Opinion ID: 548938
Heading Depth: 2
Heading Rank: 2

Heading: Implied Revocation in this Case

Text: 18 In the case at bar, the antitrust laws are inconsistent with the Williams Act and implied repeal is necessary to make the securities regulations work. See Silver, 373 U.S. at 357, 83 S.Ct. at 1257. In 1968 Congress enacted the Williams Act, which amended sections of the 1934 Act, to close a significant gap in investor protection under the Federal securities laws by requiring the disclosure of pertinent information to stockholders when persons seek to obtain control of a corporation by a cash tender offer or through open market or privately negotiated purchases of securities. 113 Cong.Rec. 854 (1967) (quoted in Piper v. Chris-Craft Indus. Inc., 430 U.S. 1, 26, 97 S.Ct. 926, 941, 51 L.Ed.2d 124 (1977)). Its purpose is to insure that public shareholders who are confronted by a cash tender offer ... will not be required to respond without adequate information.... Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 58, 95 S.Ct. 2069, 2075, 45 L.Ed.2d 12 (1975). 19 Declining to pass legislation that benefitted either bidders or incumbent management, Congress instead adopted a policy of evenhandedness. Chris-Craft, 430 U.S. at 31, 97 S.Ct. at 944. The twin aims of the Williams Act were therefore protection of target shareholders and neutrality as between bidders and target companies. See Johnson & Millon, Misreading the Williams Act, 87 Mich.L.Rev. 1862, 1895-96 (1989). These goals are to be reached through the disclosure requirements mandated under the Williams Act. 20 Section 14(d) of the statute grants to the SEC the authority to prescribe substantive rules and regulations setting forth information necessary to protect shareholders of target companies. Under Sec. 14(d), a bidder for a public company whose shares are registered with the SEC under the 1934 Act must file a Schedule 14D-1 with the SEC on the date of the commencement of the tender offer. The disclosure requirements of Schedule 14D-1 and the language of the Williams Act contemplate agreements between bidders. Item 7 of Schedule 14D-1 reads: 21 Contracts, Arrangements, Understandings or Relationships with Respect to the Subject Company's Securities. Describe any contract, arrangement, understanding or relationship ... between the bidder ... and any person with respect to any securities of the subject company (including ... joint ventures ...), naming the persons with whom such contracts, arrangements, understandings or relationships have been entered into.... 22 17 C.F.R. Sec. 240.14d-100 (1989). 23 Further, Sec. 14(d)(2) of the 1934 Act, 15 U.S.C. Sec. 78n(d)(2) (1988), reads: 24 When two or more persons act as a partnership, limited partnership, syndicate, or other group for the purpose of acquiring, holding, or disposing of securities of an issuer, such syndicate or group shall be deemed a person for purposes of this subsection. 25 Because disclosure is the means by which Congress sought to protect target shareholders, the prior provisions make clear that once information regarding an agreement between rival bidders has been revealed in a filing, the target company's shareholders have received the protection Congress and the SEC designed for them and there has been compliance with the Williams Act. 26 Recognizing the logical implication of the word group as anticipating the sort of bid made by Macy's and Campeau, appellant contends that these provisions authorize only those agreements made by bidders prior to engaging in a contest for control of a target company, not agreements made by rival bidders during the bidding process such as was the case here. We are unable to agree with this view because neither the Williams Act nor the SEC regulations make a distinction between joint bids made by parties prior to entering a battle for control of the target and those made by parties who are rival bidders at the outset. We would think the SEC justified in deeming an agreement such as that alleged here to be a joint bid and to require the parties to file amendments to their existing filings under Schedule 14D-1, see 17 C.F.R. Sec. 240.14d-3(b) (1990). Further, joint bids are not that uncommon. For example, in 1984 Reliance Financial Services Corporation and Fisher Brothers jointly offered to purchase Walt Disney Productions, and Waste Management, Inc. and Genstar made a joint offer for SCA Services, Inc. See 1 M. Lipton and E. Steinberger, Takeovers and Freezeouts, Sec. 1.08(4) (1989 ed.).
