Gelco Corp. v. Coniston Partners
| Decision Date | 04 February 1987 |
| Docket Number | 86-5420 and 86-5421,Nos. 86-2399,86-5418,s. 86-2399 |
| Citation | 811 F.2d 414 |
| Parties | Fed. Sec. L. Rep. P 93,119 GELCO CORPORATION, Appellee, The State of Minnesota by Hubert H. Humphrey, III, its Attorney General, v. CONISTON PARTNERS; GEL Associates; Paul E. Tierney; Keith R. Gollust; Augustus K. Oliver; Gollust, Tierney and Oliver, Inc.; and GEL Acquisition Corporation, Appellants, Cubit Corporation, Intervenor in District Court, v. GELCO CORPORATION; Samuel D. Addoms; Neil E. Goldschmidt; Harold I. Grossman; Michael J. Morris; Clarence W. Spangle; Jaye F. Dyer; William F. Foss; Andrew C. Grossman; Mark H. Willes; Jack J. Crocker; N. Bud Grossman; M.D. McVay; Sam Singer, Appellees, and The State of Minnesota by Hubert H. Humphrey, III, its Attorney General. GELCO CORPORATION, The State of Minnesota, by Hubert H. Humphrey, III, its Attorney General, Appellants, v. CONISTON PARTNERS; GEL Associates; Paul E. Tierney; Keith R. Gollust; Augustus K. Oliver; Gollust, Tierney and Oliver, Inc., Appellees, Cubit Corporation, Appellee, v. GELCO CORPORATION; Samuel D. Addoms; Neil E. Goldschmidt; Harold I. Grossman; Michael J. Morris; Clarence W. Spangle; Jaye F. Dyer; William F. Foss; Andrew C. Grossman; Mark H. Willes; Jack J. Crocker; N. Bud Grossman; M.D. McVay; Sam Singer; and The State of Minnesota by Hubert H. Humphrey, III, its Attorney General. GELCO CORPORATION, Appellant, The State of Minnesota by Hubert H. Humphrey, III, its Attorney General, v. CONISTON PARTNERS; GEL Associates; Paul E. Tierney; Keith R. Gollust; Augustus K. Oliver; Gollust, Tierney and Oliver, Inc., Appellees, GEL Acquisition Corp., Appellee, Cubit Corporation, v. GELCO CORPORATION; Samuel D. Addoms; Neil E. Goldschmidt; Harold I. Grossman; Michael J. Morris; Clarence W. Spangle; Jaye F. Dyer; William F. Foss; Andrew; C. Grossman; Mark H. Willes; Jack J. Crocker; N. Bud Grossman; M.D. McVay; Sam Singer; and The State of Minnesota by Hubert H. Humphrey, III, its Attorney General. GELCO CORPORATION; and The State of Minnesota by Hubert H. Humphrey, III, its Attorney General, Appel |
| Court | U.S. Court of Appeals — Eighth Circuit |
Alexander R. Sussman, John Sullivan, Sandra F. Coppola, New York City, George F. McGunnigle, Minneapolis, Minn., H. Kent Munson, Andrew F. Puzder, St. Louis, Mo., for Gelco Corp.
Alan I. Gilbert, Barry R. Greller, St. Paul, Minn., for State of Minn.
Dennis J. Block, Irvin H. Warren, New York City, for Coniston Partners.
Gregory L. Wilmes, Minneapolis, Minn., for Cubit Corp.
Before JOHN R. GIBSON, FAGG, and MAGILL, Circuit Judges.
These appeals stem from a battle for control of Gelco Corporation between Gelco's incumbent management and Coniston Partners. Incidents of this struggle included the Gelco board's creation of a Poison Pill, Gelco's self-tender offer, Coniston's acquisition of Gelco stock, and Coniston's tender offer for all of Gelco's outstanding shares. Coniston 1 argues that the district court 2 erroneously refused to preliminarily enjoin Gelco's directors from enforcing a preferred stock purchase rights plan and to order the directors to redeem certain preferred stock issued to Merrill Lynch & Co. or void all voting rights attendant to such stock. --- F.Supp. ----. We conclude that the district court did not abuse its discretion in concluding that Coniston failed to show that it would be irreparably harmed by its inability to proceed with its tender offer. Accordingly, preliminary injunctive relief was properly denied. In related appeals, Gelco and the State of Minnesota argue that the district court erroneously held the Minnesota Control Share Acquisition Act, Minn.Stat. Secs. 302A.011(37)-(41), 302A.449(7), 302A.671 (1984 & Supp. 1985, amended by 1986 Minn. Laws 703, 706), unconstitutional under both the commerce clause and the supremacy clause and wrongfully enjoined enforcement of the Act as it applied to Coniston's pending tender offer for Gelco shares. In light of Coniston's revocation of its tender offer and its expressed intent not to proceed with a new offer unless the requested injunctive relief is granted, we find the constitutional issues raised in these appeals moot.
