The Effect of the New SEC Rules on the Constitutionality of State Takeover Statutes

Fordham Urban Law Journal Volume 8 | Number 4 Article 7 1980 The Effect of the New SEC Rules on the Constitutionality of State Takeover Statutes Kathleen E. Slusser Follow this and additional works at: https://ir.lawnet.fordham.edu/ulj Part of the Securities Law Commons Recommended Citation Kathleen E. Slusser, The Effect of the New SEC Rules on the Constitutionality of State Takeover Statutes, 8 Fordham Urb. L.J. 913 (1980). Available at: https://ir.lawnet.fordham.edu/ulj/vol8/iss4/7 This Article is brought to you for free and open access by FLASH: The Fordham Law Archive of Scholarship and History. It has been accepted for inclusion in Fordham Urban Law Journal by an authorized editor of FLASH: The Fordham Law Archive of Scholarship and History. For more information, please contact . THE EFFECT OF THE NEW SEC RULES ON THE CONSTITUTIONALITY OF STATE TAKEOVER STATUTES Introduction On December 6, 1979, the Securities and Exchange Commission (SEC) announced the adoption of new rules' governing tender offers.' The rules address the current problems and abuses' in the tender offer field by clarifying existing provisions of' and adding new requirements to' the Williams Act.' In addition to the SEC rules and regulations, tender offers are regulated by state law. To date, thirty-seven states have enacted tender offer legislation.7 The constitutionality of these state stat1. 44 Fed. Reg. 70,326 (1979) (to be codified in 17 C.F.R. §§ 230, 240). The SEC is authorized to promulgate these rules under § 23(a) of the Securities Exchange Act of 1934. 2. A tender offer is defined as a public offer by an individual, company, or group to purchase a block of securities of a publicly held corporation for cash or securities or both. E. ARANow & H. EINHORN, TENDER OFFERS FOR COmORATE CONTROL 70 (1973) [hereinafter cited as ARANow & EINHORN]; E. Aranow, H. Einhorn & G. Berlstein, Developments in Tender Offers for Corporate Control 1-34 (1977). 3. 44 Fed. Reg. 70,329 (1979). The SEC release accompanying the new rules reads: Rule 14d-2(b) is intended to prevent public announcements by a bidder of the material terms of its tender offer in advance of the offer's formal commencement. The Commission believes that this practice is detrimental to the interests of investors and results in many of the abuses the Williams Act was enacted to prevent. Id. 4. For example, the Williams Act does not define whether a press release, newspaper advertisement, or public statement constitutes the commencement of a tender offer. Under the new rules, these types of public announcements which identify the offeror, target company, offering price, and number of shares constitute the commencement of a tender offer. See 15 U.S.C. § 78n(d) (1976). 5. For example, the new rules define the minimum offering period for a tender offer as twenty business days, whereas, prior law contained no minimum offering period. See 44 Fed. Reg. 70,348 (1979) (to be codified in 17 C.F.R. § 240.14e-l(a)). 6. 15 U.S.C. § 781(i), 78m(d)-(e), 78n(d)-(f) (1976). 