The opinion of the court was delivered by: WEINFELD
WEINFELD, District Judge (Orally):
Familiarity is assumed with this Court's decision of January 3, 1977, which granted plaintiff's motion to enjoin consummation of a proposed sale of 312,000 shares of Milgo Electronic Corp. ("Milgo") common stock to Racal Electronics Limited ("Racal") upon the terms set forth therein.
Since that time a series of events have occurred. Plaintiff Applied Digital Data Systems, Inc. ("ADDS") has cleared its exchange offer with the Securities and Exchange Commission and has presented it to the Milgo shareholders primarily by way of newspaper advertisements, since thus far it has been denied access to the Milgo stockholder list. ADDS' exchange offer became effective on January 19, 1977 and will expire at 5 p.m. on February 4, 1977 if not extended.
Prior to the effective date of ADDS' offer, Milgo filed a Schedule 14D with the SEC and mailed to its shareholders letters and information concerning Milgo's financial prospects, including management's forecasts of earnings that Racal previously received and that ADDS had acquired during pretrial discovery procedure. Milgo's Schedule 14D states that "the management of Milgo will recommend that its shareholders reject [ADDS'] proposal [because it] is not in the best interests of the shareholders and does not reflect the long term prospects of Milgo for various reasons . . . ."
On January 20 Milgo announced both that Racal was planning a tender offer for Milgo common stock and that the agreement for the sale of the 312,000 shares of Milgo stock, the principal subject matter of the initial litigation, had been terminated. On January 21 Racal made a tender offer for all Milgo common stock at a price of $26 per share, which offer is scheduled to expire at 10 a.m. on February 1 unless extended. Shares tendered under the Racal offer may not be withdrawn after 10 a.m., January 31.
Racal was able to mail its offer directly to Milgo shareholders because Milgo's management provided it with the stockholder list. There is little doubt that the action of Milgo's management was prompted by a desire to further the prospects of the Racal offer; indeed, Milgo amended its Schedule 14D to include a letter to its shareholders stating that "the Board of Directors has reviewed the terms of the Racal offer and believes that the cash offer made by Racal is more favorable to the stockholders of Milgo than the exchange offer being made by [ADDS]."
Thereafter ADDS renewed a request previously made of Milgo that its stockholders' list be made available so that ADDS could communicate directly with all stockholders and set forth the terms of its proposal. Milgo declined to do so. Its essential position, technically correct,
was that ADDS was not legally entitled to the list because ADDS was not a stockholder. Milgo stated, however, that it was willing to make the list available to ADDS, but upon certain conditions. These conditions would in effect impose self-decapitation upon ADDS' offer. They would require ADDS to include in its offering letter to the Milgo shareholders statements depreciating the ADDS offer, such as that the Milgo Directors deem the offer inadequate and not in the best interests of Milgo stockholders; that the Milgo Board of Directors believes the Racal offer of $26 per share to be both reasonable and more favorable to the stockholders of Milgo than ADDS' offer; and that the Chairman of the Board and President of Milgo, together with all but one other member of the Board of Directors of Milgo, have indicated that they intend to tender their shares to Racal. ADDS has indicated that it is unwilling to submit to these Draconian conditions.
ADDS has applied to this Court for an order directing Milgo to deliver to it the most recent list of stockholders. ADDS, apparently in response to Racal's offer, improved its original offer, proposing both to make the preferred stock to be traded for Milgo common convertible into two, instead of one and one-half, shares of ADDS common stock and to increase the redemption price and liquidation preference of the preferred from $25 to $32 per share. While it is true that ADDS, presently not a stockholder of Milgo, is not entitled to the shareholder list either under common law or statutory law, what is at issue here is the shareholders' right to have all pertinent facts relating to the offers made by the contending parties. Thus the matter is one of fairness and involves the exercise of the Court's equity power. As this Court put it in a somewhat related situation:
"[An] overriding consideration is the right of the stockholders of a corporation to have all pertinent and material information whenever called upon to exercise their right of corporate suffrage -- in this instance the right to have the information which necessarily embraces the views of those who oppose, as well as those who favor, the merger. As this court stated it in another context relating to proxy statements: 'Congress . . . intended that investors would fully and fairly receive all pertinent information in connection with the exercise of their voting power . . . .' To have one side of a picture hardly fulfills this requirement."
Management's decision to turn its shareholder list over to a "friendly" offeror and to withhold it from a competing offeror would offend express congressional concern in adopting the Williams Act that both the offeror and management (and here a friendly offeror) have an "equal opportunity to fairly present their case,"
and that "public shareholders who are confronted by a cash tender offer for their stock will not be required to respond without adequate information regarding [the offer]."
In effect, the shareholder's ability to make up his own mind about competing tender offers upon a full presentation of all material facts is impaired by this sort of management action.
Thus, in fairness, Milgo should be required to make its list available to ADDS without the conditions management seeks to impose, and Racal should extend the termination date of its offer until 10 a.m. on February 3, 1977 in order to afford the opportunity for Milgo shareholders to consider without undue pressure both offers before committing themselves to any course of action.
The motion is granted on these terms.
Soon after the Court made the foregoing disposition it received the following communication from the Securities and Exchange Commission:
We have been advised by counsel for the plaintiff in the above-captioned action that this Court has requested counsel to solicit the views of the Commission on the issue of whether, and under what circumstances, a federal district court in an action under the federal securities laws, may require a company to provide a tender offeror for that company's shares with a list of the company's shareholders. The Commission has considered this question and has authorized me to send you this letter expressing its views.
The federal securities laws do not now expressly impose an obligation on a target company to provide a list of shareholders to a tender offeror seeking to acquire that company's shares. The Commission, however, has proposed, for public comment, a new Rule 14e-1 pursuant to the Williams Act provisions of the Securities Exchange Act of 1934, which would, under certain circumstances, impose such a requirement on a company whose shares are the subject of a tender offer. See, Securities Exchange Act Release No. 1267, CCH FED. SEC. L. REP. P 80,659 (Aug. 2, 1976).1a The Commission proposed such a rule in the belief that it would further the ...