particular case, [the State 's]

law stands as an obstacle to the accomplishment and

execution of the full purposes and objectives of

Congress.’ '

Jones v. Rath Packing Co., 430 U.S, 519, 525-526

(1977).

See, Hines v. Davidowite, 312 U.S. 52 (1941); Florida

Lime & Avocado Growers, Inc. v. Paul, 378 U.S, 182 (1968),

The Illinois Act does not conflict with the Williams Act,

Nor is it an obstacle to the execution of Congressional

objectives.

A. The Provision for State Substantive Review

The Court of Appeals found III. Ann. Stat. ch. 121 1/2,

§ 137.57 (h) (Smith-Hurd) to be ‘‘the most troublesome

portion of the Illinois Act.’’ 633 F. 2d 493. That Section

provides that the Illinois Secretary of State shall deny

the registration of a take-over offer, or condition the regis-

tration on changes or modification, if he finds that:

. . the take-over offer fails to provide full and

fair disclosure to the offerees of all material informa-

tion 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, or that the

take-over offer will not be made to all offerees in this

7

State on substantially equal terms, or that the take-

over offer would violate this Act.

III. Ann. Stat. ch. 121 1/2, § 137.57 (E) (Smith-

Hurd).

Despite the State 's declaration that this section does

not mean it would rule on the substantive fairness of the

offer,* the Court of Appeals held that

the Illinois Act thus empowers the Secretary of

State to pass upon the substantive fairness of a tender

offer and to prohibit it from going forward, if, in his

sole opinion, he judges the offer ‘inequitable.’

633 F. 2d 493,

Assuming, arguendo, that the Illinois statute provides

for substantive review of the fairness of the tender offer,

such review is not preempted by the Williams Act, which

is consistent with regulatory statutes,

The legislative history of the Williams Act** shows that

it was intended to provide an evenhanded opportunity to

the offeror and target company to present their case, As

*The Brief for Defendant Alan J, Dixon submitted to the

Court of Appeals stated, at page 17:

The district court also concluded that as the Illinois Act

authorized the Secretary of State to omy registration to an

offer that he finds to be inequitable, this varies from the

market approach in the Williams Act, (S.. A. ch, 121 1/2,

I. 57 (E)). The duty of the Secretary to review an offer

o see if it fails to — full disclosure of material infor-

mation or is inequitable or would work a fraud or deceit,

should not be construed as meaning that the Secretary would

rage the substantive fairness of ¢.g., the amount 4 the offer.

o pre-offer filing and hearing provisions of the Illinois Act

are not inconsistent with a market approach by allowing for

review by a neutral state administrator, while the security-

holders have time to consider the offer, (Emphasis added),

** See Piper v. Chris-Craft Industries, Inc,, 430 U.S, 1 (1977)

for a discussion of the legislative history of the Williams Act.

stated by the Court of Appeals for the Fifth Circuit:

The underlying purpose of the Williams Act is to

protect investors. Piper v. Chris-Craft Industries,

Inc., 1977, 430 U.S, 1, 97 S. Ot. 926, 51 L.Bd.2d 124.

Congress chose this goal in the Williams Act and

adopted a distinct means of achieving it. Essentially,

Congress relied upon a ‘market approach’ to investor

protection, The function of federal regulation is to

get information to the investor by allowing both the

offeror and the incumbent managers of a target com-

pany to present fully their arguments and then to

let the investor decide for himself.

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

1256 at 1276 (Sth Cir, 1978) reversed on venue

grounds sub nom, Leroy v. Great Western

United Corp., 433 U.S. 173 (1979).

However, nothing in the Williams Act, or its market

approach,’’ supra, nullifies requirements for regulatory

approval in connection with tender offers. The market

approach merely allows all sides to a tender offer to pre-

sent their views to the shareholders, who can then decide

for themselves. When regulatory approval is required

in a tender offer, such requirement is one of the factors

to be disclosed to investors,

In adopting new rules pursuant to the Williams Act, the

S. E. C. recognized that regulatory approval may be re-

quired in connection with tender offers. 44 Fed. Reg.

70,330 (1979). The S. E. C. specifically referred to regula-

tion in the banking and communications fields, Id. at fn.

17. Certainly banking regulations which inquire into the

convenience and needs of the community to be served, 12

U.S.C, §1842(¢), or broadcast license regulations con-

sidering the public interest, convenience and necessity,

47 U.S.C, $310(d), could not coincide with the Williams

Act if the Court of Appeals’ analysis of the market ap-

proach were correct,

9

The Court of Appeals, in holding the Illinois Act pre-

empted, stated:

The state thus offers investor protection at the

expense of investor autonomy—an approach quite in

conflict with that adopted by Congress, Congress con-

templated only that investors be protected from acting

in ignorance, not from their own well-informed choice.

