Amicus Brief — Edgar v. MITE Corp.

CASE NO. 80-1188

IN THE WL 18 1981

SUPREME COURT OF THE UNITED statis CUERK

OCTOBER TERM, 1981

JAMES EDGAR,

Appellant,

v.

MITE CORPORATION, and

MITE HOLDINGS, INC.,

Appellees.

ON APPEAL FROM THE UNITED STATES

COURT OF APPEALS FOR THE SEVENTH CIRCUIT

BRIEF OF THE STATE OF OHIO

AS AMICUS CURIAE

WILLIAM J. BROWN

Attorney General of Ohio

ROGER P, SUGARMAN

Assistant Attorney General

State Office Tower

30 East Broad Street, 16th Floor

Columbus, Ohio 43215

(614) 466-8614

ATTORNEYS FOR THE

STATE OF OHIO

AS AMICUS CURIAE

INDEX

Page

INTEREST OF THE STATE OF OHIO O 1

SUMMARY OF ARGUMENT..............000 000s 3

DE Use Ul DVGEA .de 5

1. Protection of investors, the sole purpose

of the Williaris Act, is constitutionally

complemented and furthered by state

e 5

it. The regulation of internal corporate

affairs by state takeover statutes to

effectuate investor protection does not

violate the Commerce Clause of the

United States Constitution ................ 12

, ua eidiy te od bbw é 0,4 80s oO eerb Ole 16

INDEX TO AUTHORITIES

Cases:

AMCA International Corp. v. Krouse,

482 F. Supp. 929 (S.D. Ohio 1979) ..2,6- 11, 13, 15

Canadian Pacific Enterprises (U.S.) Inc. v.

Kenneth E. Krouse, (No. 81-3083, 6th Cir.,

PE Per eee Te. 3

Cort v. Ash,

. 13

Great Western United Corp. v. Kidwell,

„„ Sh ose bice bebe cceueanheats 5

Hines v. Davidowitz,

. 4, 5, 6

Jones v. Rath Packing Co.,

i èĩè sb ses ceed . b. 6

Leroy v. Great Western United Corp.,

/ 5

Mite Corporation v. Dixon,

633 F.2d 486 (7th Cir. 1980) .. .2,3, 5, 11, 12, 14, 15

New York Dept. of Social Services v. Dublino,

S M,C. o's bes oe CARRE OD Soa US 3

Pike v. Bruce Church, Inc.,

e 12, 15

Piper v. Chris- Craſt Industries, Inc.,

e ͥͤ d c. 6

Rondeau v. Mosinee Paper Corp.,

e 7

Santa Fe Industries v. Green,

r 13

United States Constitution:

Article |, Commerce Clause 12, 15

Article Vi, Supremacy Clauss 5

Securities Exchange Act of 1934, 15 U.S.C. 78 et seq.:

Section 26(a), 16 U.S.C. 7b (U)). 3

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

, ͤ TTT Rp 2

Illinois Business Take-Over Act, III. Rev. Stat. Ch. 121 ,

Section 137.51 et seg. (1979):

ill. Rev. Stat. ch. 121 %, Section 137.52-10 ......... 12

ill, Rev. Stat. ch. 121 %, Section 137.57.A. .......... 9

ill, Rev. Stat. ch. 121 %, Section 137.57.E............ 9

Ohio Takeover Statute, Ohio Revised Code Section

1707.041 et seq.:

Ohio Revised Code, Section 1707.041 ............ N

Ohio Revised Code, Section 1707. 04 (A) (). 13

Ohio Revised Code, Section 1707.04 1(8)( )). 8

Ohio Revised Code, Section 1707.041(B)(1)(c) ....... 7

Ohio Revised Code, Section 1707.041(B)(3).......... 8

Ohio Revised Code, Section 1707.041(B)(3)(g)

, Liss deb hbo bee see ue 8

Ohio Revised Code, Section 1707.041(B)(4).......... 9

Rules:

SEC Rule 14d-2, 17 C. F. R. 240.14d-2.............. 3

SEC Rule 14d-2(b), 17 C. F. R. 240. 14-2 -b) 3

Treatises and Articles:

Note, The Constitutionality of State Takeover

Statutes: A Response to Great Western, 53

eR MT CUNT Goes ococucdeeveevesoes 14

Shipman, Some Thoughts About the Role of State

Takeover Legislation: The Ohio Takeover Act,

21 Case W. Res. L. Rev. 722 (1970) ............. 14

Miscellaneous :

D é ÄoæęRê r ;,̃ gy oi Ske pele yee evs 7

H.R. Rep. No. 1711, 90th Cong.,

e TS So vos cobececvedecasboee 7

Senate Comm. on Banking and Currency, Fu//

Disclosure of Corporate Equity Ownership in

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

e 13

CASE NO. 80-1188

IN THE '

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1981

JAMES EDGAR,

Appellant,

v.

