Court Opinion

ID: 9476859
Source: CourtListenerOpinion
Date Created: 2023-08-05 06:07:19.323183+00
Date Added: 2024-06-11T17:45:32.901731
License: Public Domain

PREGERSON, Circuit Judge,
dissenting.
I dissent. The Williams Act expressly requires that an offeror disclose, at the outset of the tender offer, its “source of funds” and if the funds are to be borrowed “a description of the transaction and the names of the parties thereto.” 15 U.S.C. § 78m(d)(l)(B) (1981). The Williams Act further authorizes the Securities and Exchange Commission to implement the Act’s *1454provisions, 15 U.S.C. § 78n(d)(l), and the SEC has promulgated regulations setting forth the information to be contained in the tender offer statement that must be completed and filed with the SEC at the outset of an offer. 17 C.F.R. § 240.14d-100 (1987). This statement is known as Schedule 14D-1.
To insure compliance with the statute, Schedule 14D-1 requires the disclosure of specific information for the benefit of the target company’s shareholders. For example, Item 4 of Schedule 14D-1 requires disclosure of “the source and the total amount of funds or other consideration for the purchase of the maximum number of securities for which the tender offer is being made.” For borrowed funds, Item 4 of Schedule 14D-1 further requires a summary of each loan, including “the identity of the parties, the term [of the loan], the collateral, the stated and effective interest rates, and other material terms and conditions.”
The Pickens Group’s offer in this case plainly does not comply with the straightforward requirements of the statute and the implementing regulations. The Pick-ens Group’s offer discloses that a portion of the funds to purchase Newmont shares will be derived from the sale of increasing rate notes to be arranged by Drexel Burn-ham Lambert Company, and that Drexel is “highly confident” it can raise the necessary funds. The increasing rate notes will be issued by Ivanhoe Partners Holdings, Inc. Ivanhoe Partners is the corporate parent of Ivanhoe Acquisition Corporation, the entity formally making the tender offer. Drexel makes no commitment to supply any funds; it is not a lender or underwriter. Drexel is merely acting as a broker in this transaction. As to the Drexel financing transaction, the tender offer does not set forth the identity of the notes’ purchasers, the terms of the notes, the collateral to be used to secure the notes, or the interest rates. This portion of the offer, as it relates to borrowed funds, therefore does not comply with Item 4 of Schedule 14D-1.
Full and fair disclosure of the information required on Schedule 14D-1 is not a mere technicality, but lies at the very heart of the Williams Act. Congress passed the Williams Act to insure that public shareholders “will not be required to respond [to a tender offer] without adequate information regarding the qualifications and intentions of the offering party.” Rondeau v. Mosinee Paper Co., 422 U.S. 49, 58, 95 S.Ct. 2069, 2076, 45 L.Ed.2d 12 (1975); SEC v. Carter Hawley Hale Stores, Inc., 760 F.2d 945, 948 (9th Cir.1985) (“The Williams Act was intended to ensure that investors responding to tender offers received full and fair disclosure____”). Disclosure of the identity of all lenders, the material terms of all loans, the nature of the collateral to be used to secure the loans, and the interest rates is information that Newmont shareholders should have before deciding whether to tender their shares. This information might tell the shareholders something about the qualifications and intentions of the offeror and could bear on the probable value of Newmont stock should the offeror succeed in gaining control of the company. Such full disclosure is particularly important where, as here, the offer is for less than all of the outstanding shares of a company and therefore some of the shareholders will retain their holdings under the new management.
Without adequately considering the language of Item 4 of Schedule 14D-1, the majority adopts the SEC's contention, set forth in its amicus brief, that “firm financing” need not be in place at the outset of a tender offer. While certainty as to every detail of the tender offer’s financing is not required when the offer is first made, it is hard to understand how the SEC can ignore the plain language of its own regulation, which clearly requires that an offeror disclose, for borrowed funds, the identity of the parties, the terms of the borrowing, the collateral to be used, and the interest rates. 17 C.F.R. § 240.14d-100 (1987).
In supporting the Pickens Group here, the SEC overlooks a view of the Williams Act that it acknowledged in promulgating Schedule 14D-1, after engaging in appropriate rulemaking procedures. For example, in announcing the final rule adopting Schedule 14D-1, the SEC explained that, *1455although commentators had criticized the proposed requirement that the offeror disclose the effective interest rate on loans used to finance a tender offer, the SEC was not persuaded, and the requirement to disclose the interest rate would remain. 42 Fed.Reg. 38,341, 38,345 (July 28, 1977). The SEC emphasized that the offeror must disclose the effective interest rate for each loan, not just the combined interest rate for all loans. Id. In this case, the Pickens group has not disclosed the interest rate applicable to the Drexel financing transaction, yet the SEC now indicates that disclosure of such information at the commencement of the offer is not necessary.