Thus, to the extent that Illinois has chosen to rely

upon its Secretary of State’s judgment rather than

upon investors’ own judgment after full disclosure of

the relevant facts, its regulatory scheme stands in

fundamental conflict with federal law and is therefore

unconstitutional. C/. Kidwell, supra at 1279.

633 F.2d 494,

As indicated above, this analysis is faulty since it fails

to consider that when regulatory approval is required in

a tender offer context, the regulator 's judgment will have

an impact on the tender offer. Congress, with the enact-

ment of the Williams Act, did not nullify the Federal

Communications Act, 47 U.S.C, § 310, or the Bank Holding

Company Act, 12 U.S.C, § 1842, which Acts serutinize the

substantive merits of the transfer of control in a tender

offer. Neither did Congress preempt the Illinois Act

which contains provisions for regulatory review.

B. The Potenital for Delay

The Court of Appeals criticized the Illinois hearing pro-

visions because they could be triggered by private parties

and because they can provide a delay which would stand

as an obstacle to the objectives of the Williams Act, which

the court stated requires a neutral balance.“ 633 F.2d at

*The Illinois Act, which must be interpreted in a manner

that does not favor either the offeror or the target company man-

(footnote continued on following page)

10

495. According to the Court of Appeals, if the balance is

tipped in favor of incumbent management, tender offers

will be impaired, thereby denying shareholders the right

to tender their shares at a premium, 633 F.2d 496,

The Court concluded that inasmuch as the Illinois Act

provides the potential for excessive delay, that Act must

fall because Congress did not intend lengthy delays in

tender offers. Id. at 499.

However, the record is devoid of any actual effect the

Illinois Act may have on tender offers, Id. at 407. More-

over, there is substantial evidence that the various state

takeover statutes have not precluded a market approach

to tender offers, have not deterred offerors from making

tender offers and have not prevented target companies

from being acquired, Sharon Steel Corp. v. Whaland, ——-

N.H, ——, No, 80-333 at 14 (Sup. Ct. N. H. July 2, 1981).

Although the Court of Appeals was aware that extend-

ing the offering period in tender offers has the effect of

creating an ‘‘auction market,’’ thereby yielding larger

(footnote continued from preceding page)

ot, is neutral, III. Ann, Stat, ch. 121 1/2 § 197,51-1 (Smith-

urd) (Findings and Purpose) states:

In recent years numerous companies have been subjected

to take over offers in which equity securities were acquired

suddenly by means of tender offers, Many of these tender

offers have been made without advance notice and without

giving securityholders of the acquired company adequate time

to consider the offer and without giving —1— of the

acquired company adequate time to evaluate alternatives #0

that they might recommend a course of action that would

be in the best interests of all securityholdem, The purpose

of this Act shall be to protect the interests of Illinois security.

holders of companies having a close connection with this State

without unduly impeding take-over offers and this Act shall

be interpreted so as to strike a balance that does not favor

either of a target company or an offeror. (Em-

r* v. Chris-Craft Industries, Inc., supra, 430 U.S, at 29-30

11

premiums to investors, the court, in the absence of any

data to the contrary, held that delay harms investors and

thereby frustrates the Williams Act. 633 F.2d 497-8, But

see, Note, The Constitutionality of State Takeover Stat-

utes: A Response to Great Western, 53 N. V. U. L. Rev.

872 (1978) (hereinafter, A Response to Great Western’’)

(the state takeover statutes enhance, rather than disturb,

neutrality),

If the Court of Appeals is correct that the intent of

Congress was to provide shareholders with a premium

over the market price, 633 F.2d 497, clearly state statutes

which have had the incidental effect of raising even those

premiums must, following the Court of Appeals“ reason-

ing, be found to parallel Congressional intent with respect

to the Williams Act. Indeed, studies demonstrate that

during the period between 1974 and 1980, taking all com-

petitive hostile takeover bids into consideration, share-

holders reaped $1.7 billion more for their shares in pre-

miums over the original tender offer price (rather than

the lower market price), which premiums are attributable

to extended time periods under state takeover laws, F..,

1s the Takeover Game About to End?, 150 Financial World

59.60 (March 15, 1981); Chatlos, The SEC vs. Investors

on Tender Offers, 56 Harv, Bus. Rev. 6-8 (Sept.-Oet. 1978).

The Court of Appeals was aware that the S. E. C., by

promulgating, in 1979, 17 C. F. R. § 240.14e-1, extended the

minimum offering period in tender offers to 20 business

days. 633 F.2d 499 fn 25. Nevertheless, in finding that

the Illinois Act delays offers in excess of the minimum

period in the Williams Act, the Court of Appeals referred

to legislative history indicating a ten day Williams Act

waiting period, 633 F.2d 498,

Although a pre-offer period was considered by Congress

and rejected, 633 F.2d 497 fn 23, such rejection does not

justify an inference of Congressional intention to preempt

state statutes containing such provisions, DeCanas v.

