BNS INC. v. Koppers Co., Inc.
683 F.Supp. 458, 1988 WL 30654 (1988)
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Rule of Law:
A state anti-takeover statute that delays post-tender offer business combinations is not preempted by the federal Williams Act so long as it serves the shareholder-protection purpose of the Act and provides hostile offerors a meaningful opportunity for success. Such a statute, applying only to domestic corporations, does not violate the Commerce Clause.
Facts:
- Koppers Company, Inc. ('Koppers') is a Delaware corporation with its principal offices in Pittsburgh.
- In February 1986, Koppers's board of directors adopted a stock purchase rights plan (a 'poison pill') that would make a hostile acquisition prohibitively expensive without the board's approval.
- On February 2, 1988, Delaware enacted the Business Combinations statute, Del. Code Ann. tit. 8, § 203, which prevents an acquirer of 15% or more of a company's stock from engaging in a merger or other business combination with the company for three years, unless certain exceptions are met.
- BNS Inc. ('BNS'), a corporation formed for the purpose of acquiring Koppers, commenced an all-cash tender offer for all of Koppers's outstanding stock on March 3, 1988.
- BNS stated that if its offer was successful, it intended to merge with Koppers and sell off Koppers's chemicals and related business.
- BNS conditioned its tender offer on a judicial declaration that the Delaware statute was unconstitutional or inapplicable, and on the redemption of Koppers's rights plan.
- BNS initially offered $45 per share, which Koppers's board rejected as inadequate. BNS subsequently raised its offer to $56 and then to $60 per share.
- The Koppers board refused to redeem the rights under its poison pill plan in response to BNS's offer.
Procedural Posture:
- BNS Inc. filed suit against Koppers Company, Inc., the Attorney General of Delaware, and the Secretary of State of Delaware in the United States District Court for the District of Delaware.
- BNS sought a declaratory judgment that the Delaware Business Combinations statute, § 203, is unconstitutional and an order to invalidate or require redemption of Koppers's stock purchase rights plan.
- The case came before the court on BNS's motion for a preliminary injunction to bar the enforcement of the statute and the rights plan against its tender offer.
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Issue:
Does the Delaware Business Combinations statute, § 203, which restricts post-tender offer business combinations between a target company and an interested stockholder for three years, conflict with the federal Williams Act under the Supremacy Clause or place an undue burden on interstate commerce in violation of the Commerce Clause?
Opinions:
Majority - Murray M. Schwartz
No, the Delaware Business Combinations statute, § 203, is not preempted by the Williams Act and does not violate the Commerce Clause. The statute is a permissible regulation of corporate internal affairs that serves to protect shareholders from coercive takeover tactics. On the preemption issue, the court found that while the statute alters the balance between offeror and management, its primary purpose aligns with the Williams Act's goal of shareholder protection. Applying the framework from CTS Corp. v. Dynamics Corp., the court reasoned that the statute protects shareholders from coercive two-tier offers, does not impose an unreasonable delay on the tender offer itself, and does not interpose the state's judgment of fairness. Crucially, the statute is not preempted because it provides a 'meaningful opportunity for success' for hostile bidders through its statutory exceptions, such as obtaining 85% of the shares. Regarding the Commerce Clause, the court found the statute constitutional because it does not discriminate against out-of-state offerors, it regulates only Delaware corporations (avoiding inconsistent regulation), and it promotes legitimate state interests in stable corporate relationships and shareholder protection.
Analysis:
This decision was one of the first and most significant federal court validations of a 'third generation' state anti-takeover statute following the Supreme Court's ruling in CTS Corp. v. Dynamics Corp. By upholding Delaware's § 203, the court signaled a high degree of deference to state legislatures in regulating corporate governance, even when such regulations have a substantial deterrent effect on hostile takeovers. The case solidified the legal test for such statutes, shifting the focus from maintaining a strict 'neutrality' between bidders and management to ensuring that a 'meaningful opportunity for success' for a hostile offer remains. This ruling was critical in establishing § 203 as the preeminent and most widely adopted anti-takeover statute in the United States, profoundly shaping corporate defense strategies for decades.
