Amicus Curiae Brief — CTS Corp. v. Dynamics Corp. of America
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Nos. 86-71 & 86-97 ‘8
LERK -
IN THE
Supreme Court of the Gnited States
October Term, 1986
CTS CORPORATION,
Appellant,
Vv.
DYNAMICS CORPORATION OF AMERICA,
Appellee.
STATE OF INDIANA,
Intervenor-Appellant,
v.
DYNAMICS CORPORATION OF AMERICA,
Appellee.
ON APPEAL FROM THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
AMICUS CURIAE BRIEF OF
STATE OF MINNESOTA
HUBERT H. HUMPHREY, III
Attorney General
State of Minnesota
ALAN I. GILBERT
Special Assistant
Attorney General
Counsel of Record
1100 Bremer Tower
Of Counsel: Seventh Place and
BARRY R. GRELLER Minnesota Street
Special Assistant St. Paul, Minnesota 55101
Attorney General Telephone: (612) 296-9416
ope
TABLE OF CONTENTS
Page
Table of Authorities ................ 00 eee. iii
Interest of Amicus Curiae ................ Ee ree 1
Summary of Argument................................ 5
RE aoa so eee et 6
I. Control Share Acquisition Legislation, Like The
ICSAA And MCSAA, Does Not Violate The Com-
merce Clause ......... ad peed Fae ae alta 6
Si “I a a0 re ee Baas or ee acd evs 6
B. Control Share Acquisition Statutes, Such As
The ICSAA And MCSAA, Do Not Offend The
Commerce Clause Because They Neither Di-
rectly Regulate Nor Impose Clearly Excessive
Burdens On Interstate Commerce ._—s_.. 8
1. The Control Share Acquisition Restdiutten
Does Not Impose A Direct Burden On In-
terstate Commerce... ...—s—si_............. 8
2. The Control Share Acquisition Pesctilens
Do Not Impose Clearly Excessive Burdens
On Interstate Commerce...._..—.—as.i..... il
a. The local benefits underlying the sented
share acquisition laws are real, concrete
and substantial ..—-_—.«—as—sci.......... 11
i. Pursuant to the historical smunen a
shareholder democracy, the state
laws protect domestic company
shareholders by affording them the
right to control the destiny of their
GE 5 ac ce vuas ceaeys oy ore 11
Page
ii. The state laws mitigate the coer-
cive nature of control share acquisi-
ge Oe a 16
iii. The state statutes further the inter-
ests of shareholders by inhibiting
the abusive use of takeover tactics
by both offerors and target com-
RASS Pritethe « :, 18
iv. The legislation enhances a state’s
business climate ..—_—s.—aa......... 20
b. The burden on interstate commerce is
insignificant in relation to the local
benefits derived from control share ac-
quisition legislation a 21
II. Control Share Acquisition Legislation, Such eg The
ICSAA And MCSAA, Does Not Violate The Suprom-
acy Clause _. 24
A. The Objective Of Control en hieetattien
Laws, Such As The ICSAA And MCSAA, Is
Consistent With, And Therefore Does Not Sub-
stantially Frustrate, The Purposes Of The
Williams Act __. 25
B. The Timetables Set Forth 7" Control Sion
Acquisition Legislation Like The ICSAA, And
Particularly The MCSAA, Do Not Substantially
Frustrate The Purposes Of The Williams Act 26
C. The Applicability Of Control Share Acquisition
Statutes To Non-Tender Offer Control Share
Acquisitions Does Not Conflict With The
Williams Act ............. Cat ae Pree 28
Conclusion ..._... + Pere wig | «= Noetgnn 30
ii
TABLE OF AUTHORITIES
Cases: Page
"ederal:
Agency Rent-A-Car, Inc. v. Connolly,
686 F.2d 1029 (1st Cir. 1982) | _ 24, 29
AMCA International Corp. v. Krause,
482 F. Supp. 929 (S.D. Ohio 1979) ..............27, 28
APL Limited Partnership v. Van Duser. Air, Inc.,
622 F. Supp. 1216 (D. Minn. 1985), vacated,
Civil No. 4-85-932 (Dec. 18,1985) ..—.—s_....... nee 3
Ashley v. Ryan,
8 eee
Baltimore Gas & Elec. Co. v. Heintz,
760 F.2d 1408 (4th Cir.), cert. denied,
rs ee ede vbececuceenes 22
Bardini Petroleum Co. v. Superior Court,
284 U.S. 8 (1981) .......... Ny in a ee 27
Broderick v. Rosner,
I 23
Burks v. Lasker,
RR dpc ccs veactecsvcesre 6
Cardiff Acquisitions, i. v. Hatch,
751 F.2d 906 (8th Cir. 1984) ......—............... 3, 24, 27
Cort v. Ash,
422 U.S. 66 (1975) . nae Pe ape a A 6
Dynamics Corp. of fuentes v. CTS a bs
794 F.2d 250 (7th Cir. 1986) . | _.15, 16, 17
Edgar v. MITE Corp.,
457 U.S. 624 (1982) 2, 8, 10, 12, 13, 14, 24, 27
Edudata Corp. v. Scientific Computers, Inc.,
599 F. Supp. 1084 (D. Minn.), appeal dismissed,
746 F.2d 429, 430 (8th Cir. 1984) : 3
iii
Florida Lime and Avocado Growers, Inc. v. Paul,
ee es ee I os ecw seiiectawknscchs cu 24
Gelco Corp. v. Coniston Partners, Civ. No. 3-86-847
(D. Minn. filed Nov. 7 and 10, 1986), appeal
docketed, No. 86-5418 (8th Cir. filed Nov. 10, 1986) 3
Hall v. Geiger-Jones,
ey eA Wadaccucnee uve sows es 10
Huron Portland Cement Co. v. City of Detroit,
ee es ar aa ys ola s bce ho ere 8
Maryland v. Louisiana,
451 U.S. 725 (1981) Saree ED, 2. Ay Oe 29
Missouri Portland Cement Co. v. H. K. Devter
Company, Inc., 535 F.2d 388 (8th Cir. 1976) .._.. 25
National City Lines, Inc. v. LLC Corp.,
687 F.2d 1122 (8th Cir. 1982) ................. 25
Pacific Gas & Elec. Co. v. State Energy Resources
Conservation & Dev. Comm’n.,
461 U.S. 190 (1983) 6 “be CO
Pike v. Bruce Church, Inc.,
$97 U.S. 187 (1970)............. PAS Aan? te 8
Piper v. Chris-Craft Industries, Inc.,
430 U.S. 1 (1977) a iM 0h RG yh 25, 27
Rice v. Santa Fe Elevator Corp.,
331 U.S. 218 (1947) Sree eee 29
Schreiber v. Burlington tien, a *
105 S. Ct. 2458 (1985) ..__............ sihine Ta
Western Land Corp. v. Crawford-Merz Co.,
62 F.R.D. 550 (D. Minn. 1973) | | .
Wooster Republican Printing Co. v. ened 17,
Inc., 533 F. Supp. 601 (W.D. Mo. 1981), aff'd,
682 F.2d 165 (8th Cir. 1982) __. Rida we - 13
iv
State:
Aiple v. Twin City Barge and Towing Co.,
Page
274 Minn. 38, 143 N.W.2d 374 (1966) ............ 23
First National Bank v. Gustin-Minerva C.M. Co.,
42 Minn. 327, 44 N.W. 198 (1890) .................. 23
Seitz v. Michel,
148 Minn. 80, 181 N.W. 102 (1921) .............. 23
Unocal Corp. v. Mesa Petroleum Co.,
4938 A.2d 946 (Del. 1985) ..................... 16
Statutes and Regulations:
Federal:
Section 13(d) of the Securities Exchange
Act of 1934 ....... Cr. ne aig BO ney 28
15 U.S.C.A. § 78m(d)(1) (1981) .............. Oo ne
15 U.S.C.A. § 78n(d)(5) (1981) ................. 26
eet 2 MS EE re 28
17 C.F.R. § 240.14d-7(a)(1) (1986) ............. 26
17 C.F.R. § 240.14e-1 (1986) .............. 4, 27
State:
Act of April 25, 1984, ch. 488, 1984 Minn. Laws 470 | 3
Act of April 25, 1984, ch. 488, § 1, subd. 2(2),
es Slik vee cle ecco dans 25
Act of April 25, 1984, ch. 488, § 1, subd. 2(4),
I ec. cn eebeensaccvaceea 2
Act of June 24, 1985, Ist Spec. Sess. ch. 5,
1985 Minn. Laws 1630... Pte eo 3
Act of March 24, 1986, ch. 431, § 1,
1986 Minn. Laws 703 | 2,3
Act of March 24, 1986, ch. 431, § 2,
1986 Minn. Laws 703 _. | 2, 3, 4, 27
Act of March 24, 1986, ch. 431, § 21,
1986 Minn. Laws 706.....................
Ind. Code Ann. § 23-1-42-4
(Burns Cum. Supp. 1986) ..............
