The opinion of the court was delivered by: KRAM
MEMORANDUM OPINION AND ORDER
SHIRLEY WOHL KRAM, U.S.D.J.
The above-captioned matter is before this Court, sitting as the Part One Judge. Defendant SCM Corporation (hereinafter referred to as "SCM") has moved for a preliminary injunction. For the reasons which follow, the motion is GRANTED.
Hanson Trust PLC (hereinafter referred to as "Hanson"), the plaintiff, and SCM have been engaged in a hostile tender offer battle. On August 21, 1985, Hanson announced that it would commence a cash tender offer for any and all of the outstanding shares of SCM's common stock. The offer would be for $60.00 per share.
On August 30, 1985, SCM and Merrill Lynch Capital Markets (hereinafter referred to as "Merrill Lynch") of Merrill Lynch, Pierce, Fenner and Smith announced that they had reached an agreement for a leveraged buyout of SCM. Pursuant to that agreement, Merrill Lynch would made a cash tender offer for approximately 85.7% of SCM's common stock at a price of $70.00 per share. At the back end of this transaction, the remaining SCM shares would be exchanged for subordinated debentures of the resulting corporation with a value of $70.00 per share. There were many other aspects to this agreement, but none are relevant to the instant application. In effect, SCM had found a "white knight" and the battle lines were drawn.
On September 5, 1985, Hanson increased its cash tender offer for any and all shares to $72.00 per share. Before 9:00 a.m. on September 11, 1985, a new merger between SCM and Merrill Lynch was announced. This agreement provided for a leveraged buyout of SCM by Merrill Lynch and SCM management pursuant to a cash tender offer for approximately 80% of SCM's common stock. once again, the back end of the transaction is to involve exchange of stock for paper -- notes valued at $74.00. Merrill Lynch's tender offer is contingent upon its acquiring 66 2/3% of SCM's common stock. The agreement also granted to Merrill Lynch options to buy two very valuable divisions of SCM should a third party acquire 33 1/3% of SCM's common stock.
In response to the announcement of this "crown jewel" option and $74.00 per share offer, Hanson announced that it would terminate its tender offer. This announcement was publicly disseminated at 12:38 p.m. on September 11, 1985. Subsequent to this announcement, Hanson purchased approximately 25% of SCM's common stock. These purchases all occurred between 3:00 p.m. and 4:34 p.m. in the afternoon of September 11, 1985. The shares were purchased in six privately negotiated transactions with sophisticated institutional investors and pursuant to a "cross" on the floor of the New York Stock Exchange. All of the purchases were pursuant to cash contracts at $73.50 per share. In a period of less than two hours during the afternoon of September 11, 1985, Hanson had purchased approximately 3.1 million shares of SCM's common stock at a cost in excess of $200 million in cash. It was these block cash open market transactions which once again thrust the battle into the courtroom in the early evening of September 11, 1985.
At 8:42 p.m. on September 11, 1985, after having heard argument from counsel for both sides of this battle, this Court entered a temporary restraining order. This temporary restraining order restrained Hanson and its agents from acquiring any additional SMC common stock for twenty-four hours.
SCM argued that such an order was necessary because Hanson's open market purchases constituted a de facto tender offer which was designed to avoid the strictures of the Williams Act. SCM argued that it and its shareholders would be irreparably harmed if Hanson were not restrained because Hanson would acquire at least an additional 8 1/3% of SCM stock the next morning. This act would defeat the Merrill Lynch tender offer, would violate the Williams Act, and would deprive the court of any opportunity to consider the legality of Hanson's conduct, according to SCM. The Court fully explained the basis for the entry of the TRO at the time it was entered.
On September 12, 1985, Hanson and SCM consented to extending the TRO until the conclusion of a hearing on September 13, 1985. Similarly, at the conclusion of a hearing on September 13, 1985, Hanson and SMC once again consented to an extension of the TRO until the Court could render its decision on the instant application for a preliminary injunction. The Court represented that it would rather render its decision by 4:00 p.m. on September 14, 1985, and accordingly, has done so.
In order to obtain a preliminary injunction in this Circuit a party must meet the following standard:
Preliminary injunctive relief in this Circuit calls for a showing of "(a) irreparable harm and (b) either (1) likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships ...