The opinion of the court was delivered by: LOWE
,895 MARY JOHNSON LOWE, D.J.: This is an action brought on behalf of a class of shareholders of Marathon Oil Co. ["Marathon"],
under the Securities Exchange Act of 1934, ,896 and certain rules promulgated thereunder. Plaintiff seeks damages allegedly sustained during the take-over of Marathon by United States Steel Corp. ("U.S. Steel"),
in January, 1982, by way of a tender offer. In addition to his federal claims, plaintiff has several pendent state claims for breach of contract.This matter is now before us on defendant's motion to dismiss, brought pursuant to Rule 12b(6), Fed.R.Civ.P.
The following facts are not in dispute. On November 19, 1981, defendants U.S. Steel and USS, Inc., made a tender offer to purchase 30,000,000 shares of Marathon common stock for $125.00 per share. The tender offer provided that in the event that more than 30,000,000 shares were tendered and not withdrawn, shares were to be purchased pro rata according to the number of shares tendered on or before the proration date.
The proration date was originally set as November 28, 1981, at 12:00 midnight, New York City time, thus establishing a ten day proration period. The tender offer was too expire on December 17, 1981, at 12:00 midnight, New York City time, unless extended. Subsequently, extensions of the original deadlines became necessary because of litigation brought by Mobil Corporation against defendants U.S. Steel and USS, Inc., which delayed implementation of the tender offer. Pursuant to a first Supplement to Offer, published on December 1, 1981, the proration date was extended to December 4, 1981, at 12:00 midnight, New York City time. Pursuant to an order of the Sixth Circuit Court of Appeals, dated December 23, 1981, and as set forth in a second Supplement to Offer, published on December 24, 1981, the expiration date was extended so that the tender offer would expire on January 6, 1982, at 12:00 midnight, New York City time.
According to the tender offer, tender could be perfected either by delivery of the shares to BTC, or under prescribed circumstances, by transmittal of a guarantee of delivery to BTC, on or before the proration date, and delivery of the shares to BTC within eight business days after execution of the guarantee.This meant that the latest possible date by which shares would have to be delivered in order to be included in the proration pool, was December 16, 1981, at midnight.
However, since Marathon shareholders who had tendered could withdraw the shares up until the expiration date, January 6, 1982, the actual number of shares in the proration pool, and hence the proportion of each participant's tendered shares that would be bought for cash, did not become fixed until that date.
On December 8, 1981, defendants announced publicly that approximately 54 million shares had been tendered by the proration date. Following this initial announcement, two intermediate announcements were made indicating that a lesser number of shares -- "approximately 51 million" -- had been "perfected . . . within the required time period."
,897 The purchase by U.S. Steel of thirty million tendered shares took place shortly after midnight on January 7. In a press release dated January 8, 1982, U.S. Steel announced that 54,200,000 Marathon shares were held by the Depository as of midnight January 6, 1982. Plaintiff's Exhibit G to Affidavit. Finally, in a press release dated January 11, 1982, U.S. Steel announced that "53,880,360 Marathon Co. shares have been accepted for proration." Plaintiff's Exhibit H to Affidavit.
On January 11, three business days after the purchase occurred, shareholders were paid $125 per share for 55.6% of the shares tendered.
Plaintiff alleges, and the Court must assume for the purposes of this motion, that defendants accepted for inclusion in the proration pool approximately three million shares of common stock, which had not been duly and validly tendered under the terms of the tender offer on or before the proration date of December 4, 1981. According to plaintiff, some of these shares were accepted for inclusion in the proration pool after December 16, 1981, the latest possible delivery date.
The acceptance of the late tendered shares reduced the pro rata percentage of plaintiff's shares that were purchased and paid for by defendants, from approximately 58.8% of plaintiff's tendered shares to approximately 55.6% of plaintiff's tendered shares (or a 3.2% difference). Plaintiff allegedly perfected tender on 1,500 Common Shares of Marathon prior to the proration deadline. Therefore, according to plaintiff, he was entitled to have 882 shares purchased, but defendants have accepted and paid for only 834 shares at the $125 price. Plaintiff claims that he has been damaged in an amount of approximately $50 per share not accepted because of the wrongful inclusion of the three million late tendered shares. In addition plaintiff claims, upon information and belief, that the persons and entities which constitute the class of shareholders on whose behalf this action is brought, perfected tender of approximately 51,000,000 common shares of Marathon in accordance with the terms of the tender offer prior to or on the proration deadline. Plaintiff estimates that the damages caused by the wrongful exclusion of 3.2% of the shares tendered by the class, amounted to approximately 83 million dollars together with interest from January 7, 1982.
