Babcock & Wilcox Co. v. United Technologies Corp., Civ. A. No. C77-124A.

• Decision Date: 15 July 1977
• Docket Number: Civ. A. No. C77-124A.
• Citation: 435 F. Supp. 1249
• Parties: The BABCOCK & WILCOX COMPANY, Plaintiff, v. UNITED TECHNOLOGIES CORPORATION, Defendant.
• Court: U.S. District Court — Northern District of Ohio

435 F. Supp. 1249

The BABCOCK & WILCOX COMPANY, Plaintiff, v. UNITED TECHNOLOGIES CORPORATION, Defendant.

Civ. A. No. C77-124A.

United States District Court, N. D. Ohio, E. D.

July 15, 1977.

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Gary A. Banas, Canton, Ohio; Buckingham, Doolittle & Burroughs, Akron, Ohio; Edward W. Keane, Richard E. Carlton, Richard J. Urowsky, Sullivan & Cromwell; Carroll E. Neesemann, Parker, Auspitz, Neesemann & Delehanty; Bernard W. Nussbaum, Wachtell, Lipton, Rosen & Katz, New York City, for plaintiff.

Richard E. Guster, Roetzel & Andress, Akron, Ohio; William C. Pelster, P. Jay Wilker, John H. Nannes, Skadden, Arps, Slate, Meagher & Flom, New York City, for defendant.

MEMORANDUM OPINION AND ORDER

CONTIE, District Judge.

Plaintiff The Babcock & Wilcox Company (hereinafter B&W) initiated this action on April 4, 1977, seeking to permanently enjoin the proposed tender offer of defendant United Technologies Corporation (hereinafter U.T.) for the outstanding common stock of B&W. In light of the urgency of this matter to the parties, the Court has endeavored to hear and resolve the issues presented as expeditiously as practicable. The following shall constitute the Court's findings of fact and conclusions of law as required by Rule 52, Federal Rules of Civil Procedure.

I. FACTUAL BACKGROUND

The Babcock and Wilcox Company is a publicly held corporation duly organized and existing under the laws of the State of New Jersey. Its corporate headquarters are located in New York, New York, but it has substantial facilities within northeast Ohio.

B&W is a manufacturer of four broad classes of products: steam generating and associated equipment, including fossil steam boilers and nuclear steam systems, for utility, marine, and industrial applications; automated machines and machine tools; refractory products; and tubular products. The industries served by these B&W products, exclusive of electric utilities and the U. S. Government, include the following: machine; chemical and petroleum; transportation; metal and metal products; and pulp and paper.

United Technologies Corporation is a publicly held Delaware corporation. Its principal executive offices are in Hartford, Connecticut, although it has facilities located in 23 states. U.T. is engaged in the design, development, and manufacture of products within three rather clearly defined spheres or lines of business: power, systems, and industrial. Products within its power line include aircraft jet engines, gas turbines, solid propellant rocket boosters and motors, and rocket engines. Examples of its systems products are automotive systems and controls, helicopters, flight systems, and space equipment. Finally, U.T.'s industrial line of business is typified by products such as elevators and escalators, and wire, cable, and electrical circuit systems and control devices for the transmission and control of electrical energy. These high technology products are utilized in the aerospace, automotive, electrical communications, construction, and other industries.

In late February 1977, U.T., after an extensive study of B&W with a view toward acquisition, initially contacted B&W ostensibly to discuss research and development concepts. During the ensuing series of conversations between top level management of the respective corporations, U.T. proposed a merger, pointing to the advantages and benefits to be derived from such a combination. It was U.T.'s hope that a friendly merger could and would be effected.

Thereupon, B&W's senior officials engaged in internal discussions concerning U.T.'s proposal and undertook a review thereof. As a result, B&W's management informed U.T. that the enthusiasm for the proposed merger was not shared, and that it envisioned possible antitrust and other legal problems. Despite B&W's apparent lack of interest in the combination, U.T. nonetheless decided to pursue the matter.

Subsequently on March 28, 1977, U.T. transmitted to B&W documents containing the proposed tender offer for B&W's common stock and a suggested press release. The following morning in a conversation between top executives of the two companies, B&W privately responded negatively to the proposal.

On the afternoon of March 29, 1977, U.T. publicly announced that it proposed to offer to purchase all the outstanding common stock of B&W at a price of $42 per share, which represented a 20% premium over the previous day's closing market price. Such proposed tender offer, if made, obligates U.T. to purchase all shares tendered by B&W shareholders within a specified period of time. U.T.'s obligation to purchase is, however, subject to its retained right to terminate the offer upon the occurrence of certain contingencies delineated in the offer itself. It is further contemplated that at such time as the offer is made, an Offer to Purchase meeting the requirements of the Securities and Exchange Commission with regard to full disclosure of material information will be made available to all B&W shareholders.

