Court Opinion

ID: 8942241
Source: CourtListenerOpinion
Date Created: 2022-11-27 08:03:52.845818+00
Date Added: 2024-06-11T17:09:45.973999
License: Public Domain

LUMBARD, Circuit Judge,
concurring and dissenting:
I agree that plaintiff has failed to state a cause of action against Bankers Trust, the depositary for the tendered stocks. I disagree, however, with the majority’s holding that plaintiff has stated a claim against the tender offeror, U.S. Steel.
Plaintiff alleges that U.S. Steel accepted into the proration pool approximately three million Marathon shares that had not been tendered within the 10-day proration period established by § 14(d)(6) of the Williams Act, 15 U.S.C. § 78n(d)(6), and/or delivered in accordance with the terms of the offer. Plaintiff argues that because U.S. Steel was determined to purchase only a fixed total number of shares — thirty million — its acceptance of the late tendered shares necessarily resulted in watering down the percentage of shares taken from each timely tendering shareholder. Plaintiff maintains, and the majority accepts, that U.S. Steel’s alleged conduct states a cause of action under § 14(d)(6) because this provision grants the right to have shares accepted only to those shareholders who tender within the 10-day proration period. I believe that the majority has misinterpreted § 14(d)(6).
§ 14(d)(6) is designed to eliminate the pressure on shareholders to respond to a *59tender offer immediately, out of fear that they will be shut out if the offer becomes oversubscribed. This is done by requiring the tender offeror to accept shares tendered within the first ten days of the offer and to buy a pro rata percentage of each tendering shareholder’s shares if the offer does in fact become oversubscribed in that time. Shareholders are thus accorded an opportunity to reflect on the merits of the bid without risking their chance to participate in the offer.
U.S. Steel’s alleged acceptance of late-tendered shares for proration did not interfere with these goals. U.S. Steel simply allowed more shareholders to participate in the bid than would otherwise have been able to had it been strict about the 10-day deadline. There is no indication that such conduct is actionable under § 14(d)(6) and I see no good reason why it should be. Indeed, SEC Rules 14d-8 (17 C.F.R. § 240.-14d-8) and 14d-6(e)(vi) (17 C.F.R. § 240.-14d-6(e)(vi)) in force at the time of U.S. Steel’s offer, stated that the proration deadline was left to the terms of the tender offer, so long as it met the 10-day statutory minimum. The SEC’s interpretation of § 14(d)(6) suggests that enforcement of the proration deadline is a matter of contract law, not a matter cognizable under federal securities law.1
As the majority points out, § 14(d)(6) also has a non-discrimination component that prohibits an offeror from treating tendering shareholders unequally. I do not believe, however, that U.S. Steel discriminated among shareholders in a way that violated that section. During the legislative debates over the Williams Act, then SEC Chairman Cohen expressed concern over using 10 days as a minimum proration period because he felt that the tender of-feror would favor sophisticated investors by waiting until the eleventh day in order to buy up all their shares rather than just a percentage. See Full Disclosure of Corporate Equity Ownership and in Corporate Takeover Bids: Hearings on S. 510 before the Subcomm. on Securities of the Senate Comm, on Banking and Currency, 90th Cong., 1st Sess. 187 (1967). In response to Chairman Cohen’s concerns, proponents of the 10-day rule emphasized that a tender offeror would not be permitted to accept more shares than were originally sought without first accepting all the shares tendered within the proration period. See id. at 245-46 (letter of Gordon L. Calvert, general counsel, Investment Bankers Association of America).
In this case, U.S. Steel has not purchased any more shares than it had originally sought. Plaintiff is not complaining that U.S. Steel bought additional non-prorated shares, but that U.S. Steel allowed late shares to be prorated. I believe that the distinction is important because in the former case, the tender offeror treats tendering shareholders unequally: some shareholders have their shares prorated while others get all their shares taken up. In the latter case, which is the case at bar, all tendering shareholders are treated equally: everyone’s shares are prorated.
Moreover, in this latter case, there should be little concern that the tender offeror will favor one group of shareholders over another. Because the tender of-feror is committed to accepting a fixed number of shares, it gains nothing from allowing late tendering shareholders into the proration pool. Indeed, it is usually in the tender offeror’s best interest to close the proration pool as quickly as possible in a hostile takeover battle against target management or a competing tender offer- or.2
*60One plausible explanation of why a tender offeror might wish to accept late tendered shares for proration is that it hopes to avoid complaints from and possible lawsuits brought by the late tenderers. I imagine that whenever a tender offeror fixes the proration date there will be shareholders who straggle in late because of the mails, excusable neglect, or other reasons.3 By accommodating these shareholders, the tender offeror has liberally construed the precise terms of the offer, but I see little reason why this is of federal concern.
This is not to say that U.S. Steel is necessarily free from any liability. The Marathon shareholders who tendered on time are harmed if U.S. Steel did in fact include late-tendered shares in the pro-ration pool because fewer of their shares were taken up. I do not believe, however, that U.S. Steel's actions violated § 14(d)(6). If anything, its actions promoted the purposes of that section by allowing more shareholders to participate in the bid and by treating all tendering shareholders equally. If timely tendering shareholders are entitled to a preference over those who tender late, the entitlement derives from the terms of the tender offer and state contract law, not from § 14(d)(6).
I would also affirm the dismissal of the plaintiff’s claim under SEC Rule 10b-13,17 C.F.R. § 240.10b-13, which prohibits a tender offeror from making any purchases otherwise than pursuant to the offer while the offer is in effect. Plaintiff contends that by including late-tendered shares in the proration pool, U.S. Steel purchased those shares “otherwise than pursuant to” the offer. I disagree.
The purpose of the Rule is to prevent a tender offeror from making “outside” purchases on different terms, especially different price terms, from those offered to shareholders who have already tendered. But, as Judge Lowe noted, plaintiff’s complaint is very different. “Plaintiff is not really claiming that purchases from the late-tendering shareholders were made outside of the tender offer, but rather that the ‘late-tendering shareholders were wrongfully allowed to participate in the offer as if they had made a valid tender.’ ” Pryor v. United States Steel Corp., 591 F.Supp. 942, 961 (S.D.N.Y.1984) (emphasis in original).
Because I would hold that U.S. Steel’s actions did not violate § 14(d)(6) or Rule 10b-13, I would not reach the question of an implied damage remedy.

. The SEC has subsequently revised Rule 14d-8 to require the tender offeror to extend the pro-ration period for the entire duration of the offer. The SEC’s rationale for the revised rule is that the 10-day proration period of § 14(d)(6) is too short to give target shareholders time to evaluate critically the terms of a tender offer. As the majority states, we express no view on the validity of this Rule.

. This explains, in part, why Congress adopted a short mandatory proration period of 10 days. When the Williams Act was first under consideration, the SEC endorsed a Senate bill which would have made the proration period co-extensive with the entire length of the offer. This suggestion was rejected in favor of the 10-day proration period used by the New York Stock *60Exchange because if pro rata acceptance were made mandatory for the entire period of the offer, it would allow shareholders to delay their decision to tender and give target management an unfair time advantage in a takeover battle. Congress believed that the 10-day rule both provided sufficient time for shareholders to assess the merits of a tender offer and recognized the tender offeror’s desire to move quickly. See S.Rep. No. 550, 90th Cong., 1st Sess. 4-5 (1967).

. Judge Lowe hypothesized that this is what happened in the U.S. Steel offer:
The facts in this case are illustrative. The December 8th press release announced that about 54 million shares of Marathon stock had been tendered. The intermediate press announcements stated that approximately 51 million shares had been perfected. The final number of shares accepted for proration was close to the 54 million figure. One possible interpretation of these facts is that U.S. Steel accepted several million shares for proration, with respect to which tender had been attempted but not perfected by the proration date (“perfection” meaning the completion of a check on the validity of each share’s certificate and the matching of certificate against prior guarantees of delivery). Under plaintiffs proposed construction of § 14(d)(6), defendant’s acceptance of these shares would presumably constitute a violation of the securities law, solely because the tender of these shares was technically deficient.
Pryor v. United States Steel Corp., 591 F.Supp. 942, 950 n. 10 (S.D.N.Y.1984) (emphasis in original).