12

Bica, 424 U.S, 351, 360 fn. 8 (1976). S. H. C. rule 17 C. F. R.

§ 240.14d.2, providing an apparent conflict with the Illinois

pre-offer filing, was not promulgated until after the tender

offer in the instant case, In any event, such periods serve

to benefit investors, AMCA Int'l Corp, v. Krouse, 482 F.

Supp. 929, 940 (S. D. Ohio 1979),

The amicus submits that the Court of Appeals erred in

finding that delays beyond those enunciated in the Wil-

liams Act are contrary to Congressional, intent, Congress

has determined in the securities area to protect state

jurisdiction, Leroy v. Great Western United Corp., supra,

443 U.S, at 182. It is clear that any delay in state tender

offer laws serves to protect investors, the only bene

ficiaries of the Williams Act. Piper v. Chris-Craft In-

dustries, Inc., supra, 430 U.S, 1. Therefore such delay

cannot frustrate the effectuation of Congressional policy

to protect investors,

POINT Il

The Illinois Act is valid under the Commerce

Clause.

The Commerce Clause grants Congress the power “to

regulate Commerce . . among the several states

U.S, Const., Art. 1, §8, el. 3. It has long been established,

however, that ‘‘the National Government 's power, under

the Commerce Clause, to regulate commerce does not ex-

clude all state power of regulation.’’ Merrill, Lynch,

Pierce, Fenner d Smith, Inc. v. Ware, 414 U.S, 117, 140

(1973). Indeed, the States. . . retain authority under

their general police powers to regulate matters of ‘legiti-

mate local concern,’ even though interstate commerce may

be affected.’ Lewis v. BT Investment Managers, Inc.,

— US, —, —, 100 S. Ct, 2009, 2015, 64 L.Ed.2d 702,

711 (1980); Raymond Motor Transporation, Ine. v. Rice,

434 U.S, 429, 440 (1978).

13

Congress has long recognized the role of states in se-

curities regulation and tangible evidence of this is dis-

cussed ante, at page 5 with reference to preemption. See,

Hall v. Geiger-Jones Co., 242 U.S. 539, 552 (1917); Leroy

v. Great Western United Corp., supra, 443 U.S. at 182;

Telvest, Inc. v. Bradshaw, 618 F.2d 1029, 1035 (4th Cir.

1980) ; Hi-Shear Industries, Inc. v. Neiditz, [Current] Fed.

Sec. L. Rep. (CCH) 9 97,805 (D. Conn. 1980).

Regularly enacted state statutes are presumed to be

valid, McDonald v. Board of Election Comrs., 394 U.S.

802, 809 (1969); Fleming v. Nestor, 363 U.S. 603, 617

(1960), and absent a clear showing of unconstitutionality,

should be construed so as to uphold their constitutionality.

United States v. Vuitch, 401 U.S. 62, 71 (1971). This

presumption perforce attaches to statutes alleged to vio-

late the Commerce Clause. See, Hughes v. Oklahoma, 441

U.S. 322, 336 (1976); South Carolina Highway Depart-

ment v. Barnwell Bros., 303 U.S. 177, 190-191 (1938). The

Court below relied on mere speculation to strike down the

Illinois Act as violative of the Commerce Clause; and

since no clear showing of unconstitutionality has been

advanced, the Illinois Act should be upheld. See, Sharon

Steel Corp. v. Whaland, swpra, No. 80-333 at 14.

The prevailing rule for determining the constitutionality

of a state statute affecting interstate commerce was stated

by this Court in Pike v. Bruce Church, Inc., 397 U.S. 137,

142 (1970):

Where the statute regulates even-handedly to ef-

fectuate 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 puta-

tive local benefits.

In Raymond Motor Transportation, Inc. v. Rice, supra,

the Court recognized that application of the test must be

on a case-by-case basis:

. » experience teaches that no single conceptual

14

approach identifies all of the factors that may bear

on a particular case. Our recent decisions make clear

that the inquiry necessarily involves a sensitive con-

sideration of the weight and nature of the state regu-

latory concern in light of the extent of the burden

imposed on the course of interstate commerce.

434 U.S. at 441. (footnote omitted.)

Applying the principles enunciated in Pike to the in-

stant case, it is indisputable that the Illinois Act is valid

under the Commerce Clause.

A. The Illinois Act Evenhandedly Vindicates Legitimate

Local Public Interests

The Illinois Act guarantees equality of treatment for

all shareholders of the target company; it makes no dis-

tinction between shareholders within and without the State.

III. Ann. Stat. ch. 121 1/2, § 137.524 (Smith-Hurd). The

Illinois Act applies to Illinois and foreign offerors alike.

III. Ann. Stat. ch. 121 1/2, § 137.52-5 (Smith-Hurd). The

Act not only regulates the activities of the offeror; it

also regulates the activities of the target. Ill. Ann. Stat.

ch. 121 1/2 §§ 137.55, 137.58, 137.60(C) (Smith-Hurd). It

is patent that the Illinois Act is evenhanded.

