Gulf & Western Indus., Inc. v. Great A. & P. Tea Co., Inc.

• Decision Date: 12 March 1973
• Docket Number: Docket No. 73-1223.
• Citation: 476 F.2d 687
• Parties: GULF & WESTERN INDUSTRIES, INC., Plaintiff-Appellant, v. The GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., Defendant and Third-Party Plaintiff-Appellee, v. Charles G. BLUHDORN, Third-Party Defendant-Appellant and Kidder, Peabody & Co., Inc., Third-Party Defendant.
• Court: U.S. Court of Appeals — Second Circuit

476 F.2d 687 (1973)

GULF & WESTERN INDUSTRIES, INC., Plaintiff-Appellant, v. The GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., Defendant and Third-Party Plaintiff-Appellee, v. Charles G. BLUHDORN, Third-Party Defendant-Appellant and Kidder, Peabody & Co., Inc., Third-Party Defendant.

Docket No. 73-1223.

United States Court of Appeals, Second Circuit.

Argued March 8, 1973.

Decided March 12, 1973.

Whitney North Seymour, New York City (William J. Manning, John A. Guzzetta, Melvyn L. Cantor, George H. Hempstead, III, Cynthia M. Cohen, Patrick H. Barth, and Simpson, Thacher & Bartlett, New York City, on the brief), for plaintiff-appellant Gulf & Western Industries, Inc., and third party defendant-appellant Charles G. Bluhdorn.

Denis McInerney, New York City (Raymond L. Falls, Jr., William T. Lifland, Henry G. Bisgaier, Allen S. Joslyn, Charles Platto, David A. Mead, and Cahill, Gordon, Sonnett, Reindel & Ohl, New York City, on the brief), for defendant and third party plaintiff-appellee The Great Atlantic & Pacific Tea Co., Inc.

Robert F. Ambrose, Morton E. Grosz, Gerald A. Novack and Barrett, Smith, Schapiro & Simon, New York City, for The Josephine H. McIntosh Foundation, Incorporated, amicus curiae.

George D. Reycraft, Eugene J. Leff, Boaz M. Shattan, Jr., and Cadwalader, Wickersham & Taft, New York City, for Neuberger & Berman, amicus curiae.

Fred Lowenschuss Associates, Philadelphia, Pa., for Fred Lowenschuss Associates Pension Plan and Tendering Shareholders of A&P, amicus curiae.

Before LUMBARD and TIMBERS, Circuit Judges, and WYZANSKI, District Judge.^*

TIMBERS, Circuit Judge:

The issues before us on this appeal by appellants Gulf & Western Industries, Inc. (G&W) and Charles G. Bluhdorn, the chairman of the board, chief executive officer and largest stockholder of G&W, arise from a motion brought on by order to show cause in the District Court for the Southern District of New York before Kevin T. Duffy, District Judge, by The Great Atlantic & Pacific Tea Company. Inc. (A&P) for a preliminary injunction.¹ A&P's motion sought to enjoin consummation of a tender offer by G&W to purchase 3,750,000 shares of the common stock of A&P. The motion alleged that G&W's proposed acquisition of A&P stock would violate Section 1 of the Sherman Act, 15 U.S.C. § 1 (1970), and Section 7 of the Clayton Act, 15 U.S.C. § 18 (1970); and that G&W's tender offer was in violation of Sections 14(d) and 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78n(d) and (e) (1970), and of Rule 14d-1 promulgated under the 1934 Act, 17 C.F.R. § 240.14d-1 (1972).

G&W's tender offer was announced February 1, 1973. Judge Duffy on February 6 signed an order to show cause bringing on A&P's preliminary injunction motion for hearing on February 9. He heard the motion that day. On February 13, he filed a 21 page opinion granting the motion and on the same day entered a preliminary injunction enjoining consummation of the tender offer. On February 20, we granted appellants' motion to expedite their appeal from Judge Duffy's order. We heard the appeal on March 8.

For the reasons stated below, we affirm the preliminary injunction enjoining consummation of the tender offer.

I. FACTS AND PRIOR PROCEEDINGS

G&W is a Delaware corporation. Its principal place of business is in New York City. It is the seventy-fourth largest industrial corporation in the United States. Its sales in 1972 totalled $1,669,671,000. It is one of the largest conglomerates, having acquired since 1957 approximately 100 previously independent companies. Bluhdorn has been at the helm of G&W since 1957.

A&P is a Maryland corporation. Its executive offices are in New York City. It operates one of the largest chains of retail supermarkets in the United States and is the largest such operator in the New York metropolitan area. Its sales in 1972 were approximately $6 billion.

At the time of the announcement of the tender offer which gave rise to the instant action, G&W was the owner of more than one million shares of A&P stock. A&P had 24,875,224 shares of common stock issued and outstanding. G&W thus had acquired more than 4 per cent of A&P's stock. Those shares had been purchased on the open market in the year preceding the announcement of the tender offer. They were held in street name by Kidder, Peabody & Co., a brokerage firm. A&P was unaware of this substantial G&W interest in its stock.

