Pryor v. U.S. Steel Corp., 527

• Decision Date: 25 June 1986
• Docket Number: No. 527,D,527
• Citation: 794 F.2d 52
• Parties: , Fed. Sec. L. Rep. P 92,804 William B. PRYOR, on Behalf of himself and a Class of other Shareholders of Common Stock of Marathon Oil Company, similarly situated, Plaintiff-Appellant, v. UNITED STATES STEEL CORP., USS, Inc., and Bankers Trust Company, Defendants-Appellees. ocket 85-7704.
• Court: U.S. Court of Appeals — Second Circuit

Page 52

794 F.2d 52

55 USLW 2040, Fed. Sec. L. Rep. P 92,804

William B. PRYOR, on Behalf of himself and a Class of other Shareholders of Common Stock of Marathon Oil Company, similarly situated, Plaintiff-Appellant, v. UNITED STATES STEEL CORP., USS, Inc., and Bankers Trust Company, Defendants-Appellees.

No. 527, Docket 85-7704.

United States Court of Appeals Second Circuit.

Argued Dec. 3, 1985.

Decided June 25, 1986.

Dale A. Schreiber, New York City (Lawrence C. Browne, Schwartz Klink & Schreiber, P.C., New York City, of counsel), for plaintiff-appellant.

Robert A. Bicks, New York City (James J. Sabella, Breed, Abbott & Morgan, New York City, of counsel), for defendants-appellees United States Steel Corp. and USS, Inc.

David B. Eizenman, New York City (David B. Picker, Moses & Singer, New York, New York City, of counsel), for defendant-appellee Bankers Trust Co.

Before LUMBARD, CARDAMONE and WINTER, Circuit Judges.

WINTER, Circuit Judge:

William B. Pryor appeals from Judge Lowe's dismissal of his claims brought under the federal securities laws on his own behalf and on behalf of a class of similarly situated former shareholders of Marathon Oil Company. Pryor v. United States Steel Corp., 591 F.Supp. 942 (S.D.N.Y.1984). This dispute arises out of a tender offer made by appellee United States Steel Corp. through its acquisition subsidiary, appellee USS Inc., as the first step in U.S. Steel's two-step acquisition of Marathon.

The Williams Act amendments to the Securities Exchange Act of 1934 and certain rules promulgated thereunder require tender offerors to purchase shares tendered within specified time periods on a pro rata basis and at a uniform price. According to the complaint, U.S. Steel included in the proration pool three million shares that were not timely tendered. Pryor alleges that the wrongful inclusion of these shares in the pool diminished the number of his timely-tendered shares that U.S. Steel purchased. Judge Lowe dismissed the portions of the complaint relevant to this appeal ¹ pursuant to Fed.R.Civ.P. 12(b)(6), ruling that Section 14(d)(6) of the Williams Act, 15 U.S.C. Sec. 78n(d)(6), did not prohibit an offeror from extending a proration deadline after the offer has been oversubscribed and the deadline has expired, and that SEC Rule 10b-13, 17 C.F.R. Sec. 240.10b-13 did not prohibit the purchases in question. We reverse with regard to the Section 14(d)(6) claims. Because full relief is available under that Section, we need not decide the claim asserted under Rule 10b-13. We affirm the district court's dismissal of Pryor's claims against appellee Bankers Trust Company.

BACKGROUND

In late 1981 numerous corporations, including Mobil Corporation and U.S. Steel, expressed interest in acquiring Marathon and thus generated a bidding contest and litigation. On November 19, 1981, U.S. Steel offered $125 per share for 30 million Marathon common shares, 51% of Marathon's outstanding common shares. This proved to be the prevailing bid. According to the complaint, the offer, originally set to expire on December 17, 1981, initially established a "proration date" of November 28, 1981, to govern the purchase of shares should the offer be oversubscribed. The offer provided in part:

Upon the terms and subject to the conditions of the Offer, if more than 30,000,000 Shares (or any greater number of Shares to be purchased pursuant to the Offer) shall be validly tendered on the Proration Date and not withdrawn, then Shares so tendered shall be purchased, as provided in Section 2, on a pro rata basis ... according to the number of Shares tendered on the Proration Date In the event of proration, because of the difficulty of determining the precise number of Shares validly tendered, the Purchaser does not expect that it would be able to announce the final proration factor until approximately nine New York Stock Exchange ... trading days after the Proration Date.

by each shareholder, and Shares tendered after the Proration Date will not be purchased. If fewer than 30,000,000 Shares are tendered on the Proration Date and not withdrawn, all Shares so tendered and not withdrawn will, subject to the terms and conditions of the Offer, be purchased and any Shares validly tendered thereafter will be purchased on a first-come, first-served basis until 30,000,000 shares ... shall have been purchased.