Two local interests are furthered by the Illinois Act.

First, Illinois has an interest in regulating the internal

affairs of corporations incorporated in Illinois and operat-

ing under Illinois law,* which is traditionally a proper

* The Illinois Act applies to an offer to acquire or the acquisi-

tion of any equity security of a target company pursuant to a

tender offer, III. Ann. Stat. ch. 121 1/2, § 137.52-9 (Smith-Hurd),

and a target company is defined to mean a corporation (1) of

which 10% of the outstanding securities is held of record by

Illinois security holders, or (2) that meets any two of the fol-

lowing conditions: (a) has its principal executive office in Illinois;

(b) is organized under the laws of Illinois; (e) has at least 10%

of its stated r and paid-in surplus represented in Illinois.

III. Ann. Stat. ch. 121 1/2, § 137,52-10 (Smith-Hurd),

15

subject of state regulation. See, Burks v. Lasker, 441 U.S.

471, 478 (1979); Cort v. Ash, 422 U.S. 66, 84 (1975). In

Santa Fe Ind. stries v. Green, 430 U.S. 462, 479 (1977)

this Court stated:

Absent a clear indication of congressional intent,

we are reluctant to federalize the substantial portion

of the law of corporations that deals with transactions

in securities, particularly where established state

policies of corporate regulation would be overriden.

As the Court stated in Cort v. Ash, supra: ‘Corpora-

tions are creatures of state law, and investors commit

their funds to corporate directors on the understand-

ing that, except where federal law expressly requires

certain responsibilities of directors with respect to

stockholders, state law will govern the internal af-

fairs of the corporation.’ 422 U.S. at 84. (Emphasis

added.)

A tender offer involves a transfer of corporate control;

that is, after all, the very reason why the offeror makes

the bid. It is manifest that states have a iegitimate local

interest in regulating the transfer of corporate control

since corporations are creatures of the state. Cort v. Ash,

supra, 422 U.S. at 84. States therefore have a decided

interest in regulating tender offers. Sharon Steel Corp.

v. Whaland, supra, No. 80-333 at 14-15; AMCA Int’l Corp.

v. Krouse, supra, 482 F. Supp. at 939; Strode v. Esmark,

[1980] Fed. See. L. Rep. (CCH) f 97,538, at 97,808. (Ky.

Cir. Ct. May 13, 1980).

A tender offer is not merely the sale of s.ock by one

investor to another. If that were so, the transaction could

be effected through a national securities exchange or over-

the-counter market. Indeed, in enacting the Williams Act,

Congress recognized that something more than the sale

of stock is involved. E. g., Senate Comm. on Banking and

Currency, Full Disclosure of Corporate Equity Ownership

16

and in Corporate Takeover Bids, S. Rep. No. 550, 90th

Cong., Ist Sess. 2-4 (1967). A tender offer contemplates

obtaining enough voting stock to effectuate whatever pur-

poses the offeror has in taking over the target company.

With the takeover inevitably come a new board of diree-

tors, new management, dilution in voting power, and a

merger into the offeror. Traditionally, these are subjects

of gtate regulation. See, e.g., Zahn v. Transamerican

Corp., 162 F.2d 36, 45-46 (3rd Cir. 1947).

Thus, unless a shareholder tenders his stock, he neces-

sarily becomes a minority shareholder in a new entity

with new management and new control. The tender offer

therefore alters the fundamental character of the corpo-

ration, much like a proxy contest or a merger. A tender

offer is clearly a transaction involving the internal affairs

of a corporation, and as such is properly the subject of

state regulation. AMCA Int’l. Corp. v. Krouse, supra,

482 F. Supp. at 939; see, Shipman, Some Thoughts About

the Role vj State Takeover Legislation: The Ohio Take-

over Act, 21 Case W. Res. L. Rev. 722, 741-45 (1970); A

Response to Great Western, supra, 53 N. V. U. L. Rev. at

914-15,

In the case at bar, the target company is incorporated

under the laws of Illinois, has its principal executive

offices in Illinois, and has a substantial number of Illinois

shareholders holding a substantial amount of its shares.

Every aspect of the target company’s existence, includ-

ing the transfer of its stock, is governed by the laws of

Illinois. All shareholders of the target company hold

their stock subject to Illinois law. Illinois, therefore, has

a legitimate interest in regulating this tender offer.

The second local public interest furthered by the Illinois

Act is the protection of shareholders by requiring that

the offeror provide to offerees full and fair disclosure of

all material information concerning the takeover. III.

Ann. Stat. ch. 121 1/2, §137.57(E) (Smith-Hurd). The

17

stated purpose of the Illinois Act is to ‘‘protect the in-

terests of Illinois securityholders.’’ III. Ann. Stat. ch.

