Crouse-Hinds Co. v. Internorth, Inc.

• Decision Date: 25 October 1980
• Docket Number: No. 80-CV-772.,80-CV-772.
• Citation: 518 F. Supp. 390
• Parties: CROUSE-HINDS COMPANY, Plaintiff, v. INTERNORTH, INC. and I N Holdings, Inc., Defendants.
• Court: U.S. District Court — Northern District of New York

518 F. Supp. 390

CROUSE-HINDS COMPANY, Plaintiff, v. INTERNORTH, INC. and I N Holdings, Inc., Defendants.

No. 80-CV-772.

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

October 25, 1980.

Hancock, Estabrook, Ryan, Shove & Hust, Syracuse, N.Y., Sullivan & Cromwell, New York City, for defendants; Donald J. Kemple, Syracuse, N.Y., John L. Warden, Robert J. Katz, D. Stuart Meiklejohn, William L. Farris, New York City, of counsel.

Bond, Schoeneck & King, Syracuse, N.Y., Skadden, Arps, Slate, Meagher & Flom, New York City, for plaintiff; Charles T. Beeching, Syracuse, N.Y., Edwin E. McAmis, New York City, Rodney O. Thorson, Randy Mott, Washington D.C., Reid L. Ashinoff, New York City, of counsel.

MEMORANDUM-DECISION

MUNSON, Chief Judge.

For the second time in two years, Syracuse, New York, and the surrounding area, has been the site of a major battle for corporate control. See Carrier Corp. v. United Technologies Corp., 1978-2 Transfer Binder Trade Cas. (CCH) ¶ 62,393 (N.D. N.Y. Dec. 6, 1978), aff'd, 1978-2 Transfer Binder Trade Cas. (CCH) ¶ 62,405 (2d Cir. Dec. 18, 1978). In this instance, the struggle is for control of the Crouse-Hinds Company, which is the target of a hostile takeover attempt by InterNorth, Inc. and I N Holdings, Inc. (sometimes referred to collectively as InterNorth). These battles cut deep in this relatively small community, whose identity has been tied in no small measure to the security of local ownership of private enterprise. For this reason, most people in this community perceive these battles more in terms of their threat to such commonly shared values than their possible effect on financial security.

While the typical battle for corporate control eventually finds its way into the courts, applicable laws in this area do not mandate a judicial assessment of the local repercussions of such struggles. Rather, under the present legislative scheme, a court is to act as a referee, whose duty it is to supervise the fight, and make certain that the contestants remain loyal to their benefactors — the shareholders. Should loyalties ever become divided, then the courts are required to intervene and realign the interests. Today the Court is required to perform just this task.

II.

Presently before the Court is a motion by counterclaim-plaintiff InterNorth, Inc., for a preliminary injunction to enjoin counterclaim-defendant Crouse-Hinds from proceeding with an exchange of its stock with the Belden Corporation. A motion has additionally been made by Crouse-Hinds to dismiss InterNorth's counterclaim. Oral argument was heard by the Court on these motions on October 21, 1980, which was also the last day of the presentation of evidence in an involved and lengthy hearing on counterclaim-defendant's motion for injunctive relief to block a takeover attempt by InterNorth. A brief description of the protagonists and the factual background to this lawsuit follows.

Crouse-Hinds Company is a New York corporation with its headquarters in Syracuse, New York. The Company is engaged in the manufacture and marketing of electrical products consisting of electrical construction materials such as load centers, circuit breakers, meter mounts and safety switches; indoor and outdoor lighting fixtures and aviation ground lighting equipment; electrical wiring devices, specialty switches, and industrial controls; vehicular traffic control systems; and electrical distribution equipment, including switchboards, panelboards, switch gear, motor control centers, and bus ducts. Its assets as of December 31, 1979, totaled $152,475,000.00, and its gross revenues for the year ending December 31, 1979 were $372,274,000.00. Crouse-Hinds is the largest United States manufacturer of high quality electrical products, which are designed especially to provide mechanical protection against heavy or abusive service, and are principally used by heavy industries.

