Hanson Trust PLC v. SCM Corp.

Citation774 F.2d 47
Decision Date30 September 1985
Docket NumberD,No. 412,412
Parties, Fed. Sec. L. Rep. P 92,305 HANSON TRUST PLC, Plaintiff-Appellant, v. SCM CORPORATION, Defendant-Appellee, SCM CORPORATION, Counterclaim-Plaintiff-Appellee, v. HANSON TRUST PLC, Counterclaim-Defendant-Appellant, and HSCM Industries, Inc. and Hanson Holdings Netherlands B.V., Additional Counterclaim-Defendants-Appellants. ocket 85-7745.
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Barry H. Garfinkel, New York City (Jonathan J. Lerner, Peter E. Greene, Samuel Kadet, Jay B. Kasner, Jeremy A. Berman, Skadden, Arps, Slate, Meagher & Flom, New York City, of counsel), and Dennis J. Block, New York City (Sanford F. Remz, Jonathan M. Hoff, Stephen A. Radin, Weil, Gotshal & Manges, New York City, of counsel), for Hanson Trust PLC, HSCM Industries and Hanson Holdings Netherlands B.V.

Bernard W. Nussbaum, New York City (Robert B. Mazur, Eric M. Roth, Marc Wolinsky, Barbara Robbins, Wendy P. Rosenthal, Karen Shaer, Wachtell, Lipton, Rosen & Katz, New York City, of counsel), for SCM Corp. Daniel L. Goelzer, Gen. Counsel, S.E.C., Washington, D.C. (Linda D. Feinberg, Associate Gen. Counsel, David A. Sirignano, Asst. Gen. Counsel, Michael S. Smith, Sp. Counsel, Martha H. McNeely, James R. Brown, Attys., S.E.C., Washington, D.C., Paul Gonson, Sol., Washington, D.C., of counsel), for amicus curiae S.E.C.

Before MANSFIELD, PIERCE and PRATT, Circuit Judges.

MANSFIELD, Circuit Judge:

Hanson Trust PLC, HSCM Industries, Inc., and Hanson Holdings Netherlands B.V. (hereinafter sometimes referred to collectively as "Hanson") appeal from an order of the Southern District of New York, 617 F.Supp. 832 (1985), Shirley Wohl Kram, Judge, granting SCM Corporation's motion for a preliminary injunction restraining them, their officers, agents, employees and any persons acting in concert with them, from acquiring any shares of SCM and from exercising any voting rights with respect to 3.1 million SCM shares acquired by them on September 11, 1985. The injunction was granted on the ground that Hanson's September 11 acquisition of the SCM stock through five private and one open market purchases amounted to a "tender offer" for more than 5% of SCM's outstanding shares, which violated Secs. 14(d)(1) and (6) of the Williams Act, 15 U.S.C. Sec. 78n(d)(1) and (6) 1 and rules promulgated by the Securities and Exchange Commission (SEC) thereunder. See 17 C.F.R. Secs. 240.14(e)(1) and 240.14d-7. 2 We reverse.

The setting is the familiar one of a fast-moving bidding contest for control of a large public corporation: first, a cash SCM is a New York corporation with its principal place of business in New York City. Its shares, of which at all relevant times at least 9.9 million were outstanding and 2.3 million were subject to issuance upon conversion of other outstanding securities, are traded on the New York Stock Exchange (NYSE) and Pacific Stock Exchange. Hanson Trust PLC is an English company with its principal place of business in London. HSCM, a Delaware corporation, and Hanson Holdings Netherlands B.V., a Netherlands limited liability company, are indirect wholly-owned subsidiaries of Hanson Trust PLC.

                tender offer of $60 per share by Hanson, an outsider, addressed to SCM stockholders;  next, a counterproposal by an "insider" group consisting of certain SCM managers and their "White Knight," Merrill Lynch Capital Markets (Merrill), for a "leveraged buyout" at a higher price ($70 per share);  then an increase by Hanson of its cash offer to $72 per share, followed by a revised SCM-Merrill leveraged buyout offer of $74 per share with a "crown jewel" irrevocable lock-up option to Merrill designed to discourage Hanson from seeking control by providing that if any other party (in this case Hanson) should acquire more than one-third of SCM's outstanding shares (66 2/3% being needed under N.Y.Bus.L. Sec. 903(a)(2) to effectuate a merger) Merrill would have the right to buy SCM's two most profitable businesses (consumer foods and pigments) at prices characterized by some as "bargain basement."    The final act in this scenario was the decision of Hanson, having been deterred by the SCM-Merrill option (colloquially described in the market as a "poison pill"), to terminate its cash tender offer and then to make private purchases, amounting to 25% of SCM's outstanding shares, leading SCM to seek and obtain the preliminary injunction from which this appeal is taken.  A more detailed history of relevant events follows
                

