The opinion of the court was delivered by: DUFFY
The plaintiff, Gulf & Western Industries, Inc. (hereinafter referred to as G & W), is one of the biggest of the conglomerates which now is to be found on our national and international scene. Charles G. Bluhdorn, a third party defendant, is the Chairman of the Board, Chief Executive Officer, and guiding genius of G & W.
The defendant and third party plaintiff, The Great Atlantic and Pacific Tea Company, Inc. (hereinafter referred to as A & P), is one of the largest retail food chains in the country.
This action revolves around a tender offer by G & W for 15% of the outstanding shares of A & P. Kidder Peabody & Co., Inc. (hereinafter referred to as Kidder Peabody), the other third party defendant, is a broker dealer and investment banker which was engaged by G & W as manager of the tender offer.
In this action, G & W claims that A & P in press releases and communications with its shareholders, has made false statements, either directly or by omitting material facts, which statements are violative of the Securities Exchange Act of 1934. G & W, therefore, has asked this Court for a preliminary and permanent injunction against A & P for these alleged violations.
A & P, in its verified answer and counterclaim, has denied G & W's charges and also seeks a preliminary and permanent injunction against G & W, Bluhdorn and Kidder Peabody. A & P claims that the acquisition by G & W of the A & P shares covered by the tender offer would be a violation of the anti-trust laws; that G & W's activity in acquiring shares of A & P through Kidder Peabody prior to the tender offer was in violation of the Securities Exchange Act of 1934; and that in the tender offer G & W has made untrue statements of material facts and has omitted to state material facts so as to constitute fraud within the meaning of the Securities Exchange Act of 1934.
Before discussing the various charges of the parties it is necessary to set out some facts as background so that the various allegations may be considered in a proper perspective.
Bluhdorn apparently from the outset of his business career has been interested in the retail food market since for many years he was buying and selling commodities, including coffee. Indeed, he rhapsodized in his deposition about a "tough Irish buyer" for the A & P whom he dealt with when he was first starting out in business.
As part of this interest, Bluhdorn had arranged for himself and three of his nominees to be on the Board of Directors of Bohack. Bohack is one of the major competitors of the A & P in the New York City metropolitan area.
Over the past two years, A & P, in an attempt to maintain its share of the market, started a food discounting program called WEO, which presently
stands for "Where Economy Originates". Basically, this program, which is now in effect in all A & P stores, calls for a reduction in the profit margins of the individual items sold with the expectation that the net profit would increase because of the greater volume of business generated by the lower prices.
Needless to say, this discounting program had an effect on A & P's competitors, including Bohack. After consultation with Bluhdorn, Mr. Binder, the President of Bohack, on September 14, 1972, held a press conference. During this press conference, Mr. Binder complained of the WEO program and exhorted "other businessmen who are being threatened by A & P to stand up and make themselves heard."
Some months before this press conference, on March 7, 1972, Bluhdorn started purchasing through Kidder Peabody, for the account of G & W, shares of A & P in the open market. This was done after a conversation on March 1, 1972, between Bluhdorn and Ralph DeNunzio, a leading figure in Kidder Peabody, in which Bluhdorn suggested to DeNunzio that he thought that the retail food area of the stock market was depressed and might be a good investment; that he was considering purchasing some A & P stock; and Mr. DeNunzio concurred that the purchase of A & P stock held "little downside risk". Mr. DeNunzio remembered the exact date of this conversation because it occurred in a limousine transporting the two men from Philadelphia to New York after Mr. DeNunzio had arranged for Bluhdorn to meet with some Philadelphia investor-clients of Kidder Peabody.
During the period between March 7, 1972 and January 18, 1973, G & W acquired 1,045,800 shares of A & P at a total cost of $18,405,268.70. These shares amount to 4.7% of the total outstanding shares of A & P. All of these shares were acquired for G & W by Kidder Peabody and were held in "street name".
About one-third of all of the outstanding shares of A & P are held by the John F. Hartford Foundation. In early November of 1972, Bluhdorn approached Mr. John S. Guest, of the firm of Kuhn Loeb & Co., stockbrokers, apparently in the belief that Mr. John Schiff, the senior partner of that firm, was a trustee of the Hartford Foundation. Bluhdorn told Mr. Guest that he was interested in purchasing all or part of the A & P shares held by the Hartford Foundation. Bluhdorn stated that he thought A & P was a good investment, particularly if A & P would accept the suggestions of G & W and the expertise of the "management team" of Bohack.
Later, Mr. Guest ascertained that Mr. Schiff was not a trustee of the Hartford Foundation but suggested that Bluhdorn put his proposal in writing.
At a second meeting with Guest, Bluhdorn said he did not want to put anything in writing but wanted to talk face to face with someone from the Hartford Foundation so that he could set forth his ideas.
Finally, Mr. Guest gave Bluhdorn the name of Mr. Mulraney, the attorney for the Hartford Foundation. Bluhdorn telephoned Mr. Mulraney, who in turn gave him the name of Mr. Swenson of First Boston Corporation, the financial advisor to the Hartford Foundation. Mr. Bluhdorn had a telephone conversation with Mr. Swenson and again was requested to put his proposal in writing. Apparently neither Bluhdorn nor G & W reduced any proposal to the Hartford Foundation to writing and nothing ever came of this venture.
During all of this time the A & P management was in the dark as to the activities of G & W and Bluhdorn.
On February 1, 1973, the Wall Street Journal carried a story that G & W was about to undertake a tender offer for A & P shares. William J. Kane, the Chairman of the Board and Chief Executive Officer of the A & P, has stated under oath, and this Court believes him, that his first inkling of the G & W "investment" in A & P came at about 9:00 a.m. on February 1, 1973, when this article was called to his attention.
On the same day, February 1, 1973, Bluhdorn had called a meeting of the Board of Directors of G & W. At this meeting he presented his proposal for a tender offer for the A & P shares, which tender offer is the "eye of the hurricane" about which this case revolves.
In the forty-eight or seventy-two hour period prior to the G & W Board of Directors meeting on February 1, 1973, Bluhdorn caused the following to occur:
(1) Bohack accepted his resignation and that of the other G & W insiders from the Board of Directors of Bohack;
(2) notification was given to Mr. DeNunzio of Kidder Peabody that a tender offer might be made; and that he should settle upon an appropriate amount for the tender offer and the details of the contract under which Kidder Peabody would manage the tender offer;
(3) the creation of a voting trust agreement of Bluhdorn's stock in Bohack with Mr. Binder and a Mr. Salgo as trustees thereunder (this voting trust agreement apparently has since undergone two revisions, both of which are dated as of February 1, 1973);
(4) notification was given to Mr. Dolkart, General Counsel of G & W and a director thereof, that a tender offer was to be made for A & P shares;
(5) G & W officers prepared a folder for each member of the Board of Directors of G & W containing two "service" type sheets (Standard & Poors and one other unidentified), two press clippings and ...