Ind. Code Ann. § 23-1-42-6
(Burns Cum. Supp. 1986) .._._..
Ind. Code Ann. § 23-1-42-7
(Burns Cum. Supp. 1986) .
Ind. Code Ann. § 23-1-42-9
(Burns Cum. Supp. 1986)
Minn.
Minn.
Minn.
Stat. ch. 302A (1984), as ital.
Stat. § 302A.011, subd. 8 (Supp. 1985)
Stat. § 302A.011, subds. 37-41
(1984 & Supp. 1985) .
Minn.
Minn.
Minn.
Minn.
Minn.
Minn.
Minn.
Minn.
Minn.
Minn.
Minn.
Minn.
Minn.
Minn.
Stat. § 302A.251, subd. 1 (1984)
Stat. § 302A.405 (1984)
Stat. § 302A.413 (1984)
Stat. § 302A.449, subd. 7 (Supp. 1985) |
Stat. § 302A.453 (1984) _.
Stat. § 302A.467 (1984) |
Stat. § 302A.471 (1984)
Stat. § 302A.553 (1984)
Stat. $$ 302A.601 - 302A.661 (1984)
Stat. § 302A.613 (1984)
Stat. § 302A.613, subd. 2 (1984)
Stat. § 302A.671 (Supp. 1985) .
Stat. § 302A.671, subd. 2 (Supp. 1985)
Stat. § 302A.671, subd. 4 (Supp. 1985)
vi
25
4, 15, 25
Other Authorities: Page
Johnson, Minnesota’s Control Share Acquisition
Statute and the Need for New Judicial Analysis of
State Takeover Legislation, 12 Wm. Mitchell
= - 2 Seay Seri oan | 7
Profusek and Gompf, State Takeover Legislation
After MITE: Standing Pat, Blue Sky, or
Corporation Law Concepts, 7 Corp. L. Rev. 3
asc he kas Fas OTC ON Ok le 7
Reiser, Corporate Takeovers: A Glossary of Terms &
Tactics, 89 Case & Com. 35 (1984) ee . —
Note, Has Ohio Avoided the Wake of MITE?
An Analysis of the Constitutionality of the Ohio
Control Share Acquisition Act, 46 Ohio State
Rp aa ere, SA eae o> er 7
Note, Exclusionary Tender Offers: A Reasonably
Formulated Takeover Defense or A Discriminatory
Attempt To Retain Control?, 20 Ga. L. Rev.
627 (1986) pee anaes Mi k9 oi Naa
Note, Greenmail: Targeted Stock Repurchases and
the Management—Entrenchment Hypothesis,
98 Harv. L. Rev. 1045 (1985) _. | 20
7A Fletcher, Cyclopedia of Corporations
§ 3657 (Supp. 1986) ........ sPiee 23
vii
IN THE
Supreme Court of the Gnited States
October Term, 1986
Nos. 86-71 & 86-97
CTS CORPORATION,
Appellant,
v.
DYNAMICS CORPORATION OF AMERICA,
Appellee.
STATE OF INDIANA,
Intervenor-Appellant,
Vv.
DYNAMICS CORPORATION OF AMERICA,
Appellee.
ON APPEAL FROM THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
AMICUS CURIAE BRIEF OF
STATE OF MINNESOTA
INTEREST OF AMICUS CURIAE
Amicus Curiae State of Minnesota, through its Attorney
General Hubert H. Humphrey, III (hereinafter ““Minnesota’’),
respectfully submits this brief in support of the appellants.
Resolution of the issues involved in this appeal will have a
profound impact on Minnesota for two principal reasons.
2
First, this case raises a significant question regarding a
state’s authority to regulate the internal affairs of domestic
corporations. The states’ historical and longstanding authority
to enact business corporation laws, without regard to the resi-
dency of the corporation’s shareholders, has been severely
undermined by the decision now under review by the Court.
Consequently, Minnesota and its body of corporate laws,’
which apply to corporations by reason of their incorporation
in Minnesota without shareholder residency requirements,
can be tremendously affected by the decision in this case.
Second, Minnesota has promulgated its own Control Share
Acquisition Act (hereinafter “MCSAA”’).? It was enacted by
the Minnesota Legislature in 1984 as part of an extensive
modification of Minnesota’s corporate takeover statutes, with
an express purpose of conforming Minnesota law to this
Court’s decision in Edgar v. MITE Corp., 457 U.S. 624
(1982). The 1984 Minnesota corporate takeover legislation
is comprised of two different parts: (a) a major revision of
Minn. Stat. ch. 80B (“Chapter 80B’’), the state securities law
which regulates the registration of tender offers, and (b) the
MCSAA, which consists of amendments to Minn. Stat. ch.
302A, the Minnesota Business Corporation Act, and requires
shareholder approval of “control share acquisitions,” includ-
1 Minn. Stat. ch. 302A (1984), as amended.
2 Minn. Stat. § 302A.671 (Supp. 1985) as amended by Act of March
24, 1986, ch. 431, §§ 2 and 21, 1986 Minn. Laws 703, 706; the proxy
provision relating thereto, Minn. Stat. § 302A.449, subd. 7 (Supp.
1985) as amended by Act of March 24, 1986, ch. 431, § 1, 1986 Minn.
Laws 703; and the relevant definitional provisions, Minn. Stat.
§ 302A.011, subds. 37-41 (1981 & Supp. 1985). These statutory pro-
visions are contained in the Appendix to this brief.
3% Act of April 25, 1984, ch. 488, § 1, subd. 2(4), 1984 Minn. Laws 471.
3
ing those effected through tender offers.‘ The MCSAA was
amended in both the 1985 and 1986 Minnesota legislative
sessions. ® |
In November, 1984, the Eighth Circuit Court of Appeals
concluded that Chapter 80B is constitutional. Cardiff Acqui-
sitions, Inc. v. Hatch, 751 F.2d 906 (8th Cir. 1984). However,
just recently, the Minnesota United States District Court de-
termined that the MCSAA was unconstitutional as violating
the Commerce and Supremacy Clauses of the United States
Constitution, and that decision is now on appeal to the Eighth
Circuit Court of Appeals. Gelco Corp. v. Coniston Partners,
Civ. No. 3-86-847 (D. Minn. filed Nov. 7 and 10, 1986), appeal
docketed, No. 86-5418 (8th Cir. filed Nov. 10, 1986).°®
4 Act of April 25, 1984, ch. 488, 1984 Minn. Laws 470.
5 Act of June 24, 1985, 1st Spec. Sess. ch. 5, 1985 Minn. Laws 1630,
and Act of March 24, 1986, ch. 431, §§ 1, 2 and 21, 1986 Minn. Laws
703, 706.
6 The constitutionality of the MCSAA has been the subject of two
prior cases. In Edudata Corp. v. Scientific Computers, Inc., 599
Supp. 1084 (D. Minn.), appeal dismissed, 746 F.2d 429, 430 (8th Cir.
1984), the court denied an acquiring person’s motion for a tempo-
rary restraining order with respect to enforcement of the Minne-
sota legislation. 599 F. Supp. at 1086, 1088. Thereafter, the case
was settled by the offering and target companies and thus no final
decision was rendered by the court. A further challenge in APL
Limited Partnership v. Van Dusen Air, Inc., 622 F. Supp. 1216
(D. Minn. 1985), vacated, Civil No. 4-85-932 (Dec. 18, 1985), resulted
in a decision that the MCSAA, as amended by the 1985 Minnesota
Legislature, violated the Commerce Clause of the United States
Constitution. Jd. at 1220-25. This decision was appealed to the
Eighth Circuit Court of Appeals, which heard the appeal on an
expedited basis but ultimately was forced to dismiss the appeal
as moot when the offeror and target company settled. Order, Nos.
85-5285, 85-5286 (8th Cir., Jan. 7, 1986). However, prior to dismiss-
ing the appeal, the Eighth Circuit directed the district court to
vacate its decision and refused to actually dismiss the appeal or
dissolve the stays pending appeal until it received the district
court vacation order. Order, Nos. 85-5285, 85-5286 (8th Cir., Nov.
26, 1985).