MITE CORPORATION, and

MITE HOLDINGS, INC.,

Appellees.

ON APPEAL FROM THE UNITED STATES

COURT OF APPEALS FOR THE SEVENTH CIRCUIT

BRIEF OF THE STATE OF OHIO

AS AMICUS CURIAE

INTEREST OF THE STATE OF OHIO

The State of Ohio, by and through the Commissioner

of the Ohio Division of Securities, is statutorily charged

with the responsibility for the regulation and enforce-

ment of the Ohio Securities Act, including the provisions

of the Ohio Takeover Statute (the “Ohio Act’’), Section

1707.041 of the Ohio Revised Code. As the second

state to enact a statute regulating corporate acquisitions

by tender offer, Ohio extends protection to investors by

requiring that shareholders confronted by a tender offer

be provided with fair, full and effective disclosure of all

apa material to a decision to accept or reject the

offer.

This case concerns the validity of the Iilinois Business

Take-Over Act, Ill. Rev. Stat. ch. 121 % section 137.51

et seq. (1979) (the “Illinois Act“), and its application to

a proposed corporate acquisition by tender offer. This

transaction was subject also to the provisions of the

Williams Act amendments to the Securities Exchange Act

of 1934 (the 1934 Act“), 15 U.S.C. 78m(d)-78m(e),

78n(d)-78n(f), the parallel federal regulation governing

tender offers. The United States Court of Appeals for

the Seventh Circuit concluded that the Illinois Act is

preempted by the Williams Act; the Illinois Act burdens

interstate commerce; and therefore, the Illinois Act is

unconstitutional. The Seventh Circuit did not believe,

however, that all state legislation in this field was uncon-

stitutional, nor did it see any reason that the Williams Act

could not be validly complemented and investor protec-

tion furthered by state takeover statutes. '

The resolution of the complex constitutional issues

presented by this case may have a substantial impact

upon the continued protection of investors through the

operation of the analogous Ohio Takeover Act and its

administration by the the Commissioner of the Ohio

Division of Securities. The State of Ohio respectfully

submits this brief in support of (a) the constitutionality

of the Illinois Act, and (b) the conclusion shared by the

Seventh Circuit that not all state regulation of tender

offers is unconstitutional per se. The brief includes an

analysis of the practical effect of the Ohio Act as it has

been interpreted and applied, to demonstrate that state

statutes serve to complement and effectuate the investor

protection purpose of the Williams Act without placing

excessive burdens upon interstate commerce.

1. Mite Corporation v. Dixon, 633 F. 2d 486, 502-3 (7th Cir. 1980).

2. See, AMCA International Corporation v. Krouse, 482 F. Supp. 929 (S.D.

Ohio 1979).

SUMMARY OF ARGUMENT

1

State takeover statutes and their federal counterpart,

the Williams Act, share identical purposes in the regula-

tion of tender offers — the protection of investors. Each

regulatory scheme effectuates its purpose through

mechanisms which are designed to provide disclosures to

shareholders of target corporations, upon which the

shareholders may then make informed investment

decisions. While the statutory schemes are not pro-

cedurally identical, the state statutes complement and are

ids seg with the Williams Act, rather than being in

conflict.

Congress has not expressly preempted state regulation

of tender offers in either the Securities Exchange Act of

1934 or the Williams Act amendments thereto. On the

contrary, Section 28(a) of the 1934 Act specifically

preserves state laws insofar as those laws do not conflict

with the provisions of the 1934 Act.“ Furthermore,

there is no exclusive federal occupation of the field of

securities regulation from which congressional preemp-

tion of state takeover statutes can be inferred.

Rather, this is a case like New York Dept. of Social

Services v. Dublino, 413 U.S.405, 421 (1973), in which

3. As noted by the Seventh Circuit, 633 F.2d at 499, n.25, the Securities

and Exchange Commission promulgated Rule 14d-2(b), 17 C.F.R. 240.

