Hanson Trust PLC v. SCM Corp.
774 F.2d 47, 1985 U.S. App. LEXIS 21962, 54 U.S.L.W. 2194 (1985)
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Rule of Law:
The definition of a 'tender offer' under Section 14(d) of the Williams Act is determined by a totality of the circumstances test that focuses on whether the transaction creates a substantial risk that solicitees will lack information needed to make a carefully considered appraisal of the proposal, rather than a rigid application of specific factors.
Facts:
- SCM Corporation was a New York corporation with shares traded on the New York Stock Exchange and Pacific Stock Exchange.
- On August 21, 1985, Hanson Trust PLC publicly announced its intention to make a cash tender offer of $60 per share for any and all outstanding SCM shares, reserving the right to purchase additional shares later in the open market or privately.
- On August 30, 1985, SCM, having recommended against Hanson's offer, announced a preliminary agreement with Merrill Lynch Capital Markets (Merrill) for a leveraged buyout at $70 per share.
- On September 3, 1985, Hanson increased its tender offer from $60 to $72 cash per share.
- On September 10, 1985, SCM entered into a new leveraged buyout agreement with Merrill for $74 per share, which included an irrevocable 'crown jewel' option for Merrill to buy SCM’s two most profitable businesses (consumer foods and pigments) at prices Hanson believed were below market value, if any other party acquired more than one-third of SCM’s shares.
- Hanson, considering the 'crown jewel' option a 'poison pill' that would leave it with a depleted company, publicly announced the termination of its $72 per share cash tender offer at 12:38 P.M. on September 11, 1985, stating all tendered shares would be returned.
- At some time in the late forenoon or early afternoon of September 11, 1985, Hanson decided to make cash purchases of a substantial percentage of SCM stock in the open market or through privately negotiated transactions.
- Within a period of two hours on the afternoon of September 11, Hanson acquired 3.1 million shares, or 25% of SCM’s outstanding stock, through five privately-negotiated cash purchases and one open-market purchase, at a price of $73.50 per share from six sellers, including sophisticated professional investors and arbitrageurs.
Procedural Posture:
- Hanson Trust PLC publicly announced an intention to make a cash tender offer for SCM Corporation shares.
- SCM Corporation, along with Merrill Lynch Capital Markets, counter-proposed a leveraged buyout, which SCM recommended to its stockholders.
- Hanson subsequently terminated its cash tender offer.
- Immediately following the termination of its tender offer, Hanson made several privately-negotiated and open-market purchases of SCM stock, acquiring 25% of SCM's outstanding shares.
- SCM Corporation then filed a lawsuit and successfully applied to the United States District Court for the Southern District of New York for a temporary restraining order (TRO) against Hanson.
- The District Court, Judge Shirley Wohl Kram, held an evidentiary hearing and subsequently granted SCM’s motion for a preliminary injunction, restraining Hanson from acquiring any more SCM shares and from exercising voting rights over the shares it had already acquired. The District Court ruled that Hanson’s September 11 acquisition constituted a 'tender offer' in violation of Sections 14(d)(1) and (6) of the Williams Act.
- Hanson Trust PLC, along with its subsidiaries, appealed the district court's preliminary injunction to the United States Court of Appeals for the Second Circuit.
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Issue:
Does a company's rapid acquisition of a substantial percentage of another company's stock through private and open market purchases, immediately following the public termination of its own formal tender offer, constitute a 'tender offer' under Section 14(d) of the Williams Act, thereby requiring pre-acquisition filing and disclosure?
Opinions:
Majority - Mansfield, Circuit Judge
No, Hanson's rapid acquisition of SCM stock through private and open market purchases following the termination of its formal tender offer did not constitute a 'tender offer' under Section 14(d) of the Williams Act, and thus did not violate its disclosure requirements. The court emphasized that the purpose of Section 14(d) is to protect ill-informed solicitees by ensuring they have adequate information. Applying a 'totality of circumstances' standard, the court found Hanson's purchases lacked the hallmarks of a tender offer requiring Williams Act protection: (1) only six sellers were involved, a minuscule number compared to a public solicitation; (2) at least five sellers were highly sophisticated professionals, knowledgeable in the market, and had access to Hanson’s prior detailed disclosures regarding its earlier tender offer and SCM-Merrill’s proposals; (3) sellers were not 'pressured' by typical tender offer tactics but by market forces, with one initiating the offer to sell; (4) there was no widespread advance publicity or public solicitation for these purchases; (5) the $73.50 price was barely above market and not a significant premium; (6) the purchases were not contingent on acquiring a fixed minimum number of shares; and (7) there was no general time limit for purchases. The court further determined that Hanson's termination of its prior tender offer was legitimate due to the 'poison pill' lock-up, and its initial tender offer documents had explicitly reserved the right to make such post-termination purchases. The court explicitly rejected the eight-factor Wellman v. Dickinson test as a mandatory 'litmus test' and declined to impose a waiting period after tender offer termination, stating such a measure is a legislative or regulatory function, not a judicial one. It concluded that the full disclosure purposes of the Williams Act were satisfied.
Analysis:
This case significantly shaped the interpretation of what constitutes a 'tender offer' under the Williams Act, moving away from a rigid checklist approach to a more flexible 'totality of circumstances' test focused on the Act's statutory purpose. By emphasizing the sophistication of the solicitees and the absence of pressure and lack of information, the court created a distinction between broad public solicitations and targeted private acquisitions. This ruling provides greater latitude for acquirers in corporate control contests, allowing them to make strategic market purchases or private deals without necessarily triggering the extensive disclosure and timing requirements of a formal tender offer, particularly when sophisticated investors are involved. It underscores the judiciary's reluctance to impose new regulatory hurdles without explicit congressional or SEC action, maintaining a neutral stance in takeover battles.
