Anaconda Co. v. Crane Co.

• Decision Date: 17 November 1975
• Docket Number: No. 75 Civ. 4400 IBW and 75 Civ. 4535 RO.,75 Civ. 4400 IBW and 75 Civ. 4535 RO.
• Citation: 411 F. Supp. 1210
• Parties: The ANACONDA COMPANY, Plaintiff, v. CRANE CO., Defendant. CRANE CO., Plaintiff, v. The ANACONDA COMPANY, Defendant.
• Court: U.S. District Court — Southern District of New York

411 F. Supp. 1210

The ANACONDA COMPANY, Plaintiff, v. CRANE CO., Defendant.

CRANE CO., Plaintiff, v. The ANACONDA COMPANY, Defendant.

Nos. 75 Civ. 4400 IBW and 75 Civ. 4535 RO.

United States District Court, S. D. New York.

November 17, 1975.

COPYRIGHT MATERIAL OMITTED

Chadbourne, Parke, Whiteside & Wolff, Skadden, Arps, Slate, Meagher & Flom, New York City, for The Anaconda Co.; Edward C. McLean, Jr., Terry Thompson, William P. Frank, Christopher Gallagher, Jonathan J. Lerner, Mitchell M. Gitin, New York City, of counsel.

Lord, Day & Lord, New York City, for Crane Co.; John W. Castles 3rd, John J. Loflin, Paul R. Hundt, New York City, of counsel.

OPINION AND ORDER

KEVIN THOMAS DUFFY, District Judge.

The captioned matters, hereby formally consolidated for all purposes, arise out of an offer by the Crane Co. (hereinafter "Crane") to exchange certain subordinated debentures to be issued by it for five million common shares of The Anaconda Company (hereinafter "Anaconda"). By such a transaction Crane would gain 22.6 per cent of the ownership of Anaconda, a somewhat dominant position since presently the largest stockholder of record in Anaconda has .05 per cent of the issued and outstanding common stock.

Both Anaconda and Crane now seek preliminary injunctions: Crane seeks to restrain Anaconda from alleged violations of Section 14 of the Securities Exchange Act of 1934 and Anaconda seeks to restrain Crane from alleged "omissions to state material facts" in its registration statement and prospectus covering the new subordinated debentures to be used in the exchange offer and from alleged violations of the antitrust laws.

Upon the application for a temporary restraining order both sides agreed before me to stop all publication of statements to the public concerning the proposed exchange offer until the decision of this Court on the applications for preliminary injunctions. This opinion is that decision and constitutes findings of fact and conclusions of law as required by Rule 52 of the Federal Rules of Civil Procedure.

I. THE TEST TO BE APPLIED

In this Circuit two separate tests may be used in considering granting a preliminary injunction. The movant must demonstrate either "(1) probable success on the merits and possible irreparable injury, or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief." Missouri Portland Cement Co. v. Cargill, Inc., 498 F.2d 851, 866 (2d Cir.), cert. denied, 419 U.S. 883, 95 S.Ct. 150, 42 L.Ed.2d 123 (1974); Sonesta International Hotels Corp. v. Wellington Associates, 483 F.2d 247, 250 (2d Cir. 1973). See also Gulf & Western Ind., Inc. v. Great Atlantic & Pacific Tea Co., Inc., 476 F.2d 687, 692 (2d Cir. 1973).

In the case at bar both sides argue that they are entitled to the preliminary injunction on the basis of the "balance of hardships" standard.

II. THE CRANE CASE AGAINST ANACONDA

On August 7, 1975, Crane issued a press release publicly announcing that its Board of Directors had approved a proposed exchange offer for the five million shares of Anaconda stock. The press release indicated that for each share of Anaconda there would be an exchange of a $25 principal amount of Crane's 8% subordinated sinking fund debentures, due 1985, (the second amendment to the registration statement filed with the Securities and Exchange Commission (the "S.E.C.") reduced the face amount of the debentures to $20). The original press release provided that the exact terms of the exchange offer would be contained in a prospectus and registration statement to be filed with the S.E.C. and would not commence until the effective date of the registration statement (that registration statement has yet to become effective.)

A. ANACONDA'S AUGUST 8 PRESS RELEASE

Apparently Crane's announcement took the management of Anaconda by surprise. On August 8, 1975, Anaconda issued a press release which states in pertinent part:

"When Crane does file a registration statement and preliminary prospectus with the S.E.C., Anaconda will be in a position to consider an evaluation of the situation. Until that time it should not be assumed that the Anaconda management is sympathetic to the proposed offer."

