Polaroid Corp. v. Disney
| Decision Date | 14 October 1988 |
| Docket Number | Civ. A. No. 88-525-CMW. |
| Citation | 698 F. Supp. 1169 |
| Parties | POLAROID CORPORATION, Plaintiff, v. Roy E. DISNEY, Patricia A. Disney, Stanley P. Gold, Shamrock Holdings, Inc., a Delaware corporation, Shamrock Holdings of California, Inc., a California corporation, Shamrock Capital Investors III, Inc., a Delaware corporation, Emerald Isle Associates, L.P., a Delaware limited partnership, and Shamrock Acquisition III, Inc., a Delaware corporation, Defendants. |
| Court | U.S. District Court — District of Delaware |
R. Franklin Balotti, Jesse A. Finkelstein and Gregory V. Varallo of Richards, Layton & Finger, Wilmington, Del. (Paul C. Saunders (argued), of Cravath, Swaine & Moore, New York City, of counsel), for plaintiff.
A. Gilchrist Sparks, III, Lawrence A. Hamermesh and Robert J. Valihura, Jr. of Morris, Nichols, Arsht & Tunnell, Wilmington, Del. (Pamela Jarvis (argued), of Fried, Frank Harris, Shriver & Jacobson, New York City, of counsel), for defendants.
Plaintiff Polaroid Corporation ("Polaroid") brought this action for a preliminary injunction against defendants Roy E. Disney, Patricia A. Disney, Stanley P. Gold, Shamrock Holdings, Inc., Shamrock Holdings of California, Inc., Shamrock Capital Investors III, Inc., Emerald Isle Associates, L.P. and Shamrock Acquisition III, Inc. The three individual defendants will hereinafter be referred to as the "Disney defendants" and the four defendant corporations and defendant limited partnership will be referred to collectively as "Shamrock."
Polaroid filed this suit on September 20, 1988. It seeks a preliminary injunction against the cash tender offer for Polaroid common stock commenced September 9, 1988, ("the Offer") by defendant Shamrock Acquisition III, Inc. Polaroid contends the Offer was in violation of certain disclosure provisions of the Williams Act, sections 13(d), 14(d) and 14(e) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78m(d), 78n(d) and 78n(e), and the rules and regulations promulgated thereunder. Polaroid also seeks corrective disclosure, an amended offer, divestment of shares tendered during the period of Shamrock's alleged illegal conduct and an injunction against any future violations of the securities laws by Shamrock. This Court has jurisdiction over the case pursuant to 15 U.S.C. § 78aa and 28 U.S.C. § 1331. This Opinion shall constitute this Court's Findings of Fact and Conclusions of Law as required by F.R.C.P. 52(a).
Defendant Shamrock Acquisition III, Inc., the corporation that made the tender offer to purchase Polaroid, is a wholly owned subsidiary of defendant Emerald Isle Associates, L.P. ("Emerald"). Emerald has a number of limited partners. These include, but are not limited to, Indiana Partners, L.P., Oregon Partners and Shamrock Capital, L.P. Defendant Shamrock Capital Investors III, Inc. is the general partner in Emerald and is itself a wholly owned subsidiary of defendant Shamrock Holdings of California, Inc. ("Holdings"). Holdings is a Delaware corporation of which defendant Stanley Gold is president and which is wholly owned by defendants Roy and Patricia Disney and their children.
The events leading up to the present action began in early 1988 when Shamrock began purchasing Polaroid shares. By June 1988, Shamrock had become one of Polaroid's largest shareholders, with beneficial ownership of more than 4% of the outstanding shares of Polaroid common stock. In June and early July, Shamrock sought to meet with Polaroid management. On July 12, 1988, a day before a scheduled meeting between the parties, Polaroid cancelled the meeting, and Polaroid's Board of Directors approved an Employee Stock Ownership Plan ("ESOP") in which 14% of Polaroid's common stock would ultimately be owned by Polaroid's employees.
On July 20, 1988, Shamrock filed with the Securities and Exchange Commission ("SEC") a Schedule 13D statement in which it disclosed that it owned approximately 8% of Polaroid's outstanding common stock, excluding the 9,716,600 new shares issued to the ESOP, and stated that the defendants had "acquired their shares to establish a significant equity interest in, and with a view toward seeking control of or the entire equity interest in, Polaroid." The Schedule 13D further disclosed that, in a letter to Polaroid dated July 19, 1988, Shamrock made a proposal to acquire Polaroid in a negotiated transaction in which all shareholders of Polaroid would receive $40 in cash per share of common stock or "an agreed upon lesser amount in cash plus the right to receive a pro rata share ... of the after tax proceeds of any recovery" in the patent infringement action between Polaroid and Eastman Kodak.1
On August 12, 1988, Shamrock filed an amendment to its Schedule 13D in which it disclosed that, by letter to Polaroid dated August 11, 1988, Shamrock had advised Polaroid of an increase in its acquisition proposal, such that each Polaroid shareholder would receive $40 in cash per share of common stock plus the right to receive a pro rata share of 40% of the net proceeds of any recovery in the Kodak litigation (the "40/40 Proposal"). Polaroid's Board of Directors rejected Shamrock's 40/40 Proposal on August 16, 1988.