On August 21, 1985, Hanson publicly announced its intention to make a cash tender offer of $60 per share for any and all outstanding SCM shares. Five days later it filed the tender offer documents required by Sec. 14(d)(1) of the Williams Act and regulations issued thereunder. The offer provided that it would remain open until September 23, unless extended, that no shares would be accepted until September 10, and that

"Whether or not the Purchasers [Hanson] purchase Shares pursuant to the Offer, the Purchasers may thereafter determine, subject to the availability of Shares at favorable prices and the availability of financing, to purchase additional Shares in the open market, in privately negotiated transactions, through another tender offer or otherwise. Any such purchases of additional Shares might be on terms which are the same as, or more or less favorable than, those of this Offer. The Purchasers also reserve the right to dispose of any or all Shares acquired by them." Offer to Purchase For Cash Any and All Outstanding Shares of Common Stock of SCM Corporation (Aug. 26, 1985) at 21.

On August 30, 1985, SCM, having recommended to SCM's stockholders that they not accept Hanson's tender offer, announced a preliminary agreement with Merrill under which a new entity, formed by SCM and Merrill, would acquire all SCM shares at $70 per share in a leveraged buyout sponsored by Merrill. Under the agreement, which was executed on September 3, the new entity would make a $70 per share cash tender offer for approximately 85% of SCM's shares. If more than two-thirds of SCM's shares were acquired under the offer the remaining SCM shares would be acquired in exchange for debentures in a new corporation to be formed as a result of the merger. On the same date, September 3, Hanson increased its tender offer from $60 to $72 cash per share. However, it expressly reserved the right to terminate its offer if SCM granted to anyone any option to purchase SCM assets on terms that Hanson believed to constitute a "lock-up" device. Supplement Dated September 5, 1985, to Offer to Purchase, at 4.

The next development in the escalating bidding contest for control of SCM occurred Hanson, faced with what it considered to be a "poison pill," concluded that even if it increased its cash tender offer to $74 per share it would end up with control of a substantially depleted and damaged company. Accordingly, it announced on the Dow Jones Broad Tape at 12:38 P.M. on September 11 that it was terminating its cash tender offer. A few minutes later, Hanson issued a press release, carried on the Broad Tape, to the effect that "all SCM shares tendered will be promptly returned to the tendering shareholders."

on September 10, 1985, when SCM entered into a new leveraged buyout agreement with its "White Knight," Merrill. The agreement provided for a two-step acquisition of SCM stock by Merrill at $74 per share. The first proposed step was to be the acquisition of approximately 82% of SCM's outstanding stock for cash. Following a merger (which required acquisition of at least 66 2/3%), debentures would be issued for the remaining SCM shares. If any investor or group other than Merrill acquired more than one-third of SCM's outstanding shares, Merrill would have the option to buy SCM's two most profitable businesses, pigments and consumer foods, for $350 and $80 million respectively, prices which Hanson believed to be below their market value.

At some time in the late forenoon or early afternoon of September 11 Hanson decided to make cash purchases of a substantial percentage of SCM stock in the open market or through privately negotiated transactions. Under British law Hanson could not acquire more than 49% of SCM's shares in this fashion without obtaining certain clearances, but acquisition of such a large percentage was not necessary to stymie the SCM-Merrill merger proposal. If Hanson could acquire slightly less than one-third of SCM's outstanding shares it would be able to block the $74 per share SCM-Merrill offer of a leveraged buyout. This might induce the latter to work out an agreement with Hanson, something Hanson had unsuccessfully sought on several occasions since its first cash tender offer.