14d-2, effective January 7, 1980. If valid, the effect of Rule 14d-2(b)

would be to preempt the precommencement public announcement

provisions of virtually all of the thirty-seven (37) state takeover statutes

Presently in existence, The validity of this Rule and its effect upon the

Ohio Takeover Act is currently sub judice, Canadian Pacific Enterprises

(U.S) ine. v. Kenneth F. Krouse (No. 81-3083, 6th Cir., appea/

pending). Rule 14d-2(b) did not apply to the controversy before the

Seventh Circuit and that court did not consider its effect upon the

illinois Act, Accordingly, this brief will not address the validity or effect

of Rule 14d-2(b), but will consider the merits and facts of the contro-

versy as determined by the Seventh Circuit.

this Court declined to preempt state law ‘‘[w] here

coordinate state and federal efforts exist within a comple-

mentary administrative framework, and in the pursuit

of common purposes. Existing within this

complementary framework, state takeover statutes such

as that of Illinois do not stand as an obstacle to the

accomplishment and execution of the purposes and

objectives of the Williams Act, Hines v. Davidowitz,

312 U.S. 52, 67(1941), and are therefore constitutional.

State takeover statutes recognize that tender offers are

unique transactions which combine elements of corporate

transactions traditionally regulated by the states, and

elements of securities transactions traditionally subject to

cooperative federal-state regulation. A tender offer

represents a change in and acquisition of corporate

control, a process which the states have a legitimate

interest in regulating for the purpose of protecting the

investor/shareholder, as with similar internal affairs

transactions of corporations.

These state statutes further other legitimate state

interests which, when balanced against alleged burdens

resulting from compliance therewith reveal that no

impermissible burden upon interstate commerce exists.

So too, this balancing process affirmatively demonstrates

that any burden upon interstate commerce attributable

to state takeover statutes is not “clearly excessive’ in

relation to their identifiable and substantial legitimate

state interests.

ARGUMENT

!

PROTECTION OF INVESTORS, THE

SOLE PURPOSE OF THE WILLIAMS

ACT, IS CONSTITUTIONALLY COM—

PLEMENTED AND FURTHERED BY

STATE TAKEOVER STATUTES.

The United States Court of Appeals for the Seventh

Circuit determined that Congress did not expressly

preempt state regulation of tender offers in either the

Securities and Exchange Act of 1934 or the Williams Act

amendments thereto and affirmatively concluded that

such federal legislation did not “bar the states from

regulating tender offers.“ 633 F.2d 486 at 491.

Similarly, in response to the argument that preemption of

state regulation in this area may be inferred, the Court

stated that:

Nor is the federal scheme of regulating

tender offers so pervasive that an implicit

congressional intent to preempt parallel

state legislation may fairly be inferred.

Id. at 491.

Rather, the Seventh Circuit found “the absence of an

exclusive federal interest in the field of securities regula-

tion [to be] persuasively demonstrated by the histori-

cally coordinate role of state regulation in the field.“ /d.

The Court of Appeals, however, in applying the conflict“

test of Hines v. Davidowitz, 312 U.S. 52 (1941), coupled

with the rationale of Great Western United Corp. v.

Kidwell, 577 F.2d 1256 (1978), rev’d on venue grounds

sub nom. Leroy v. Great Western United Corp., 443 U.S.

173 (1979), did conclude that the illinois Act is pre-

empted by the Williams Act. 633 F.2d at 498.

Inquiry into the existence of conflict“ under the

Hines test requires that a court consider the relationship

between state and federal laws as they are interpreted

and applied, not merely as they are written. (Emphasis

added). Jones v. Rath Packing Co., 430 U.S. 519, 526

(1977). Yet the Seventh Circuit, by its own admission

was unable to do so, for:

. . any conslusion as to the actual effect

it [INinois Act] has had, or may have, on

tender offers in Illinois would be purely

speculative because the record is devoid of

evidence on that subject. 633 F.2d at 497.

Thus, the Illinois Act which was neither applied to nor

operative in the Mite-Chicago Rivet tender offer; of

which no prior history or experience was contained in the

evidentiary record; and, as to which conclusions based

upon speculation were made, was found to somehow be

an obstacle to the accomplishment and execution of the

purposes of the Williams Act.

