Appeal from a judgment entered in the United States District Court for the Southern District of New York, Constance B. Motley, District Judge, dismissing appellant's complaint, brought under the Williams Act, 15 U.S.C. § 78n(e) for failure to state a claim under Fed. R. Civ. P. 12. Affirmed.
Before Kaufman, Chief Judge, Meskill, Circuit Judge, and Brieant, District Judge.*fn*
The instant action is a consolidation of five similar lawsuits brought on behalf of McGraw-Hill, Inc. stockholders, alleging that McGraw-Hill and its directors made false statements of material facts in response to two proposals of the American Express Company for the acquisition of substantial amounts of McGraw-Hill stock. The issue before us is whether shareholders may maintain a cause of action for damages under the Williams Act, 15 U.S.C. § 78n(e),*fn1 where they concede that no tender offer has been made to them. We conclude that they may not.
On January 8, 1979, American Express proposed to McGraw-Hill what plaintiff describes as a "friendly business combination" of the two companies through payment by American Express of $34 in cash for each McGraw-Hill share. Alternatively, American Express indicated its willingness to acquire 49% of McGraw-Hill's shares for cash or a combination of cash and securities. McGraw-Hill common stock was trading at $26 per share immediately prior to the announcement. On January 15, 1979, McGraw-Hill announced that its Board of Directors had rejected the proposal and made public a letter to American Express characterizing the offer as "reckless," "illegal," and "improper." The following day, American Express filed Schedule 14D-1 with the Securities and Exchange Commission concerning its intention to make a cash tender offer for any and all of McGraw-Hill's stock.
The proposed offer was never made, however, for on January 29, American Express retracted its earlier announcement, and in its place submitted a new proposal to the McGraw-Hill board. This offer, at a price of $40 per share, would not become effective unless McGraw-Hill's incumbent management agreed not to oppose it by "propaganda, lobbying, or litigation." The offer was rejected by the McGraw-Hill board two days later, and expired, by its own terms, on March 1.
Plaintiffs' consolidated, amended complaint charges that:
Defendants announced publicly that the tender offer price of $40 per share was inadequate, although they knew that the price . . . was fair
Defendants, in resisting the AMEXCO (American Express Company) tender offer (sic ), challenged the integrity and honesty of AMEXCO (by indicating that AMEXCO had illegally complied with the Arab boycott), publicly challenged the legality of the tender offer (by indicating that the federal Bank Holding Company (Act) may preclude the tender offer), and publicly stated that the tender offer somehow threatened freedom of expression under the First Amendment of the Constitution (by stating that since the McGraw-Hill (sic ) was engaged in publishing, its independence would be smothered by a large financial institution such as AMEXCO).
These statements, as well as McGraw-Hill's characterization of the initial proposal as "reckless," "illegal," and "improper," are alleged to be false, as evidenced by the fact that, some months earlier, McGraw-Hill had advised American Express that it considered it to be a proper and desirable merger partner.
Plaintiffs concede that no tender offer ever took place that no McGraw-Hill shareholder was ever in a position to offer his shares to American Express at a stated price. The $34 proposal was withdrawn before it became effective, and was replaced with a $40 proposal that could have ripened into an offer only upon the acquiescence of the McGraw-Hill board. Nonetheless, plaintiffs claim, "had defendants provided . . . shareholders and the public with complete and truthful information about AMEXCO and its proposed tender offer (i. e. that $40 per share was a fair price, and that AMEXCO was a company with which defendants themselves had wanted to merge), the AMEXCO tender offer would have been consummated." Accordingly, they each seek damages from the company and its directors for the difference between the $40 proposed tender price, and the $25 price to which the stock returned after the expiration of the American Express proposal.
Judge Motley dismissed the consolidated amended complaint pursuant to Fed.R.Civ.P. 12, noting that "plaintiffs fail to allege that McGraw-Hill stockholders, or anyone else for that matter, in fact relied upon the alleged misrepresentations or omissions. While plaintiffs do allege deception on the part of defendants, plaintiffs do not allege that anyone was deceived or that anyone acted in reliance upon the alleged deception to their detriment." Having found plaintiffs' federal claim critically insufficient, the district court dismissed plaintiffs' pendent state claims for want of jurisdiction.
The complaint was properly dismissed. Section 14(e) of the Williams Act, 15 U.S.C. § 78n(e), has as its "sole purpose" the "protection of investors who are confronted with a tender offer." Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 35, 97 S. Ct. 926, 946, 51 L. Ed. 2d 124 (1977). It is designed "to ensure that (investors) will not be required to respond (to a tender offer) without adequate information." Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 58, 95 S. Ct. 2069, 2076, 45 L. Ed. 2d 12 (1975). Accordingly, one element of a cause of action under § 14(e) is a showing "that there was misrepresentation upon which the target corporation shareholders relied." Chris-Craft Industries, Inc. v. Piper Aircraft Corp., 480 F.2d 341 (2d Cir.), cert. denied, 414 U.S. 910, 94 S. Ct. 231, 38 L. Ed. 2d 148 (1973) (emphasis ...