4
The MCSAA is substantially similar to, but in some material
respects different from, the Indiana Control Share Acquisition
Act (hereinafter “ICSAA’’) under review in this case. The
most significant difference between the two laws is that the
shareholder vote under the MCSAA must be completed within
twenty (20) business days of the target company’s receipt of
the required information,’ which coincides precisely with the
minimum offering period under the Williams Act,* whereas
the corresponding provision under the ICSAA is fifty (50)
calendar days.* Although some differences exist between the
MCSAA and ICSAA, resolution of the instant appeal will
likely impact the constitutionality of the MCSAA.
For the reasons expressed herein, Minnesota has a distinct,
concrete and substantial interest in this appeal.
7 Act of March 24, 1986, ch. 431, § 2, 1986 Minn. Laws 703.
817 C.F.R. § 240.14e-1 (1986).
®Ind. Code Ann. § 23-1-42-7 (Burns Cum. Supp. 1986). Other dif-
ferences between the Indiana and Minnesota laws include: (1)
the ICSAA requires shareholder approval to determine whether
the acquiring person may have voting rights, Ind. Code Ann.
§ 23-1-42-9 (Burns Cum. Supp. 1986), and the MCSAA provides for
shareholder approval prior to consummation of the control share
acquisition, Minn. Stat. § 302A.671, subd. 4 (Supp. 1985); (2) share-
holder approval under the ICSAA requires a majority of “disin-
terested”’ shareholders, Ind. Code Ann. § 23-1-42-9 (Burns Cum.
Supp. 1986) while the MCSAA provides for the majority vote of
all shareholders, Minn. Stat. § 302A.671, subd. 4(a)(1) (Supp.
1985); and (3) the ICSAA requires the acquiring person to pay the
expenses of the shareholder vote, Ind. Code Ann. § 23-1-42-7 (Burns
Cum. Supp. 1986), whereas there is no such provision in the
MCSAA.
5
SUMMARY OF ARGUMENT
The court of appeals decision is inconsistent with well-
recognized principles relating to the states’ authority to enact
corporate laws. In accordance with the states’ power to adopt
business corporation statutes, control share acquisition laws,
like the ICSAA and MCSAA, are valid and co».stitutional en-
actments. They neither violate the Commerce Clause nor the
Supremacy Clause of the United States Constitution.
As to the Commerce Clause assertions, control share acqui-
sition legislation does not directly burden interstate commerce
because these business corporation statutes apply only when
the target company is incorporated under the law of the reg-
ulating state. The presence of this long-accepted nexus for
state corporate law regulation—state of incorporation—dis-
pels any claims that control share acquisition legislation is
per se invalid as a direct burden on interstate commerce.
In addition, any indirect burdens occasioned by control share
acquisition laws do not clearly exceed the benefits underlying
the statutes. The state benefits are substantial in extending
the doctrine of shareholder democracy to a target company’s
shareholders, thereby allowing shareholders to decide the des-
tiny of their company; mitigating the coercive nature of con-
trol share acquisitions; inhibiting the abusive use of takeover
tactics by both target and offering companies; and enhancing
a state’s business environment. In relation to these benefits,
the legislation imposes an insubstantial burden on interstate
commerce whick is identical to the burden imposed by reasen
of a shareholder vote on a merger proposal. Of course, mergers
have historically and constitutionally been subject to the share-
holder approval process.
The Supremacy Clause claims are similarly without merit.
The control share acquisition statutes are consistent with the
Williams Act in that the objective of the laws, shareholder
protection, is identical; time frames for the shareholder vote
under the ICSAA, and certainly under control share acquisition
laws like the MCSAA, do not conflict with the timing provi-
sions of the Williams Act; and the state legislation is not con-
trary to the Williams Act regulation of non-tender offer con-
trol share acquisitions.
The decision of the court of appeals should be reversed.
ARGUMENT
I. CONTROL SHARE ACQUISITION LEGISLATION, LIKE
THE ICSAA AND MCSAA, DOES NOT VIOLATE THE
COMMERCE CLAUSE.
A. Background.
Control share acquisition legislation, such as the ICSAA and
MCSAA, was adopted pursuant to the states’ longstanding and
unquestioned authority to regulate the internal affairs of busi-
nesses incorporated within their respective jurisdictions. See,
e.g., Burks v. Lasker, 441 U.S. 471, 478 (1979); Cort v. Ash,
422 U.S. 66, 84 (1975); Ashley v. Ryan, 153 U.S. 436, 446
(1894). In accordance with this historical power, state cor-
porate laws have traditionally governed a multitude of matters
affecting domestic companies and their shareholders. For ex-
ample, state corporate laws have always provided various
rights and protections to domestic company shareholders,
whether or not the shareholders reside in that particular
state,'® including procedures for shareholders collectively to
10 See, e.g., Minn. Stat. §§ 302A.405 (1984) (consideration for shares);
302A.413 (1984) (preemptive rights); 302A.467 (1984) (shareholder
remedies); 302A.471 (1984) (rights of dissenting shareholders).
7
decide matters which have a major impact on the corpora-
tion.!?
As a rational extension of existing corporate law, the con-
trol share acquisition provisions afford to shareholders a val-
uable right in the form of an opportunity to determine as a
group whether they desire a change in control of their cor-
poration—a change that can have a dramatic impact on the
company. In providing this statutory right, the state legisla-
tures have granted shareholders of their domestic corporations
the same kind of voting control that those shareholders have
traditionally exercised over other forms of transactions which
can also have a substantial impact on a domestic corporation,
i.e., mergers, exchanges of shares, and the sale of all or sub-
stantially all of the corporation’s assets. See, e.g., Minn. Stat.
§§ 302A.601-302A.661 (1984).
The ICSAA, and similar laws like the MCSAA, constitutes a
unique, innovative and proper approach in furthering the fun-
damental concept of shareholder democracy. This form of leg-
islation has been the subject of scholarly comment which con-
cludes that the legislation is constitutional. '*
11 See, e.g., Minn. Stat. §§ 302A.601 -302A.661 (1984) (shareholder
approval of mergers, exchanges of shares, and the sale of all or
substantially all of the company’s assets).
12 See Johnson, Minnesota’s Control Share Acquisition Statute and
the Need for New Judicial Analysis of State Takeover Legislation,
12 Wm. Mitchell L. Rev. 183 (1986); Profusek and Gompf, State
Takeover Legislation After MITE: Standing Pat, Blue Sky, or
Corporation Law Concepts, 7 Corp. L. Rev. 3, 27-41 (1984); Note,
Has Ohio Avoided the Wake of MITE? An Analysis of the Con-
stitutionality of the Ohio Control Share Acquisition Act, 46 Ohio
State L.J. 203 (1985).
B. Control Share Acquisition Statutes, Such As The ICSAA
And MCSAA, Do Not Offend The Commerce Clause
Because They Neither Directly Regulate Nor Impose
Clearly Excessive Burdens On Interstate Commerce.
The Commerce Clause prohibits an individual state from
directly regulating or imposing clearly excessive burdens on
interstate commerce. A state statute must therefore be upheld
if it only indirectly impacts interstate commerce and any such
burden is reasonable in relation to the local benefits derived
from the state legislation. Edgar v. MITE Corp., 457 U.S. 624,
640 (1982); Pike v. Bruce Church, Inc., 397 U.S. 137, 142
(1970); Huron Portland Cement Co. v. City of Detroit, 362
U.S. 440, 443 (1960). The contro! share acquisition statutes
are constitutional because their impact on interstate commerce
is indirect, as well as insignificant, in comparison to the local
benefits derived from the laws.
1. The Control Share Acquisition Legislation Does Not
Impose A Direct Burden On Interstate Commerce.
By their very terms, control share acquisition laws, like the
ICSAA and MCSAA, do not directly burden interstate com-
merce. The legislation only applies to contro] share acquisi-
tions in a domestic corporation which has certain addit‘ nal
connections with the state of incorporation.'* As a result, the
'* The ICSAA applies to a control share acqu'sition in an Indiana
company having its principal place of business, principa! office or
substantial assets in Indiana, and which has a certain leve’ of its
outstanding shares owned by Indiana residents, e.g., 10 percent.
Ind. Code Ann. § 23-1-42-4 (Burns Cum. Supp. 1986). The MCSA
app!'es to an offer to acquire shares in a Minnesota corporation
which has its principal place of business, or assets greater than
$1,000,000, located in Minnesota. Minn. Stat. § 302A.011, subd. 8
(Supp. 1985).
et err =
9
scope of these business corporation statutes is limited to com-
panies created under the law of the regulating state and
having a further nexus with that state. The control share ac-
quisition legislation, which is part of the states’ respective
corporate laws, therefore does not directly impact on inter-
state commerce.