By way of contrast, the Ohio Act, after ten years of

existence; actual application to sixteen (16) tender

offers; and, three days of trial in federal district court

based upon its history and application, was held not to

have been preempted by the Williams Act. AMCA

International Corp. v. Krouse, 482 F Supp. at 938

(1979) (hereinafter referred to as “AMCA”). While the

Ohio and Illinois Acts are parallel rather than identical,

they share a mutuality of purpose which when examined

(as in AMCA), reveal that state takeover statutes

effectively complement the Williams Act, benefit share-

holders and protect investors.“ The unique and extensive

4. This Court in Piper v. Chris-Craft industries, Inc., 430 U.S, 1, 35 (1977),

after reviewing its legislative history, definitively stated that the so/e

purpose of the Williams Act was the protection of investors who are

confronted with a tender offer.“ (Emphasis added), Illinois and Ohio

share this identity of purpose in their respective takeover statutes.

application and history of the Ohio Act, together with

the analysis thereof by the AMCA court, demonstrate the

shortcomings of the Seventh Circuit’s corresponding

analysis of the Illinois Act.

Ohio has been the most active state to date in terms of

filings and proceedings under its takeover statute, to

determine whether 'the offeror proposes to make fair,

full and effective disclosure to offerees of all information

material to a decision to accept or reject the offer.“ R. C.

1707.041(B)(1)(c).© This dominant theme of investor

protection through disclosure mirrors the efficacy and

desirability of disclosure as revealed by the legislative

history of the Williams Act [H.R. Rep. No. 1711, 90th

Cong., 2d Sess. 2813 (1968)], and reaffirmed by this

Court in Rondeau v. Mosinee Paper Corp., 422 U.S. 49,

58 (1975). The possibility that disclosure to share-

hoiders/investors would deter the making of a tender

offer was considered and dismissed during deliberations

upon the Williams Act [H.R. Rep. No. 1711 at 2813-14],

and is belied by the experience in Ohio which has demon-

strated that tender offers have [not] been unduly

inhibited by the Ohio Act.” AMCA at 938.

The Williams Act was characterized by the Seventh

Circuit as essentially a minimum disclosure statute.”

633 F.2d at 491. The Ohio Act adds flesh to this federal

skeleton of investor protection through disclosure, so as

to differ therefrom primarily in that it:

5. Disclosure to offeree/shareholders was also the means selected in the

Williams Act for protection of investors, as evidenced by the following

statement by the Act's sponsor, Senator Williams:

This legislation will close a significant gap in investor

protection under the Federal securities laws by requiring

the disclosure of pertinent information to stockholders

when persons seek to obtain control of a corporation by

a cash tender offer or through open market or privately

negotiated purchases of securities. 113 Cong. Rec. 854

(Emphasis added.)

. » « requires fuller disclosure, imposes

administrative review, extends the period

of public scrutiny and requires that the

tender offer be made on the same terms

to Ohio shareholders as to others. AMCA

at 936.5

“Fuller disclosure“ provides in formation material to the

shareholder’s decision, so that acceptance or rejection of

the offer may then be made intelligently upon evaluation

of these disclosures by the shareholder.’ This is

especially relevant to the shareholder who may wish to

remain a shareholder rather than tender, or in the event

that a tender offer is made for less than all of the

outstanding securities of a corporation.

Disclosure to investor/shareholders is also a product of

the administrative review“ procedures undertaken by

the Ohio Division of Securities (the Division“) if

hearings are conducted in accordance with the Act. R.C.

1707.041(B)(1). Administrative hearings are held to test

6. The operative language of the Ohio Statute requires and provides, inter

alia: (i) 20 days prior to a takeover bid, the offeror must publicly

announce the terms of the offer; (ii) at the same time, file with the

Division of Securities and the target company copies of information

required by R.C. section 1707.041(B)(3); (iii) administrative hearing to

review the offer when ordered by the Division or requested by the target

and the Division so orders, either of which must occur within 10 days

of the filing; (iv) if a hearing is ordered it must be held within 40 days of

the date of the filing; (v) adjudications made pursuant to hearing must be

made within 60 days of the date of filing; and, (vi) if no hearing is

ordered, the offeror may proceed at the end of the 20-day period from

the date of the initial filing.

7. E.g., R. C. 1707,041(B)(3)(g) and (h) require an offeror to disclose its

capitalization, financial statements, pending non-routine litigation, etc,

... AMCA at 936. Disclosures in the Occidental Petroleum tender

offer for Mead Corporation included, as a result of proceedings in Ohio,

potential problems of Occidental (offeror) with its Hooker Chemical

subsidiary and with the Libyan government.

the adequacy of the disclosure materials proposed to be

disseminated to shareholders, with ultimate discretion

resting with the Division as to convening a hearing.®

Adjudications made pursuant to the hearing process,

again, have focused upon the adequacy of the offeror’s

disclosures, to determine whether they are fair, full and

effective.

Moreover, the practical effect of evaluation of the

disclosures under the Ohio Act has been to create

sufficient time within which a shareholder may assess the

offering documents in order to reach an informed invest -

ment decision. This delay“ prevents a “knee-jerk’’

response by a shareholder to an offer that is made at a

premium over the then-prevailing market price of the

target company’s stock, without having had an

opportunity to digest and evaluate complex disclosure

materials provided pursuant to federal and state law.

State takeover statutes establish a readily ascertainable

time schedule within which the investor, the investment

community and the stock markets may adjust to and

react to the volitility caused by a theretofore unannounced

tender offer.

8. A target company may not automatically convene a hearing before the

Division upon its request. The Division is the ultimate arbiter in this

regard and has refused to convene hearings even though requested to do

so. AMCA at 494. Compare, II. Rev. Stat. ch. 121 %, Section 137.57.A.

9. Similar to Il). Rev. Stat. ch. 121 % Section 137.57.E, the Ohio Act

provides for a “fairness” review of a tender offer by the Division, R. C.

1707.041(B)(4). No such review of the fairness of a tender offer has ever

been undertaken or made under the Ohio Act, nor has the Division ever

ordered that an offeror could not proceed wth its offer. The hearing

process has resulted in additional disclosures to shareholders and the

Process and adjudication have a/ways been completed within the

prescribed statutory time of sixty (60) days from date of filing.

10

The natural result of this process has been the creation

of a bidding market in the shares of the target company’s

stock, as the market is thus able to assess the disclosures

of the offer and their adequacy and thereby respond in a

responsible fashion. The benefits which inure to the

investor/shareholder therefrom have been numerous. The

investor who desires to make an immediate liquidation

has a market during the offering period (at or near the

tender offer price), as neither state nor federal law

preclude the ability to sell on the open market. Or, the

investor may wait until the best price is developed in the

marketplace as the result of a competing tender offer.

This latter phenomena would oftentimes not occur, but

for the existence of state takeover statutes.'° The

evolvement of this market and its attendant inarguable

benefits to shareholders serve to best-exemplify the

investor protection philosophy and reality embodied by

state takeover statutes.

The record in AMCA of the history and application of

the Ohio Act conclusively establishes that Ohio has

mirrored the disclosure policy of the Williams Act, yet

has supplemented and complemented the minimum

federal requirements to successfully achieve investor

protection. The application and interpretation of the

Ohio Act simply belies the pejorative label attached to

state takeover statutes, that they have adopted a

“fiduciary” rather than a market“ approach to

10. This increase in the price paid is most dramatically demonstrated by the

market created during the tender offer of AMCA International Corpora-

tion for Warner & Swasey. Because of the braking effect“ which the

Ohio Act had upon AMCA's actions, Bendix Corporation, a competing

offeror, was able to enter the contest. AMCA’s original offer was at $57.00

per share at a time when Warner & Swasey’s stock was valued in the

market at about 836.00 per share. When Bendix ultimately acquired

Warner & Swasey, the price paid per share was $83.00, after AMCA had

increased its offer to $75.00 per share in response to Bendix’s initial

competing offer of $70.00 per share. This represented an aggregate

increase of more than $90 million to Warner & Swasey shareholders.

11

regulation of tender offers.“ The ultimate arbiters of

every tender offer subject to the Ohio Act and the

jurisdiction of the Division have been the investor/

shareholders, AMCA at 938. The Ohio Act was designed

to and has in fact protected these beneficiaries of the

statute by providing a reasonable period of time within

which to reach an informed investment decision and to

assess the reaction of the market to the offer.