121 1/2, §137.51-1 (Smith-Hurd). It is beyond question

that the protection of shareholders is a legitimate state

interest, as the Court below recognized. 633 F.2d at

500; See, AMCA Int’l Corp. v. Krouse, supra, 482 F.

Supp. at 939; Burks v. Lasker, supra, 441 U.S. at 478;

Cort v. Ash, supra, 422 U.S. at 84; Santa Fe Industries,

Inc. v. Green, supra, 430 U.S. at 479.

Thus, the Illinois Act vindicates two legitimate local

public interests: regulation of the internal affairs of its

corporations, which is traditionally a matter for state

regulation, and protection of investors, which has tradi-

tionally been shared by both federal and state regulators.

B. The Local Benefits Outweigh Any Incidental Burden

on Commerce

The Illinois Act does not impose any burden on com-

merce that is ‘‘clearly excessive in relation to the puta-

tive local benefits.“ Pike v. Bruce Church, Inc., supra,

397 U.S. at 142. This Court has recently stated..

the Commerce Clause does not invalidate state legislation

simply because the legislation burdens interstate com-

merce.’’ Kassel v. Consolidated Freightways Corp. of

Delaware, —— U.S. ——, ——, 101 St. Ct. —, ——, 67

L.Ed.2d 580, 599 (1981). Any extraterritorial effects are

only incidental; they do not cause interstate disruption.

The Illinois Act imposes relatively minor burdens on

interstate commerce. While the Act does empower the

state to hold hearings, Ill. Ann. Stat. ch. 121 1/2,

§ 137.57(A) (Smith-Hurd), and even to deny registration

of an offer, Ill. Ann. Stat. ch. 121 1/2, § 137.57(E) (Smith-

Hurd), the basis for such action would be protection of

offerees—i.e., to determine whether they had received

and fair disclosure. To ensure that all offerees—not just

Illinois offerees—receive full and fair disclosure imposes

18

no excessive burden on interstate commerce. Indeed, this

merely parallels and helps to accomplish the exact pur-

pose of the Williams Act, § 14(e), 15 U.S.C. § 77n(e).

The information that is required to be prepared by the

Illinois Act is substantially the same as that required to

be prepared by the Williams Act. III. Ann. Stat. ch. 121

1/2, § 137.54(C) (Smith-Hurd). In fact, Illinois will ac-

cept, in lieu of the Illinois registration statement, ‘‘a

registration statement form or other filing required by a

federal or state government agency . .. which. . .

encompass[es}] disclosure requirements substantially

equivalent to those contained in subsection e of this See-

tion.”’ III. Ann. Stat. ch. 121 1/2, §137.54(D) (Smith-

Hurd). Also, while the Illinois Act requires registration,

such process must be administered ‘‘without unduly im-

peding take-over offers.’’ III. Ann. Stat. ch. 121 1/2,

§ 137.51-1 (Smith-Hurd).

It is important to distinguish between burdens imposed

on commerce and burdens imposed on a particular offeror.

This Court is concerned only with possible burdens on

commerce. The filing of a registration statement by the

offeror is not a burden on commerce.

The assumption that the Illinois Act unduly burdens

commerce is based entirely on conjecture. The Court

below speculates that had Illinois not been enjoined,

„over 23 million dollars [the purchase price] of inter-

state commerce would presumably have been affected.’’

633 F.2d at 502. The Act does not necessarily prevent

the flow of money in commerce. The Act merely mandates

the registration of an offer, Ill. Ann. Stat. ch. 121 1/2,

§ 137.54 (Smith-Hurd), but the offeror in the instant case

refused even to file a registration statement. It is not

an excessive burden on commerce for the State of Illinois

to require a registration statement in order to protect

shareholders before the flow of money begins.

19

All aspects of corporate existence with respect to share-

holders, residents and non-residents alike, are governed

by the laws of the state of incorporation, yet it cannot

seriously be argued that such laws unconstitutionally

burden interstate commerce. For example, shareholders

of New York corporations look to the New York Business

Corporation Law for their rights, be they appraisal rights,

voting rights, preemptive rights, or rights with respect

to corporate control, be it a merger, a consolidation, a

takeover bid, or a major asset sale.

In purchasing shares of a corporation, the purchaser

consents to be governed by laws of the state of incorpora-

tion. For example, any shareholder of a New York cor-

poration, no matter what his state of residence, is both

limited and protected by various provisions of New York

law, e.g., N.Y.B.C.L. §623(k) (appraisal rights), § 624

(access to corporate records), 5 626 (right to bring a

derivative suit), and §510 (dividend rights). New York

law reaches all shareholders of New York corporations,

whether they are resident or non-resident shareholders, to

effectuate New York’s interest in regulating corporations

created by its statutes. Cort v. Ash, supra, 422 U.S. at

84. In like fashion, shareholders of Illinois corporations

are governed by Illinois law.