A contrary conclusion would effectively invalidate all state
corporation laws because, as indicated above, the critical basis
for such laws is that the regulating state is the state of incor-
poration. If this nexus, in and of itself, was insufficient to
establish the indirect nature of the state regulation on inter-
state commerce, the longstanding authority of the states to
adopt business corporation statutes would be emasculated.
Indeed, many business transactions routinely regulated by
state corporate laws involve factual circumstances where the
only nexus to the regulating state is that the subject company
is incorporated in that state. For example, a merger proposed
by a New York company with a Minnesota corporation is
subject to a vote of shareholders pursuant to the Minnesota
Business Corporation Act, even though no shareholders of the
Minnesota company reside in Minnesota. See Minn. Stat. §
302A.613 (1984). Likewise, a voting trust between New York
and Alaskan residents is unquestionably subject to Minnesota
law if the stock involved is issued by a Minnesota company.
See Minn. Stat. § 302A.453 (1984).
A multitude of similar examples can be cited where state
business corporation laws properly regulate the activities of
people and entities not residing in the regulating state, based
upon the sole fact that the involved company is incorporated
in the regulating state. Clearly, no other nexus with the regu-
lating state is required—just the state of incorporation is
sufficient to allow a state to legislate under its business cor-
poration statutes.
10
The opinion in Edgar v. MITE Corp., 457 U.S. 624 (1982)
does not provide otherwise. The MITE decision involved an
Illinois securities tender offer registration law, not a business
corporation statute. A plurality of the Court found the legis-
lation to constitute a direct burden on interstate commerce
because it regulated beyond the permissible scope of state
securities laws. The Illinois law attempted to require the reg-
istration of a tender offer for securities even though no share-
holder of the target company resided in Illinois. As such, the
traditional and long-accepted nexus for regulation of securiti:s
matters, i.e., shareholder residency, as established in the case
of Hall v. Geiger-Jones, 242 U.S. 539 (1917),'* was not pres-
ent in the Illinois law. According'y, the plurality opinion noted
that if other states imposed laws like the Illinois legislation,
a tender offer could be subject to the securities statutes of
many different states. 457 U.S. at 642.
Contrary to the Illinois securities statute involved in MITE,
as discussed previously, control share acquisition statutes, like
the ICSAA and MCSAA, are a part of the respective state’s
business corporation laws and therefore contain a proper ju-
risdictional nexus based on the target company’s state of incor-
poration. Further, in stark contrast to the concern expressed
in the MITE plurality decision on direct regulation, since com-
panies have only one state of incorporation, there is no danger
that a multiplicity of state corporate laws will apply to a par-
ticular control share acquisition.
Thus, just like other state corporation law provisions, co»-
trol share acquisition legislation, such as the ICSAA and
MCSAA, does not directly regulate or burden interstate com-
merce.
14The Hall v. Geiger-Jones decision wis actually quoted and relied
upon by the MITE direct burden plurality. 457 U.S. at 641.
11
2. The Control Share Acquisition Provisions Do Not Impose
Clearly Excessive Burdens On Interstate Commerce.
Any indirect impact of the control share acquisition statutes
on interstate commerce does not impose clearly excessive bur-
dens in relation to the local purposeg served by the state leg-
islation. The real, concrete and substantial benefits underlying
the laws far exceed any actual or speculative burden imposed
by the legislation on interstate commerce.
a. The local benefits underlying the control share acquisi-
tion laws are real, concrete and substantial.
The control share acquisition legislation furthers several
important local benefits. First, and most significant, in ac-
cordance with the historical concept of shareholder democ-
racy, the state laws protect shareholders of domestic corpora-
tions by affording them the right to control the destiny of
their company. Second, the legislation mitigates the coercive
nature of control share acquisitions. Third, the statutes in-
hibit the abusive use of takeover tactics, thereby furthering
shareholder rights. Fourth, the state enactments enhance the
regulating state’s business climate which, in turn, encourages
businesses to incorporate in that state and shareholders to
invest in businesses incorporated in that state.
i. Pursuant to the historical concept of shareholder democ-
racy, the state laws protect domestic company share-
holders by affording them the right to control the
destiny of their company.
A transaction which results in a change in control of a
corporation may have a dramatic effect upon that corpora-
tion, an effect which can certainly be as substantial as a mer-
12
ger or other form of extraordinary corporate transaction.
The control share acquisition laws merely extend to the share-
holders of the regulating state’s corporations the same right
already enjoyed in the merger context, i.e., to vote on trans-
actions which may materially affect their company. This right
of collective shareholder approval, which is grounded in the
fundamental concept of shareholder democracy, furthers im-
portant local benefits by providing shareholders of domestic
corporations the opportunity to control the destiny of their
company.
Just like a merger, a change in control can unquestionably
impact the future course and direction of a company. Indeed,
if an acquiring person effects a control share acquisition it
will direct the operations of the company, even though it may
have no expertise in the company’s areas of operation. Fur-
thermore, as in many takeover cases, the acquiring person
could then merge with the target, drain the company of its
cash, and perhaps sell off assets of the resulting company.
The target company shareholders could, of course, for a
number of different reasons, have a substantial and legitimate
interest in seeing that their company is not so changed. For
example, regardless of the offering price, shareholders may
believe that the target company’s potential, if its operations
continue unchanged, far exceeds that price. Therefore, share-
holders may well prefer to allow the company to continue in
its present method and manner of operation so that the full
economic pote~’ial of the company can be realized.
Notwithste .ding the foregoing, it is claimed that a state
does not have a legitimate interest in extending benefits t»
shareholders of a domestic company if those shareholders do
not reside in the regulating state. Language from Edgar v.
MITE Corp., 457 U.S. 624, 644 (1982), is relied upon in sup-
13
port of this contention. Again, the MITE decision is inap-
posite.
As thoroughly discussed above, MITE pertained to state
tender offer securities legislation which conferred protection
on investors outside the regulating state, thereby exceeding
the legitimate scope of a state securities disclosure statute.
In contrast, the legislation under review in this case relates
to the states’ longstanding authority to regulate domestic cor-
porations and thereby properly provides protection to alli
domestic company shareholders, no matter where they may
reside. Certainly, the very purpose of domestic corporation
statutes is to protect all of the company’s shareholders. £.g.,
Wooster Republican Printing Co. v. Channel 17, Inc., 533 F.
Supp. 601, 617 (W.D. Mo. 1981), aff’d, 682 F.2d 165 (8th Cir.
1982) (state corporate law “designed primarily for the pur-
pose of protecting the interests of shareholders of the cor-
poration”). See also Western Land Corp. v. Crawford-Merz
Co., 62 F.R.D. 550, 555 (D. Minn. 1973). As far as domestic
corporation laws are concerned, the shareholders’ states of
residency are immaterial.
A different result would seriously undermine the states’
previous longstanding and unquestioned authority to regulate
domestic corporations. The multitude of shareholder protec-
tion provisions contained in state corporation statutes do not
distinguish between domestic company shareholders who re-
side in the regulating state and those who reside elsewhere.
For example, all domestic company shareholders can vote on a
merger proposal, irrespective of their state of residency. State
corporate laws apply even where not a single shareholder of
the domestic company resides in the regulating state. See, e.g.,
Minn. Stat. § 302A.613, subd. 2 (1984) (provides that all
shareholders can vote on a proposed merger, without any
14
stated residency requirement): Clearly, the states’ regulation
of domestic corporations legitimately and properly benefits
all domestic company shareholders, no matter where they re-
side.
It is also asserted that a change in control does not impact
the internal affairs of a company. The basis for this conten-
tion is found in language from the MITE opinion which states
that “‘[t]ender offers contemplate transfers of stock by share-
holders to a third party and do not themselves implicate the
internal affairs of the target company.” 457 U.S. at 645 (em-
phasis added).
Reliance on this statement from MITE is misplaced The
state tender offer securities statute involved in MITE dealt
with the process by which tender offers are made. The tender
offer process quite clearly does not implicate the internal af-
fairs of a company. Equally apparent, however, is the fact
that control share acquisition provisions, like the ICSAA and
MCSAA, do not regulate the tender offer process. Rather,
these laws apply to the actual purchase of shares following a
tender offer which would result in the acquiring person ob-
taining control in a domestic company. While tender offers
in and of themselves do not affect the internal affairs of the
subject corporation, a change in control clearly does implicat»
the internal affairs of the target company, as a typical take-
over case so clearly demonstrates.