On February 1, 1973, G&W announced its intention to make a cash tender offer for the acquisition at $20 per share of an additional 3,750,000 shares of A&P stock (approximately 15 per cent).² As required by Rule 14d promulgated under the 1934 Act, G&W filed with the Securities and Exchange Commission a Schedule 13D on February 1. On the following day, the tender offer was communicated to the public.

A&P's management reacted swiftly in opposition. On February 2, it issued a press release indicating A&P's intent to "vigorously oppose" the tender offer. The release stated that not only was the $20 per share offer "inadequate and not in the best interest of A&P's shareholders", but that "it would seem that the acquisition of a large block of A&P shares by Gulf & Western raises most serious questions under the antitrust laws." The press release was followed up the next day by a letter to A&P's shareholders. Included in the letter were summary statements and statistics indicating that A&P was in a "turnaround" situation and that the G&W offer, by its "inadequate" terms, was an attempt "to purchase at a cheap price the value in terms of upward potential that rightfully belongs to the A&P shareholders." The implication of possible antitrust liability stated in the initial press release was repeated in the letter to shareholders.

On February 5, G&W commenced the instant action against A&P in the district court, alleging that A&P had made false and misleading statements in its opposition to the tender offer, in violation of Sections 10(b), 14(d) and 14(e) of the 1934 Act. G&W, simultaneously with the commencement of its action, presented an order to show cause bringing on its motion for a preliminary injunction against A&P.³ Also on February 5, A&P filed its answer, counterclaim and a third-party action against Bluhdorn and against Kidder, Peabody & Co., the dealer-manager for G&W's tender offer. A&P's counterclaim and its motion for a preliminary injunction alleged violations of the antitrust laws and the securities laws. Judge Duffy signed A&P's order to show cause on February 6 and made it returnable on February 9, together with G&W's order to show cause referred to above. He denied applications by both sides for temporary restraining orders.

With respect to the antitrust violations, A&P alleged probable foreclosure and anticompetitive effects, both horizontal and vertical. It also alleged likelihood of unlawful reciprocal dealing.

The horizontal allegations were based on Bluhdorn's interest in the Bohack Corporation, one of A&P's major competitors in the New York area. Bohack is the second largest operator of retail supermarkets in the New York area, A&P being the largest. In the period immediately preceding the tender offer, Bluhdorn was the largest shareholder in Bohack, he was a member of its board of directors, and, with three other G&W officers on Bohack's board, Bluhdorn clearly had effective control of Bohack. On February 1, the four G&W directors of Bohack submitted their resignations from that board, and Bluhdorn placed all of his Bohack shares in a voting trust. Under the final terms of that trust, in the event the tender offer is consummated, Bluhdorn's shares in Bohack must be sold by the trustees within one year after the expiration date of the tender offer.⁴

In addition to the claim of horizontal market foreclosure, A&P alleged that success of the tender offer would create a probability of price-fixing between A&P and Bohack. This was based on the September 1972 denouncement by Bohack's president, Joseph Binder, of A&P's "WEO" (profit and price cutting) program as predatory and injurious to competition. That statement followed shortly after a private conversation between Bluhdorn and Binder. Binder, in addition, was named one of the two trustees of the voting trust.

The basis of A&P's vertical claim is that G&W, among its myriad conglomerate holdings, has a number of companies that deal in products of which A&P is a purchaser. A&P alleges the "potential exclusion of other suppliers of A&P if G&W affiliates are able to provide the same products or services on equal terms."⁵ The scope of such vertical foreclosure was alleged to be upwards of $100 million. A&P also alleged the likelihood of unlawful reciprocity, in that A&P suppliers might be expected to direct their purchasers toward G&W affiliates in the hope of increasing sales to A&P. G&W's main response to the vertical and reciprocal charges was evidence of established corporate policy against such practices.

The alleged securities law violations generally charged G&W with omissions from the tender offer of material facts in contravention of Sections 14(e) and 14(d) of the 1934 Act. As summarized by the district court, the Section 14(e) claim was as follows:

"That the published tender offer and Schedule 13D filed with the Securities and Exchange Commission by G&W, omitted certain material facts in that they failed to disclose G&W\'s intention to acquire dominance of the A&P that it failed to disclose that Bohack was the largest competitor of A&P in the New York City metropolitan area; and that Bluhdorn had effective control of Bohack; it failed to disclose the existence of a consent decree between Bohack and the Federal Trade Commission; and it failed to adequately describe G&W\'s business, including, in particular, the areas in which G&W controls companies producing products which are actual or potential suppliers of A&P."

The Section 14(d) charge alleged a failure by G&W to file a Schedule 13D in advance...