Carter Hawley Hale Stores v. Limited, Inc.
Decision Date | 27 April 1984 |
Docket Number | No. CV 84-2200 AWT.,CV 84-2200 AWT. |
Citation | 587 F. Supp. 246 |
Parties | CARTER HAWLEY HALE STORES, INC., Plaintiff, v. The LIMITED, INC., et al., Defendants. |
Court | U.S. District Court — Central District of California |
William C. Pelster, New York City, James E. Lyons, Michael H. Diamond, Skadden, Arps, Slate, Meagher & Flom, William W. Vaughn, Robert C. Vanderet, O'Melveny & Myers, Los Angeles, Cal., for Carter Hawley Hale Stores, Inc.
Ronald L. Olson, Munger, Tolles & Rickershauser, Los Angeles, Cal., Peter D. McKenna, Wachtell, Lipton, Rosen & Katz, New York City, A. Douglas Melamed, Wilmer, Cutler & Pickering, Washington, D.C., for The Limited, Inc. and Leslie H. Wexner.
On April 4, 1984, The Limited, Inc. ("Limited") commenced a cash tender offer to purchase 20.3 million shares of Carter Hawley Hale Stores, Inc. ("CHH") common stock, just over one-half of the shares then outstanding, at $30 per share (the "Offer"). The Offer was to expire at noon on May 1, 1984. Limited further stated its intention to exchange 1.32 shares of its common stock for each remaining outstanding share of CHH common stock if the initial tender offer is successful, in a second-step merger of the two companies.
Immediately after the Offer was announced on April 3, CHH commenced this action. In the Amended Complaint filed on April 6, CHH alleges that the Limited's intended acquisition of CHH will violate § 7 of the Clayton Act, 15 U.S.C. § 18, and that the Offer violates §§ 10(b), 14(d) and 14(e) of the Securities Exchange Act of 1934, as amended by the Williams Act (the "Exchange Act"), 15 U.S.C. §§ 78j(b), 78n(d), and 78n(e).
On April 16, 1984, CHH announced that it had entered into an agreement with General Cinema Corporation ("General Cinema") pursuant to which CHH sold 1 million shares of convertible preferred stock to General Cinema for $300 million. General Cinema agreed to vote its CHH preferred stock in accordance with the recommendation of CHH's Board of Directors, except in certain specific circumstances. In addition, CHH granted General Cinema an option to buy CHH's Waldenbooks division for approximately $285 million. Its Board also authorized CHH to repurchase up to 15 million of its common shares in negotiated transactions and on the open market. On April 23, 1984, CHH authorized the repurchase of 3.5 million additional common shares, for a total of 18.5 million shares. By April 20, 1984, CHH had purchased approximately 13 million of its common shares and its total purchases now exceed 15 million shares.
On April 23, the Limited filed its First Amended Counterclaim against CHH, members of CHH's Board of Directors and General Cinema, seeking, inter alia, to enjoin CHH's defensive moves. The counterclaim alleges violations of the Exchange Act, the New York Stock Exchange Rules and breach of fiduciary duty and other corporate duties and obligations.1
Before the Court is CHH's application for a preliminary injunction enjoining the Limited and its Chairman and President, Leslie H. Wexner, from acquiring any securities of CHH pursuant to the Offer because the acquisition is violative of § 7 of the Clayton Act.2
CHH alleges that the merger contemplated by the Offer violates § 7 of the Clayton Act because it may substantially lessen competition in the "moderate-price women's fashion apparel market" where CHH's Contempo Casuals division ("Contempo") currently competes with Limited's Limited Stores division ("Limited Stores") and in the "special-sized women's apparel" market where certain of CHH's department store divisions compete with Limited's Lane Bryant division ("Lane Bryant").
