Opinion ID: 72378
Heading Depth: 3
Heading Rank: 3

Heading: The Tender Offers

Text: In September 1988, Shamrock made a tender offer of $42 per share for all of Polaroid's common stock, contingent upon Shamrock obtaining a judgment in Delaware state court that the Polaroid ESOP shares were invalidly issued. Shamrock later raised its offer to $45 per share. Polaroid responded in January 1989 with a selftender offer of $50 per share for a maximum of 16 million of the 71.5 million shares of Polaroid common stock (including the ESOP shares). The Polaroid offer provided that if more than 16 million shares were tendered, Polaroid would buy tendered shares on a pro-rata basis and return extra shares to each tenderer. On February 23, 1989, NationsBank mailed all Polaroid ESOP participants a brief description of the competing tender offers, advising them of their rights under the plan to instruct NationsBank by March 23, 1989 either to: (1) tender to Polaroid, (2) tender to Shamrock, or (3) not 3 tender. NationsBank informed participants that if they did not return an instruction form, their non-responses would be treated as instructions not to tender. However, the letter did not advise participants that unallocated shares would be voted in the same proportion as allocated shares. On the same date, the Secretary of Labor sent NationsBank an unsolicited letter outlining the Secretary's view of NationsBank's fiduciary responsibilities in light of the competing tender offers. See Letter from the Department of Labor to Citizens & Southern Trust Company (February 23, 1989), reprinted in 16 Pens. & Ben. Rep. (BNA) 390 (March 6, 1989) (Polaroid letter). The Secretary insisted that an ESOP trustee bears the final responsibility for making tender offer decisions with regard to the plan's unallocated shares and its allocated non-voted shares.4 The Secretary advised that a trustee may follow plan provisions relating to participant direction of such shares only to the extent permitted by § 404(a)(1)(D) of ERISA, 29 U.S.C. § 1104(a)(1)(D). The Secretary did not suggest any restriction on a trustee following participant directions as to allocated shares that were actually voted. On March 20, 1989, NationsBank's Trust Policy Committee met to consider the tender options on behalf of the ESOP. The Committee initially discussed the Secretary's letter and what the Committee understood to be its legal responsibilities in tendering the ESOP's shares. The Committee was advised by its legal counsel that it had the responsibility of deciding how the shares could be voted prudently, and that it had the duty to disregard plan provisions if they led to an imprudent result. The Committee then proceeded to determine the prudence of each option available to the plan. The Committee observed that the gain or loss to the plan resulting from tendering shares to either offer, or from not tendering shares, would depend upon the post-tender market situation. It noted that under the terms of the plan, the ESOP probably would be required to invest any tender proceeds in Polaroid stock purchased on the open market. The Committee noted that, if it tendered 4 By allocated non-voted shares, we mean those shares that were not returned to NationsBank by participants. By operation of the Polaroid ESOP, those non-voted shares were treated as votes not to tender by NationsBank. 4 shares and the post-tender market price of Polaroid shares was less than the amount of the tender offer accepted, the ESOP would obtain more shares than it had before. However, if it tendered shares and the market price of Polaroid shares rose above the tender price before full reinvestment, the ESOP would end up with fewer shares than it had before tendering. In making its decision about what would be prudent, the Committee attempted to predict whether post-tender market prices would exceed or fall below the tender offer prices. It noted two factors that could cause the market price to rise. First, Shamrock had expressed its intention to continue its takeover attempt. The Committee believed Shamrock might raise its offering price to over $50 per share. Second, Polaroid was involved in pending copyright litigation that could result in a billion-dollar damage award in Polaroid's favor. The Committee believed that such an award, if obtained, would greatly increase Polaroid's stock price. Based on those considerations, the Committee concluded that the post-tender market price of Polaroid stock was uncertain enough that it would be prudent to choose any of the available options: tendering shares to the self-tender offer, tendering to the Shamrock offer, or not tendering. After reaching that conclusion, the Committee decided to follow the plan provisions on the tendering of allocated and unallocated shares held by the ESOP, i.e., as to all of the ESOP's shares. On March 23, 1989, NationsBank tendered the ESOP shares in accordance with the provisions of the plan and the participants' votes. In all, NationsBank tendered 5,239,460 of the ESOP's shares to Polaroid. NationsBank withheld 4,332,044 shares. Of those shares 53,387 were withheld based on participants' directions not to tender. An additional 34,581 of those shares were withheld because NationsBank planned to tender those shares to Shamrock in accordance with participants' directions, but Shamrock withdrew its offer before the shares were tendered. The remaining 4,244,076 withheld shares were withheld because of the plan's mirror voting provision. NationsBank tendered all of the (non-ESOP) shares it held in discretionary trust accounts (3,900 shares) to Polaroid. 5 After failing in its attempt to have the Polaroid ESOP invalidated, Shamrock tendered each of its Polaroid shares to Polaroid. In all, non-ESOP Polaroid shareholders (including Shamrock) tendered 84 percent of their shares to Polaroid. Polaroid accepted 27.7747% of the shares tendered by each tendering shareholder. Polaroid paid the ESOP $72,762,200 for the shares it tendered, and NationsBank reinvested those funds in Polaroid stock between April 3 and April 12, 1989, at prices ranging from $37.41 to $37.67 per share. As a result of the repurchase, the ESOP's stake in Polaroid was increased by 482,073 shares. If NationsBank had tendered all of the unallocated shares and the allocated non-voted shares held by the ESOP, the ESOP would have obtained an additional 332,917 shares.