That state legislation may have an extra-territorial

effect does not by itself vitiate such legislation under the

Pike test. Minnesota v. Clover Leaf Creamery Co., ——

US. —, ——, 101 S. Ct. ——, ——, 66 L.Ed.2d 659, 674-5

(1981); Raymond Motor Transportation, Inc. v. Rice,

supra, 434 U.S. 44; Huron Cement Co. v. Detroit, 362 U.S.

440, 443 (1960); Southern Pacific Co. v. Arizona, 325

U.S. 761, 770 (1945). In the instant case, the fact that

the protection afforded to Illinois shareholders by the

Illinois Act will also reach other shareholders is merely

an incidental aspect of effective protection for Illinois

residents. It is not an interference with interstate com-

20

merce. AMCA Int“ Corp. v. Krouse, supra, 482 F. Supp.

at 939.

The fear expressed by the Court below that an exces-

sive burden on commerce would result if states in addi-

tion to Illinois claim jurisdiction over a particular tender

offer, 633 F.2d at 502, is unwarranted. The comity pro-

vision in the Illinois Act renders the registration provi-

sions of the Act inapplicable where Illinois shareholders

would be adequately protected by application of another

state’s takeover statute. III. Aun. Stat. ch. 121 1/2,

§ 137.53 (Smith-Hurd).

The Court below also speculates that the potentially

prolonged delay required by the Act may, in some cir-

cumstances at least, be detrimental to the interests of

the shareholders.’’ 633 F.2d at 502. But it has been

found to be of particular benefit to the shareholder to

have time to make an informed decision whether or not

to tender his shares. In Strode v. Esmark, Inc., supra,

1 97,538 at 97,806, the Court stated:

Indeed, the principal effect of state takeover statutes

appears to be that they afford more time to the target

and its shareholders to consider and respond to the

offer. This additional time has often resulted in

higher bids being offered to the target companies’

shareholders either by the initial bidder or by a third

party making a competing bid.

Hasty, ill-considered decision making is not a benefit to

any shareholder. Curtiss-Wright Corp. v. Kennecott

Corp. (Current) Fed. Sec. L. Rep. 197,803, at 90,026

(CCH) (S.D.N.Y. December 26, 1980).

The shareholders benefit in another way when the offer

is open for a longer time. The dynamics involved in a

tender offer are unlike those in any other transaction. The

offeror makes its bid when and at a price it wants; and

it stands to benefit if the offer moves forward at a gallop,

21

for the swift pace virtually precludes a competitor, who

has not had the benefit of research, from making a com-

peting bid. As such, the original offering price tends to

be lower; there is neither competition from another bid-

der, nor incentive for the offeror to raise its price. Any

prolonged offering period can only benefit the offerees.“

Studies have shown that the price they are offered for

their shares tends to increase the longer the offer is open

because it enables competitive bids to enter the market

place. E.., Chatlos, The SEC vs. Investors on Tender

Offers, supra, 56 Harv. Bus. Rev. at 8; see also, AMCA

Int! Corp. v. Krouse, supra, 482 F. Supp. at 940.

It is not only the Illinois shareholders who benefit from

a bidding contest or from additional disclosures; all share-

holders benefit. Certainly that is not an excessive burden

on commerce. It is evident that none of the incidental

burdens on commerce exceed the benefits conferred by the

Illinois Act, and the Commerce Clause is not violated.

POINT Ill

The governance of corporations within their juris-

diction is a traditional area of State regulation which

must be preserved.

The legitimate and traditional interest of the states in

the regulation of securities transactions and in the affairs

of corporations within their jurisdiction must be preserved.

As this Court has recently stated, [A] State’s power to

regulate commerce is never greater than in matters tradi-

tionally of local concern.“ Kassell v. Consolidated Freight.

* Indeed, nothing in the Williams Act or its market approach

gives an offeror ‘‘. . . a right under the Williams Act to complete

its tender offer Great Western United Corp. v.

Kidwell, 577 F.2d 1256, 1277 (5th Cir. 1978) rev'd on venue

grounds sub nom. Leroy v. Great Western United Corp., 448

U.S. 173 (1979), clting Pipér v. Chris-Craft Industries, Inc.,

supra, 430 U.S. at 34-35,

22

ways, supra, —— U.S. at ——, 101 S. Ct. at ——, 67 L.

Ed.2d at 586, citing Hunt v. Washington State Apple

Advertising Commission, 432 U.S. 333, 350 (1977). The

change of control and ownership of a corporation which

is the intended result of a public tender offer is just such

a matter of traditional local concern.

The Illinois Act, just as the statutes of 35 other states“

including that of New York, attempts to vindicate that

local concern through legislation primarily intenaed to

* Alaska Stat. §§ 45.57.010-.120 (Supp. 1978) ; Ark, Stat. Ann.

