Opinion ID: 548938
Heading Depth: 3
Heading Rank: 2

Heading: Disclosure Under the Williams Act

Text: 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.