Once an acquiring person obtains control of a target com-
pany it will direct the operations of the company, even thou7vh
the acquiring person may have no experience or expertise in
the target’s areas of operation. Further, with its acquisition
of control, the acquiring person will have virtually unfett>2red
discretion in how it changes the scope and structure of the
target’s business. This power, obtained upon acquisition of
15
control, clearly impacts on the future course and direction, let
alone the very existence of the company. A corporation’s in-
ternal affairs are most certainly implicated upon the consum-
mation of a control share acquisition.
Nevertheless, it has been suggested that the internal affairs
of a corporation are implicated only once the acquiring person
votes its control block of stock, not at the time it consummates
the control share acquisition.'* This distinction elevates form
over substance. Once control is obtained, the outcome of a
shareholder vote is a foregone conclusion. In effect, the ac-
quiring person controls the outcome of any shareholder vote
and imposes its will on any minority shareholders. In the con-
trol share acquisition context, the concept of shareholder de-
mocracy can only be effectuated before acquisition of the con-
trolling interest.
Finally, the contention that shareholder approval of a con-
trol share acquisition is not analogous to a shareholder vote
on a merger transaction is without substance. It is apparent
that for all practical purposes the transactions have an iden-
tical impact on the corporation. Without question, both mer-
gers and control share acquisitions can have a profound effect
on the future course and direction of the company.
In fact, the analogy between merger approval and control
share acquisition approval is again made perfectly clear by
the facts of a typical takeover case. It is common for an ac-
quiring person to merge with the target without any mean-
15 Although the ICSAA does not actually require shareholder ap-
proval prior to the control share acquisition, the practical effect
of the Indiana statute may be just that. See Dynamics Corp. of
America v. CTS Corp., 794 F.2d 250, 261 (7th Cir. 1986). The
MCSAA, of course, expressly requires shareholder approval prior
to the consummation of a contro: share acquisition. Minn. Stat
§ 302A.671, subd. 4 (Supp. 1985).
16
ingful vote by the target’s shareholders. The first part, or
front-end, of an acquiring person’s plan is to gain control of
the target through its tender offer. Upon obtaining control,
the acquiring person will effect the second part, or back-end,
of its plan, by the merger.'* The outcome of the shareholder
vote on the merger is a foregone conclusion due to the ac-
quiring person’s prior acquisition of control. As a result, the
shareholders of the target will not have an opportunity to
cast a vote, or at least a meaningful vote, as to whether the
target and the acquiring person should be merged. Control
share acquisition provisions, like the ICSAA and MCSAA, es-
sentially fill this gap in the law.
ii. The state laws mitigate the coercive nature of control
share acquisitions.
A control share acquisition confronts each sharehoider, usu-
ally on short notice, with a “take it or leave it” proposition.
In such an environment, an individual shareholder’s decision
to sell his or her stock does not necessarily amount to a vote
in favor of the terms of the control share acquisition, nor does
it mean that the shareholder would not prefer to remain as a
shareholder of the existing company. To the contrary, individ-
ual shareholders, not knowing the position of other share-
holders with respect to the proposed control share acquisition,
may well sell their stock even though they oppose a change in
control, because they fear that the proposed acquisition will
succeed to the detriment of their company. Lacking the oppor-
tunity to decide on a collective basis whether the proposed
acquisition is desirable, individual shareholders may be coerced
16 See, e.g., Dynamics Corp. of America v. CTS Corp., 794 F.2d 250,
255 (7ih Cir. 1986); Unocal Corp. v. Mesa Petroleum Co., 493 A2d
946, 956 (Del. 1985).
17
into selling or tendering their shares when they would prefer
to retain them.
A phenomenon commonly referred to as a “squeeze”? con-
tributes further to this coercive environment. If a shareholder
fails to sell his stock prior to the actual consummation of a
control share acquisition, he will then be subject to a back-end
merger whereby the acquiring person dictates the cash-out
price. This cash-out price may be well below what the share-
holder would have obtained by selling or tendering his shares
prior to the consummation of the control share acquisition.
Again, although a shareholder may prefer to retain his stock
in the company, without knowing the position of other share-
holders regarding the proposed acquisition, an individual
shareholder can be squeezed into selling his or her stock.
The control share acquisition laws provide important, con-
crete and substantial local benefits'* by mitigating the coer-
17 See, e.g., Dynamics Corp. of America v. CTS Corp., 794 F.2d 250,
255 (7th Cir. 1986).
18 The benefits underlying the state legislation are not undermined
due to the fact that a self-tender, a tender offer by the issuing
company, is not subject to the state law. Control share acquisition
laws do not apply to self-tenders for the obvious reason that, as a
matter of definition, a self-tender does not change the ownership
interest of the acquiring person, the issuing company. Certainly,
the issuing corporation does not have a control interest in itself,
and thus a self-tender, with its necessary increase of treasury
stock, does not change the issuer’s “control” of itself.
Further, state corporate law has traditionally recognized the
right of a domestic corporation to repurchase its own shares. See,
e.g., Minn. Stat. § 302A.553 (1984). The directors must, of course,
in repurchasing the company’s stock, comport themselves in ac-
cordance with the fiduciary obligations owed to the shareholders.
See, e.g., Minn. Stat. § 302A.251, subd. 1 (1984). In contrast, a
tender offeror seeking control owes no fiduciary obligations to
shareholders. :
It is apparent that the exclusion of self-tenders from the scope
of control share acquisition laws is rationally based.
18
cive environment incidental to control share acquisitions.
These benefits are effectuated by allowing shareholders of
domestic corporations to collectively approve or disapprove
the proposed acquisition. This process, based on the historical
concept of shareholder democracy, provides domestic company
shareholders the right to act in an informed, reasoned and
non-coercive environment in deciding the fate of their com-
pany.
iii. The state statutes further the interests of shareholders
by inhibiting the abusive use of takeover tactics by
both offerors and target companies.
Control share acquisition statutes will have a beneficial im-
pact by inhibiting *» abusive use of takeover tactics by both
offering and target companies. For example, a “poison pill” !°
is adopt... and implemented by target company management
without a shareholder vote, but in the professed best interest
of shareholders.*° Such defensive tactics, especially when used
abusively, are almost always the subject of litigation which
is usually considered by the courts on an expedited basis.?!
This litigation, in turn, places a tremendous burden on the
courts and incredible expenses on the litigants, which expenses
adversely affect target company shareholders. As a result, the
courts are forced into the middle of these complex takeover
battles and, instead of the shareholders, are effectively decid-
19 The term “poison pill,” as defined by the court of appeals, “refers
to a family of shareholder rights agreements which, upon some
triggering event such as the acquisition by a tender offeror of a
certain percentage of the target corporation’s common stock, en-
title the remaining shareholders to receive additional shares of
common stock (or other securities) at bargain prices” 794 F.2d at
254-55.
20 See, e.g., id. at 255-56.
21 See, e.g., id. at 251.
19
ing the eventual outcome of the takeover contest. Even more
important, defensive measures of target companies often-
times preclude the company’s shareholders from considering
an offer, even though a majority of the shareholders would
find the offer attractive.
Control share acquisition legislation will, to a significant
extent, remove the takeover battles from the courtroom and
place the matter squarely before the most interested and af-
fected parties, the shareholders. Certainly, target company
management cannot as easily claim that “poison pills,” or
other defensive measures, are in the best interest of share-
holders when a mechanism is readily available to enable the
company’s shareholders to vote on a proposed control share
acquisition and thereby directly resolve the question for
themselves. The mere presence of control share acquisition
laws can therefore discourage the abusive use of defensive
tactics by management.
The state legislation can actually be used affirmatively by
offerors to bring the question of a control share acquisition
directly to the shareholders, thereby bypassing the implemen-
tation of potentially abusive takeover tactics by target com-
pany management. If an offeror so chooses, it can invoke the
law simply by filing the necessary information statement and
thus force a shareholder vote on the proposed acquisition.
Should the offeror prevail in the shareholder vote, it would
be difficult, if not impossible, for target company manage-
ment to employ defensive tactics to defeat the offer, if share-
holders have already voiced their approval of the transaction.
Control share acquisition laws will similarly inhibit “green-
mail,” 22 a common abusive purpose of offering companies.
22 “Greenmail’”’ has been defined as “[t]aking a large position in a
company’s stock, threatening a takeover, and then selling the
shares back to the company at above-market prices. In short, it’s
20
Payment of greenmail can economically devastate a target
company and its shareholders, as well as deprive the share-
holders from considering an offer they might otherwise
approve.** Again, target company management cannot as
readily agree to pay greenmail in the purported best interest
of the shareholders when a process is available for the share-
holders themselves to decide the propriety of the takeover
transaction. As a consequence, an offering company cannot
as easily extract greenmail from a target company, and there-
fore, tue incidence of greenmail will presumadly decrease
dramatically due to the existence of control share acquisition
legislation.
