Amanda Acquisition Corporation v. Universal Foods Corporation
877 F.2d 496 (1989)
Rule of Law:
A state anti-takeover statute that delays but does not prevent a successful tender offeror from merging with the target corporation is not preempted by the federal Williams Act and does not violate the dormant Commerce Clause, as it permissibly regulates internal corporate governance rather than the tender offer process itself.
Facts:
- Universal Foods Corporation is a diversified firm incorporated in Wisconsin.
- Amanda Acquisition Corporation, a shell corporation created for the purpose of acquiring Universal, commenced an all-cash, all-shares tender offer for Universal's stock.
- Amanda's financing for the acquisition was contingent on its ability to promptly merge with Universal after the tender offer succeeded.
- A Wisconsin statute prohibited any 'business combination,' including a merger, between an acquirer owning 10% or more of the stock (an 'interested stockholder') and a target company for three years after the stock acquisition.
- The only exception to the three-year ban was if the target company's board of directors had approved the business combination before the acquirer purchased the stock.
- Universal's board did not grant Amanda this prior approval.
Procedural Posture:
- Amanda Acquisition Corporation filed suit in the U.S. District Court for the Eastern District of Wisconsin seeking a declaration that Wisconsin's anti-takeover statute was unconstitutional.
- Amanda sought a preliminary injunction to prevent the statute's enforcement against its tender offer for Universal Foods.
- The district court denied the motion for a preliminary injunction, holding that the statute was likely constitutional.
- Amanda Acquisition Corporation (appellant) appealed the district court's denial of the injunction to the U.S. Court of Appeals for the Seventh Circuit, with Universal Foods Corporation as the appellee.
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Issue:
Does a Wisconsin statute that prevents a bidder from completing a 'business combination,' such as a merger, with a target company for three years after acquiring its stock, unless the target's board approved the transaction in advance, violate the Williams Act or the dormant Commerce Clause?
Opinions:
Majority - Easterbrook, Circuit Judge
No, the Wisconsin statute does not violate the Williams Act or the dormant Commerce Clause. Regarding preemption, the Williams Act regulates the process of tender offers, such as timing and disclosure, to ensure investors can make an informed choice. The Wisconsin law does not interfere with this process; any bidder is free to acquire shares on schedule. Instead, it regulates the substance of what happens after the shares are acquired—a matter of internal corporate affairs traditionally left to the states, similar to rules on staggered boards or supermajority voting requirements. The Williams Act does not create a federal right for investors to receive tender offers or for bidders to profit from them. Regarding the Commerce Clause, the statute survives because it does not discriminate against interstate commerce; it treats in-state and out-of-state bidders and investors identically. Furthermore, it regulates only the internal affairs of corporations chartered in Wisconsin, avoiding the risk of inconsistent regulation and falling within the state's traditional powers. The court will not apply a balancing test to second-guess the economic wisdom of the state legislature, as a law can be 'economic folly and constitutional.'
Analysis:
This decision solidifies the precedent from CTS Corp. v. Dynamics Corp. of America, affirming states' broad authority to enact potent anti-takeover laws that regulate the internal affairs of their domestic corporations. The ruling establishes that even highly restrictive statutes, which may effectively deter hostile takeovers by delaying crucial post-acquisition mergers, are constitutionally permissible as long as they do not discriminate against interstate commerce or directly regulate the federal tender offer process. This holding signals a significant judicial deference to state legislative choices in corporate governance, diminishing the role of the dormant Commerce Clause as a tool for challenging the economic wisdom of such protectionist measures.
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