Martin Marietta Corp. v. Bendix Corp.

• Citation: 549 F. Supp. 623
• Decision Date: 22 September 1982
• Docket Number: Civ. No. Y-82-2560.
• Parties: MARTIN MARIETTA CORPORATION v. The BENDIX CORPORATION.
• Court: U.S. District Court — District of Maryland

549 F. Supp. 623

MARTIN MARIETTA CORPORATION v. The BENDIX CORPORATION.

Civ. No. Y-82-2560.

United States District Court, D. Maryland.

September 22, 1982.

Alexander Sussman and Marc Cherno, New York City, and John H. Lewin, Jr. and Benson E. Legg, Baltimore, Md., counterclaim plaintiff Bendix.

George Beall and James R. Eyler, Baltimore, Md., counterclaim defendant Martin Marietta.

MEMORANDUM OPINION AND ORDER

JOSEPH H. YOUNG, District Judge.

This Court is once again called to rule on a matter arising out of the Bendix-Martin Marietta-United Technologies tender offer contest. The instant motion, brought by counter-claimant, The Bendix Corporation ("Bendix"), seeks a preliminary injunction against the tender offer of Martin Marietta Corporation ("Marietta"), a Maryland corporation, for majority ownership of Bendix. Bendix alleges that the offer is manipulative and does not provide for full and fair disclosure to Bendix' shareholders in violation of the Williams Act. Bendix further argues that the offer is contrary to the interests of Marietta's stockholders in violation of the Maryland common law of fiduciary duty.

THE THREE TENDER OFFERS

On September 17, 1982, pursuant to its tender offer announced August 25, Bendix purchased approximately 52.7% of Marietta common stock at a price of $48 per share. When this purchase is added to its pretender offer purchases of common stock,¹ Bendix owns over 58% of common stock and is in the process of buying additional shares on a first-come, first-served basis with the aim of increasing its controlling interest to 70% within a few days. Once these current purchases are completed, Bendix intends to acquire all of the remaining shares through a squeeze-out merger whereby the remaining shareholders would receive .82 of a share of Bendix common stock for each share of Marietta common stock.²

On August 30, five days after Bendix announced its tender offer, Marietta countered with a tender offer for approximately 50.3% of Bendix' common stock at a price of $75 per share.³ If Marietta succeeds with its tender offer, it intends to acquire all of the Bendix shares not tendered to it through a squeeze-out merger whereby the remaining Bendix shareholders would receive 1 2/3 Marietta shares for each Bendix share. The withdrawal deadline for Marietta's offer is midnight September 22—i.e., at that time Bendix shareholders who tendered their stock may no longer take back their stock and Marietta may proceed to purchase the stock tendered to it.

As if these concurrent tender offers didn't provide enough liveliness, United Technologies Corporation ("United") jumped into the fray on September 7 with its tender offer for 50.3% of Bendix common stock at a price of $75 per share. On September 15, United increased its offer to $85 per share. The withdrawal deadline of United's offer is midnight September 28.

With United assuming the role of a cheerleader for Marietta, Bendix and Marietta have engaged in a fierce PAC-MAN ("I'll eat you before you eat me") struggle. Both Bendix and Marietta have amended, or are trying to amend, their corporate bylaws to make it more difficult for their adversaries to acquire them. The management of both corporations have issued a flurry of press releases, not to speak of the memoranda filed in this Court, designed to put themselves in a favorable light and make their opponents appear to be ruthless egotists Bendix has even gone to the considerable lengths of holding a "Bendix Unity Day" on September 20 at several of its plants around the country where Bendix workers attended pep rallies with high school bands, local politicians, union officials, and balloons. On September 21, this series of offers, referred to in the media as a three-ring circus, had expanded to seven rings with ongoing performances in two federal courts in New York, two state courts in Delaware, and a state and federal court in Michigan.