7. ALASKA STAT. §§ 45.57.010 to -120 (Supp. 1979); ARK. STAT. ANN. §§ 67-1264 to 1264.14 (Supp. 1979); COLO. REV. STAT. §§ 11-51.5-101 to -108 (Supp. 1978); CONN. GEN. STAT. §§ 36-456 to -468 (1979); DEL. CODE ANN. tit. 8, § 203 (Cum. Supp. 1978); FLA. STAT. ANN. §§ 517.35 to .363 (Supp. 1978); GA. CODE ANN. §§ 22-1901 to -1915 (1977); HAWAII Ray. STAT. §§ 417E-1 to -15 (1976); IDAHO CODE §§ 30-1501 to -1513 (Supp. 1979) (repealed 1979); ILL. ANN. STAT. ch. 121 1/2,§§ 137.51 to 137.7 (Smith-Hurd Supp. 1979); IND. CODE ANN. §§ 23-2-3.1-1 to -11 (Bums Supp. 1979); IowA UNIFORM SECuamEs Acr §§ 502.102, .211-.215 (Supp. 1979), reprinted in [1979] 1A BLUE SKY L. Rp. (CCH) 18.142, .161 to .165; KAN. STAT. ANN. §§ 17-1276 to -1285 (1974); Ky. REv. STAT. §§ 292-560-.991 (Supp. 1978); LA. REv. STAT. ANN. §§ 51:1500-:1512 (West Supp. 1980); ME. Rav. STAT. ANN. tit. 13, §§ 801-817 914 FORDHAM URBAN LAW JOURNAL [Vol. VIII utes has been a constant source of debate.' Several recent court challenges to state takeover statutes have been successful. Most notably, in Great Western United Corp. v. KidweU1,10 the Court of (Supp. 1979); MD. CORP. & Ass'NS CODE ANN. §§ 11-901 to -908 (Supp. 1979); MASS. ANN. LAWS ch. 11OC, §§ 1-13 (Michie/Law Co-op Supp. 1979); MICH. CoMP. LAWS ANN. §§ 451.901.917 (Supp. 1979); MINN. STAT. ANN. §§ 80B.01-.13 (West Supp. 1979); Miss. CODE ANN. §§ 75-72-1 to -23 (Supp. 1979); Mo. Take-Over Bid Disclosure Act, 1978 Mo. LAWS S.B. No. 820, reprintedin [19791 2 BLUE SKY L. REP. (CCH) 1 28,201-28,214; NEB. REV. STAT. §§ 212401 to -2417(1977); NEV. REV. STAT. §§ 78.376 to .3778 (1973); N.H. REv. STAT. ANN. §§ 421A:1 to :15 (1977); N.J. STAT. ANN. §§ 49:5-1 to :19 (West Supp. 1979); N.Y. Bus. CORP. LAW §§ 1600-1613 (McKinney Supp. 1979); N.C. GEN. STAT. §§ 78B-1 to -11 (Cum. Supp. 1979); OHIo REV. CODE ANN. § 1707.041 (1978); 70 PA. CONS. STAT. ANN. §§ 71-85 (Purdon Supp. 1979); S.C. CODE §§ 35-2-10 to -110 (Cum. Supp. 1979); S.D. COMP. LAWS ANN. TT 4732-1 to -47 (Supp. 1979); TENN. CODE ANN. §§ 48-2101 to -2114 (1979 & Supp. 1979); UTAH CODE ANN. §§ 61-4-1 to -13 (1978); VA, CODE §§ 13.1-528 to -541 (1979); WiS. STAT. ANN. §§ 552.01-.25 (West Special Pamphlet 1979); Tex, Administrative Guidelines for Minimum Standards in Tender Offers 065.15.00.100-.800, reprinted in [1979] 3 BLUE SKY L. REP. (CCH) TT 55,671- 55,682. The Delaware, Idaho and part of the Virginia statute have been declared unconstitutional. The Idaho statute has been repealed. 8. Compare Aranow & Einhorn, State Securities Regulation of Tender Offers, 46 N.Y.U.L. REV. 767 (1971) [hereinafter cited as State Securities Regulation]; Langevoort, State Tender-Offer Legislation: Interests, Effects, and Political Competency, 62 CORNELL L. REv. 213 (1977) [hereinafter cited as Langevoort]; Moylan, State Regulation of Tender Offers, 58 MARQ. L. REv. 687 (1975) [hereinafter cited as Moylan]; Wilner & Landy, The Tender Trap: State Takeover Statutes and their Constitutionality, 45 FORDHAM L. REv. 1 (1976) [hereinafter cited as Wilner & Landy] and Note, Commerce Clause Limitations upon State Regulation of Tender Offers, 47 S. CAL. L. REv. 1133 (1974) [hereinafter cited as Commerce Clause Limitations] (State statutes are preempted by the Williams Act) with The Constitutionality of State Takeover Statutes: A Response to Great Western, 53 N.Y.U.L. REv. 872 (1978) [hereinafter cited as A Response to Great Western] and Note, Securities Law and the Constitution: State Tender Offer Statutes Reconsidered, 88 YALE L.J. 510 (1979) [hereinafter cited as Statutes Reconsidered] (State statutes should not be preempted by the Williams Act). Wilner & Landy argue that the state statutes are preempted principally because the advance notice and hearing requirements of the state statutes frustrate the purpose of the Williams Act. Additionally, the authors argue that there is pervasive federal regulation in the tender offer area and that c (...truncated)