Martin Marietta Corp. v. Bendix Corp.

• Decision Date: 16 September 1982
• Docket Number: Civ. No. Y-82-2560.
• Citation: 547 F. Supp. 533
• Parties: MARTIN MARIETTA CORPORATION v. The BENDIX CORPORATION.
• Court: U.S. District Court — District of Maryland

547 F. Supp. 533

MARTIN MARIETTA CORPORATION v. The BENDIX CORPORATION.

Civ. No. Y-82-2560.

United States District Court, D. Maryland.

September 16, 1982.

George Beall, James R. Eyler, and Mark D. Gately, Baltimore, Md., for plaintiff Martin Marietta Corp.

Marc Cherno, New York City, John H. Lewin, Jr., Benson E. Legg, Baltimore, Md., and Gerald Goldman, Washington, D. C., for defendant The Bendix Corp.

MEMORANDUM OPINION AND ORDER

JOSEPH H. YOUNG, District Judge.

Martin Marietta, a Maryland corporation, brought this action alleging that Bendix made misrepresentations and omissions in its disclosure materials filed in connection with Bendix' tender offer for Martin Marietta in violation of the Williams Act and accordingly asks this Court to issue a preliminary injunction against the continuance of Bendix' tender offer until such time as Bendix has cured its alleged disclosure violations.

The Three Tender Offers

On August 25, 1982, Bendix announced a tender offer for approximately 44.5% of Martin Marietta's common stock at a price of $43 per share.¹ On September 7, Bendix increased its offer to $48 per share, and on September 10, Bendix stated that it would purchase approximately 55% of Martin Marietta's common stock.² If Bendix succeeds with its tender offer, it intends to acquire all of the remaining Martin Marietta shares through a squeeze-out merger. The withdrawal deadline for Bendix' offer is midnight September 16 — i.e., at that time Martin Marietta's shareholders who tendered their stock may no longer take back their stock and Bendix may proceed to purchase the stock tendered to it.

On August 30, five days after Bendix announced its tender offer, Martin Marietta countered with a tender offer for approximately 50.3% of Bendix' common stock at a price of $75 per share.³ The withdrawal deadline for Martin Marietta's offer is midnight September 22.

United Technologies Corporation jumped into the fray on September 7 with its tender offer for approximately 50.3% of Bendix' common stock at a price of $75 per share. On September 15, United Technologies increased its offer to $85 per share. The withdrawal deadline for United Technologies' offer is midnight September 28.

All three tender offers can be aptly, if somewhat understatedly, described as "hostile." The board of directors of Martin Marietta voted unanimously to recommend to its shareholders that they reject the Bendix offer because it is inadequate and not in the best interests of Martin Marietta shareholders. With equal unanimity, Bendix' board of directors voted to reject both the Martin Marietta offer and the United Technologies offer.⁴ In addition to the litigation in this Court,⁵ the three corporations have battled each other in other federal and state courts, on Wall Street and through the media.

The Williams Act

The Williams Act, enacted in 1968 as an amendment to the Securities Exchange Act of 1934, was designed to close a significant gap in the disclosure requirements of the federal securities laws by requiring an offer to make full and fair disclosure to shareholders faced with a tender offer so that informed investment decisions can be made. Edgar v. MITE Corp., ___ U.S. ___, ___, 102 S.Ct. 2629, 2635, 73 L.Ed.2d 269 (1982). The "sole purpose of the Williams Act was the protection of investors." Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 35, 97 S.Ct. 926, 946, 51 L.Ed.2d 124 (1977). It was enacted to ensure that investors "will not be required to respond to a tender offer without adequate information." Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 58, 95 S.Ct. 2069, 2075-2076, 45 L.Ed.2d 12 (1975).

Two provisions of the Williams Act are pertinent to this litigation. Section 14(d), by incorporating Section 13(d) by reference, requires a tender offeror to disclose the following information:

If the purpose of the purchases or prospective purchases is to acquire control of the business of the issuer of the securities, any plans or proposals which such persons may have to liquidate such issuer, to sell its assets to or merge it with any other persons, or to make any other change in its business or corporate structure.

15 U.S.C. § 78m(d)(1)(C).⁶

Section 14(e) is a broad anti-fraud provision which states:

It shall be unlawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading, or to engage in any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer.

