American Carriers, Inc. v. Baytree Investors, Inc., Civ. A. No. 88-2067.

• Decision Date: 29 February 1988
• Docket Number: Civ. A. No. 88-2067.
• Citation: 685 F. Supp. 800
• Parties: AMERICAN CARRIERS, INC., Plaintiff, v. BAYTREE INVESTORS, INC., Gilbert K. Granet, and Christopher A. Jansen, Defendants.
• Court: U.S. District Court — District of Kansas

685 F. Supp. 800

AMERICAN CARRIERS, INC., Plaintiff, v. BAYTREE INVESTORS, INC., Gilbert K. Granet, and Christopher A. Jansen, Defendants.

Civ. A. No. 88-2067.

United States District Court, D. Kansas.

February 29, 1988.

Kent E. Whittaker, Hillix, Brewer, Hoffhaus, Whittaker & Horner, Kansas City, Mo., Richard T. Sharp, Stein, Zauderer, Ellenhorn, Frischer & Sharp, New York City, William Hankins, Overland Park, Kan., for plaintiff.

Michael E. Lazzo, Baker & Sterchi, Overland Park, Kan., Thomas E. Rice, Jr., Phillip C. Rouse, Baker & Sterchi, Kansas City, Mo., Peter G. Swan, Emalfarb, Swan & Bain, Highland Park, Ill., for defendants.

MEMORANDUM AND ORDER

EARL E. O'CONNOR, Chief Judge.

This matter is presently before the court on defendants' motion to dismiss and on plaintiff's motion for a preliminary injunction against defendants, seeking to: (1) enjoin the defendants from making or announcing a tender offer for American Carriers, Inc. stock unless prior to making any such offer defendants make a "corrective" disclosure of their February 3rd tender offer by complying with the Securities Exchange Act of 1934, make a rescission offer to all American Carriers shareholders who purchased shares from February 3 through February 17, 1988, and divest themselves of all American Carrier shares of which they are (or will become as the result of the rescission offer) the beneficial owner; (2) enjoin defendants from voting or otherwise exercising any rights with respect to their American Carriers stock; and (3) require defendants to comply with the Securities Act of 1933 and the Securities Exchange Act of 1934 in any future attempts to "acquire or influence the control of American Carriers, Inc., either by means of a tender offer, merger, proxy contest or otherwise." The court entertained plaintiff's ex parte request for a Temporary Restraining Order against defendants on February 11, 1988. Upon plaintiff's posting a $5,000.00 bond with the court, we granted plaintiff's request, temporarily enjoining defendants from acquiring any shares of American Carriers stock and from announcing any offer or plan to purchase or acquire said stock or from otherwise engaging in any acts constituting a tender offer for the stock of American Carriers, Inc.

The parties were allowed to engage in limited, accelerated discovery to prepare for a hearing on plaintiff's preliminary injunction motion, which hearing was held February 19, 1988. After considering the parties' briefs, oral arguments, and exhibits, we are now prepared to rule on this motion and make the following findings of fact and conclusions of law.

Findings of Fact

1. Plaintiff American Carriers, Inc. hereinafter "ACI", through its subsidiaries, operates a nationwide motor freight transportation system. ACI headquarters in Overland Park, Kansas. In October 1987, ACI acquired Smith's Transfer Corporation, and since that acquisition has become the fourth largest company in the motor carrier industry.

2. ACI stock is traded in the NASDAQ national market system. Although ACI reported a $2.3 million loss for the third quarter of 1987, as of November 28, 1987, ACI had total assets approximating $230 million, employed approximately 11,000 people, and operated more than 4,000 tractors and trucks. More than 10,000 shareholders hold approximately 7,600,000 shares of outstanding common stock. Since its 1983 public offering, ACI's stock decreased in price from approximately $20 per share to approximately $5 in December 1987.

3. Defendant Baytree Investors, Inc. hereinafter "Baytree" is an Illinois corporation purporting to be in the investment banking business. Baytree's principal place of business is in Chicago, Illinois.

4. Defendant Gilbert K. Granet hereinafter "Granet", the Chairman of Baytree, is a resident of the State of Illinois.

5. Defendant Christopher A. Jansen hereinafter "Jansen", the President of Baytree, is also a resident of the State of Illinois.

6. Defendants' first communication of their interest in making a tender offer for ACI stock occurred in a January 11, 1988, letter from Granet to Leon H. Robertson, ACI's Chairman of the Board, President, and Chief Executive Officer hereinafter "Robertson". This letter provided:

We would be interested in proposing a tender offer for 80% of your company, with current management owning approximately 49% of the acquisition company.