In the alternative plaintiff alleges that if defendants did not accept shares perfected after the proration date and delivery date, they intentionally made false and misleading statements of material fact to the public (in both the December 17 press release and the December 24, Supplement to the Offer), in that defendants knew that a materially larger number of shares -- approximately 54 million -- were to be accepted for proration. Plaintiff further alleges that he and other members of the class reasonably relied on defendants' misrepresentations in calculating the number of shares that were to be returned to them unpurchased at the end of the waiting period, and acted on the basis of this information in their subsequent investment decisions. Knowing that the market price for the unpurchased and returned shares would be substantially lower than the cash price of $125 per share being paid under the tender offer, plaintiff and other class members allegedly attempted to reduce their losses by engaging in various hedging transactions, including selling calls and/or buying puts, and engaging in option transactions and shorts sales. Plaintiff alleges that because of their reliance on defendants' misrepresentations, he and other class members suffered financial injury and losses in connection with their hedging transactions and with the eventual disposition or sale of unpurchased shares.
Plaintiff makes several claims for relief. He claims first that the defendants' acceptance of late-tendered shares for proration, violated Sections 10(b), 14(d)(6), and 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78n(d)(6) and 78n(e) and the rules promulgated thereunder including Rule 10b-13, Rule 14d-6(d), and Rule 14d-6(e), C.F.R. §§ 240.10b-13, 240.14d-6(d), 240.14d-6(e), and the common law of contracts. See Plaintiff's Second Amended Complaint, First, Second and Sixth Claims For Relief. He further claims that by accepting ,898 late-tendered shares, defendants effectively extended the proration date, without public notice of such extension in violation of Section 14(e) of the Securities Exchange Act of 1934, and Rule 14e-1(d), C.F.R. § 240.14e-1(d). See Plaintiff's Third Claim for Relief.
Alternatively, plaintiff claims that defendants made false and misleading statements of material fact in violation of Sections 14(d) and 14(e) of the Securities Exchange Act and Rules 14d-6(e) and Rule 14d-6(e). See Plaintiff's Fourth Claim for Relief.
Finally, plaintiff claims that defendants' failure to pay promptly for the stock tendered by plaintiff and other members of the class, violated Section 14(e) of the Securities Exchange Act of 1934, and Rule 14e-1(c) promulgated pursuant thereto, and the common law of contracts.See Plaintiff's Fifth and Seventh Claims for Relief.
Defendants have moved to dismiss all of the plaintiff's claims. For the reasons set forth below, we find that defendants' motion should be granted in part and denied in part.
Plaintiff's first and primary claim arises under Section 14d(6) of the Williams Act, 15 U.S.C. § 78n(d)(6). Section 14d(6) provides in relevant part:
Where any person makes a tender offer, or request or invitation for tenders, for less than all the outstanding equity securities class, and where a greater number of securities is deposited pursuant thereto within ten days after copies of the offer or request or invitation are first published or sent or given to security holders than such person is bound or willing to take up and pay for, the securities taken up shall be taken up as nearly as may be pro rata, disregarding fractions, according to the number of securities deposited by each depositor.
Plaintiff argues that § 14d(6) imposes a mandatory proration deadline, and prohibits the acceptance of shares tendered after that deadline. He alleges that defendant violated this provision by including in the proration pool, approximately three million Marathon shares which were not validly tendered by the proration date or delivered by the delivery date.
Defendants move to dismiss this claim on two grounds. First, they argued that this Court should not imply a right of action on behalf of plaintiff under § 14d(6) absent any indication, either in the language or legislative history of the statute, that Congress intended to create a private damages remedy. Second, defendants argue that § 14d(6) does not require that the proration pool be limited to shares tendered at a certain place or by a certain time; rather, the deadlines and mechanics for the tender of shares are set by the terms of the tender offer. Since plaintiff's sole claim under § 14d(6) is that the defendants wrongfully accepted late-tendered shares for proration, defendants maintain that at best, plaintiff states only a common law claim for breach of contract.