A lengthy discussion of the corporate proceedings relating to these appeals is unnecessary to our decision. Those who are interested may find a more detailed statement in the district court's opinion, Gelco Corp. v. Coniston Partners, 652 F.Supp. 829 (D.Minn.1986). We simply provide a broad overview gleaned primarily from this opinion.
On May 6, 1986, the directors of Gelco Corporation, a Minnesota corporation whose stock is traded on the New York Stock Exchange, adopted a preferred stock purchase rights plan (also referred to by the district court as a Poison Pill), which declared a dividend of one preferred stock purchase right for each outstanding share of Gelco stock. In essence, this plan allows the holder of each right (the acquiring person excluded) to purchase $126 in Gelco stock for $63 when it is announced that a person has acquired or intends to acquire through a tender or exchange offer twenty percent or more of Gelco's outstanding voting stock. If Gelco merges with another entity, this same option exists as to the surviving entity's stock. The rights plan is redeemable by the board prior to the happening of certain events. It also gives the board discretion to unilaterally amend the plan. The district court found that the rights plan, which was adopted before the board knew of any acquisition effort, makes it difficult, but not impossible, to acquire control of Gelco without board approval, but the plan was not adopted solely to entrench incumbent management.
On August 26, 1986, Gelco announced a restructuring plan. The plan called for the sale of four Gelco business units and a self-tender offer to purchase up to three million shares of outstanding common stock for $17-$20, the amount to be determined by dutch auction--a procedure whereby shares tendered for the lowest price are purchased first. This self-tender was to be financed by selling Merrill Lynch up to three million shares of newly issued preferred stock for $20 per share. The preferred shares have voting rights, but there is no voting agreement between Merrill Lynch and Gelco's directors. Gelco may redeem the stock at any time for the original purchase price plus accrued unpaid interest. The Gelco board viewed this transaction as a form of "bridge-financing" for the self-tender offer, financing that would not otherwise have been available because of covenants with Gelco's regular lenders. Coniston argues that the transaction has one purpose--to immunize Gelco's management from hostile tender offers. When Gelco commenced its self-tender offer on August 29, its common stock was trading at $14.875 per share. The original deadline for shareholders to tender was September 26.
On September 25, 1986, Coniston purchased approximately 17.6% of Gelco's outstanding shares. Merger negotiations between Coniston and Gelco commenced. On October 2, the Gelco board met to evaluate Coniston's proposal for a merger transaction at a price of $22.50 per share. Based on reports from its investment bankers and outside legal counsel and the belief that Coniston was a "raider" intending to liquidate Gelco's assets, the Gelco board rejected Coniston's merger proposal as financially inadequate.
Because Coniston's merger proposal caused Gelco's stock price to rise to $23, Gelco cancelled its $17-$20 self-tender offer. Nonetheless, the board reauthorized the sale of preferred stock to Merrill Lynch. Gelco then announced a revised tender offer on October 7 to purchase up to six million shares for $26-$30 per share, the amount to be determined by dutch auction.
On October 24, Coniston commenced a $26 tender offer for all of Gelco's outstanding shares. The offer included, among others, conditions that a court invalidate or Gelco's directors redeem Gelco's purchase rights plan, that the sale of preferred stock to Merrill Lynch be rescinded, and that the Minnesota Control Share Acquisition Act be held invalid.
The Gelco board met on October 30 to evaluate Coniston's tender offer and to consider whether to redeem the rights plan. Partly in reliance on the financial analysis prepared by Merrill Lynch and due to the board's confidence in Gelco's inherent long-term value, the board concluded that Coniston's offer was financially inadequate. It thus rejected Coniston's bid and elected not to redeem the rights plan.
Gelco commenced this action on October 2, 1986, seeking injunctive, declaratory, and other relief to prevent Coniston's alleged violations of federal and state securities laws. That same day Coniston initiated a parallel action in a New York federal court alleging, among other things, that Gelco and its directors violated federal and state securities laws and breached fiduciary duties owed to Gelco's shareholders. On October 9 Coniston's action was transferred to the United States District Court for the District of Minnesota. Coniston subsequently brought its counterclaim seeking, among other relief, a preliminary injunction.
On November 10, 1986, the district court issued its Memorandum and Order to support its November 7 Order, which, in part, denied Coniston's motion to enjoin Gelco from enforcing its purchase rights plan, refused to order Gelco to redeem the Merrill Lynch stock or void any...
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