§§ 67-1264 to -1264.14 (Supp. 1977); Colo. Rev. Stat. §§ 11-51.5

101 to 108 (Supp. 1976); Conn. Gen. Stat. §§ 36-347a to -347m

(1977); Del. Code Ann, tit. 8, § 208 (Supp. 1977); Ga. Code

Ann, §§ 22-1907 to -1915 (1977); Hawaii Rev. Stat. §§ 417E-1 to

-15 (1976); Idaho Code §§ 30-1601 to -1513 (Supp. 1978); Act

of Sept. 8, 1977, Pub. Act 80-556, III. Ann. Stat. ch. 121 1/2,

§ 137.5-1 (Smith-Hurd Supp. 1978); Ind. Code Ann, §§ 23-2-3-1

to -12 (Burns Supp. 1978); Iowa Uniform Securities Act

§§ 502.102, .211-215 (1978), reprinted in 1A Blue Sky L. Rep.

(CCH) F 18,142, 18,161-165; Kan. Stat. Ann. §§ 17-1276 to

-1285 (1974); Ky. Rev. Stat. §§ 292.560-.991 — 1978); La.

Rev. Stat. Ann. §§ 51: 1500-1512 (West Supp. 1978); Me. Rev.

Stat. Ann, tit. 13. §§ 801-817 (Supp. 1978); Md. Corp. & Ass’ns

Code Ann. ö 11-901 to -908 (Supp. 1977); Mass. Ann. Laws ch.

1100, §§ 1-18 (Michie/Law. Co-op. 8 1978); Mich. Comp.

Laws Ann. 6451.901917 (Supp. 1978); Minn, Stat. Ann.

§§ 80B.01-.13 (West. Supp, 1977); Miss. Code Ann. §§ 75-72-1

to -23 (Supp. 1978); Mo, Take-Over Bid Disclosure Act, 1978

Mo, Laws S. B. No. 820, reprinted in 2 Blue Sky L. Rep. (CCH)

11] 28, 201-214; Neb. Rev. Stat. §§ 21-2401 to -2417 (1977); Nev.

Rev. Stat. §§ 78.376 to -.3778 (1973); N.H. Rev. Stat. Ann.

i 421:A to :15 (1977); N.J. Stat. Ann. §§ 49:5-1 to -19 (West.

upp. 1978); N.Y. Bus. Corp. Law §§ 1600-1614 (McKinney

Supp. 1980); N.C. Gen. Stat. §§ 78B-1 to -11 (Supp, 1977); Ohio

Rev. Code Ann. § 1707,041 (Page 1978); 70 Pa. Cons. Stat. Ann.

§§ 71-85 (Purdon 9 1978); S.D. Comp. Laws Ann. §§ 47-32-1

to 47 (Supp. 1978) ; Tenn. Code Ann, §§ 48-2101 to -2114 (Supp.

1978) ; Utah Code Ann. §§ 61-4-1 to -13 (1978) ; Va. Code §§ 13.1-

528 to 41 (1978); Wis. Stat. Ann. §§ 552.01-.25 (West ial

Pamphlet 1978); Tex, Administrative Guidelines for Minimum

Standards in Tender Offers 065,15,00.100-,800, reprinted in 3 Blue

Sky L. Rep. (CCH) { 46,615.

ensure that the shareholders of a target company are

given adequate information of all the material facts con-

cerning a takeover bid as well as the time in which to use

such facts, so that they can make a fully informed deci-

sion whether to tender their shares and potentially whether

to turn over control of the target corporation to the tender

offeror.

In considering the question of federal preemption, the

Court below identified the ‘‘erucial inquiry“ as ‘‘whether

the Illinois Act differs from the Williams Act in such a

way that achievement of the congressional objective of

investor protection is frustrated’’ 633 F.2d at 493, and

proceeded to an analysis of specific provisions of the Illi-

nois Act. The Court found the ‘‘most troublesome por-

tion of the Illinois Act’’ to be the provision contained in

the hearings section of the Act which in effect empowers

the Illinois Secretary of State to pass upon the substan-

tive fairness of a tender offer. Thus, the Court held that,

„to the extent that Illinois has chosen to rely upon its

Secretary of States’ judgment after full disclosure of the

relevant facts, its regulatory scheme stands in funda-

mental conflict with federal law and is therefore uncon-

stitutional.’’ 633 F.2d 494. (Emphasis added.)

Moreover, with respect to the question of whether cer-

tain delays, such as the pre-effective notification period,

which are built into the Illinois statute are unacceptable

on preemption grounds, the Court held that the Illinois

Act „contained mechanisms for delay which are poten-

tially grossly in excess of the delay mandated by Con-

gress. . . Id. at 498.

