Appeal from an order of the Southern District of New York, Shirley Wohl Kram, Judge, granting a preliminary injunction barring Hanson Trust PLC, HSCM Industries, Inc. and Hanson Holdings Netherlands V.B., their officers, agents and employees from acquiring any shares of SCM Corporation and from exercising any voting rights with respect to 3.1 million SCM shares acquired by them on September 11, 1985.
MANSFIELD, Circuit Judge:
Hanson Trust PLC, HSCM Industries, Inc., and Hanson Holdings Netherlands B.V. (hereinafter sometimes referred to collectively as "Hanson") appeal from an order of the Southern District of New York, Shirley Wohl Kram, Judge, grant SCM Corporation's motion for a preliminary injunction restraining them, their officers, agents, employees and any persons action gin concert with them, from acquiring any shares of SCM and from exercising any voting rights with respect to 3.1 million SCM shares acquired by them on September 11, 1985. The injunction was granted on the ground that Hanson's September 11 acquisition of the SCM stock through five private and one open market purchases amounted to a "tender offer" for more than 5% of SCM's outstanding shares, which violated §§ 14 (d)(1) and (6) of the Williams Act, 15 U.S.C. § 78n (d)(1) and (6)*fn1 and rules promulgated by the Securities and Exchange Commission (SEC) thereunder. See 17 C.F.R. §§ 240.14(e)(1) and 240.14d-7.*fn2 We reverse.
The setting is the familiar one of a fast-moving bidding contest for control of a large public corporation: first, a cash tender offer of $60 per share by Hanson, an outsider, addressed to SCM stockholders; next, a counterproposal by an "insider" group consisting of certain SCM managers and their "White Knight," Merrill Lynch Capital Markets (Merrill), for a "leveraged buy-out" at a higher price ($70 per share); then an increase by Hanson of its cash offer to $72 per share, followed by a revised SCM-Merril leveraged buy-out offer of $74 per share with a "crown jewel" irrevocable lock-up option to Merrill designed to discourage Hanson from seeking control by providing that if any other party (in this case Hanson) should acquire more than one-third of SCM's outstanding share (66 2/3% being needed under N.Y. Bus. L. § 903(a)(2) to effectuate a merger) Merrill would have the right to buy SCM's two most profitable businesses (consumer foods and pigments) at prices characterized by some as "bargain basement." The final act in this scenario was the decision of Hanson, having been deterred by the SCM-Merrill option (colloquially described in the market as a "poison pill"), to terminate its cash tender offer and then to make private purchases, amounting to 25% of SCM's outstanding shares, leading SCM to seek and obtain the preliminary injunction from which this appeal is taken. A more detailed history of relevant events follows.
SCM is a New York corporation with its principal place of business in New York City. Its shares, of which at all relevant times at lease 9.9 million were outstanding and 2.3 million were subject to issuance upon conversion of other outstanding securities, are traded on the New York Stock Exchange (NYSE) and Pacific Stock Exchange. Hanson Trust PLC is an English company with its principal place of business in London. HSCM, a Delaware corporation, and Hanson Holdings Netherlands B.V., a Netherlands limited liability company, are indirect wholly-owned subsidiaries of Hanson Trust PLC.
On August 21, 1985, Hanson publicly announced its intention to make a cash tender offer of $60 per square for any and all outstanding SCM shares. Five days later it filed the tender offer documents required by § 14(d)(1) of the Williams Act and regulations issued thereunder. The offer provided that it would remain open until September 23, unless extended, that no shares would be accepted until September 10, and that
"Whether or not the Purchasers [Hanson] pur- chase Shares pursuant to the Offer, the Purchasers may thereafter determine, subject to the availability of Shares at favorable prices and the availability of financing, to purchase additional Shares in the open market, in privately negotiated transactions, through another tender offer or otherwise. Any such pur- chases of additional Shares might be on terms which are the same as, or more or less favorable than, those of this Offer. The Purchasers also reserve the right to dispose of any or all Shares acquired by them." Outstanding For Cash Any and All Outstanding Shares of Common Stock of SCM Corporations (Aug. 26, 1985) at 21.
