Opinion ID: 408092
Heading Depth: 2
Heading Rank: 2

Heading: Conflict Between the Missouri Takeover Act and the Williams Act

Text: 37 The Fifth Circuit succinctly described the purpose of the Williams Act as follows: 38 The underlying purpose of the Williams Act is to protect investors.... Congress chose this goal in the Williams Act and adopted a distinct means of achieving it. Essentially, Congress relied upon a market approach to investor protection. The function of federal regulation is to get information to the investor by allowing both the offeror and the incumbent managers of a target company to present fully their arguments and then to let the investor decide for himself. 39 Great Western United Corp. v. Kidwell, 577 F.2d 1256, 1276 (1978) (emphasis added) (citations and footnotes omitted), rev'd on venue grounds sub nom. Leroy v. Great Western United Corp., 443 U.S. 173, 99 S.Ct. 2710, 61 L.Ed.2d 464 (1979). See also Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 22-24, 97 S.Ct. 926, 939-40, 51 L.Ed.2d 124 (1977); Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 58, 95 S.Ct. 2069, 2075, 45 L.Ed.2d 12 (1975); Kennecott Corp. v. Smith, 637 F.2d 181; MITE Corp. v. Dixon, 633 F.2d at 492. 10 40 The legislative history further demonstrates that in enacting the Williams Act, Congress was ... committed to a policy of neutrality in contests for control. Piper v. Chris-Craft Industries, Inc., 430 U.S. at 29, 97 S.Ct. at 943. This is reflected in the House Report: 41 It was urged during the hearings that takeover bids should not be discouraged because they serve a useful purpose in providing a check on entrenched but inefficient management. It was also recognized that these bids are made for many other reasons, and do not always reflect a desire to improve the management of the company. The bill avoids tipping the balance of regulation either in favor of management or in favor of the person making the takeover bid. It is designed to require full and fair disclosure for the benefit of investors while at the same time providing the offeror and management equal opportunity to fairly present their case. 42 H.R.Rep.No.1711, 90th Cong., 2d Sess., reprinted in (1968) U.S.Code Cong. & Ad.News at 2813 (emphasis added). 43 Congress' choice of a market approach to investor protection in the tender offer area, as well as the importance of neutrality between offerors and incumbent management to that protection, is reaffirmed in the new SEC tender offer regulations effective January 1980. The SEC stated that the new regulations were necessary and appropriate in the public interest and for the protection of investors to ensure a balance between the interests of the person making a tender offer and the management of the company whose securities are sought. Securities Exchange Act Release No. 3416384, (1979-80) Fed.Sec.L.Rep. (CCH) P 82,373 at 82,577 (Nov. 29, 1979). The SEC observed that state legislation, specifically legislation extending the length of tender offers, may have tipped the carefully constructed balance between the bidder and subject company envisioned by the Williams Act in favor of (the) subject company. Id. at P 82,596.