It is apparent, tnen, that the control share acquisition stat-
utes provide real and substantial benefits by inhibiting abusive
takeover practices, thereby enhancing the rights of share-
holders.
iv. The legislation enhances a state’s business climate.
The control share acquisition laws enhance a state’s busi-
ness climate, and, as a result, encourage investment in the
regulating state and its domestic corporations. It is not dis-
puted that the corporate takeovers can in a very short period
dramatically alter a target company’s business operations,
whether it be, for example, the extortion of greenmail,?* or
merely the draining of the target’s assets. The subject state
a form of legal corporate blackmail.” Reiser, Corporate Takeovers:
A Glossary of Terms & Tactics, 89 Case & Com. 35, 44 (1984) (foot-
note omitted).
23 See, e.g., Note, Exclusionary Tender Offers: A Reasonably Formw-
lated Takeover Defense o1 A Discriminatory Attempt To Retain
Control?, 20 Ga. L. Rev. 627, 652-56 (1986); Note, Greenmail:
Targeted Stock Repurchases and the Management—Entrenchment
Hypothesis, 98 Harv. L. Rev. 1045, 1064-65 (1985).
24 See supra note 22.
21
statutes afford to shareholders of domestic corporations the
right to vote on control share acquisitions and thereby have
some say in the future course and direction of their company.
This ensures an orderly transition of control and power in the
company pursuant to an informed and reasoned process
wherein the shareholders have the ultimate voice in determin-
ing whether a change of control is best for their company.
It is important to note that promotion of a state’s business
climate is not premised upon precluding corporate raiders
from moving business operations outside the regulating state.
Instead, as indicated above, control share acquisition legisla-
tion promotes a state’s business environment by providing an
opportunity to shareholders of that state’s corporations at
least to participate in deciding the fate of their company. Due
to the lightning-quick manner in which even longstanding
shareholders, including the “founding fathers,” of a corpora-
tion can be affected by a control share acquisition, extension
of the shareholder democracy principle to these transactions
is certainly attractive to businesses and their investors.
b. The burden on interstate commerce is insignificant in
relation to the local benefits derived from control share
acquisition legislation.
The burden imposed on interstate commerce by conirol
share acquisition statutes is a limited restriction on an acquir-
ing person in purchasing a particular amount of stock in a
domestic company. The laws apply only to control share acqui-
sitions, and even then they do not preclude such purchases.
Rather, the legislation requires shareholder approval of con-
trol share acquisitions. Significantly, the control share acqui-
sition provisions do not restrict other persons from buying
or selling shares in the corporation.
22
Certainly, the burden on interstate commerce is no differ-
ent than the one imposed by operation of corporate merger
statutes. For example, a cash-out merger is clearly and con-
stitutionally subject to shareholder approval.?° Identical to
the control share acquisition statutes, if a cash-out merger is
collectively disapproved by shareholders, an individual! share-
holder is unable to sell his or her stock to the merging com-
pany in accordance with the proposed merger. This would be
the case even if the merging company were a foreign ccrpora-
tion and no shareholders of the domestic company resided in
the regulating state. Thus, the impact on interstate commerce
is the same under a proposed control share acquisition and a
cash-out merger.
Just as significant is that any burden on interstate com-
merce occasioned by the legislation is no greater than that
imposed by state laws which require regulatory approval of
control share acquisitions. Such laws can completely fore-
close a transaction in interstate commerce. Yet, these state
laws have been declared constitutional even though they im-
pact on the ability of persons residing outside the regulating
state to purchase stock in interstate commerce. See, e.g.,
Baltimore Gas & Elec. Co. v. Heintz, 760 F.2d 1408, 1421,
1427 (4th Cir.), cert. denied, 106 S. Ct. 141 (1985).
Furthermore, in the event a control share acquisition does
not obtain shareholder approval, it is speculative whether the
loss of such a transaction is actually a burden on interstate
commerce. The recent rash of corporate takeovers shows that
the economy and society in general are not always well served
by such transactions. For example, greenmail, which is often
incidental to and a purpose of a threatenc1 control share
acquisition, detrimentally affects both a target company and
25 See, e.g., Minn. Stat. § 302A.613, subd. 2 (1984); Ashley v. Ryan,
153 U.S. 436, 446 (1894).
23
its shareholders and furthers no worthy interest.?° Discourag-
ing these types of transactions serves to benefit, not burden,
interstate commerce.
Presumably, if an acquiring person makes a reasonable
proposal to the target company’s shareholders, the proposed
acquisition will be approved. Only those transactions that
detrimentally impact on the company and its shareholders
will fail to receive shareholder approval.
In measuring the alleged burden on interstate commerce, it
must be recognized that a shareholder, no matter where he
or she resides, purchases stock in a company subject to the
laws of the state of incorporation. See Broderick v. Rosner,
294 U.S. 629, 644 (1935); First National Bank v. Gustin-
Minerva C.M. Company, 42 Minn. 327, 328, 44 N.W. 198,
198-99 (1890). The domestic corporation laws effectively form
a contract or charter between the corporation, its shareholders
and the regulating state. F.g., Aiple v. Twin City Barge &
Towing Co., 274 Minn. 38, 46, 143 N.W.2d 374, 379 (1966) ;
Seitz v. Michel, 148 Minn. 80, 84, 181 N.W. 102, 104 (1921).
See generally 7A Fletcher, Cyclopedia of Corporations, § 3657
(Supp. 1986). Accordingly, as a matter of law, a shareholder
purchases stock knowing full well that the incorporating
state’s corporate laws may impose restrictions on the accu-
mulation of such stock.
Upon balancing the burden imposed by and benefits derived
from the control share acquisition statutes, it is apparent that
the leg :lation is constitutional. Like almost any state law,
such as a corporate merger statute, the legislation under re-
view in this case imposes some burden on interstate commerce.
However, this burden is indirect and insignificant in relation
to the benefits derived from the law. As a consequence, the
26 See supra note 23.
24
burden imposed on interstate commerce by the law is not
clearly excessive in comparison to the local benefits underlying
the legislation.
II. CONTROL SHARE ACQUISITION LEGISLATION,
SUCH AS THE ICSAA AND MCSAA, DOES NOT VIO-
LATE THE SUPREMACY CLAUSE.
It is undisputed that Congress has never expressed any
intent to preempt state corporation laws, in the Williams Act
or elsewhere, nor has it indicated any intent to occupy the
entire field of such regulation. See, e.g., Cardiff Acquisitions,
Inc. v. Hatch, 751 F.2d 906, 913 (8th Cir. 1984) ; Agency Rent-
A-Car, Inc. v. Connolly, 686 F.2d 1029, 1036-37 (1st Cir. 1982).
Because it is not physically impossible to comply with both the
Williams Act and a control share acquisition law, the issue
before the Court is whether state law so conflicts with the
federal law that the state statute substantially frustrates the
objectives of federal legislation. If not, the state law must
be upheld. See, e.g., Edgar v. MITE Corp., 457 U.S. 624, 632
(1982); Florida Lime and Avocado Growers, Inc. v. Paul,
373 U.S. 132, 142-43 (1963).
An examination of the state and federal laws demonstrates
that the control share acquisition statutes do not frustrate,
even it: an insubstantial way, the purposes underlying the
Williams Act. Indeed, the express objective and the timetable
of the ICSAA, and certainly statutes like the MCSAA, are
consistent with federal law. Moreover, the applicability of
control share acquisition statutes to non-tender offer control
share acquisitions does not conflict with the Williams Act.
25
A. The Objective Of Control Share Acquisition Laws,
Such As The ICSAA And MCSAA, Is Consistent With,
And Therefore Does Not Substantially Frustrate, The
Purposes Of The Williams Act.
It is unquestioned that the principal and overriding objec-
tive of Congress in adopting the Williams Act was the pro-
tection of investors. Piper v. Chris-Craft Industries, Inc., 430
U.S. 1, 22-24 (1977); National City Lines, Inc. v. LLC Corp.,
687 F.2d 1122, 1129 (8th Cir. 1982); Missouri Portland Ce-
ment Co. v. H.K. Porter Company, Inc., 535 F.2d 388, 393 (8th
Cir. 1976). Similarly, control share acquisition legislation has
been enacted to protect shareholders.?7 To accomplish this
purpose, the laws impose the requirement that the sharehold-
ers vote on and approve the proposed acquisition.?* As dis-
cussed previously, this requirement enhances the individual
and collective rights of shareholders by allowing them, in
accordance with the fundamental principle of shareholder
democracy, to control the destiny of their company, by miti-
gating the coercive nature of control share acquisitions and
by inhibiting the abusive use of takeover tactics. See supra
at 11-20.