....

Our Offer would be conditioned upon a minimum of 67% of the outstanding shares being tendered and not withdrawn, approval of the majority of your board of directors, and completion of our due diligence and financing. We believe that the entire transaction can be completed within 60 days after reaching a definitive agreement with your board of directors.

We would appreciate hearing from you within the next five days, with respect to your interest in considering an Offer for the company.

This same letter provided no information about Baytree's background, activities, financial condition, ability to finance the proposed tender offer, or plans for ACI and the remaining 20% of the stockholders.

7. On January 13, 1988, Baytree widely publicized its proposal to acquire 80% of ACI's stock.¹ The announcement immediately resulted in an ACI stock price increase. Between November 1, 1987, and January 12, 1988, ACI stock had traded consistently between $4 and $6 a share. ACI stock closed at $5 5/8 on January 12, 1988. On the day of Baytree's first announcement, however, ACI stock rose to a high of $7 1/8 , a 27% increase over January 12th's closing price, making ACI stock the second highest percentage gainer on the NASDAQ national market system on January 13, 1988.

8. The January 13th announcement also resulted in a dramatic increase in ACI stock's volume of trading. In early January 1988, the daily trading volume for ACI stock ranged between 1,800 and 26,600 shares. On January 13th, the trading volume was 98,400 shares, a 370% increase over the highest daily volume in early January.

9. Robertson wrote Granet on January 13, 1988, responding to Granet's January 11th letter and requesting information about the identity, background, and financial condition of Baytree and its principals; the availability, source, amount, and structure of financing for Baytree's proposed tender offer; and a description of Baytree's plans for the future of ACI and its shareholders. Robertson's letter was an attempt to obtain data ACI needed in order to make an informed investment decision regarding the tender offer, and requested no more information than the Securities Exchange Act of 1934 requires be disclosed.

10. In an interview with The Kansas City Times on January 16, 1988, Jansen reiterated Baytree's intentions to acquire ACI. Although Jansen admitted that "his group" had purchased ACI stock, he would not divulge the quantity of stock his group held. Jansen also did not divulge any information regarding his background, Baytree's financial backing for the proposed tender offer, or the specific terms of the offer.

11. In an interview with the Journal of Commerce on January 22, 1988, defendant Jansen stated that Baytree would make a formal tender offer for ACI stock that week. Despite questions concerning Baytree's ability to finance its tender offer, Jansen offered no information about Baytree's financial condition.

12. After defendants' public announcements, ACI began receiving inquiries from customers and employees, who expressed concerns about ACI's long term future and stability.

13. Robertson again wrote to Granet on January 26, 1988, reiterating ACI's request for specific information about the identity and background of Baytree and its principals, among other things.

14. In response to Robertson's January 26th letter, Granet responded by letter dated January 28, 1988. The letter provided as follows:

We would like to propose to acquire 51% of the outstanding shares of the company through a tender offer, subject to approval of the majority of your board of directors, at a price of $15 a share. This would represent a substantial premium over the stock price. In the alternative, we would cause to be made available sufficient funds to pay out a dividend to stockholders of $7.50 a share, while we would obtain a 49% voting, but non-dilutive equity stake in the company.

Again, Granet's letter did not provide any of the information previously and repeatedly requested by ACI.

15. Robertson responded to Granet's January 28th letter with a letter dated February 2, 1988. Robertson stated that ACI doubted "the credibility of the Offer and Baytree's motives in making it." Also, Robertson renewed ACI's request for detailed financial data from Baytree in order to allow the Board to make an informed decision regarding the tender offer. ACI released the contents of Robertson's letter to the news media on February 3, 1988.

16. As with their prior 80% offer, defendants publicized their 51% offer.² Defendants' new offer was published in Traffic World, a widely-read weekly magazine devoted to transportation and distribution, and Transport Topics, a magazine published by the American Trucking Association which is read throughout the transportation industry.

17. On February 3, 1988, the Journal of Commerce published an article which recited the material terms of the tender offer from Granet's January 28th letter (i.e., the percentage of shares sought, the price per share, and the class of stock sought), and which stated that the offer was subject to approval by ACI's Board of Directors. The Journal of Commerce article was the first to widely disseminate Baytree's offering price.

18. On February 4, 1988, The Kansas City Times also published an article regarding Granet's January 28th 51% tender offer at $15.00 a share.

19. In a reaction similar to the one occurring after defendants' announcement of its first 80% tender offer for ACI, the market price of ACI rose to a high of $10 per share on February 3, 1988, compared to...