Because the Court agrees with defendants that plaintiff has failed to allege a violation of § 14d(6), we find it unnecessary to reach the more general question of whether a shareholder who does allege injury stemming from a violation of § 14d(6) has a private damages remedy.
The question before us is apparently one of first impression. Plaintiff cannot point to a single case in which a shareholder has attemnpted to invoke § 14d(6) in the manner which he proposes.
However, it is neither the novelty of plaintiff's position nor the absence of supporting authority which leads us to reject plaintiff's claim. As set forth below, we find no support for plaintiff's position ,899 in either the language or legislative history of the statute.
Section 14d(6) does not on its face impose a mandatory proration deadline. It merely provides that all shares tendered "within ten days" of the tender offer "shall be taken up as nearly as may be pro rata . . .". The mandate of Section 14d(6) necessarily implies that there must be at least ten days between the making of the tender offer and the proration deadline. However, as Rules 14d-8
make clear, the actual proration deadline is left to the terms of the tender offer. Thus the language of § 14d(6) and the rules promulgated thereunder would suggest, as defendants contend, that the enforcement of the proration deadline is a matter of contract law.
Plaintiff argues, however, that the legislative purpose of Section 14d(6) will be undermined if the Section is not read to prohibit the acceptance for proration of shares tendered after the proration of shares tendered after the proration deadline. The Court cannot agree. Section 14d(6) is part of a larger scheme designed to protect shareholders of a target corporation who are faced with a tender offer. See Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 35, 51 L. Ed. 2d 124, 97 S. Ct. 926 (1977). Section 14d(6) in particular aims to provide shareholders with adequate time to make a reasoned and informed decision whether or not to tender their shares. As explained by Senator Williams, the sponsor of the Williams Act, the purpose of the Section was to "outlaw tender offers on a first-come, first-served basis and thus eliminat[e] pressure on shareholders to make hasty deposits." 113 Cong. Rec. 854, 855 (January 13, 1967).This purpose is accomplished by establishing a minimum period of time, i.e., ten days, during which shareholders can decide whether to tender their shares, with the assurance that any shares tendered during that period will be included in the proration pool.In the present case, plaintiff does not claim that the minimum ten days proration period was not allowed by the defendants or that the shares which he tendered within the proration period were not accepted for proration. Thus the primary purpose of Section 14d(6), as well as the letter of the law, would seem to be complied with.
We do not disagree with plaintiff that the goal of § 14d(6) and the Williams Act in general goes beyond that of disclosure and seeks "to assure fair treatment of all shareholders who decide to accept a tender offer." Testimony of SEC Chairman Manuel Cohen at a Hearing Before the Senate Subcommittee on , 900 Securities, at 36. Pro rata acceptance of shares is "a method of achieving equitable treatment of all stockholders." Id. However, this does not mean that Congress intended to make any imperfection in a tender offer or in the proration process remediable under the Williams Act. Many important details of a tender offer, including the date, place and method of tender, are left to the terms of the offer itself, and are enforceable only on a breach of contract theory. We believe that the proration deadline is another such detail. Our holding does not, as plaintiff suggests, leave the offeror with unlimited discretion to accept late-tendered shares. As noted above, the proration deadline established by the offeror must be included in the tender offer materials; failure to adhere to this deadline would presumably give rise to an action for breach of contract.
Furthermore, it might be argued that acceptance of a significant number of late tendered shares would amount to a de facto extension of the proration date without adequate notice to all shareholders as required by Rules 14d-6(d), 14d-6(e)(vi), and 14e-1(d). However, only those shareholders who were deprived of the opportunity to tender after the deadline would have standing to pursue such a claim. See discussion, infra, at 50-52.
To hold that the proration deadline is enforceable under § 14d(6) would, we believe, unduly involve the federal courts in questions concerning the mechanics of a tender offer.In order to determine whether a purchaser properly accepted shares for proration, the courts would necessarily have to determine what constitutes valid tender under the terms of the tender offer, and whether all of the shares accepted were validly tendered by the proration deadline. Even a technical defect in tender, if waived by the purchaser, would presumably constitute a violation of § 14d(6).
In short, ...