Not only do these state laws further the investor protection
objective of the Williams Act, but they also do not disrupt
the balance created by the Williams Act between the acquiring
person and target company management.?° Indeed, in promot-
——-
1 ur example, the Minnesota Legislature specifically stated that
the MCSAA was intended to “provide to shareholders both neces-
sary information and the opportunity to thus cast fully informed
votes on any takeover transactions.” Act of April 25, 1984, ch. 488,
§ 1, subd. 2(2), 1984 Minn. Laws 471.
28 Ind. Code Ann. §§ 23-1-42-6 and -7 (Burns Cum. Supp. 1986), and
Minn. Stat. § 302A.671, subds. 2 and 4 (Supp. 1985), as amended.
29 See Schreiber v. Burlington Northern, Inc., 105 S. Ct. 2458, 2463
(1985).
26
ing shareholders’ interests by requiring collective shareholder
approval of a control share acquisition, the legislation operates
in an evenhanded manner. Both the offeror and management
are subject to the same federal proxy rules and the same time
constraints in presenting their respective positions to the
shareholders. Consequently, the statutes favor neither man-
agement nor the offeror in presenting the proposed control
share acquisition to a vote of the shareholders.
B. The Timetables Set Forth In Control Share Acquisition
Legislation Like The ICSAA, And Particularly The
MCSAA, Do Not Substantially Frustrate The Purposes
Of The Williams Act.
The ICSAA is tailored to avoid any conflict with the pro-
cedural requirements of the Williams Act in the event a
tender offer is made. The disclosure and voting requirements
of the ICSAA are structured so they will be completed no
later than 50 days after the information statement relating
to the proposed acquisition is delivered to the target corpora-
tion.*® As a result, the requirements of the ICSAA will be
satisfied prior to the time that shareholders can, pursuant to
the Williams Act, withdraw any tendered shares.?!
Control share acquisition statutes like the MCSAA present
an even clearer case of no conflict between the state and fed-
eral laws. Under the MCSAA, the required shareholder vote
must be completed within twenty (20) business days of the
80 Ind. Code Ann. § 23-1-42-7 (Burns Cum. Supp. 1986).
31 Effectively, shareholders may withdraw any tendered shares for
up to 15 business days after the tender offer is commenced or
after 60 calendar days following commencement. Thus, under the
Williams Act, the shareholder is unabie to withdraw any tendered
shares between the 16th business day and the 60th calendar day
after the offer. 15 U.S.C.A. § 78n(d)(5) (1981) and 17 C.F.R.
§ 240.14d-7(a)(1) (1986).
a ee ee
27
target company’s receipt of the information statement. Act
of March 24, 1986, ch. 431, § 2, 1986 Minn. Laws 703. Accord-
ingly, the Minnesota law does not conflict with the twenty
(20) business day minimum period for an offer to remain
open under the Williams Act,** as all state mandated proce-
dures will be completed within the twenty (20) business day
period. See Cardiff Acquisition, Inc. v. Hatch, 751 F.2d 906
(8th Cir. 1984). Hence, there is absolutely no delay occasioned
by the Minnesota law in the consummation of a tender offer
under the Williams Act.
The argument that the shareholder vote could be extended
beyond the state law time frame because of possible delay in
counting votes, or because of possible vote challenges, does
not present a proper reason for invalidating the state leg-
islation. Such speculative and hypothetical contentions can-
not be a basis for deciding constitutional challenges. See, e.g.,
Bardini Petroleum Co. v. Superior Court, 284 U.S. 8, 22
(1931) (“Constitutional questions are not to be dealt with
abstractly.”). Moreover, even assuming, arguendo, that the
Court could speculate as to potential for delay in the vote
process, there is no showing that this hypothetical delay
would constitute an “unreasonable delay,” as envisioned by a
plurality of the Court in Edgar v. MITE Corp., 457 U.S. 624,
639 (1982).
It is also suggested that a control share acquisition statute
is unconstitutional because it could preclude altogether the
consummation of a tender offer if the acquiring person does
not prevail in the shareholder vote. However, the Williams Act
establishes no substantive federal right to purchase shares
pursuant to a tender offer. See, e.g., Piper v. Chris-Craft In-
dustries, Inc., 480 U.S. 1 (1977); AMCA International Corp.
3217 C.F.R. 240.14e-1 (1986).
v. Krause, 482 F. Supp. 929, 937 (S.D. Ohio 1979). It merely
regulates the process by which an offeror must make his offer
to purchase shares. The control share acquisition legislation
does not interfere with this process. Rather, it simply accords
to shareholders, on a collective basis, the right to approve or
disapprove a change in control of their corporation—a trans-
action that can fundamentally alter the make-up and future
of their corporation. To deprive shareholders of such an im-
portant right would be contrary to the traditionally demo-
cratic nature of corporate governance. To deny the states the
power to grant such a right would be a dramatic departure
from the historical role that states have played in regulating
the corporations which they create.
C. The Applicability Of Control Share Acquisition Statutes
To Non-Tender Offer Control Share Acquisitions Does
Not Conflict With The Williams Act.
The Williams Act does not regulate non-tender offer trans-
actions, such as open market purchases, except to the extent
it requires any person who has accumulated more than five
percent of a company’s stock to make a Schedule 13D filing
with the Securities and Exchange Commission. Section 13(d)
of the Securities Exchange Act of 1934.°* As such, the re-
quirements of control share acquisition statutes do not conflict
with the Section 13(d) disclosure provisions of the Williams
Act and, for the reasons discussed above, actually further the
investor protection purposes of the federal law. See supra
at 11-20.
Nonetheless, it is suggested that the Williams Act, in a non-
tender offer transaction, implicitly authorizes an open market
$215 U.S.C.A. § 78m(d)(1) (1981). See also 17 C.F.R. § 240.13d-1
(1986).
29
or other acquisition of stock without any delay occasioned by
state regulation. This argument is without merit.
Not only is it presumed that Congress did not preempt state
law,** but there is simply no compelling indication that Con-
gress, by its silence, intended to tacitly supersede state cor-
porate laws. To the contrary, the Williams Act, in the non-
tender offer context, only provides a disclosure mechanism
relating to the accumulation of stock in a particular company.
The federal law is by no means so pervasive as to preclude the
states from invoking their historical authority to regulate do-
mestic corporations.** See, e.g., Rice v. Santa Fe Elevator
Corp., 331 U.S. 218 (1947).
As discussed previously, see supra at 14, the Williams Act
regulates a different subject matter than do controi share
acquisition statutes. The federal law pertains to disclosures in
the securities context, whereas the state law governs control
share acquisitions which could materially impact on a domes-
tic company’s internal affairs. The federal and state laws, con-
sistent with their traditional authority to regulate in their
respective areas, constitutionally co-exist.
84 See, e.g., Pacific Gas & Elec. Co. v. State Energy Resources Con-
servation & Dev. Comm’n., 461 U.S. 190, 206 (1983); Maryland v.
Louisiana, 451 U.S. 725, 746 (1981).
35 This conclusion finds compelling support in Agency Rent-A-Car,
Inc. v. Connolly, 686 F.2d 1029, 1036-37 (1st Cir. 1982). In that case,
the court convincingly rejected the argument that Congress in-
tended to occupy the entire field of control share acquisitions in
adopting the Williams Act. The court therefore upheld, against a
preemption challenge, a state law which regulated all methods of
acquiring stock in a target corporation, whether by open market
purchase, by solicitation of particular shareholders, by tender
offer, or otherwise. In so doing, the First Circuit Court of Appeals
recognized that Congress has not evinced an intent in the Williams
Act, implicitly or otherwise, to preempt state law. 686 F.2d at
1036-37.
30
CONCLUSION
Based on the foregoing, Amicus Curiae State of Minnesota
hereby requests that the Court reverse the decision of the
Seventh Circuit Court of Appeals.
Dated: December 4, 1986.
Respectfully submitted,
HUBERT H. HUMPHREY, III
Attorney General
State of Minnesota
ALAN I. GILBERT
Special Assistant
Attorney General
Counsel of Record
Of Counsel: 1100 Bremer Tower
BARRY R. GRELLER Seventh Place & Minnesota St.
Special Assistant St. Paul, Minnesota 55101
Attorney General Telephone: (612) 296-9416
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APPENDIX
Minn. Stat. § 302A.671 (Supp. 1985), as amended by Act
of March 24, 1986, ch. 431, §§ 2 and 21, 1986 Minn. Laws 703,
706 provides:
302A.671 CONTROL SHARE ACQUISITIONS.
