Appeal from summary judgment entered in the United States District Court of the Southern District of New York (Kram, J.) granting an injunction cancelling successful tender offer and ordering a return of the shares tendered on the ground that the offeror had misrepresented, or omitted, certain material facts, in violation of section 14(e) of the Williams Act and SEC Rule 14d-6(d).
Pratt and Miner, Circuit Judges, Re, Chief Judge, U.s. Court of International Trade, sitting by designation.
JB Acquisition Corp., BJ Holding Corp., and Reliance Capital Group, L.P. (collectively "Reliance") and Macfadden Holdings Inc. and Macfadden Acquisition Corp. (collectively "Macfadden") were competing tender offerors for control of John Blair & Co. ("Blair"), a communications company whose assets included several television and radio stations. After Reliance successfully acquired approximately ninety percent of the outstanding shares of Blair common stock, the United States District Court for the Southern District of New York (Kram, J.) held that Reliance had misrepresented, or omitted, certain material facts in its tender offer, in violation of section 14(e) of the Williams Act, 15 U.S.C. § 78n(e) (1982) and SEC Rule 14d-6(d), 17 C.F.R. § 240.14d-6(d) (1985). The district court entered summary judgment in Macfadden's favor and ordered Reliance to release all Blair shares tendered to it pursuant to its offer. 641 F. Supp. 454. After hearing argument by counsel, we concluded that Reliance did not violate federal securities laws in connection with its tender offer and reversed the summary judgment of the district court by summary order, dated August 15, 1986, 801 F.2d 391, indicating that this formal opinion would follow.
The efforts to obtain control of Blair began on April 22, 1986, when Macfadden commenced a tender offer for all outstanding shares of Blair common stock, at twenty-five dollars per share. Blair's Board of Directors, believing this offer inadequate, began searching for a "white knight," a company acceptable to the Blair Board and willing to make a better offer. As a result of the efforts of Blair's investment bankers, Reliance entered into a merger agreement with Blair on June 2nd ("Merger Agreement"). Thereafter, in accordance with the Merger Agreement, Reliance commenced a tender offer for Blair shares on June 5, 1986 ("June 5th Offer").
In the June 5th Offer, Reliance offered to pay twenty-seven dollars per share in cash for eight million shares ("front-end"). The remaining Blair shares were to be acquired in a subsequent merger for twelve percent junior subordinated discount debentures, having a principal amount equal to twenty-seven dollars, plus imputed interest ("back-end"). In addition, the stock of ADVO Systems, Inc., a Blair subsidiary, would be distributed as a dividend to all Blair shareholders. Under SEC Exchange Act Rule 14d-7, 17 C.F.R. § 240.14d-7, Reliance could begin to purchase or "take down" any shares tendered to it after 12:00 midnight, July 2, 1986. If Reliance were able to purchase a majority of the outstanding shares of Blair common stock, it would consummate the deal and gain control of Blair. The cover of the June 5th Offer included a statement in bold-faced, capital letters that the offer and proration period would expire at midnight, July 2, 1986, unless extended, and that withdrawal rights would expire at midnight, June 25, 1986.
The June 5th Offer contained several conditions precedent to consummation of the deal. One of these conditions required Reliance to obtain approval from the Federal Communications Commission ("FCC") of the voting trust arrangement described in an application filed on FCC Form 316 ("Short Form"). Short Form approval was required because Blair's television and radio stations were licensed under the Federal Communications Act of 1934, 47 U.S.C. §§ 151 et seq. (1982), which prohibits the transfer of a broadcast license without FCC approval, 47 U.S.C. § 310(d). Ordinarily, an applicant for transfer of a broadcast license must follow the "Long Form" application procedures mandated in 47 U.S.C. § 309. The FCC, however, has implemented a special procedure governing license transfer in the context of tender offers for broadcast companies. See Policy Statement on Tender Offers and Proxy Contests, 59 Rad. Reg. 2d (P & F) 1536 (1986). An offeror may make a Short Form application to the FCC for authorization to have a voting trusteeship operate the broadcasting company pending receipt of Long Form approval. Once the Short Form application is approved, the trusteeship controls the stock of the broadcast company in the period between consummation of the tender offer and final FCC approval.
Reliance filed its Short Form application on June 6, 1986. On June 12th, Macfadden, having terminated its first offer after acquiring about 400,000 shares, commenced a new tender offer for eight million Blair shares at thirty dollars per share in cash; it proposed to purchase the remaining shares in a subsequent merger by issuing junior preferred stock having a face value of thirty dollars per share.