15 U.S.C. § 78n(e). The test used in determining whether a fact is "material" under Section 14(e) was enunciated in TSC Industries, Inc. v. Northway, 426 U.S. 438, 449, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757 (1976).⁷ There the Supreme Court stated:

An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote... Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the `total mix' of information made available.

Disclosure of Plans or Proposals to Divest Martin Marietta's Non-Aerospace Divisions.

In its Offer to Purchase, sent to all Martin Marietta shareholders pursuant to Securities and Exchange Commission Rule 14d-6, 17 C.F.R. § 240.14d-6, Bendix stated:

The Purchaser Bendix has conducted studies, on the basis of publicly available information, of alternative business strategies that it might consider under varying economic and market conditions in the event it acquires all or substantially all of the equity interest in the Company Martin Marietta. In this regard, the Purchaser has analyzed the possibility of divesting one or more of the non-aerospace divisions of the Company, but the Purchaser has made no determination to pursue any such transaction and has no plan or proposal with respect thereto.

Similarly, on August 27, Bendix issued a press release stating that "it has no plans to divest any of Martin Marietta's operations following a merger of the two companies" and that "press reports to the contrary were erroneous."⁸

Martin Marietta alleges that the above statements by Bendix are false and were calculated to mislead Martin Marietta's shareholders and the investing public. Martin Marietta claims that, contrary to Bendix' statements, Bendix does have post-acquisition plans or proposals to divest Martin Marietta's non-aerospace divisions and, therefore, Bendix made misrepresentations and omissions in violation of Sections 14(d) and 14(e).

Martin Marietta's non-aerospace divisions —cement, aluminum, chemicals, and construction aggregates — accounted for 42% of Martin Marietta's 1981 sales. While Bendix' aerospace operations complement Martin Marietta's aerospace operations, Bendix does not do any business in any of the areas of Martin Marietta's non-aerospace divisions.

In support of its allegations that Bendix does have plans and proposals to divest Martin Marietta's non-aerospace divisions, Martin Marietta marshalled the following evidence that it obtained during ten days of expedited discovery:

1. Statements made by Bendix Chairman William Agee in January, 1981, that the "companies we will be looking at will have a good technological fit;" that Bendix "will not go into anything that is very far afield from what Bendix currently does;" and that Bendix "would undertake a rationalization process" if it acquired a company that had some businesses that fit with Bendix and others that did not. Statements by Bendix personnel to its financial advisors at Salomon Brothers that Bendix wanted to acquire "a company that fit its strategic plans of being involved in basic businesses with high technology orientation." As evidence that these statements were put into action, Martin Marietta points to Bendix' 1981 divestment of its forest products business and its interest in a company, ASARCO, Inc., that is in the metals business.

2. An unsigned handwritten internal Bendix document, dated September 17, 1981, stating that if Bendix acquires Martin Marietta, it will "Probably spin out aluminum, aggregates at right time."

3. Six internal Bendix documents prepared by the staff of Bendix Vice-President for Corporate Development, K. Larry Hastie, reflecting Bendix' possible acquisition of Martin Marietta. Significantly, Hastie has responsibility for acquisitions and divestitures. The first of these documents, dated September 30, 1981, states that an initial assessment indicates that "Non-aerospace activities would have to be divested" and "Non-aerospace will have to remain stand-alone until sold." The second document, dated October 12, 1981, states that the "Relationship of Martin Marietta's other businesses (aluminum, chemicals, cement, aggregates) to our possible strategic objectives is not too clear." The same document states that "Selling non-aerospace is likely to require time and patience in order to realize full asset value potential" and that Bendix would have to "put up with" a lower return on investment "until it disposed of some or all of the non-aerospace businesses." The third document, dated October 19, 1981, describes Martin Marietta's non-aerospace businesses as "unattractive" but discounts this because of "our track record of divestments." The fourth document, dated July 22, 1982, states that "The non-aerospace businesses are likely candidates for divestments" and that divestment of Martin Marietta's aluminum business is "urgent." The fifth document, dated July 30, 1982, states that Martin Marietta would be a "lovely fit" with Bendix and "we would probably want to sell Marjorie's code name for Martin Marietta non-aerospace businesses." The last of these documents, dated August 5, 1982, characterized Martin Marietta's aluminum business as a "`cash trap' that

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