Subdivision 1. Authorization in articles. (a) Unless other-
wise expressly provided in the articles or in bylaws approved
by the shareholders of an issuing pu»lic corporation, this sec-
tion does not apply to a control share acquisition.*
(b) All shares acquired by an acquiring person in violation
of subdivision 4 shall be denied voting rights for one year
after acquisition, the shares shall be nontransferable on the
books of the corporation for one year after acquisition and
the corporation shall, during the one-year period, have the
option to call the shares for redemption at the price at which
the shares were acquired. Such a redemption shall occur on
the date set in the call notice but not later than 60 days after
the call notice is given.
Subd. 2. Information statement. An acquiring person shall
deliver to the issuing public corporation at its principal exec-
utive office an information statement containing ail of the
following:
(a) the identity of the acquiring person;
*This provision, Minn. Stat. § 302A.671, subd. 1(a), becomes effec-
tive on August 1, 1987, in accordance with Act of June 24, 1985,
Ist Spec. Sess. ch. 5, § 21, 1985 Minn. Laws 1640 and Act of March
24, 1986, ch. 431, § 21, 1986 Minn. Laws 706. Minn. Stat. § 302A.671,
subd. 1(a) as currently in effect is codified at Minn. Stat. § 302A.-
671, subd. 1(a) (1984) and provides:
Subd. 1. Authorization in articles. (a) Unless otherwise ex-
pressly provided in the articles of an issuing public corporation,
this section applies to a control share acquisition,
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(b) a reference that the statement is made under this sec-
tion;
(c) the number of shares of the issuing public corporation
beneficially owned by the acquiring person;
(d) a specification of which of the following ranges of vot-
ing power in the election of directors would result from con-
summation of the control share acquisition:
(1) at least 20 percent but less than 33-1/3 percent;
(2) at least 33-1/3 percent but less than or equal to 50 per-
cent;
(3) over 50 percent; and
(e) the terms of the proposed control share acquisition, in-
cluding, but not limited to, the source of funds or other con-
sideration and the material terms of the financial arrange-
ments for the control share acquisition, plans or proposals of
the acquiring person to liquidate the issuing public corpora-
tion, to sell all or substantially all of its assets, or merge it or
exchange its shares with any other person, to change the loca-
tion of its principal executive office or of a material portion
of its business activities, to change materially its management
or policies of employment, to alter materially its relationship
with suppliers or customers or the communities in which it
operates, or make any other material change in its business,
corporate structure, management or personnel, and such other
objective facts as would be substantially likely to affect the
decision of a shareholder with respect to voting on the pro-
posed control share acquisition.
Subd. 3. MEETING OF SHAREHOLDERS. Within five
days after receipt of an information statement pursuant to
subdivision 2, a special meeting of the shareholders of the is-
suing public corporation shall be called pursuant to section
302A.433, subdivision 1, to vote on the proposed control share
acquisition. The meeting shall be held no later than 20 busi-
= 4 ee ee a oe
A-3
ness days after receipt of the information statement, unless
the acquiring person agrees to a later date. The notice of the
meeting shall at a minimum be accompanied by a copy of the
information statement and a statement disclosing that the
board of directors of the issuing public corporation recom-
mends acceptance of, expresses no opinion and is remaining
neutral toward, recommends rejection of, or is unable to take
a position with respect to the proposed control share acquisi-
tion. The notice of meeting shall be given at least ten days
prior to the meeting.
Subd. 4. Consummation of control share acquisition. The ac-
quiring person may consummate the proposed control share
acquisition if and only if both of the following occur:
(1) the proposed control share acquisition is approved by
the affirmative vote of the holders of a majority of the voting
power of all shares entitled to vote.
A class or series of shares of the corporation is entitled to
vote as a class or series if any provision of the control share
acquisition would, if contained in a proposed amendment to
the articles, entitle the class or series to vote as a class or
series; and
(2) the proposed control share acquisition is consummated
within 180 days after shareholder approval.
Subd. 5. Rights of action. An acquiring person, an issuing
public corporation, and shareholders of an issuing public cor-
poration may sue at law or in equity to enforce the provisions
of this section and section 302A.449, subdivision 7.
Subd. 6. Return of shares if acquisition not consummated. If
the proposed control share acquisition is not consummated in
accordance with this section, the acquiring person shall im-
mediately return any and all shares held in anticipation of the
A-4
consummation to the shareholders from whom the person re-
ceived the shares.
Minn. Stat. § 302A.449, subd. 7 (Supp. 1985), as amended
by Act of March 24, 1986, ch. 431, § 1, 1986 Minn. Laws 703
provides:
Subd. 7. PROXY IN CONTROL SHARE ACQUISITION.
Notwithstanding any contrary provision of this chapter, a
proxy relating to a meeting of shareholders required under
section 302A.671, subdivision 3, must be solicited separately
from the offer to purchase or solicitation of an offer to sell
shares of the issuing public corporation. Except for irrev-
ocable proxies appointed in the regular course of business
and not in connection with a control share acquisition, all
proxies appointed for or in connection with the shareholder
authorization of a control share acquisition pursuant to sec-
tion 302A.671 shall be at all times terminable at will prior to
the obtaining of the shareholder authorization, whether or
not the proxy is coupled with an interest. Without affecting
any vote previously taken, the proxy may be terminated in any
manner permitted by subdivision 3, or by giving oral notice
of the termination in the open meeting of shareholders held
pursuant to section 302A.671, subdivision 3. The presence at
a meeting of the person appointing a proxy does not revoke
the appointment.
Minn. Stat. § 302A.011, subds. 37-41 (1984 & Supp. 1985)
(Definitions), provides:
Subd. 37. Acquiring person. “Acquiring person” means a
person that is proposing to make a control share acquisition.
When two or more persons act as a partnership, limited
partnership, syndicate, or other group for purposes of ac-
rama! £5 >< ratte, i
A-5
quiring, owning or voting securities of an issuing public cor-
poration, the syndicate or group is a “person.”
“Acquiring person” does not include a licensed broker/
dealer or licenseé underwriter who (1) purchases shares of
an issuing public corporation solely for purposes of resale to
the public; and (2) is not acting in concert with an acquiring
person.
Subd. 38. Control share acquisition. “Control share acqui-
sition” means an acquisition of shares of an issuing public
corporation resulting in beneficial ownership by an acquiring
person of a new range of voting power specified in section
302A.671, subdivision 2, paragraph (d), but does not include
any of the following:
(1) an acquisition before, or pursuant to an agreement
entered into before, August 1, 1984;
(2) an acquisition by a donee pursuant to an inter vivos
gift not made to avoid section 302A.671 or by a distributee as
defined in section 524.1-201, elause (10);
(3) an acquisition pursuant to a security agreement not
created to avoid section 302A.671;
(4) an acquisition under sections 302A.601 to 302A.661, if
“he issuing public corporation is a party to the transaction; or
(5) an acquisition from the issuing public corporation.
Subd. 39. Issuing public corporation. “Issuing public cor-
poration” means a corporation with at least 50 shareholders
and which has either its principal place of business located
in this state or owns or controls assets located within this
state that have a fair market value of at least $1,000,000.
Subd. 40. Publicly held corporation. “Publicly held corpora-
tion” means a corporation that has a class of equity securities
registered pursuant to section 12 of the Securities Exchange
Act of 1934, as amended through December 31, 1984.
A-6
Subd. 41. Beneficial ownership. Beneficial owner includes,
but is not limited to, any person who directly or indirectly
through any contract, arrangement, understanding, relation-
ship, or otherwise has or shares the power to vote or direct
the voting of a security and the power to dispose of, or direct
the disposition of, the security. “Beneficial ownership” in-
cludes, but is not limited to, the right, exercisable within 60
days, to acquire securities through the exercise of options,
warrants, or rights or the conversion of convertible securities,
or otherwise. The securities subject to these options, warrants,
rights, or conversion privileges held by a person shall be
deemed to be outstanding for the purpose of computing the
percentage of outstanding securities of the class owned by
this person, but shall not be deemed to be outstanding for the
purpose of computing the percentage of the ciass owned by
any other person. A person is the beneficial owner of securities
beneficially owned by any relative or spouse or relative of the
spouse residing in the home of this person, any trust or estate
in which this person owns ten percent or more of the total
beneficial interest or serves as trustee or executor, any corpo-
ration or entity in which this person owns ten percent or more
of the equity, and any affiliate or associate of this person.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.