Opinion ID: 451604
Heading Depth: 2
Heading Rank: 3

Heading: Premium Over Prevailing Market Price

Text: 30 The SEC contends the open market purchases made by CHH at market prices were in fact made at a premium not over market price but over the pre-tender offer price. At the time of CHH's repurchases, the market price for CHH's shares (ranging from $24.00 to $26.00 per share) had risen above the pre-tender offer price (approximately $22.00 per share). Given ordinary market dynamics, the price of a target company's stock will rise following an announced tender offer. Under the SEC's definition of a premium as a price greater than the pre-tender offer price, a premium will always exist when a target company makes open market purchases in response to a tender offer even though the increase in market price is attributable to the action of the third-party offeror and not the target company. See LTV Corp. v. Grumman Corp., 526 F.Supp. 106, 109 & n. 7 (E.D.N.Y.1981) (an increase in price due to increased demand during a tender offer does not represent a premium). The SEC definition not only eliminates consideration of this Wellman factor in the context of issuer repurchases during a tender offer, but also underestimates congressional concern for preserving the free and open market. The district court did not err in concluding a premium is determined not by reference to pre-tender offer price, but rather by reference to market price. This is the definition previously urged by the SEC, Exchange Act Release No. 16,385 [1979-80] Fed.Sec.L.Rptr. (CCH) p 82,374 at 82,605 (Nov. 29, 1979) (footnotes omitted) (proposed amendments to tender offer rules) (premium defined as price in excess of ... the current market price....), and is the definition we now apply. See LTV Corp., 526 F.Supp. at 109 & n. 7.