The SEC’s earlier goal of enforcing full disclosure of all of the material terms of all loans in a tender offer is further clarified by an exchange between Hamer Budge, then SEC Chairman, and Senator Williams during the 1970 hearings on an amendment to section 14(e) of the Williams Act. At the hearings, the SEC presented a memorandum which suggests that it would be a “fraudulent, deceptive, or manipulative” practice under the Williams Act for a party to make a tender offer without having “in hand the funds to pay for the securities he offers to purchase ... or a legally enforceable commitment to borrow such funds from [a] responsible person.” 1 Additional Consumer Protection in Corporate Takeovers and Increasing the Securities Act Exemptions for Small Businessmen: Hearings on S. 336 and S. 3431 Before the Subcomm. on Securities of the Senate Comm, on Banking and Currency, 91st Cong., 2d Sess. 12 (1970).
This court ordinarily defers to an enforcement agency’s interpretation of a statute and its implementing regulations. However, in light of the SEC’s inconsistent interpretation of the plain language of its regulations and of the requirements of the Williams Act, such deference is inappropriate. McCoog v. Hegstrom, 690 F.2d 1280, 1284 (9th Cir.1982). In short, the SEC’s own regulations, as implemented by Item 4 of Schedule 14D-1, require the disclosures requested by Newmont in this case.
The SEC and the majority also assert that the existence of an amendment procedure for tender offers implies that full disclosure is not required when the tender offer is first made. 15 U.S.C. § 78m(d)(2) (1981), 17 C.F.R. § 240.14d-6(d) (1987). This argument is unpersuasive. The fact that material changes that occur during the course of a tender offer must be disclosed (and the expiration date of the offer extended) does not excuse an offeror from complying with the Williams Act at the outset of the tender offer.
Moreover, the facts of this case demonstrate that the existence of an amendment procedure will not necessarily cure any initial failure to comply with the requirements of the Williams Act. Although tendering shareholders may withdraw their shares as long as the offer remains open, 17 C.F.R. § 240.14d-7(a), it is still possible for the offer in the instant matter to expire without the Pickens Group having disclosed all the terms of the Drexel financing.
Under Section 3 of the Pickens offer, shares may be withdrawn until the expiration date of the offer. The SEC argues that firm financing information “almost certainly” would have to be in place by the expiration date because of its requirement that the purchaser make payment for shares promptly thereafter. 17 C.F.R. § 240.14e-l(c) (1987). Section 14 of the Pickens offer states, however, that the purchaser “expressly reserves the right ... to delay payment for any Shares, regardless of whether such Shares were theretofore accepted for payment, upon the occurrence of the conditions specified in Section 15.” These conditions include the event that “the Purchaser shall not have obtained sufficient financing to enable it to purchase 28,000,000 shares and to pay related costs and expenses.” Thus, there may be a significant delay between the time the offer closes and the time payment is made for *1456the tendered shares. As a result, the final financing arrangements could conceivably be made after the time has passed when shareholders are permitted to withdraw their shares. This could allow the Pickens Group to circumvent any meaningful disclosure of information concerning the lenders (i.e., purchasers of the Drexel notes), the final terms of the notes, and the collateral to be used to secure the notes.
Neither the SEC nor the Pickens Group has presented any authority that would preclude this result. The SEC, in its amicus brief, fails to address the question of what happens when the details of the financing are available only after the expiration date of the offer. The SEC's brief assumes that the offer will not close without firm financing being disclosed and argues on the basis of an interpretative release, 52 Fed.Reg. 11458 (April 9, 1987), that the offer will have to be amended and extended to allow shareholders to consider the new information. Yet the SEC points to no statutory or regulatory basis to support this position.
Indeed, in the case before us, although the offer was originally scheduled to expire on October 5,1987, as of this date the offer has not been amended to provide complete information about the Drexel financing. An amendment to the tender offer filed with the SEC on October 7 still does not disclose either the interest rate of the notes or the identities of the notes’ purchasers. In fact, the amendment includes a letter agreement between Ivanhoe Acquisition Corporation and Drexel providing that the purchaser shall not disclose “the names of any investors from whom commitments to purchase Increasing Rate Notes are sought or secured under any circumstances, unless, in the opinion of your counsel, such disclosure is required by law or legal process.” Arguably, the Pickens Group may not have to disclose the information required by Item 4 of Schedule 14D-1 until after the offer closes. The amendment process has not cured the defects in this tender offer thus far.
I would reverse the district court and enjoin the tender offer pending full compliance with the Williams Act and with the requirements of Schedule 14D-1.

. The majority incorrectly states that the SEC promulgated no rule to prohibit this conduct. To the contrary, in 1977, the SEC adopted Schedule 14D-1 to "implement the intent of Congress in enacting sections 14(d) and 14(e) of the Exchange Act.” 42 Fed.Reg. 38,341, 38,342 (July 28, 1977).