On June 19th, Reliance amended its June 5th Offer as follows:
1. The cash portion of the offer (front-end) was increased to thirty-one dollars per share for seven million shares;
2. The back-end would receive subordinated debentures in the principal amount of $20.75, plus imputed interest, and the ADVO stock as a dividend (the front-end would no longer receive the ADVO stock dividend); and
3. Withdrawal rights were extended from June 25th to midnight, July 2, 1986.
On June 26th, Macfadden amended its second offer to provide that it would purchase up to seven million shares of Blair common stock for thirty-two dollars per share, to be followed by a proposed merger in which the remaining Blair shares would be converted into junior preferred stock with a stated value of thirty-two dollars per share.
On July 2nd, Reliance issued a press release, announcing that it had extended the expiration date, proration period, and withdrawal rights under its offer to midnight, July 3, 1986. Also on the 2nd, Macfadden announced that if at least 4.6 million shares were tendered into its offer by 4:00 p.m. on the 3rd, Macfadden would not tender its Blair stock into the Reliance offer. The following day, the Blair Board of Directors announced that if Reliance obtained a majority of Blair shares in its tender offer, Blair would declare a $1.50 cash dividend payable to the owners of those shares not purchased by Reliance in the front-end of the tender offer. Blair also announced that Macfadden could not consummate its tender offer so long as the FCC's stay of its order approving the Macfadden Short Form application remained in effect. On the afternoon of the 3rd, Macfadden announced that it was considering the possibility of improving its offer once again. At 4:30 p.m., on the same day, Reliance announced that if it did not receive a majority of Blair shares by midnight, it would extend its offer until after the weekend, i.e., to July 7, 1986. In the eight hours between 4:00 p.m. and midnight on July 3rd, more than seven million Blair shares were tendered to Reliance (including over one million shares tendered by Macfadden). Thus, by midnight, a total of more than ten million Blair shares (approximately ninety percent of the outstanding shares) had been tendered to Reliance. Accordingly, at midnight, July 3, 1986, the Reliance offer, proration period, and withdrawal rights were allowed to expire. On July 7, 1986, Reliance announced that it had accepted for payment, subject to FCC Short Form approval, seven million of the ten million shares that had been tendered, on a pro rata basis.*fn1
This event, however, did not put an end to the bidding war for control of Blair. On July 9th, Macfadden stated that it proposed to pay a two dollar cash dividend in its back-end offer. Then, on July 11th, Macfadden filed the instant complaint against Reliance in the district court. At the end of the day on July 16th, the FCC rejected Reliance's Short Form application because the proposed trustees were not sufficiently independent. On July 18th, Reliance submitted a new application to the FCC, nominating former Senator Eugene McCarthy as the sole voting trustee. On July 30, 1986, the FCC approved Reliance's new Short Form application. To permit Macfadden to seek a stay of the FCC's ruling in the D.C. Circuit, however, the approval was made effective 5:30 p.m., Friday, August 1, 1986; the D.C. Circuit denied the application for a stay on August 1.
In its complaint in the district court, Macfadden alleged that Reliance had represented that it would not terminate its offer, permit withdrawal rights to expire, or accept Blair shares for payment until after the condition that it receive FCC Short Form approval was either satisfied or waived. According to Macfadden, these statements were material misrepresentations or nondisclosures, because Reliance in fact terminated its offer, allowed withdrawal rights to expire, and accepted Blair shares for payment before it received FCC Short Form approval. Macfadden claimed that these misrepresentations and nondisclosures violated section 14(e) of the Williams Act and SEC Rule 14d-6(d).
On the evening of July 31st, the district court orally granted Macfadden's motion for summary judgment, ruling that Reliance had violated section 14(e) of the Williams Act and SEC Rule 14d-6(d) by accepting Blair shares for payment subject to FCC Short Form approval. Macfadden Holdings, Inc. v. JB Acquisition Corp., 641 F. Supp. 454 (S.D.N.Y. 1986). The court, however, did not determine whether Reliance also misrepresented that it would not allow its offer or shareholders' withdrawal rights to expire before FCC approval was obtained. Rather, the district court found that "regardless of when the offer expired or when withdrawal rights were terminated," Reliance had "said it would not accept shares for payment prior to receipt of FCC short form approval." 641 F. Supp. 454 at 463. In short, the district court found that Reliance's representations led Blair's stockholders to believe that they had a "no risk proposition" when they tendered into the Reliance offer. If Reliance obtained Short Form approval, Reliance would accept shares for payment and, subject only to delays occasioned by the proration process, pay for the tendered shares. If, however, FCC approval was not forthcoming, and a higher offer came along, the tendering shareholders would be free to withdraw their shares and tender them into the other offer. Accordingly, finding the normal remedy of disclosure and extension of ...