The Court’s analysis thus appropriately focused on

specific provisions of the Illinois Act which appeared to

it to be in conflict with the ‘‘congressional judgment and

analysis that tender offers may not be unduly hindered

(by grossly extended delay under state law) to the detri-

ment of investors.’’ Jd. Such an analysis is required

24

where there is, as here, ‘‘no irreconcilable conflict’’ with

federal regulation in the field. Silver v. New York Stock

Exchange, 373 U.S. 341 (1963). Citing Silver, this Court

has stated:

[T]he proper approach is to reconcile the opera-

tion of both statutory schemes with one another rather

than holding one completely ousted.’

Merrill Lynch, Pierce, Fenner d Smith, Inc. v.

Ware, supra, 414 U.S. at 127.

The Court of Appeals, erred, however, in determining

that the Illinois Act ‘‘unduly hindered’’ tender offers

when the record was devoid of any actual effect the Illinois

Act had had on tender offers, 633 F.2d at 497.

If this Court were to agree that certain provisions of

the Illinois Act are in conflict with the federal regulatory

scheme, the extent of the conflict must be determined to

preserve those portions of the states’ statutory schemes

that are not in conflict with federal law. In Ray v. At-

lantic Richfield Co., 435 U.S. 151 (1978), this Court struck

down in part and upheld in part a Washington statute

regulating the design, size and movement of oil tankers

on Puget Sound. It is urged that in the instant case,

the Illinois Act must be similarly analyzed and those

portions of the statute that are not in direct conflict with

the Williams Act be preserved. See, Merrill Lynch, Pierce,

Fenner & Smith v. Ware, supra.

Without conceding the invalidity of any of the provi-

sions of the New York Security Takeover Disclosure Act,

any more than any of the provisions of the Illinois Act,

the State of New York recently amended its Act to avoid

possible constitutional challenges while still affording

shareholders the benefits of state regulation.“ Six other

* See discussion at pgs. 2-3, supra, L. 1980 ch. 733.

25

states have similarly amended their tender offer laws by

statute or regulation.“

As amended, the New York Act charges the New York

Attorney General with determining, upon commencement

of a tender offer (as under the Williams Act) rather than

20 days prior to commencement, whether the offeror has

provided full and fair diselosure to offerees of all material

information concerning the takeover bid. The Attorney

General may schedule a public hearing or order an in-

vestigation and in conjunction therewith, issue an order

prohibiting an offeror from purchasing or paying for any

shares tendered. N.Y.B.C.L. 55 1604, 1605(a) (Me-

Kinney’s). Prohibiting the purchase or payment for

shares tendered, as opposed to prohibiting the continua-

tion of the takeover bid, made the New York Act con-

sistent with federal practice where the approval of a take-

over is required by a federal regulatory authority, such

as the Civil Aeronautics Board.** Even such prohibition,

however, may not extend past fifty-five days after the

filing of the registration statement N.Y.B.C.L. § 1605(a).

This fifty-five day limitation was added to the New York

Act in 1980 as a specific response to the claim that state

tender offer statutes are used as instruments to indefi-

itely delay and defeat takeover bids. Fifty-five days was

found to be the average number of days between the com-

mencement and completion of a takeover bid.

The New York experience illustrates how state regula-

tions can be harmonized with the federal regulatory scheme

of the Williams Act so as to enhance and complement it

in the interest of greater protection of shareholders.

» Conn. Pub. Act No. 81-121 Amending ch, 66la of Conn.

Gen. Stat.; Idaho Rule 602 A adopted pursuant to Idaho Code

ch. 15, Title 30; Ind. Code 23-2-3-1 P.L. 1981, House Enrolled

Act, No. 2067; Md. House Bill 1310, effective July 1, 1981;

Nev. Senate Bill 359 ch. 417, NRS 78.3771; ch. 552 Wis. stat.

as amended by ch, 16 Laws of 1981, effective June 17, 1981.

** See discussion pgs. 8 to 9, supra,

26

This Court has stated that,

. . . federal regulation of a field of commerce

should not be deemed preemptive of state regulatory

power in the absence of persuasive reasons—either

that the nature of the regulated subject matter per-

mits no other conclusion or that the Congress has

unmistakably so ordained.

Florida Lime d Avocado Growers, Inc. v. Paul,

supra 373 U.S. at 142.

There are no ‘‘persuasive reasons’’ that would lead to

the preclusion of the states in the area of regulating tender

offers for the securities of corporations within their

jurisdiction.

CONCLUSION

The decision of the Court of Appeals should be

reversed.

Dated: New York, New York

July 17, 1981

Respectfully submitted,

RonkRr Annas

Attorney General of the

State of New York

As Amicus Curiae

Office & P. O. Address

Two World Trade Center

New York, New York 10047

Tel. (212) 488-4487

Of Counsel

Sum ApELSoN Stangl.

Solicitor General

Evoene D. Berman

Assistant Attorney General

LIxba S. Martinson

Deputy Assistant Attorney General

Eluzan RTR Biock

Assistant Attorney General