At the time this press release was issued no Schedule 14D statement had been filed with the S.E.C., as required by Section 14(d) of the Securities Exchange Act of 1934 (the "Act"), 15 U.S.C. 78n(d) and Rule 14d-4 promulgated thereunder.

Crane contends that this press release was in violation of Section 14(d) of the Act.

B. ANACONDA'S AUGUST 14 LETTER AND PRESS RELEASE

On August 14, 1975, Anaconda filed the requisite Schedule 14d with the S.E.C. and issued a letter to its stockholders (the press release with the text of the letter which contained the following paragraph:

"Nor is there any assurance that an exchange offer will ever be made. * * * In this connection you should know that earlier this year Crane announced a proposed exchange offer for shares of another copper mining company. Crane never made the proposed offer, however, and after repeated delays finally disaffirmed its intention to do so. Some shareholders of that company may have traded in reliance on a proposed offer that did not materialize."

It is Crane's position that this paragraph was intentionally misleading, in violation of Section 14(e) of the Act, since the "proposed exchange offer" for shares of another copper mining company referred to was thwarted by the connivance of Anaconda.

C. ANACONDA'S AUGUST 26 LETTER

Thereafter, on August 19, 1975, Crane filed its registration statement with the S.E.C. covering the new subordinated debentures proposed to be issued in exchange for Anaconda stock. On August 26, 1975, Anaconda mailed a second letter to its shareholders which said in relevant part:

"Your Board of Directors, after study and consultation with Lehman Brothers Incorporated and The First Boston Corporation, investment bankers, has concluded that the proposed exchange offer of Crane Co.'s Subordinated Debentures for five million shares of Anaconda Common Stock is not in the best interests of Anaconda and its shareholders."

It is Crane's contention that there could have been no dispassionate and impartial evaluation of this offer by the Anaconda Board since five of the ten directors of Anaconda are associated with certain banks which made substantial loans to Anaconda. These loans provide for full payment call at the option of the lenders whenever more than 10 per cent of the Anaconda voting stock was concentrated in one person or entity. This "omission to state" is claimed by plaintiff to be in violation of Section 14 of the Act.

D. ANACONDA'S SEPTEMBER 18 LETTER

On September 18, Anaconda issued a letter to its shareholders which contained the following statement:

"You should also be aware that Crane's similar debt instruments sell at a significant discount and that if the subordinated debentures they propose to have you accept sell initially at a substantial discount, which our bankers advise us is likely, adverse tax consequences to the accepting debenture holders could result. This would be in addition to such adverse impact on shareholders as would result from the fact that the action itself would be a taxable transaction."

Crane complains that this letter at the least is misleading as to the potential tax aspects of the exchange offer since the alleged tax aspects depend upon the cost basis of the individual Anaconda holder. Thus according to the argument if the tendering Anaconda shareholder had a cost basis for his stock which was lower than the value of the Crane debentures, he would pay a tax on a difference, but if the cost was higher, the accepting shareholder would pay no tax and might even receive a benefit for a tax loss. Crane contends further that Anaconda was required to set forth the entire tax consequences in its letter to shareholders and that its failure to do so constituted a violation of Section 14(e) of the Act.

E. DISCUSSION

It seems clear to me that the August 8 release by Anaconda comes within the provision of 17 C.F.R. § 240.14d-2(f) which provides in pertinent part that:

"(f) A communication from an issuer to its security holders which does no more than (1) identify a tender offer or request or invitation for tenders made by another person, (2) state that the management of the issuer is studying the matter and will, on or before a specified date (which shall be not later than 10 days prior to the date specified in the offer, request or invitation, as the last date on which tenders will be accepted, or such shorter period as the Commission may authorize) advise security holders as to the management's recommendation to accept or reject the offer, request or invitation, and (3) request security holders to defer making a determination as to whether or not they should accept or reject the offer, request or invitation until they have received the management's recommendation with respect thereto."

This rule was intended to permit the management of a target company to respond immediately to an attempted corporate takeover. The statement issued by Anaconda is bland enough to fit within the meaning of this provision. Crane argues, however, that Anaconda's press release was really an attempt by Anaconda management to communicate the message that Anaconda would oppose the proposed offer and, as such, was a violation of Section 14(d) of the Act in that it constituted a "solicitation" or "recommendation." The only thing that Crane could otherwise request was that Anaconda's management should have included a statement that it was not necessarily opposed to the proposed offer. This type of requirement of the niceties of language is certainly not required in the real world and I find no violation in the August 8 release.

Nor can I find any violation as to the August 14...