By letter dated March 29, 1977, B&W expressed its intention to further study the proposal, and its opinion that to act without so doing in light of the magnitude of the undertaking would clearly be improper. Following this letter, there was an exchange of correspondence between U.T. and B&W relative to the proposal and their respective positions. Further, on March 31, 1977, B&W itself issued a press release stating that its Board of Directors, in considering U.T.'s proposal, deemed it advisable to secure additional information on the adequacy of the offer, and on what it viewed as serious legal problems attendant thereto.

After additional correspondence in which U.T. again suggested discussions between the two and B&W rejected the proposed offer, B&W sent a letter dated April 4, 1977 to its shareholders. In that letter, B&W stated that it had rejected U.T.'s proposal to acquire B&W, and that it had filed suit in federal court seeking an injunction to block U.T.'s alleged illegal attempt to gain control of B&W.¹ The lawsuit referred to therein is the instant action.

II. PLEADINGS

Plaintiff's complaint herein was filed as stated above on April 4, 1977 requesting equitable relief in the form of a permanent injunction. The jurisdiction of the Court is invoked pursuant to 15 U.S.C. §§ 15, 22, and 26; 42 U.S.C. §§ 2234, 2239, and 2273; 15 U.S.C. § 78aa; and 28 U.S.C. §§ 1331, 1332, and 1337.

The complaint sets forth twelve claims for relief. Essentially it alleges violations of the Clayton Act, 15 U.S.C. § 12 et seq.; the Atomic Energy Act of 1954, 42 U.S.C. § 2011 et seq.; the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq.; the Ohio "Take-over bid" statute, Ohio Revised Code § 1707.041; and the common law.

Specifically, the Third Claim for Relief asserts that U.T.'s proposed tender offer absent full disclosure of its voluntary reviews of allegedly "questionable payments" made by U.T. and its subsidiaries would violate Section 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(e). The Court, with the full consent of the parties, referred this claim to a Special Master by its Order of May 20, 1977. The Court's review of the Special Master's Report and ultimate determination of the issues referred are contained in a separate Memorandum Opinion and Order.

In order to facilitate an expeditious trial on the merits of the other claims, the Court directed the parties to confer and submit a joint statement of the issues to be tried. On May 25, 1977, the parties each submitted their own proposed joint statement. It is clear from both these statements and plaintiff's representations that all but four claims have been withdrawn. The issues presented by three of the remaining claims are defined in the parties' statements as follows:

FIRST CLAIM FOR RELIEF

The issue is whether the effect of United's acquisition of B&W may be substantially to lessen actual or potential competition in any line of commerce in violation of Section 7 of the Clayton Act, 15 U.S.C. Sec. 18.

. . . . .

SECOND CLAIM FOR RELIEF

The issue is whether United may proceed with its offer without first obtaining the prior written consent of the Nuclear Regulatory Commission to the transfer of control of B&W's nuclear licenses pursuant to Section 184 of the Atomic Energy Act, 42 U.S.C. Sec. 2234.

. . . . .

FIFTH CLAIM FOR RELIEF

The issue is whether United's proposed disclosure of the matters alleged in the first three causes of action is adequate.

The fourth claim is that referred to the Special Master.

With regard to the Fifth Claim, the third cause of action alluded to is the questionable payments claim discussed above. Further, this last claim is based on U.T.'s asserted inadequate or misleading disclosure of information regarding alleged antitrust problems, Nuclear Regulatory Commission licenses, and the questionable payments in violation of Section 14(e) of the Securities Exchange Act, 15 U.S.C. § 78n(e).

Defendant U.T. has essentially denied all the allegations contained in plaintiff's claims for relief. U.T. has also filed a counterclaim, which alleges that B&W has made numerous materially false and misleading statements concerning the proposed tender offer to its shareholders and the public in violation of Sections 14(d) and (e) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78n(d) and (e). A permanent injunction barring such further and future violations by B&W is sought. Additionally, U.T. requests relief in the form of a current, complete, and accurate list of B&W shareholders in order that it may communicate with them to correct the alleged mis-statements of B&W.

III. STANDING

Prior to addressing B&W's claims, the Court finds it appropriate to dispose of U.T.'s argument that B&W lacks standing to prosecute the antitrust claims. Specifically, U.T. argues that plaintiff lacks standing because it has failed to prove that...