Prohibited Tender Offer Practices

Washington and Lee Law Review Volume 37 | Issue 3 Article 16 Summer 6-1-1980 Prohibited Tender Offer Practices Follow this and additional works at: https://scholarlycommons.law.wlu.edu/wlulr Part of the Securities Law Commons Recommended Citation Prohibited Tender Offer Practices, 37 Wash. & Lee L. Rev. 938 (1980), https://scholarlycommons.law.wlu.edu/wlulr/vol37/iss3/16 This Note is brought to you for free and open access by the Washington and Lee Law Review at Washington & Lee University School of Law Scholarly Commons. It has been accepted for inclusion in Washington and Lee Law Review by an authorized editor of Washington & Lee University School of Law Scholarly Commons. For more information, please contact . TENDER OFFERS: STANDING TO SUE, PROHIBITED PRACTICES, RELIANCE OF NON-TENDERER Congress passed the Williams Act 1 in 1968 to control and regulate the3 growing use of tender offers 2 as a means of gaining corporate control. I Williams Act, adding Securities Exchange Act of 1934 §§ 13(d)-(e), 14(d)-(f), 15 U.S.C. §§ 78m(d)-(e), 78n(d)-(f) (1976 & Supp. II 1978) [hereinafter cited as Williams Act]. 2 Congress did not define "tender offer" in the Williams Act. See M. LIPTON & E. STEINBERGER, TAKEOVERS AN FRRaazouTs § 2.3.1 (1978) [hereinafter cited as LIPTON & STEINBERGER]. Until recently, the Securities and Exchange Commission (SEC) also declined to define "tender offer." See SEC Securities Exchange Act Release No. 34-12676 (Aug. 2, 1976) [1976-1977 Transfer Binder] FED. SEc. L. RaP. (CCH) %80,659 at 86,695-96; E. ARANOW, H. EINHORN & G. BERLSTEIN, DEVELOPMENTS IN TENDER OFFERS FOR CORPORATE CONTROL 1-3 (1977) [hereinafter cited as ARANow, EINHORN & BERLSTEIN]. On November 29, 1979, however, the SEC published Proposed Rule 14d-1 to amend 17 C.F.R. § 240 (1979) by providing a concrete definition of a tender offer. See Note, What is a Tender Offer? 37 WASH. & LEE L. Rav. 908 (1980). The flexibility of the tender offer as a means to gain corporate control helps explain the tender offer's popularity. A tender offer is available to acquire a company that opposes acquisition, to effect an acquisiton that is not opposed but which a majority of the board of directors does not want to sponsor, to acquire control of a target before a third party can perfect a competing offer, and to rescue a company in trouble when'insufficient time exists for a merger. See LIPTON & STEMsERGER, supra § 1.1.1. 3 Prior to the adoption of the Williams Act, little regulation governed the mechanics and techniques used in executing a tender offer. See Pitt, Standing To Sue Under the Williams Act After Chris-Craft; A Leaking Ship on Troubled Waters, 34 Bus. LAw. 117, 125 (1978) [hereinafter cited as Pitt]. The relatively few state laws governing tender offers were ineffective, and virtually no federal securities law covered this method of gaining corporate control. Id. Congress passed the Williams Act to alleviate the inadequacy in the federal regulatory scheme. See Piper v. Chris-Craft Indus., Inc., 430 U.S. 1, 22 (1977). The need to correct the inadequacy in the federal securities laws was highlighted during the 1960's by the dramatic increase in the use of tender offers as a means of facilitating a corporate takeover. See id. at 22; E. AaANow & H. EINHORN, TENDER OFFERS FOR CORPORATE CONTROL 64-65 (1973) [hereinafter cited as ARANoW & EINHORN]; Note, 1977-1978 Securities Law Developments: Tender Offers, 35 WASH. & LEE L. REV. 893, 893 (1978) [hereinafter cited as Tender Offers]. Tender offers involving companies listed on national securities exchanges jumped from 8 in 1960 to 107 in 1966. ARANOW & EINHORN, supra at 65 n.3. The eight tender offers in 1960 were for $200 million of listed securities. Id. This figure rose to approximately $1 billion in 1965. Id. see 113 CONG. REc. 24662-64 (1967). Federal regulation of tender offers originally was proposed in 1965 by Senator Harrison Williams of New Jersey. ARNow & EINHORN, supra at 64. The original bill sought to protect established companies from "industrial sabotage" resulting from tender offers. Id.; see 111 CONG. REc. 28256-60 (1965). Hearings were not held on the original bill but many of the bill's precepts formed the basis for a second bill introduced by Senator Williams in 1967. ARANow & EINHORN, supra at 66. By 1966, however, Congress recognized that tender offers are beneficial in appropriate circumstances because they provide a method of removing entrenched but ineffective management. Id.; see Pitt supra at 127. Hence, the final form of the Williams Act, effective on July 29, 1968, was neutral in that the Act favored neither the tender offeror nor the management of the target company. ARANOW & EINHORN, supra at 67; see H.R. REP. No. 1711, 90th Cong., 2d Sess., reprinted in [1968] U.S. CODE CONG. & AD. 1980] TENDER OFFERS The Williams Act seeks to provide full and fair-disclosure of all pertinent information 4 to the investor faced with a tender offer.5 The Act insures full and fair disclosure by requiring the filing of a statement by a tender offeror with the Securities and Exchange Commission (SEC) when the tender offer is made.6 Within ten days after acquiring beneficial ownership7 of five percent of any class of a target company's registered equity securities, a tender offeror must file an additional statement with the SEC, the target corporation, and any exchange on which the target's securities are traded." Further, the Williams Act broadly proscribes material misstatements, misleading omissions, and fraudulent or manipulative acts in connection with tender offers.9 Although Congress did not provide explicitly for private enforcement of the Williams Act, courts have not hesitated to imply private causes of action. 10 In implying private causes of action, however, the courts have had difficulty defining the standing requirements for private plaintiffs.11 Furthermore, the broad anti-fraud provision1 2 has created confusion as to NEws 2811, 2813. Thus, the Williams Act requires full and fair disclosure for the benefit of investors while, at the same time, providing the offeror and the target's management an equal opportunity to present their cases. 4 See text accompanying notes 7-8 infra. 5 See H.R. REP. No. 1711, 90th Cong., 2d Sess., reprinted in [1968] U.S. CODE CONG. & AD. NEws 2811, 2813; note 3 supra. 6 15 U.S.C. § 78m(d) (Supp. II 1978). The tender offeror must file a disclosure statement, Schedule 14D-1, when the offeror would own more than five percent of a class of a target corporation's registered securities as a result of the tender offer. See id.; 17 C.F.R. § 240.14d-100 (1979). Schedule 14D-1 must contain information regarding the identity and background of the tender offeror, the source of funds for the tender offer, and any plans or proposals for mergers, acquisitions, or other major changes in the target company's corporate structure. See 15 U.S.C. § 78n(d) (1976). Section 78n also delineates withdrawal r (...truncated)