Within a period of two hours on the afternoon of September 11 Hanson made five privately-negotiated cash purchases of SCM stock and one open-market purchase, acquiring 3.1 million shares or 25% of SCM's outstanding stock. The price of SCM stock on the NYSE on September 11 ranged from a high of $73.50 per share to a low of $72.50 per share. Hanson's initial private purchase, 387,700 shares from Mutual Shares, was not solicited by Hanson but by a Mutual Shares official, Michael Price, who, in a conversation with Robert Pirie of Rothschild, Inc., Hanson's financial advisor, on the morning of September 11 (before Hanson had decided to make any private cash purchases), had stated that he was interested in selling Mutual's Shares' SCM stock to Hanson. Once Hanson's decision to buy privately had been made, Pirie took Price up on his offer. The parties negotiated a sale at $73.50 per share after Pirie refused Price's asking prices, first of $75 per share and, later, of $74.50 per share. This transaction, but not the identity of the parties, was automatically reported pursuant to NYSE rules on the NYSE ticker at 3:11 P.M. and reported on the Dow Jones Broad Tape at 3:29 P.M.

Pirie then...

To continue reading

Request your trial
148 cases
  • In re Gen. Motors Class E Stock Buyout Sec. Lit.
    • United States
    • U.S. District Court — District of Delaware
    • September 7, 1988
    ...privately negotiated transactions and open market purchases do not fall within the strictures of the Williams Act. Hanson Trust PLC v. SCM Corp., 774 F.2d 47, 56 (2d Cir.1985) (citing several cases); Wellman v. Dickinson, 475 F.Supp. 783, 817-18 (S.D.N.Y. 1979), aff'd, 682 F.2d 355 (2d Cir.......
  • FMC Corp. v. Boesky
    • United States
    • U.S. District Court — Northern District of Illinois
    • November 7, 1989
    ...new FMC stock equivalent to the current market value of their old FMC stock. See FMC II, 852 F.2d at 984; see also Hanson Trust PLC v. SCM Corp., 774 F.2d 47, 58 (2d Cir.1985) (the SEC's proposed definition of a premium is $2.00 per share or 5 percent above market price, whichever is greate......
  • Clearfield Bank & Trust v. Omega Financial Corp.
    • United States
    • U.S. District Court — Western District of Pennsylvania
    • September 10, 1999
    ...the solicitation may nevertheless not amount to a tender offer because the missing factors outweigh those present. Hanson Trust PLC v. SCM Corp., 774 F.2d 47, 57 (2d Cir.1985). The applicability of the Williams Act, the court concluded, should be determined by looking to its statutory purpo......
  • Lark v. Lacy
    • United States
    • U.S. District Court — Southern District of New York
    • April 15, 1999
    ...long held preliminary injunctive relief to be an extraordinary remedy that should not routinely be granted. See Hanson Trust PLC v. SCM Corp., 774 F.2d 47, 60 (2d Cir. 1985). Ordinarily, to prevail on a motion for a preliminary injunction, plaintiffs must show that, without the injunctive r......
  • Request a trial to view additional results
2 firm's commentaries
  • An Investor Overview Of Hostile Takeovers In The United States
    • United States
    • Mondaq United States
    • August 18, 2014
    ...1979); see also SEC v. Carter Hawley Hale Stores, Inc., 760 F.2d 945, 950 (9th Cir. 1985). But see Hanson Trust PLC v. SCM Corp., 774 F.2d 47, 56-57 (2d Cir. 1985) (stating that the purpose of Section 14d is to protect the ill-informed solicitee, and that the question of whether a solicitat......
  • Be Prepared: The Importance Of Due Diligence In Choosing Between Bench And Jury Trials
    • United States
    • Mondaq United States
    • April 24, 2013
    ...and similar actions involve the issue of preliminary injunctive relief, which is decided by a judge (see Hanson Trust PLC v SCM Corp, 774 F 2d 47, 60 (2nd Cir 1985), where a preliminary injunction is "one of the most drastic tools in the arsenal of judicial remedies"; see also McCarthy §30......
1 books & journal articles
  • Is the Independent Director Model Broken?
    • United States
    • Seattle University School of Law Seattle University Law Review No. 37-02, December 2013
    • Invalid date
    ...Co., 493 A.2d 946 (Del. 1985). 29. The SEC did so by refusing to define the term "tender offer," see Hanson Trust PLC v. SCM Corp., 774 F.2d 47 (2d Cir. 1985); Wellman v. Dickinson, 475 F. Supp. 783 (S.D.N.Y. 1979), sometimes bringing cases, see SEC v. Carter Hawley Hale Stores, Inc., 760 F......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT