Article by William C. Tyson
In 1968, Congress enacted the Williams Act amendments to the Securities Exchange Act of 1934. The overriding objective of the amendments was to provide comprehensive and even-handed protection for all participants in the tender offer process. In particular, the Williams Act provisions attempted to assure that shareholders of the target company had the information and time necessary to consider an offer, that the shareholders were treated equitably, and that a competitive balance was maintained between a tender offeror and the target company. Although the statute was carefully crafted, Congress intentionally left open the question of what types of purchases were encompassed by the operative term ‘tender offer.’ Since the Securities and Exchange Commission (SEC) has never adopted a precise regulatory definition, the task has been delegated to the federal courts for determination on a case-by-case basis.
Last year, the Court of Appeals for the Second Circuit, which is considered one of the most influential courts in the federal system and which has jurisdiction over the largest volume of takeover litigation, handed down a seminal decision in Hanson Trust PLC v. SCM Corp. In Hanson a three-judge panel unanimously ruled that a tender offeror's acquisition of twenty-five percent of a target company's stock through five private purchases from sophisticated professionals and one open market purchase, within hours after it had ostensibly abandoned its earlier tender offer for any and all of the target's stock, did not amount to a new tender offer or a continuation of the one it had terminated. Hence, the court concluded that the bidder did not need to comply with the tender offer provisions of the Williams Act.
Hanson's potential impact on battles for corporate control is immense. For with Hanson as authority, a bidder should be able to commence a Williams Act-regulated tender offer, terminate the tender offer after arbitrageurs have purchased shares of the target, and then purchase blocks of stock from these arbitrageurs without complying with the tender offer strictures of the Williams Act. Not surprisingly, Hanson has generated considerable solicitude among some takeover experts because they feel that the decision, by countenancing such post-tender offer purchases, creates a ‘gaping hole’ in the Williams Act.
This Article seeks to demonstrate that this concern is well-founded. With this objective in view, the Article first reviews the legislative history and relevant provisions of the Williams Act and the administrative and judicial interpretations of what constitutes a Williams Act ‘tender offer.’ Second, after describing the takeover battle that gave rise to the Hanson case, the Article analyzes the Second Circuit's decision. It argues that the court's analysis is not sound and that its failure to classify the litigated purchases as a tender offer is at odds with the purposes of the Williams Act. The Article concludes that since it is unlikely that the judiciary will undermine the result in Hanson, the SEC or Congress should act with due speed to negate the effects of the Hanson decision. Finally, the Article sets forth several recommendations for the needed administrative or legislative action.
About the Author
William C. Tyson. Assistant Professor, The Wharton School, University of Pennsylvania. A.B., 1967, Princeton University; J.D., 1970, Harvard University.
Citation
61 Tul. L. Rev. 1 (1986)