The relationship of the Williams Act and parallel state

regulation, as interpreted and applied to the experience

and history of the Ohio Act by the court in AMCA

International Corp. v. Krouse, 482 F.Supp. 929 (S.D.

Ohio 1979), affirmatively supports the Seventh Circuit's

belief that it is possible to draft state takeover legisla-

tion to supplement (rather than to contradict) the

Williams Act and the congressional premises and purposes

which it incorporates.“” 633 F.2d at 503. The Ohio Act

further offers empirical evidence for the Seventh Circuit's

perception that “the Williams Act may . be validly

complemented and investor protection furthered by state

legislation.“ /d.

11. The lable that the Illinois Act adopts a “fiduciary approach is similarly

unfounded, as the record below does not examine the application or

interpretation of that Act, but simply reviews the facial wording of the

Act. 633 F.2d at 497.

12

THE REGULATION OF INTERNAL

CORPORATE AFFAIRS BY STATE

TAKEOVER STATUTES TO EFFEC—

TUATE INVESTOR PROTECTION

DOES NOT VIOLATE THE COMMERCE

CLAUSE OF THE UNITED STATES

CONSTITUTION.

The Seventh Circuit, utilizing the balancing test

formulated in Pike v. Bruce Church, Inc., 397 U.S. 137,

142 (1970), also concluded that the Illinois Act violates

the Commerce Clause of the United States Constitution.

t did so, despite the absence of an evidentiary record

against which the actual operation of the Illinois Act

could be compared. While the Court’s analysis refers to

“potentially weighty’’ burdens; significant potential“

of the Act to cause commercial disruption; and no

evidence in the record as to what the actual effect of the

Act“ has been in preventing the removal of local business

from Illinois; the Court is nevertheless firm in its convic-

tion that “the Illinois Act burdens interstate commerce

in a manner which is substantial, clear and present

633 F.2d 502-503 (Emphasis added).

The Illinois Act is, inter alia, a state statute designed

to regulate the internal affairs of a corporation which has

a sufficient nexus to the State of Illinois.“? Although

the statute serves other legitimate local interests, the

Act seeks to regulate significant corporate changes which

inexorably result from a successful tender offer. As

corporations are creatures of state law, the states have

traditionally regulated significant structural changes

12.This nexus is met if a corporation, inter a, meets any two of the

following conditions: (a) principal executive office in Iilinois; (b] organ-

ized under the laws of Illinois; (c) at least 10% of its stated capital and

paid-in surplus represented in Illinois. III. Rev. Stat. ch. 121 %, Section

137.52-10.

13

which occur when control of the corporation shifts.'?

The legislative history of the Williams Act also recognizes

that tender offers are unique transactions, unlike any

other transfer of securities.“

Once again, the analysis by the AMCA court of the

detailed evidentiary record of the history and application

of the Ohio Act is helpful for purposes of a commerce

clause analysis.“? The Court found the Ohio Act to

regulate evenhandedly the conduct of offerors. 428

F.Supp. at 938. More importantly, however, the Court

believed, upon the facts before it, that Ohio had

“abundant legitimate public interest“ regulating a

proposed tender offer for Warner & Swasey. /d. at

939.'© This interest was premised upon the court's

recognition that:

Tender offers profoundly affect corporate

internal affairs and fiduciary relationships

traditionally within the purview of state

regulation ... tender offers are to be

considered functionally as internal affairs

transactions, comparable to proxy

contests and mergers, in which a state

possesses a compelling interest: investor

protection. /d.

13.Cort v. Ash, 422 U.S. 66, 84 (1975). In addition to Cort v. Ash, this

Court's decision in Santa Fe industries v. Green, 430 U.S. 462 (1977)

dispels any notion of a dominant federal interest in the regulation of

corporations. Taken together, these decisions emphasize the cooperative

nature of federal-state regulation of securities transactions generally, and

primary deference to state law regulating the internal affairs of a corpor-

ation specifically.

14,Senate Comm. on Banking and Currency, Fu Disclosure of Corporate

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

Cong., Ist Sess. 2-4 (1967).

15. The jurisdictional nexus of the Ohio Act requires that a corporation be

organized under the laws of Ohio or have its principal place of business

and substantial assets within Ohio. RC. 1707.041(A)(1).

16. Warner & Swasey was an Ohio corporation with its principal place of

business in the State, as well as the main part of its assets and

approxiately one-third of its shareholders in Ohio. /d.