44 The Williams Act requires the disclosure of certain information, imposes substantive restrictions and includes a general anti-fraud provision. It also confers broad rulemaking authority upon the SEC. In particular, SEC Rule 14d-2(b) requires an offeror to commence or withdraw the tender offer within five business days of the first public announcement of the tender offer. 17 C.F.R. § 240.14d-2(b). As the Third Circuit explained: 45 The commencement of the offer is the time at which an offeror is required to disseminate to shareholders the material information regarding the offer that the federal securities laws require. An offeror must file a disclosure statement on schedule 14D-1 with the (SEC), and must take certain additional steps to effect actual receipt by the shareholders of material information relating to the offer, the companies involved in the offer, and the terms of the offer. The federal policy underlying these requirements is to insure the prompt dissemination of all material information after the first public announcement. The information is necessary because the announcement of the offer itself will precipitate significant market activity in the securities of the target company, thus confronting public investors with an immediate need to make investment decisions. See SEC Release No. 34-16384, 44 Fed.Reg. 70326, 70329 n.15 (1979). 46 Kennecott Corp. v. Smith, 637 F.2d at 182-83. 47 In contrast, the statutory scheme embodied in the state Act envisions a minimum twenty-day waiting period after the offeror has filed detailed disclosure statements with both the Missouri Commissioner and the offeree company before a tender offer becomes effective. Mo.Rev.Stat. § 409.515.1. In addition, the pre-effective waiting period can be extended if the Commissioner schedules a hearing on the adequacy of the disclosures in the registration statement, as he may do at his own discretion, Mo.Rev.Stat. § 409.515.1(2), and must do at the request of any person aggrieved by the Commissioner's failure to hold a hearing. Mo.Rev.Stat. § 409.555. 11 If such a hearing is ordered by the Commissioner it must be held within forty days of the filing of the registration statement, Mo.Rev.Stat. § 409.530.2. 12 During such period the offeror cannot proceed with its takeover bid until the Commissioner determines that the offeror proposes to make full, fair and effective disclosure to offerees of all information material to a decision to accept or reject the offer. Mo.Rev.Stat. § 409.515.1(2). 48 In effect the Missouri Act upsets the congressionally designed balance by creating delay in the commencement and consummation of the tender offer. While the hearings authorized by the Missouri Act are underway and the tender offer is suspended, the management of the target company can take a number of steps, fully described in other cases, to defeat the offer. See Kennecott Corp. v. Smith, 637 F.2d 181; MITE Corp. v. Dixon, 633 F.2d 486; Great Western United Corp. v. Kidwell, 577 F.2d 1256. Such a delay and advantage to the target company are inconsistent with the scheme of the Williams Act. 49 Appellants concede that the prefiling requirements of the Missouri Act, Mo.Rev.Stat. § 409.515.1, are in conflict with and preempted by SEC Rule 14d-2(b). Brief for Appellant LLC Corp. at 41-42. However, they argue that the hearing requirements are consistent with the Williams Act's goal of investor protection. They argue that the hearing ensures complete disclosure and provides shareholders more time to consider whether to tender their shares. See Note, Securities Law and the Constitution: State Tender Offer Statutes Reconsidered, 88 Yale L.J. 510, 521-25 (1979). 50 However, the legislative history of the Williams Act demonstrates that Congress considered whether such delay confers necessary protection or imposes unwarranted obstacles and decided tender offers were not to be hindered (by delay under state law) to the detriment of investors. MITE Corp. v. Dixon, 633 F.2d at 498 (citations omitted). See also Great Western United Corp. v. Kidwell, 577 F.2d at 1279. 13 51 Appellants argue, however, that MITE Corp. v. Dixon is distinguishable on the basis that it involved a state statute which authorized the state securities commission to conduct hearings on whether the takeover offer was inequitable. Appellants argue that the Missouri statute, which does not contain such a provision, does not pose the same risk of benevolent bureaucracy. However, this qualitative difference is insufficient to cause this court to reach a different result. State statutes which can be used to unduly delay tender offers are preempted by the Williams Act. The extended delay threatens the viability of tender offers by discouraging the tender offeror from completing the offer once made.
52 Next, the Missouri Act requires substantially more disclosure than the Williams Act, including such additional information as the commissioner may require as necessary in the public interest or for the protection of investors. Compare Mo.Rev.Stat. § 409.515 with 15 U.S.C. § 78n(d)(1), 17 C.F.R. § 240.24d-3 (1981), 14 and 15 U.S.C. § 78m(d)(1), 17 C.F.R. § 240.13d-1 (1981). 15 On appeal appellants argue that Missouri's more extensive disclosures are consistent with the Williams Act's goal of investor protection. 53 However, (d)isclosure of a mass of irrelevant data can confuse the investor and obscure relevant disclosures. Great Western United Corp. v. Kidwell, 577 F.2d at 1280 (citations omitted). Accord, Dart Industries, Inc. v. Conrad, 462 F.Supp. 1, 13 (S.D.Ind.1978). Similarly, the Supreme Court warned in TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 448, 96 S.Ct. 2126, 2131, 48 L.Ed.2d 757 (1976), that excessive disclosure requirements may accomplish more harm than good by confusing shareholders. Such a result conflicts with the Williams Act's goal of unfettered choice by well-informed investors. As noted by the House and Senate Reports on the Williams Act, (t)he bill is designed to make the relevant facts known so that shareholders have a fair opportunity to make their decision. H.R.Rep.No.1711, 90th Cong., 2d Sess. 3 (1968); S.Rep.No.550, 90th Cong., 1st Sess. 3 (1967) (emphasis added), reprinted in (1968) U.S.Code Cong. & Ad.News. 54 In § 13(d) of the Williams Act, Congress delegated to the SEC the task of specifying what data is material to aid an investor considering a tender offer. The SEC has attempted to write disclosure requirements that provide enough material information without producing reports so detailed and complicated that few shareholders would want to read them .... That judgment is a legislative one. Great Western United Corp. v. Kidwell, 577 F.2d at 1280-81 (citations omitted). Missouri's attempt to second-guess that judgment cannot stand. See Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. at 171, 83 S.Ct. at 1232.