This proration procedure is required by Section 14(d)(6). ² Shareholders must accept the offer by the proration date in order to qualify for the pro rata purchase but can withdraw at any time before the expiration date. 15 U.S.C. Sec. 78n(d)(5). The original proration date, November 28, 1981, was set, also pursuant to Section 14(d)(6), for ten days after the announcement of the offer. However, extensions of the expiration date and of the proration date were necessitated by litigation involving Mobil. ³ On December 1, 1981, a first Supplement to Offer extended the proration date to December 4, 1981. The offer itself was extended, pursuant to an order of the Sixth Circuit, to January 6, 1982. ⁴

The offer provided several methods by which Marathon shareholders could tender their shares. One alternative was simply to deliver the shares to Bankers Trust, U.S. Steel's chosen depositary, on or before the proration date, December 4, 1981. Other methods were provided for shareholders without immediate access to their share certificates. These provisions called for notice of acceptance of the offer within the proration period but permitted delivery of a shareholder's certificates by various means within eight New York Stock Exchange trading days after the shareholder's acceptance of the offer. To fall within the proration period under these latter methods, therefore, a shareholder had to accept the tender offer by Friday, December 4 and deliver the shares by Wednesday, December 16.

To summarize, the final offer had a proration date of December 4, 1981, a delivery date of December 16, 1981, and an expiration date of January 6, 1982. Because shareholders who met both the proration and delivery deadlines might nevertheless withdraw their shares at any time on or before January 6, 1982, however, the precise number of shares eligible for pro rata purchase could not be determined before this last date.

The offer contained a provision enabling U.S. Steel to determine the validity of tenders. It stated:

All questions as to the validity, form, eligibility (including time of receipt) and acceptance of any tender of Shares will be determined by the Purchaser, whose determination will be final and binding. The Purchaser reserves the absolute right to reject any or all tenders not in According to the complaint, the Second Supplement to Offer published December 14 stated that 51 million shares were tendered and delivered within the dates established for proration. U.S. Steel purchased 30 million shares from the tendered shares shortly after midnight on January 7, 1982. A January 8 press release stated that 54.2 million shares were in the pool selected from, while a January 11 release put the figure at 53,880,360. On January 11, three days after the actual purchase, shareholders received cash for 55.6% of the shares tendered.

proper form or the acceptance of or payment for which may, in the opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves the absolute right to waive any of the conditions of the Offer or any defect or irregularity in the tender of any Shares. None of the Purchaser, United States Steel, the Depositary, the Information Agent, the Dealer Managers or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such information.

According to the complaint, about 3 million shares that had not been tendered in compliance with the proration and delivery dates were included in the proration pool, thus reducing the proration factor from 58.8% to 55.6%. Plaintiff thus alleges that 3.2% of the shares entitled to proration should have been purchased but were not. Calculating the losses arising from U.S. Steel's failure to purchase this 3.2% of the properly tendered shares at $50 per share, Pryor alleges that the class of holders who had timely tendered lost $83 million plus interest from January 7, 1982.

The district court dismissed plaintiff's claim that expansion of the proration pool violated Section 14(d)(6). We affirm the dismissal of the claims against Bankers Trust but reverse the dismissal of the Section 14(d)(6) claim against U.S. Steel.

DISCUSSION

1. Section 14(d)(6)

Section 14(d)(6) requires that offers for less than an entire class of equity securities be subject to a ten-day proration period. The district court rejected Pryor's Section 14(d)(6) claim on the grounds that the statute simply creates a mandatory minimum proration period and that an offeror might, after the proration, delivery, and expiration dates, extend the proration period. In its view, U.S. Steel's offer thus complied with Section 14(d)(6) and the extension of the proration period specified in the tender offer was actionable, if at all, only in a state law breach of contract action. 591 F.Supp. 949. The district court found support for its view, that the statute merely creates a mandatory minimum proration period, in two SEC Rules. Rule 14d-8, ⁵ 17 C.F.R. 240.14d-8, at the time of this offer exempted from Section 14(d)(6) offers that provided for proration periods of longer than ten days. Rule 14d-6(e)(vi), 17 C.F.R. 240.14d-6(e)(vi), required offerors to disclose in their offering materials their intentions with respect to proration. Since these rules contemplated proration periods of more than ten days, the district court reasoned, Section 14(d)(6) is implicated only in situations in which an offeror fails to provide the ten-day minimum period.

We disagree. We believe that by failing to enforce the ten-day deadline...