14

See, Shipman, Some Thoughts About the Role of State

Takeover Legislation: The Ohio Takeover Act, 21 Case

W. Res. L. Rev. 722, 741-45 (1970).

The fact that a statute may have effect beyond the

boundaries of the state does not make such statute

invalid under the Commerce Clause. The allegation of

“extraterritoriality” is particularly anomalous when state

corporation law, by its very nature, extends beyond the

boundaries of the regulating state. Accordingly:

it is a curious suggestion that extrater-

ritorial protection of shareholders is

illicit in the context of state tender offer

statutes, but expected in the context of

state corporation laws. Note, The Con-

stitutionality of State Takeover Statutes:

A Response to Great Western, 53 N. v. U.

L. R. 872, 922 (1978).

Therefore, any extraterritorial effect of state takeover

statutes must first be shown to be a burden and then

weighed against the legitimate state interests fostered by

the statute before it can be concluded that the alleged

burden on interstate commerce is “clearly excessive’

in relation to the statute’s benefits.

The case at bar illustrates the compelling interest of

the State of Illinois in protecting investors by the Illinois

Act’s regulation of the proposed change in control of

Chicago Rivet to Mite Corporation. Chicago Rivet is

organized under the laws of the State of Illinois and has

its principal executive office in Illinois. Additionally,

the Seventh Circuit determined that approximately 27%

of Chicago Rivet's shareholders were Illinois residents,

which represented approximately 43% of the outstanding

shares. 633 F.2d at 501. Thus, as the controlling forum

of the internal affairs of an Illinois corporation, the

15

legitimate interests of the State of Illinois in exercising

regulatory authority in a tender offer for Chicago Rivet

cannot be gainsaid.“ꝰ

In light of these legitimate state interests and without

the benefit of a record evidencing the application of the

Illinois Act, it is unlcear how the Illinois Act was found

to impose upon interstate commerce a burden that is

“clearly excessive in relation to the putative local

benefits.“ Pike v. Bruce Church, inc., supra at 142.

Any perceived or alleged burden is not demonstrated by

the record, but rather exists in theory and speculation. '

By contrast, the examination of the Ohio Act in AMCA

illustrates the exacting scrutiny of the actual application

of a state statute under the Pike balancing test and

commerce clause analysis. Having done so, the court

found “the Ohio Act, like any regulation, affects

commerce and imposes costs upon regulated parties.“

482 F.Supp. 941. Yet having reviewed the record, the

court concluded that the Ohio Act did not impose an

impermissible burden upon interstate commerce. /d.

When appropriately viewed as the regulation of

internal corporate affairs to effectuate investor

protection, state takeover statutes exist well within the

bounds of any commerce clause guidelines. Such

legitimate, even compelling, local interests of the states

17. The Seventh Circuit clearly recognized that lol rotecting resident

investors is indisputably a legitimate state objective.“ /d. at 500. The

Court, however, absent an evidentiary record, concluded that the

benefits flowing to Illinois shareholders from the Act are, to a significant?

degree, speculative."’ /d.

18.For example, the history of tender offers to date does not support the

Seventh Circuit's fear that a multitude of states will impose conflicting

regulations on an offeror through their respective tender offer statutes,

633 F.2d at 502. To the contrary, the tender offer of United

Technologies for Babcock and Wilcox exemplifies state cooperation,

whereby the New Jersey authorities relied upon testimony produced in

Ohio hearings for review under the New Jersey takeover statute, In the

case at issue, while it was alleged that two states could have asserted

jurisdiction, in fact, only Ilinois did.

16

do not burden commerce in relation to the putative local

benefits. Rather, they preserve recognized fiduciary

relationships between shareholders and corporate

management. When afforded their appropriate deference

in the balancing test, such state interests clearly out-

weigh any potential burdens which result from

compliance with state takeover statutes.

CONCLUSION

For the foregoing reasons, the judgment of the United

States Court of Appeals for the Seventh Circuit should be

reversed.

Respectfully submitted,

WILLIAM J. BROWN

Attorney General of Ohio

ROGER P. SUGARMAN

Assistant Attorney General

State Office Tower

30 East Broad Street, 16ti Floor

Columbus, Ohio 43215

(614) 466-8614

ATTORNEYS FOR THE

STATE OF OHIO AS

AMICUS CURIAE

Dated: July 17, 1981.