InterNorth, Inc. was incorporated under the laws of Delaware under the name Northern Natural Gas Company, whose name was changed to InterNorth in March of this year. Its principal offices are located in Omaha, Nebraska. I N Holdings, Inc. is a wholly owned subsidiary of InterNorth, Inc. and was created for purposes of the Crouse-Hinds acquisition. InterNorth operates as a parent corporation with five major operating companies. These divisions are referred to as Natural Gas, Liquid Fuels, Petrochemicals, Exploration and Production, and Coal. Natural Gas is engaged in the transmission and sale of natural gas to utilities serving 1,094 communities in seven midwestern states, and the retail distribution of natural gas in 319 cities and towns. Liquid Fuels is engaged in the acquisition, production, storage, transportation and marketing of natural gas liquids and petroleum products. Petrochemicals produces and markets plastic resins, plastic products and antifreeze-coolants. A significant portion of the feedstocks for Liquid Fuels and Petrochemicals is derived from the natural gas stream of Natural Gas. Appropriately entitled, Exploration and Production conducts exploration and production activities primarily to provide supplies of natural gas for Natural Gas's pipeline system, and to develop liquid hydrocarbon supplies for use in other operations of InterNorth. Coal has acquired some recoverable coal reserves and is engaged in the mining and marketing of coal from two mines. As of December 31, 1979, InterNorth had investment in property, plant, and equipment of more than $3 billion. Its gross revenues for the year ending December 31, 1979 were $2.5 billion.

The third active participant in this takeover drama is the Belden Corporation, an Illinois corporation, which is headquartered in Geneva, Illinois. Belden is engaged in the manufacture and sale of wire, cable and cords, and the distribution of electrical apparatus and equipment, through a whollyowned network of industrial-electrical supply and renewal part centers. As of December 31, 1979, Belden had assets of approximately $140 million. Belden's consolidated sales for the year ending December 31, 1979 were $291,354,000.00.

In July of 1980, Belden found itself the unwilling subject of a takeover attempt by the Ampco-Pittsburgh Corporation. This fact, and Belden's hostile reception, came to the attention of Crouse-Hinds, whose Chairman of the Board and Chief Executive Officer, Chris J. Witting, has been a director of Belden for the past seven years. Amicable and serious negotiations were subsequently commenced by Crouse-Hinds and Belden, with a view toward a "defensive" merger of the two companies.¹ On September 8, 1980, the Boards of Directors of Crouse-Hinds and Belden approved a merger agreement, and a public announcement to this effect was made the next day. Under the terms of the agreement, Belden is to merge with a Crouse-Hinds subsidiary — the Coppertime Corporation — based on an exchange ratio of one share of Belden for every 1.24 shares of Crouse-Hinds. The terms of the merger agreement would require Crouse-Hinds to issue approximately 3.4 million shares of its stock. Moreover, the merger would be subject to the approval of shareholders of both Crouse-Hinds and Belden. The merger agreement had been arrived at after considerable study and consultation by the Boards of Directors of both Crouse-Hinds and Belden with investment bankers and other experts. Each Board believed that the merger would serve the best interests of their Companies, and they therefore recommended that the merger agreement be ratified by the Crouse-Hinds and Belden shareholders. The decisions to merge by the Boards of Directors of Crouse-Hinds and Belden, and to recommend the merger to their shareholders, were made without any foreknowledge of the events to come.

The September 9, 1980 announcement of the Crouse-Hinds and Belden merger came as an unwanted surprise to InterNorth, which was at the final stage of the preparations for its tender offer to Crouse-Hinds' shareholders. InterNorth's tender offer for Crouse-Hinds marked the culmination of over a year of sophisticated analysis of possible acquisition candidates. Crouse-Hinds had been selected by InterNorth as best able to fulfill InterNorth's new diversification strategy, and its hope for continued financial vitality. For purposes of the present discussion, it suffices to say that shortly after learning of the Crouse-Hinds-Belden merger, InterNorth decided it did not want to tender for a Crouse-Hinds Company with a "Belden subsidiary."

Still, on the same day that the Crouse-Hinds and Belden merger was announced, the Board of Directors of InterNorth authorized the tender offer for Crouse-Hinds. A central condition of the merger was the termination or shareholder rejection of the Crouse-Hinds-Belden merger agreement.² Two days later, on September 11, 1980, InterNorth purchased one hundred shares of Crouse-Hinds stock on the New York Stock Exchange. On September 12, 1980, InterNorth publicly announced a tender offer for 6,700,000 shares of Crouse-Hinds common stock, or approximately 54% of the total shares outstanding, at a price of $40 per share. As planned, the cash tender offer was to be followed by a "second-step" merger of InterNorth and Crouse-Hinds in which the remaining Crouse-Hinds shareholders would be issued InterNorth preferred stock in exchange for their Crouse-Hinds common stock.³

Just as the Crouse-Hinds-Belden merger agreement was not favorably received by InterNorth, the InterNorth tender offer was unwelcomed news in the board rooms of Crouse-Hinds and Belden. In Belden's view, InterNorth's tender offer was designed and intended to defeat the Belden merger, and thus deprive Belden and its shareholders of the concomitant business advantages that would flow to them from the combination of Crouse-Hinds and Belden. To protect its interests, on September 15, 1980, Belden brought an action against InterNorth in Illinois Circuit Court, and by an amended complaint, sought injunctive...