The opinion of the court was delivered by: POLLACK
THE COURT: This is an application for a preliminary injunction. The defendant Kennecott has made a tender offer to purchase up to 49 percent of the common stock of the plaintiff Curtiss-Wright for a price of $ 40 a share. The offer is scheduled to expire on December 26, 1980 at midnight.
Curtiss-Wright and three of its directors* contend that the tender offer is defective but anomalously, nonetheless, seek a preliminary injunction to prevent Kennecott from terminating its offer to buy Curtiss-Wright stock. Kennecott refuses to extend to a later date its offer to buy Curtiss-Wright stock and insists that its offer will properly expire at 12:00 midnight on December 26, 1980.
Kennecott through KC Development on November 28, 1980 offered to buy up to 4,100,000 shares, approximately 49 percent, of the common stock of Curtiss-Wright at a price of $ 40 a share. The offer states that Kennecott intends, following completion thereof, to seek to effectuate a tax free merger pursuant to which the remaining Curtiss-Wright shareholders would receive Kennecott stock worth $ 40 for each remaining share of Curtiss-Wright common stock.
This is not a proxy contest for selection of directors of a corporation in which a popular choice is to be registered, nor is it a plenary review of the wisdom of the exercise of the business judgment of directors in respect of corporate acquisitions and compensation arrangements or the efficiency of the performance of the management of a corporation.
The case before the Court concerns whether the federal requirements have been met for tender offers and whether any criticized corporate transactions or activities involve the threat of irreparable damage which cannot be adequately dealt with on the merits in an ordinary damage suit.
The issues presented are virtually all factual in which credibility plays a significant, if not decisive role.
Value of the Stock to be Purchased
Both parties to this dispute agree that the stock sought to be purchased by the offer is worth $ 40 a share and the opponents of the tender offer contend that it is worth more than that.
T. Roland Berner, the leader of the opposition to the tender offer (he is chairman, president and chief executive officer of Curtiss-Wright, which would be absorbed in the proposed merger) testified:
"The Court: Mr. Berner, in your opinion, was the Curtiss-Wright stock worth $ 40 a share to a purchaser?
"The Court: Is there any objection that you know of in modern corporate practice against buying something which is worth what you are paying for it?
"The Witness: Not if you do it for an improper motive, yes, it is improper." (R.275).
"The Court: Suppose you are getting what you paid for and in addition you get rid of Berner. Is there anything wrong with that?
"The Witness: If they got all of the values, if they got all of the values that represented their investment and they got me thrown in, that would be all right, but if there was purpose to get me out regardless of investment value, then they ought to go to Kennecott's stockholders and ask them if that is what they want." (R.277-78).
Speaking of his talks with the president of Kennecott, Mr. Barrow, and with Mr. Wendel, the former president who currently is Kennecott's technical consultant (he was selected last Friday upon motion of Mr. Berner) Mr. Berner testified:
"I did educate Mr. Barrow and Mr. Wendel that in our (Curtiss-Wright's) judgment the additional certain special segment of our business made our stock worth, back in November (the time of the Kennecott offer) we did a computation which showed a $ 49-plus value for Curtiss-Wright.
"THE COURT: He is a smart man to try
"THE WITNESS: Oh, I think he is.
"THE COURT: Would you sign a paper to that effect, that he's a smart man?
"THE WITNESS: To buy Curtiss-Wright for $ 40, Wendel is a very smart man to buy Curtiss-Wright for $ 40." (R. 252)
It may be useful to recall Rodman v. Grant Foundation, 608 F.2d 64 (2d Cir. 1979), involving a challenge to a repurchase plan for previously issued stock. The Second Circuit affirmed this Court's grant of summary judgment against the plaintiff. In response to plaintiff-appellant's argument that the defendants' desire to entrench their control was the principal, if not sole reason for the repurchase program and that this was not disclosed to shareholders, the Second Circuit stated:
The District Court also held that corporate control is recognized to be of universal interest to corporate officers and directors and that the failure of proxy materials to disclose this subjective interest is not a violation of the securities laws .... Here the proposed actions of the company and their effect on stockholdings were fully disclosed ... In the absence of some ulterior wrongful design hinging upon so-called "entrenchment", the directors were not required to put forth in the proxy materials and analysis of their otherwise obvious interest in company control. Id. at 71.