27 Congress drafted the Williams Act with language allowing joint bids for target companies and the SEC promulgated a regulation--Regulation 14D-1, 17 C.F.R. Secs. 240.14d-1 through 240.14d-101 (1990)--that requires disclosure of agreements between bidders. In order for Sec. 14(d) and the accompanying SEC regulation to function as intended, such agreements cannot be subject to suit under the antitrust laws; to permit such a suit would foster a direct conflict between the securities and antitrust laws. Silver, 373 U.S. at 357, 83 S.Ct. at 1257; see also Strobl, 768 F.2d at 27 (antitrust laws may not apply when such laws would prohibit an action that a regulatory scheme might allow). We cannot presume that Congress has allowed competing bidders to make a joint bid under the Williams Act and the SEC's regulations and taken that right away by authorizing suit against such joint bidders under the antitrust laws. 28 The SEC also has the power to regulate tender offers under the antifraud provision of the same statute. Among the sections added to the 1934 Act by the Williams Act was Sec. 14(e), 15 U.S.C. Sec. 78n(e) (1988), which made it unlawful for any person ... to engage in any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer.... Bidders are prohibited under this section from engaging in fraudulent acts involving misrepresentation or nondisclosure, and though the word manipulation appears in Sec. 14(e) it has not been viewed as relating to making or withdrawing bids. See Schreiber v. Burlington Northern, Inc., 472 U.S. 1, 8, 105 S.Ct. 2458, 2462, 86 L.Ed.2d 1 (1985). Congress aimed to redress fraudulent practices by means of disclosure, and [n]owhere in the legislative history is there the slightest suggestion that Sec. 14(e) serves any purpose other than disclosure, or that the term 'manipulative' should be read as an invitation to the courts to oversee the substantive fairness of tender offers. Id. at 11-12, 105 S.Ct. at 2464; see also id. at 9 n. 8, 105 S.Ct. at 2463 n. 8 (The process through which Congress developed the Williams Act also suggests a calculated reliance on disclosure, rather than court-imposed principles of 'fairness' or 'artificiality,' as the preferred method of market regulation.). 29 Finnegan asserts that the SEC is without authority to regulate agreements between rival bidders such as Macy's and Campeau because the SEC is only empowered to regulate in the area of disclosure. This assertion misperceives the scope of that federal agency's power. The last sentence in Sec. 14(e) states: 30 The Commission shall, for the purposes of this subsection, by rules and regulations define, and prescribe means reasonably designed to prevent, such acts and practices as are fraudulent, deceptive, or manipulative. 31 In adding this sentence in 1970, Congress ... provided a mechanism for defining and guarding against those acts and practices which involve material misrepresentation or nondisclosure. Schreiber, 472 U.S. at 11 n. 11, 105 S.Ct. at 2464 n. 11. Under its authority the SEC has promulgated procedural rules providing, inter alia, additional withdrawal rights, see 17 C.F.R. Sec. 240.14d-7 (1989), and that an offer be held open to all security holders of the class of securities subject to the tender offer, 17 C.F.R. Sec. 240.14d-10(a)(1) (1989) (All Holders Rule); Polaroid Corp. v. Disney, 862 F.2d 987, 994 (3d Cir.1988) (upholding the SEC's authority to promulgate the All Holders Rule notwithstanding that it is only tangentially related to ensuring complete disclosure). See CTS Corp. v. Dynamics Corp. of America, 481 U.S. 69, 79-80, 107 S.Ct. 1637, 1644-45, 95 L.Ed.2d 67 (1987). 32 The SEC is able to regulate agreements between bidders by virtue of its authority to define fraudulent, deceptive or manipulative practices and to prescribe means to prevent such practices. 15 U.S.C. Sec. 78n(e). Through its power to prohibit fraudulent activity, the SEC has supervisory authority over the submission of joint bids or other agreements in the corporate auction contest. Cf. National Ass'n of Sec. Dealers, 422 U.S. at 726-28, 95 S.Ct. at 2446-47 (SEC election not to initiate restrictive regulations constituted administrative oversight). Although such agreements are not defined as deceptive practices under the regulations, the fact that they must be disclosed under Regulation 14D-1 clearly implies that the SEC contemplated their existence. That the SEC has chosen not to prohibit agreements between rival bidders as fraudulent or manipulative practices once shareholders are properly informed of them, does not reduce the SEC's supervisory authority over such agreements. 33 Consequently, because the SEC has the power to regulate bidders' agreements under Sec. 14(e), cf. Gordon, 422 U.S. at 685, 95 S.Ct. at 2598; National Ass'n of Sec. Dealers, 422 U.S. at 726-27, 95 S.Ct. at 2446, and has implicitly authorized them by requiring their disclosure under Schedule 14D-1 as part of a takeover battle, cf. Silver, 373 U.S. at 357, 83 S.Ct. at 1257; Strobl, 768 F.2d at 27, to permit an antitrust suit to lie against joint takeover bidders would conflict with the proper functioning of the securities laws.
34 A further though lesser conflict may also be seen between the antitrust laws and the Williams Act. It surfaces in the legislative policy of maintaining neutrality among bidders, shareholders and target company management. Congress realized that takeover bids should not be discouraged because they serve a useful purpose in providing a check on entrenched but inefficient management. S.Rep. No. 550, 90th Cong., 1st Sess. 3-4 (1967). If the antitrust laws were applied to prohibit agreements between rival bidders, it would discourage potential bidders from making a tender offer. Once more than one bidder entered the fray for control of a target company, the shareholders of that company could use the antitrust laws to force a fight to the last ditch, notwithstanding that the bidders could agree on terms more advantageous to themselves. Certainly this would discourage takeover activity--an end Congress sought to avoid in enacting the Williams Act. See Statement of Senator Williams, 113 Cong.Rec. 854-55 (1967) (the Williams Act seeks to balance the scales equally to protect the legitimate interests of the corporation, management, and shareholders without unduly impeding cash takeover bids). 35 This conflict has been recognized in cases discussing implied preemption of state takeover laws by the Williams Act. See, e.g., CTS, 481 U.S. 69, 107 S.Ct. 1637; Edgar v. MITE Corp., 457 U.S. 624, 102 S.Ct. 2629, 73 L.Ed.2d 269 (1982). In MITE, a plurality of the Supreme Court held that the Illinois Take-Over Act was preempted by the Williams Act because some of its provisions favored target company management in takeover contests, and therefore upset the Act's objective of evenhandedness between the target company and bidders. 457 U.S. at 630-40, 102 S.Ct. at 2634-40. A different result was reached in CTS, where the Court stated that even under the broad interpretation of the Act adopted by the plurality in MITE, an Indiana takeover statute was not preempted because it did not favor incumbent management over hostile bidders in contests for control. 481 U.S. at 80-87, 107 S.Ct. at 1645-1648. 36 Here, the application of the antitrust laws would upset the balance among incumbent management, target shareholders and bidders which Congress sought to achieve through the Williams Act. Allowing antitrust suits to rule out agreements between rival bidders would give target shareholders undue advantage in the takeover context and discourage such activity. Fewer takeover attempts ultimately favor incumbent management whose entrenched position is thereby less subject to challenge. Hence, reasoning by analogy from the logic of MITE and CTS, the antitrust laws are rendered inapplicable by the Williams Act in the instant case.