55 Both the Missouri and Williams Acts establish minimum substantive requirements for all takeover bids. Among the substantive rights granted by both acts are withdrawal rights and pro rata rights. The time periods for withdrawal and pro rata rights under the state act are different from the time periods for these rights under federal law. 16 56 Under the Williams Act, shareholders who tender their shares may withdraw them during the first seven days of a tender offer and, if the offeror has not yet purchased their shares, at any time after sixty days from the commencement of the offer. 15 U.S.C. § 78n(d)(5). 17 The Missouri Act grants withdrawal rights at any time within twenty-one days from the date of the original offer and each amended offer. Mo.Rev.Stat. § 409.510(3). 57 Under the Williams Act, if within ten days of the commencement of the tender offer more shares are deposited by tendering shareholders than the tender offer seeks, the offeror must take these shares on a pro rata basis. 15 U.S.C. § 78n(d)(6). The Missouri Act, however, does not impose a time limit and requires pro rata acceptance of all shares that have been deposited throughout the period of the offer. Mo.Rev.Stat. § 409.510(4). 58 The SEC rules provide that an offer need remain open beyond the stated termination date only when it is amended to increase the consideration, and in these circumstances, only for an additional ten business days. 17 C.F.R. § 240.14e-1(b). In contrast, the Missouri Act provides that if a tender offer is amended for any reason, the deposit period for shares must extend for at least twenty-one days from the date of the amendment. Mo.Rev.Stat. § 409.510(2). 59 Thus, these substantive Missouri provisions directly conflict with the applicable federal statutes and regulations. Requiring National to comply with both Acts' requirements is impossible and frustrates the operation and purposes of the Williams Act. Therefore, application of these provisions of the Missouri Act to National's offer is unconstitutional. See Dart Industries, Inc. v. Conrad, 462 F.Supp. at 12-13. 60 The Missouri Act also discriminates between tender offerors and target management. Mo.Rev.Stat. § 409.505(3)(d) exempts from regulation those offers approved by the target company's board of directors. Similarly, all written solicitation materials of an offeror are subject to a ten-day advance filing requirement with the Commissioner and the target company, Mo.Rev.Stat. § 409.515.3, while communications by the offeree company or any other person may be sent immediately upon a filing with the Commissioner, Mo.Rev.Stat. § 409.520. 61 The district court found these provisions unconstitutional because they shifted the advantage in a takeover situation to management and also delayed prompt disclosure of crucial information to shareholders. We agree and hold that these discriminatory provisions disrupt the neutrality essential to the proper operation of the market approach of protecting investors utilized by the Williams Act. For these reasons federal courts have invalidated similar discriminating provisions in state takeover acts. See Great Western United Corp. v. Kidwell, 577 F.2d at 1279-80; MITE Corp. v. Dixon, 633 F.2d at 497-98; Dart Industries, Inc. v. Conrad, 462 F.Supp. at 13. 62 In addition, as previously noted, the Missouri Takeover Act is also invalid under the Commerce Act under the Supreme Court's ruling in Edgar v. MITE Corp.