The Business Purpose of the Directors of Kennecott
After personnel of Kennecott for more than a year of considering the so-called "business fit" the business benefits which might result from a business combination of Kennecott and Curtiss-Wright the directors of Kennecott voted on November 21, 1980 to make the tender offer for Curtiss-Wright stock here in question. Not a single vote by any director was cast against the resolution of the Board the vote in favor was unanimous. Messrs. Berner and three of his co-directors, all of whom were on both Boards of Kennecott and Curtiss-Wright, abstained from voting, following the lead of Mr. Berner, who demanded and got a roll-call vote made alphabetically, in which he was the first name called, and he "abstained". None of the abstainers at the meeting asked for more time to consider the matter. Nobody said there was no business purpose for the tender offer, and none of the abstainers challenged the vote or the tender offer authorized or impugned the proposal in any way at the meeting.
Mr. Wendel, the technical consultant of Kennecott, who enjoys the confidence and support of Mr. Berner, as already mentioned and evidenced by the extension of his employment contract only last week on the motion of Mr. Berner, gave conclusive, credible testimony, the credibility of which was not impunged in any degree, that there is a valid "business fit" for the combination and that this was what he, as a director, with the other members of the Board, voted for in approving the tender offer. His opinion and that of the other directors, voiced in effect by their affirmative vote, coincided with the similar opinion of Morgan Stanley & Company, which examined into the question and found a reasonable business fit flowing from the merger. The testimony to the contrary and the speculations and conclusions to the contrary offered on behalf of the plaintiffs are not worthy of belief.
Mr. Berner's present antipathy to such a combination as devoid of a business purpose other than the admitted adequate value to be received for the price proffered, is seriously impugned by the history of his own activities on the subject of a merger of the two companies lasting nearly a year.
In mid-1979 Kennecott officers began to consider the business benefits that might result from a business combination of Kennecott and Curtiss-Wright. Apparently this consideration was sparked by the announcement of Curtiss-Wright that it would increase to 100 percent its equity interest in its subsidiary, Dorr-Oliver, Incorporated. Kennecott's officers and directors and others investigated and studied the desirability of such a combination at various times during 1980, continuing up to and including November 21, 1980.
Beginning in December 1979 Kennecott officials proposed to Mr. Berner that Kennecott and Curtiss-Wright merge. This occasioned a number of discussions that started in December 1979 and continued on and off until October 1980. During these discussions Mr. Berner raised no question of an absence of a business purpose for such a merger. To the contrary, he indicated his enthusiasm and interest in such a merger and discussed possible prices for the Curtiss-Wright stock and on one occasion suggested that Curtiss-Wright acquire for $ 40 a share the shares of Curtiss-Wright held by Teledyne, the largest stockholder of Curtiss-Wright, as a prelude to a merger and also discussed the possibility of his, Mr. Berner's, becoming a vice chairman of the combined entity.
During January 1980 Mr. Berner arranged to have Kennecott supplied with intimate and said to be confidential information pertaining to each of the nineteen divisions of Curtiss-Wright, useful in evaluating a possible business combination, most of which information was not then and perhaps is not even now publicly available. This included financial results of operations, forecast profitability and planning data for each of the operating divisions of Curtiss-Wright, including 1977-1978 results of operations and 1979 estimated results of operations and projections for 1980. All this was useful in evaluating the business fit between Curtiss-Wright and Kennecott.
In addition, Mr. Berner advised Mr. Barrow, the president of Kennecott, that the Dorr-Oliver subsidiary of Curtiss-Wright net earnings were projected to increase 100 percent in the next five years.
At a later time, Mr. Berner even mentioned that he had an offer for this subsidiary of $ 100 million.
During the April 1980 and July 16, 1980 meetings of the Kennecott Board and the Finance Committee respectively, both of which Mr. Berner attended, the possible merger of Kennecott and Curtiss-Wright was discussed without any objection from Mr. Berner or any suggestion that there was no proper business purpose of such an event. An assessment of a good business fit between the two companies was explained in detail at the April 1980 meeting of the Kennecott Board.
In June 1980, Mr. Berner suggested to Mr. Barrow that he would be willing to consider a sale of ...