BNS INC. v. Koppers Co., Inc.
| Decision Date | 09 May 1988 |
| Docket Number | Civ. A. No. 88-130 MMS. |
| Citation | 683 F. Supp. 458 |
| Parties | BNS INC., a Delaware corporation, Plaintiff, v. KOPPERS COMPANY, INC., a Delaware corporation, Charles F. Barber, Evelyn Berezin, Anthony J.A. Bryan, Fletcher L. Byrom, Dr. Richard M. Cyert, Edward Domley, Daniel N. Galbreath, William H. Knoell, Andrew W. Mathieseon, Charles R. Pullin, Glen C. Tenley, Dr. Romesh Wadhawani, and Charles M. Oberly, III, Attorney General of the State of Delaware, and Michael E. Harkins, Secretary of State of the State of Delaware, Defendants. |
| Court | U.S. District Court — District of Delaware |
COPYRIGHT MATERIAL OMITTED
Steven D. Goldberg of Theisen, Lank, Mulford and Goldberg, P.A., E. Norman Veasey, Charles F. Richards, Jr., Allen M. Terrell, Jr., Gregory P. Williams, and Joseph J. Bodnar of Richards, Layton & Finger, Wilmington, Del., Edwin Mishkin of Cleary, Gottlieb, Steen & Hamilton, New York City, of counsel, for plaintiff.
Charles S. Crompton, Jr., Peter M. Sieglaff, and Gregory A. Inskip of Potter, Anderson & Corroon, Wilmington, Del., for defendants Koppers Co., Inc., Charles F. Barber, Evelyn Berezin, Anthony, J.A. Bryan, Fletcher L. Byrom, Dr. Richard M. Cyert, Edward Domley, Daniel N. Galbreath, William H. Knoell, Andrew W. Mathieseon, Charles R. Pullin, Glen C. Tenley, Dr. Romesh Wadhawani.
A. Gilchrist Sparks, III of Morris, Nichols, Arsht & Tunnell, Wilmington, Del., for defendants Charles M. Oberly, III, and Michael E. Harkins.
BNS Inc. ("BNS") brings this action against Koppers Company, Inc. ("Koppers"), the Attorney General of the State of Delaware, Charles M. Oberly, III, and the Secretary of State of the State of Delaware, Michael E. Harkins, seeking an order declaring unconstitutional the newly-enacted Delaware Business Combinations statute, Del.Code Ann. tit. 8, § 203 (1988)1 (the "Delaware Act" or "section 203"). BNS also requests that the Court either declare Kopper's stock purchase rights plan (the "rights plan") invalid or order Koppers to redeem the stock purchase rights.2
BNS urges the Delaware Act frustrates the purposes of the Williams Act, 15 U.S.C. §§ 78m(d)-(e), 78n(d)-(f) (1982), and is thus preempted by operation of the supremacy clause. Additionally, BNS argues the Delaware Act impermissibly burdens interstate commerce and accordingly is void on commerce clause grounds. BNS bases its attack on the rights plan on the assertion that the refusal of Kopper's Board of Directors to redeem the stock purchase rights violates the directors' fiduciary obligations to the stockholders.
The defendants insist BNS's assault on the Delaware Act must fail, contending that (i) the state statute does not conflict with the Williams Act because the Williams Act covers only tender offers, and not the transactions regulated by section 203; (ii) section 28(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78bb(a) (1982), indicates that Congress intended federal regulation of securities to coexist with state regulation of state-created corporations; (iii) the plaintiff mischaracterizes the purposes of the Williams Act and a truer characterization reveals that the Delaware statute is consistent with Williams Act concerns; and (iv) a proper application of commerce clause analysis demonstrates that the Delaware statute survives commerce clause scrutiny. Koppers takes issue as well with the plaintiff's arguments regarding the rights plan.
For the reasons below I find the Delaware Act regulating post-tender offer business combinations most likely constitutional. The plaintiff thus has failed to demonstrate probable success on the merits and the preliminary injunction based on the alleged unconstitutionality of the statute will be denied. Because the plaintiff additionally has failed to demonstrate that the rights plan most probably will immediately, irreparably injure BNS, the Court also will deny the motion for a preliminary injunction on the basis of the alleged invalidity of Koppers's rights plan.