On September 9, 1988, Shamrock commenced a $2.6 billion tender offer ("the Offer") for all outstanding common shares of Polaroid at $42 per share, excluding the ESOP shares, the issuance of which has been challenged in another action. The tender offer is expressly made subject to several conditions, including:
(1) that at least 90% of the outstanding shares be tendered, excluding the 9,716,600 shares of the Polaroid Stock Equity Plan held by the Polaroid ESOP ("Minimum Condition");
(2) that the issuance of stock to the Polaroid ESOP be "invalidated or rescinded pursuant to a final judicial determination or the purchaser otherwise being satisfied that the ESOP shares are not validly outstanding" ("ESOP Condition");
(3) that necessary financing be obtained; and
(4) that the Polaroid Preferred Stock Purchase Rights be redeemed or that the purchaser be satisfied that such rights are unenforceable.
Notably, the Offer also states that, if the ESOP Condition is not satisfied prior to the expiration of the Offer, or if Shamrock determines, in its sole discretion, that the ESOP Condition cannot timely be satisfied, Shamrock currently intends to amend its Offer so as to: (1) waive the ESOP Condition; (2) reduce the tender offer price to $40 per share; and (3) adjust the number of shares required to satisfy the Offer's 90% minimum condition so as to take into account the additional ESOP shares.
The Offer was originally set to expire on October 6, 1988, unless extended. The cover page of the Offer explicitly states that: "The purchaser currently intends to extend the offer from time to time until the ESOP Condition is satisfied or the purchaser determines, in its sole discretion, that the ESOP Condition cannot timely be satisfed." On September 30, 1988, Shamrock extended its Offer until October 17, 1988.
Wertheim Schroder & Co. Inc. ("Wertheim") and Drexel Burnham Lambert Inc. ("Drexel") are acting as financial advisers to Shamrock. Additionally, they are co-dealer managers for the Offer.
Simultaneously with the commencement of the Offer, Shamrock proposed to Polaroid a negotiated merger (the "Proposed Merger") under which, among other things: the tender offer price would be increased to $44 per share if the ESOP Condition is satisfied (or $42 per share if it is not); Shamrock would buy up to 90% of Polaroid's outstanding shares in the tender offer; the Offer minimum would be reduced to a simple majority; and shares not purchased in the Offer would receive consideration consisting of, in whole or in part, transferable certificates of interest representing a percentage, to be negotiated by Polaroid and Shamrock, of the net proceeds received by Polaroid in the Kodak Litigation. In a letter delivered September 9, 1988, Shamrock advised Polaroid of its willingness to negotiate and to increase the value of its tender offer.
On September 20, 1988, Polaroid filed a Schedule 14D-9 which reported that, on September 19, 1988, Polaroid's Board of Directors determined to reject Shamrock's $42 per share tender offer. The 14D-9 does not reflect any consideration by Polaroid of the Proposed Merger.
Shamrock filed with the SEC, on September 28, 1988, a Schedule 14D-1 amendment which describes the claims made by Polaroid in this action and sets forth Shamrock's denial of all of such claims.
Two related suits between these parties are pending in the Delaware Chancery Court. The first (the "ESOP Action"), which was commenced on July 20, 1988, concerns allegations by Shamrock that Polaroid's Board of Directors acted improperly in approving, on July 12, 1988, the specific terms of the ESOP. Shamrock charges, among other things, that the Polaroid directors violated their fiduciary duties to the company's stockholders by utilizing the ESOP as a device to entrench incumbent management. The trial in the ESOP Action is scheduled to begin on October 19, 1988.
The second action in the Delaware Chancery Court (the "Poison Pill Action"), filed on September 9, 1988, concerns allegations by Shamrock that Polaroid should redeem the rights issued by Polaroid pursuant to its shareholder rights plan. No hearing date has been set in that case.
As sumarized by Polaroid in its Reply Brief, there are five issues before the Court on Polaroid's Motion For A Preliminary Injunction:
(1) whether the Offer violates the All-Holders rule, Rule 14d-10(a)(1);
(2) whether the assertion in the Offer that all conditions, including the Minimum Condition, may be waived is materially misleading;
(3) whether the stated expiration date of October 17, 1988, is materially misleading;
(4) whether Shamrock's financial advisers are bidders and whether...
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