Brascan Ltd. v. Edper Equities Ltd.
477 F. Supp. 773 (1979)
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Rule of Law:
A large-scale, rapid acquisition of stock through open-market and privately negotiated purchases does not constitute a 'tender offer' under the Williams Act. However, a company that publicly states an intention regarding future stock purchases has a duty under Rule 10b-5 to correct that statement if its intentions change, though unintentional failure to do so may not warrant injunctive relief.
Facts:
- In late 1978, after Brascan Ltd. announced the sale of a major subsidiary for $380 million in cash, Edper Equities Ltd. was formed for the purpose of acquiring a major stake in Brascan.
- By March 1979, Edper had acquired approximately 5% of Brascan's shares.
- On April 5, 1979, Edper made a friendly acquisition proposal to Brascan's board of directors.
- The next day, Brascan's board rejected Edper's overture and instead announced its own tender offer for F.W. Woolworth Co., a move Edper believed was detrimental to Brascan.
- After being denied permission by Canadian regulators to make a conditional offer for Brascan shares, Edper decided to increase its holdings by purchasing shares on the American Stock Exchange (AMEX).
- On April 30, 1979, Edper purchased over 3.1 million Brascan shares on the AMEX.
- That evening, an Edper representative, in response to a press inquiry, stated that Edper did not currently plan to buy more Brascan shares.
- On the morning of May 1, 1979, after learning Brascan was proceeding with the Woolworth acquisition, Edper's management reversed its decision and purchased approximately 3.2 million more Brascan shares on the AMEX without issuing a corrective public statement.
Procedural Posture:
- Brascan Ltd. sued Edper Equities Ltd. in the U.S. District Court for the Southern District of New York, alleging violations of the Securities Exchange Act of 1934.
- On May 1, 1979, Brascan obtained an ex parte temporary restraining order from the court, which barred Edper from making further purchases or exercising any shareholder rights.
- Brascan then filed a motion for a preliminary injunction, seeking to bar Edper from acquiring more shares, voting its current shares, and forcing it to divest all shares purchased on April 30 and May 1.
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Issue:
Does a large-scale, rapid acquisition of a company's stock through open-market and privately negotiated purchases constitute a 'tender offer' subject to the regulatory requirements of the Williams Act?
Opinions:
Majority - Leval, District Judge
No, Edper's conduct did not constitute a tender offer within the meaning of the Williams Act. The court reasoned that Edper's actions, which consisted of open market purchases and privately negotiated block trades, bore little resemblance to a conventional tender offer, which the Williams Act was designed to regulate. Edper did not engage in widespread public solicitation, its purchases were not contingent on a minimum number of shares, the price was not fixed, and there was no formal offer held open for a set period. The court distinguished this activity from a tender offer, noting that Congress was aware of different methods of stock accumulation and chose to regulate only tender offers specifically. While finding a potential Rule 10b-5 violation for failing to correct the April 30 statement about not making further purchases, the court found it was unintentional and did not warrant the drastic injunctive relief sought by Brascan.
Analysis:
This case is significant for narrowly defining the term 'tender offer' under the Williams Act, thereby permitting acquirers to rapidly accumulate large blocks of stock through open market and private purchases (a 'street sweep') without triggering the Act's disclosure and procedural requirements. The decision created a major pathway for hostile takeovers that avoids the formal tender offer process, limiting the protections available to target shareholders under the Act. By rejecting a broad, functional test for what constitutes a tender offer, the court prioritized predictability for market participants over a more expansive, protective interpretation of the statute, influencing takeover strategies for decades.