BNS is a Delaware corporation owned by three entities: Bright Aggregates Inc., a Delaware corporation and wholly-owned subsidiary of Beazer PLC ("Beazer"), an English public limited company, SL-Merger, Inc., a Delaware corporation and wholly-owned indirect subsidiary of Shearson Lehman Brothers Holdings Inc. ("Shearson Lehman"), also a Delaware corporation, and Speedward Limited, an English company and wholly-owned indirect subsidiary of NatWest Investment Bank ("NatWest"), an English company. BNS's owners incorporated BNS for the purpose of making a tender offer for Koppers's shares.
Koppers is a Delaware corporation with its principal executive offices in Pittsburgh. Koppers's business consists primarily of construction materials and services work. Approximately forty percent of Koppers's business involves chemicals and allied products activity.
Beazer is a general construction company active in the construction and sale of residential housing, the development and management of commercial property, general contracting and consulting with respect to construction and engineering, and the production of cement, concrete, and concrete products.
On March 3, 1988, BNS commenced its tender offer for all of the more than 28,000,000 outstanding shares of Koppers common stock and all of the more than 150,000 outstanding shares of cumulative preferred stock four percent series of Koppers. Having been extended twice, the offer is scheduled to expire at midnight on April 7, 1988. BNS initially offered to purchase the common stock for $45 per share and the cumulative preferred stock for $107.75 per share. For the first several days following the announcement of BNS's offer, Koppers's stock traded at levels significantly above BNS's offer price.3 Koppers's board recommended rejection of the $45 offer. On March 20 BNS raised its offer for the common stock to $56 per share. The stock continued to trade at levels slightly above BNS's offer price, but the disparity was less dramatic. Koppers again rejected the offer as inadequate. On March 25, BNS again raised its offer — this time to $60. The stock is now trading below this figure. Koppers's board has not yet acted on this further sweetened offer.
BNS states in its offer materials that following a successful takeover of Koppers, and provided certain conditions are met, BNS will seek a merger or other business combination with Koppers, after which BNS plans to sell Koppers's chemicals and related business. The merger or other similar business combination would be accomplished by converting the remaining shares of Koppers common stock into the right to receive the same cash price paid pursuant to the tender offer. The planned merger accords similar treatment to the holders of Koppers preferred stock.
Among other conditions, BNS hinges its offer on a finding by this Court that the Delaware Act is unconstitutional or that the Act does not apply to the transaction contemplated by BNS, unless the eventual course of events operates to render the Act otherwise inapplicable.
Governor Castle signed the Delaware Act on February 2, 1988. The Act applies to all Delaware corporations, with certain limited exceptions. The provisions of the Act are summarized below.4
In addition to avoiding section 203, BNS conditions its offer on the redemption of the rights issued pursuant to Koppers's rights plan, or on BNS otherwise escaping from the prospective resulting dilution of its ownership.
Under the plan as amended on March 15, 1988, the rights are redeemable by Koppers's board at any time until ten days following the stock acquisition date, "or at such later date as the Directors may determine." The effect of this amendment is to extend the date on which the rights would have detached from March 17, ten business days following the commencement of the offer, until ten business days following BNS's purchase of the tendered stock — or earlier, if the board so decides. Cyert Affidavit, ¶¶ 7, 26 (D.I. 29). The redemption price is five cents per right.
If Koppers is acquired in a merger or other business combination after the rights become exercisable, each right entitles its holder to buy Koppers common stock at a value double the exercise price of $75 (the "flip-in"). The plan voids rights owned by the acquiror. The flip-in provision becomes operative when any person acquires more than 30% of the outstanding common of Koppers. The flip-in becomes inoperative if Koppers's board approves the terms of the acquisition, and if the acquisition is then carried out in accordance with the approved terms. Another provision, the "flip-over," allows each rights holder to buy $150 worth of stock in the acquiring company for $75. As with the flip-in provision, board approval exempts acquirors from the flip-over.
BNS challenges the reasonableness of the board's refusal to redeem the rights.
In order to succeed on its motion for a preliminary injunction, BNS must establish:
(1) a reasonable probability of eventual...
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