On August 30, 1985, SCM, having recommended to SCM's stockholders that they not accept Hanson's tender offer, announced a preliminary agreement with Merrill under which a new entity, formed by SCM and Merrill, would acquire all SCM shares at $70 per share in a leveraged buy-out sponsored by Merrill. Under the agreement, which was executed on September 3, the new entity would make a $70 per share cash tender offer for approximately 85% of SCM'S shares. If more than two-thirds of SCM'S shares were acquired under the offer the remaining SCM shares would be acquired in exchange for debentures in a new corporation to be formed as a result of the merger. On the same date, September 3, Hanson increased its tender offer from $60 to $72 cash per share. However, it expressly reserved the right to terminate its offer if SCM granted to anyone any option to purchase SCM assets on terms that Hanson believed to constitute a "lock-up" device. Supplement Dated September 5, 1985, to Offer to Purchase, at 4.
The next development in the escalating bidding contest for control of SCM occurred on September 10, 1985, when SCM entered into a new leveraged buy-out agreement with its "White Knight," Merrill. The agreement provided for a two-step acquisition of SCM stock by Merrill at $74 per share. The first proposed step was to be the acquisition of approximately 82% of SCM's outstanding stock for cash. Following a merger (which required acquisition of at least 66 2/3%), debentures would be issued for the remaining SCM shares. If any investor or group other than Merrill acquired more than one-third of SCM's outstanding shares, Merrill would have the option to buy SCM's two most profitable businesses, pigments and consumer foods, for $350 and $80 million respectively, prices which Hanson believed to be below their market value.
Hanson, faced with what it considered to be a "poison pill," concluded that even if it increased its cash tender offer to $74 per share it would end up with control of a substantially depleted and damaged company. Accordingly, it announced on the Dow Jones Broad Tape at 12:38 P.M. on September 11 that it was terminating its cash tender offer. A few minutes later, Hanson issued a press release, carried on the Broad Tape, to the effect that "all SCM shares tendered will be promptly returned to the tendering shareholders."
At some time in the late forenoon or early afternoon of September 11 Hanson decided to make cash purchases of a substantial percentage of SCM stock in the open market or through privately negotiated transactions. Under British law Hanson cold not acquire more than 49% of SCM's shares in this fashion without obtaining certain clearances, but acquisition of such a large percentage was not necessary to stymie the SCM-Merrill merger proposal. If Hanson could acquire slightly less than one-third of SCM's outstanding shares it would be able to block the $74 per share SCM-Merril offer of a leveraged buy-out. This might induce the latter to work out an agreement with Hanson, something Hanson had unsuccessfully sought on several occasions since its first cash tender offer.
Within a period of two hours on the afternoon of September 11 Hanson made five privately-negotiated cash purchases of SCM stock and one open-market purchase, acquiring 3.1 million shares or 25% of SCM's outstanding stock. The price of SCM stock on the NYSE on September 11 ranged from a high of $73.50 per share to a low of $72.50 per share. Hanson's initial private purchase, 387,700 shares form Mutual Shares, was not solicited by Hanson but by Mutual Shares official, Michael Price, who in a conversation with Robert Pirie of Rothschild, Inc., Hanson's financial advisor, on the morning of September 11 (before Hanson had decided to make any private cash purchases) had stated that he was interested in selling Mutual's Shares' SCM stock to Hanson. Once Hanson's decision to buy privately had been made, Pirie took Price up on his offer. The parties negotiated a sale at $73.50 per share after Pirie refused Price's asking prices, first of $75 per share and, later, of $74.50 per share. This transaction, but not the identify of the parties, was automatically reported pursuant to NYSE rules on the NYSE ticker at 3:11 P.M. and reported on the Dow Jones Broad Tape at 3:29 P.M.
Pirie then telephoned Ivan Boesky, an arbitraguer who had a few weeks earlier disclosed in a Scheduled 13D statement filed with the SEC*fn3 that he owned approximately 12.7% of SCM's outstanding shares. Pirie negotiated a Hanson purchase of these shares at $73.50 per share after rejecting Boesky's initial demand of $74 per share. At the same time Rothschild purchased for Hanson's account 600,000 SCM shares in the open market at $73.50 per share. An attempt by Pirie next to negotiate the cash purchase of another large block of SCM stock (some 780,000 shares) from Slifka & Company fell through because of the latter's inability to make delivery of the shares on September 12.