In order to have standing to sue under the antitrust laws, a plaintiff must allege injury arising out of violation of those laws. In Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 97 S.Ct. 690, 50 L.Ed.2d 701 (1976), plaintiff bowling centers brought an antitrust action against a bowling equipment manufacturer and operator of bowling centers, claiming that defendant's acquisition of competing bowling centers that had defaulted in payments on bowling equipment purchased from defendant might substantially lessen competition in violation of § 7. Plaintiffs' theory was that had defendant allowed the defaulting centers to close, plaintiffs' profits would have increased. The Court of Appeals' holding that all plaintiff need demonstrate in order to pursue a § 7 claim was injury which was "causally related" to an illegal presence in the market, was rejected by the Court:
Every merger of two existing entities into one, whether lawful or unlawful, has the potential for producing economic readjustments that adversely affect some persons. But Congress has not condemned mergers on that account; it has condemned them only when they may produce anticompetitive effects. Yet under the Court of Appeals' holding, once a merger is found to violate § 7, all dislocations caused by the merger are actionable, regardless of whether those dislocations have anything to do with the reason the merger was condemned.
429 U.S. at 487, 97 S.Ct. at 696. The Court then went on to prescribe the basis for standing in § 7 actions:
Plaintiffs must prove antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful. The injury should reflect the anticompetitive effect either of the violation or of anticompetitive acts made possible by the violation.
429 U.S. at 489, 97 S.Ct. at 697 (emphasis in original). See also Associated Gen. Contractors v. California State Council of Carpenters, 459 U.S. 519, 103 S.Ct. 897, 910, 74 L.Ed.2d 723 (1983); General Cinema Corp. v. Buena Vista Distrib. Co., 681 F.2d 594, 596 (9th Cir.1982). Although Brunswick was an action for damages, its reasoning is equally applicable to injunctive actions. Schoenkopf v. Brown & Williamson Tobacco Corp., 637 F.2d 205, 210-11 (3d Cir.1980).
The Ninth Circuit has yet to address the issue of whether a tender offer target has standing to challenge the acquisition on § 7 grounds. However, commentators have argued against standing in this context.
There is a class of merger victims whose interest is outside the protection of Clayton Act § 7: the target corporation resisting a takeover. To be sure, the target firm usually seeks injunctive relief ... but the interest asserted may seem questionable .... An allegation of harm to the company may be inconsistent with the alleged antitrust violation. Every theory for condemning a ... merger implies a benefit for the acquired firm ... but antitrust interests are rarely involved.
In Central Nat'l Bank v. Rainbolt, 720 F.2d 1183 (10th Cir.1983), the Tenth Circuit adopted similar reasoning to hold that a takeover target did not have standing to challenge the acquisition on antitrust grounds.
720 F.2d at 1183 (emphasis added). Cf. A.D.M. Corp. v. Sigma Instrument, Inc., 628 F.2d 753, 754 (1st Cir.1980) ( ).
Here, CHH alleges that it will suffer the following injuries as a result of the Offer: (1) the termination of "substantial, direct head-to-head competition" between Contempo and Limited Stores, and between certain of its divisions and Lane Bryant; (2) disruption and uncertainty in the business affairs of CHH; and (3) disclosure of trade secrets which give CHH a "competitive advantage." (Pltf's. Memo. in Support at 23-37.) By implication, CHH also complains that it may suffer the injury of losing its independent existence.
However, each of these alleged injuries does not result from the possibility of substantially lessened competition, but rather derives from the fact that after a successful, albeit unfriendly, merger, two corporate entities become one. Put another way, each of these "injuries" to CHH would occur in the event of a merger, whether or not the merger would substantially lessen competition. Thus, CHH has not alleged an "antitrust injury," Brunswick, 429 U.S. at 489, 97 S.Ct. at 697.
Although the contention that the elimination of competition between Contempo and Limited Stores will have anticompetitive effects sounds in § 7, CHH has no standing to raise it. If the proposed merger is completed, CHH will be a part of the very entity it claims will have a supercompetitive advantage, i.e., it suffers no antitrust harm. As pointed out by Professors Areeda and Turner, it is inconsistent for CHH to complain of this outcome on antitrust grounds.3 Those who will be injured by any anticompetitive effect of the proposed merger and thus have standing to complain under § 7 are consumers and competitors of the surviving corporation.4
I conclude that a tender offer target in the...
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