PRELIMINARY INJUNCTION STANDARD

So far as this Court is aware, the preliminary injunction standard in the Fourth Circuit has not changed since this Court's opinion six days ago denying Marietta's request for a preliminary injunction against Bendix' tender offer. Martin Marietta Corp. v. The Bendix Corp., Civ. No. Y-82-2560 (Slip Opinion, September 16, 1982). That opinion noted that the Fourth Circuit has established a four-part standard governing preliminary injunctions. The standard is set forth in North Carolina State Ports v. Dart Containerline, 592 F.2d 749, 750 (4th Cir. 1979):

In this circuit the trial court standard for interlocutory relief is the balance-of-hardship test. Four factors enter into the determination of whether to grant or withhold interim relief: (a) plaintiff's likelihood of success in the underlying dispute between the parties; (b) whether plaintiff will suffer irreparable injury if interim relief is denied; (c) the injury to defendant if an injunction is issued; and (d) the public interest.

The North Carolina State Ports court also addressed the appropriate weight to be given to these four factors:

There is a correlation between the likelihood of plaintiff's success and the probability of irreparable injury to him. If the likelihood of success is great, the need for showing the probability of irreparable harm is less. Conversely, if the likelihood of success is remote, there must be a strong showing of the probability of irreparable injury to justify issuance of the injunction. Of all the factors, the two most important are those of probable irreparable injury to the plaintiff if an injunction is not issued and likely harm to the defendant if an injunction is issued. If, upon weighing them, the balance is struck in favor of plaintiff, a preliminary injunction should issue if, at least, grave or serious questions are presented.

BALANCE OF HARDSHIP

As this Court said in a different context, "balancing the hardships in this case produces no clear-cut winner or loser and reveals only that both sides can be perceived to have a great deal of interest at stake in the outcome over preliminary relief." Love v. Hidalgo, 508 F.Supp. 177, 183 (1981). Now that Bendix has succeeded in its offer to purchase a majority of Marietta's common stock, it is clear that any action taken by this Court would significantly aid one combatant and significantly injure the other combatant in their mutually exclusive goals of taking over one another. Since the balance of hardship does not favor either Bendix or Marietta, the inquiry into the likelihood of success on the merits of Bendix' claims assumes paramount importance. The Williams Act and Maryland common law claims will be considered in order.

WILLIAMS ACT: INTRODUCTION

Bendix' claims draw two provisions of the federal securities statutes into question. Central to the dispute is Section 14(e) of the Williams Act, which provides:

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 the 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). Bendix claims that Marietta has "engaged in manipulative practices," has made "untrue statements of material fact," and has failed "to state ... material facts necessary in order to make the statements made ... not misleading." The alleged misstatements and omissions are also said to run afoul of Section 14(d) which, by incorporating 13(d) by reference, requires an 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 major change in its business or corporate structure.

WILLIAMS ACT: MANIPULATION CLAIMS

Bendix argues that two discrete Marietta activities constitute manipulation in connection with a tender offer. First, Bendix claims that Marietta's offer was deliberately designed to inhibit the Bendix tender offer. Bendix then asserts that the "frontend loaded" nature of Marietta's "two step" takeover proposal manipulates the target shareholders of the present Marietta offer. In other words, Marietta is accused of manipulation in connection with both the Bendix and Marietta offers. The reasons why each of these arguments fail will be discussed in turn.

Bendix' manipulation arguments in connection with the original Bendix offer can be subdivided into two components. Bendix first asserts that the "scorched earth" prospect of the Marietta counter offer inhibited the Bendix offer before Bendix purchased the Marietta stock. Bendix then maintains that a successful "scorched earth" offer would effectively nullify the now completed Bendix offer because it would divest Bendix of the financial benefits of the Bendix offer.⁴ While Bendix blends and melds these two arguments in its discussion of case law, proper consideration of those authorities and resolution of the issues requires that the two components be kept analytically distinct.

The second of these contentions can be easily disposed of. The Williams Act in general and Section 14(e) in particular does not give an offeror any rights to the "fruits" of its tender offer. Piper v. Chris-Craft Industries, 430 U.S. 1, 97 S.Ct. 926, 51 L.Ed.2d 124 (1977). Since the Piper decision is essential to any Section 14(e) analysis, it should be examined in some detail. In Piper, a defeated offeror sued both the target and the successful competing "white knight" for damages for an alleged Section 14(e) violation. A majority of the Supreme Court held that the Williams Act did not provide a private cause of action for the offeror. While the Court expressly withheld opinion on whether an...