Plaintiffs, former shareholders of Associated Madison Companies, Inc. appeal from summary judgment of the Southern District (Lasker, J.), entered December 3, 1985, dismissing their complaint against defendants American Can Company and Associated's directors and officers, which complaint alleges federal securities law and state corporation and contract law violations by defendants in connection with the April 8, 1982 merger of Associated into an American Can Subsidiary.
Lumbard, Oakes, and Newman, Circuit Judges.
Plaintiffs, former shareholders of Associated Madison Companies, Inc., appeal from the summary judgment of the Southern District (Lasker, J.), entered December 3, 1985, dismissing plaintiffs' Second Consolidated Amended Complaint against defendants American Can Company and Associated's directors and officers. The complaint alleges federal securities law and state corporation and contract law violations by American Can and the Associated directors and officers in connection with the April 8, 1982 merger of Associated into AC Financial Systems, a wholly-owned subsidiary of American Can.
On October 27, 1981, American Can and Associated reached an agreement in principle for a proposed merger. On that date, the companies signed a "Memorandum of Intent" under the terms of which holders of up to 49% of Associated common stock would receive $15 in cash for their shares and the remaining common stockholders would receive $15 worth of American Can shares. In addition, the Memorandum of Intent acknowledged that American Can was considering purchasing Associated shares on the open market or by other means prior to the merger.
American Can subsequently decided to purchase Associated stock from a number of institutional stockholders. It also decided to engage in a tender offer for its own stock to insure that it would have sufficient stock to exchange for Associated shares in the merger. Finally, American Can contemplated that it would permit holders of up to 49% of Associated's common stockholders to "elect", during the proxy solicitation for the merger, to receive cash or American stock for their shares.
On November 13 and November 20, 1981, American Can's outside counsel wrote to the Securities and Exchange Commission detailing the merger terms and requesting that the SEC declare the proposed pre-merger purchases, self-tender offer, and cash election feature of the merger exempt from SEC Rules 10b-6 and 10b-13.*fn1 The SEC granted the requested exemptions in two letters dated December 1 and December 24, 1981. Both of the Commission's letters contained a summary of the proposed merger terms and stated that the positions of the Commission were based solely on the facts and representations presented. In particular, the SEC granted the exemptions on the understanding that holders of Associated common stock would receive $15 in cash or American shares if the merger were approved, and that the institutions from whom American Can would make pre merger purchases of Associated stock would not receive a price higher than that paid to the rest of the Associated shareholders in the merger. The SEC advised American Can to complete the pre-merger purchases and the self-tender offer before the mailing of the proxy materials and to disclose in the materials the pre-merger purchases' effect on the availability of cash election rights in the merger.
On January 7, 1982, American Can issued a press release in which it announced that it had agreed to buy 34% of Associated's outstanding common stock from five institutional investors. According to the release, American Can agreed to pay $13 in cash per share, and if the merger were completed at a higher price per share, American Can would pay the institutions an additional amount to match the merger price.
On January 12, 1982, American Can announced the tender offer for its own shares at a price of $33.50 per share. Also on that day, American Can and Associated issued a joint press release stating that the parties had amended the merger terms. Instead of insuring that holders of Associated common stock would receive $15 worth of American Can stock, the revised merger terms adopted a fixed exchange ratio of 0.4545 shares of American Can per share of Associated. This meant that the value of the exchange could be less than $15 depending on the market price of American Can shares at the time of the exchange. On February 23, 1982, the parties signed a final "Agreement and Plan of Merger" which included the revised merger terms. America Can never informed the SEC of the changes.
The Proxy Statement-Prospectus, sent to Associated shareholders on February 25, contained a description of the pre-merger purchases, the self-tender and the merger terms. The materials detailed Associated shareholders' right to elect whether they wanted to have their shares converted into $15 cash per share or into American Can stock at a ratio of 0.4545 per share of Associated. The proxy statement also disclosed that American Can's previous purchase of Associated stock from institutional holders had substantially reduced the cash available to the remaining Associated stockholders so that only from 8% to 15% of the stockholders would be able to receive cash. The proxy statement did not mention that American Can had sought and obtained exemptions from SEC Rule 10b-6 and no-action positions under Rule 10b-13 on the SEC's understanding that Associated common shareholders would receive $15 worth of American Can stock or $15 in cash for each share of Associated.
Associated's shareholders approved the merger on March 26, 1982. When the merger was consummated on April 8, 1982, approximately 8% of Associated's common shareholders received $15 in cash per share. The remaining Associated common shareholders received American Can stock valued at $12.61 per Associated share.
Plaintiffs commenced this class action on May 28, 1982 on behalf of former Associated shareholders who received American Can stock instead of cash in the merger. They seek to recover the difference between the value of the American Can stock at the time of the exchange and the $15 per share figure contemplated in the original merger negotiations and American Can's correspondence with the SEC.
Plaintiffs' Second Amended Consolidated Complaint alleges, inter alia, that American Can and Associated's directors and officers breached a "binding commitment" to the SEC that all holders of Associated common stock would receive $15 in cash or American Can stock in the merger and that the institutional investors would not receive a higher price per share than that paid other Associated shareholders. The complaint alleges further that defendants' failure to disclose these "conditions" of the 10b-6 and 10b-13 exemptions in the ...