Following the NYSE ticker and Broad Tape reports of the first two large anonymous transactions in SCM stock, some professional investors surmised that the buyer might be Hanson. Rothschild then received telephone calls from (1) Mr. Mulhearn of Jamie & Co. offering to sell between 200,000 and 350,000 shares at $73.50 per share, (2) David Gottesman, an arbitraguer at Oppenheimer & Co. offering 89,000 shares at $73.50, and (3) Boyd Jeffries of Jeffries & Co., offering approximately 700,000 to 800,000 shares at $74.00. Pirie purchased the three blocks for Hanson at $73.50 per share. The last of Hanson's cash purchases was completed by 4:35 P.M. on September 11, 1985.
In the early evening of September 11 SCM successfully applied to Judge Kram in the present lawsuit for a restraining order barring Hanson from acquiring more SCM stock for 24 hours. On September 12 and 13 the TRO was extended by consent pending the district court's decision on SCM's application for a preliminary injunction. Judge Kram held an evidentiary hearing on September 12-13, at which various witnesses, testified, including Sir Gordon White, Hanson's united States Chairman, two Rothschild representatives (Pirie and Gerald Goldsmith ) and stock market risk-arbitrage professionals (Robert Freeman of Goldman, Sachs & Co., Kenneth Miller of Merrill Lynch, and Danial Burch of D.F. King & Co.). Sir Gordon White testified that on September 11, 1985, after learning of the $74 per share SCM-Merrill leveraged buy-out tender offer with its "crown jewel" irrevocable "lock-up" option to Merrill, he instructed Pirie to terminate Hanson's $72 per share tender offer, and that only thereafter did he discuss the possibility of Hanson making market purchases of SCM stock. Pirie testified that the question of buying stock may have been discussed in the late forenoon of September 11 and that he had told White that he was having Hanson's New York counsel look into whether such cash purchases were legally permissible.
SCM argued before Judge Kram (and argues here) that Hanson's cash purchases immediately following its termination of its $72 per share tender offer amounted to a de facto continuation of Hanson's tender offer, designed to avoid the strictures of § 14(d) of the Williams Act, and that unless a preliminary injunction issued SCM and its shareholders would be irreparably injured because Hanson would acquire enough shares to defeat the SCM-Merrill offer. Judge Kram found that the relevant underlying facts (which we have outlined) were not in dispute, Memorandum Opinion and Order, at 6 (Sept. 14, 1985), and concluded that "without deciding what test should ultimately be applied to determine whether Hanson's conduct constitutes a 'tender offer' within the meaning of the Williams Act ... SCM has demonstrated a likelihood of success on the merits of its contention that Hanson has engaged in a tender offer which violates Section 14(d) of the Williams Act." Id. at 7. The district court, characterizing Hanson's stock purchases as "a deliberate attempt to do an 'end run' around the requirements of the Williams Act," id. at 8, made no finding on the question of whether Hanson had decided to make the purchase of SCM before or after it dropped its tender offer but concluded that even if the decision had been made after it terminated its offer preliminary injunctive relief should issue. From this decision Hanson appeals.
A preliminary injunction will be overturned only when the district court abuses its discretion. See Doran v. Salem Inn, Inc., 422 U.S. 922, 931-32, 45 L. Ed. 2d 648, 95 S. Ct. 2561 (1975); Application of U.S. In Matter of Order Authorizing the Use of a Pen Register, 538 F.2d 956, 961 (2d Cir. 1976) (All-Writs Act), rev'd on other grounds sub nom. United States v. New York Telephone Co., 434 U.S. 159, 54 L. Ed. 2d 376, 98 S. Ct. 364 (1977). An abuse of discretion may be found when the district court relies on clearly erroneous findings of fact or on an error of law in issuing the injunction. See Coca-Cola Co. V. ...