Shamrock Holdings, Inc. v. Polaroid Corp.

• Decision Date: 20 March 1989
• Docket Number: Civ. A. No. 89-93-CMW.
• Citation: 709 F. Supp. 1311
• Parties: 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, Plaintiffs, v. POLAROID CORPORATION, a Delaware corporation, Defendant.
• Court: U.S. District Court — District of Delaware

709 F. Supp. 1311

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, Plaintiffs, v. POLAROID CORPORATION, a Delaware corporation, Defendant.

Civ. A. No. 89-93-CMW.

United States District Court, D. Delaware.

March 20, 1989.

COPYRIGHT MATERIAL OMITTED

A. Gilchrist Sparks, III and Lawrence A. Hamermesh of Morris, Nichols, Arsht & Tunnell, Wilmington, Del. (Fried, Frank, Harris, Shriver & Jacobson, New York City, of counsel), for plaintiffs.

R. Franklin Balotti, Jesse Finkelstein, C. Stephen Bigler and Anne C. Foster of Richards, Layton & Finger, Wilmington, Del. (John R. Hupper, Robert S. Rifkind and Stuart W. Gold of Cravath, Swaine & Moore, New York City, of counsel), for defendant.

OPINION

CALEB M. WRIGHT, Senior District Judge.

Plaintiffs Shamrock Holdings, Inc., Shamrock Holdings of California, Inc., Shamrock Capital Investors III, Inc., Emerald Isle Associates, L.P. and Shamrock Acquisition III, Inc. (collectively "Shamrock") brought this action for injunctive relief on March 1, 1989, against defendant Polaroid Corporation ("Polaroid").¹ This action is the latest eddy in what has become a maelstrom of litigation surrounding Shamrock's unwelcome effort to acquire Polaroid.

Shamrock seeks preliminary and permanent injunctive relief against the cash self-tender offer for up to 16 million shares of Polaroid common stock commenced February 21, 1989, ("Offer") by defendant Polaroid. The Offer is scheduled to expire March 20, 1989, unless extended. Shamrock contends the Offer is violative of Sections 13(e), 14(a) and 14(e) of the Securities and Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78m(e), 78n(a) and 78n(e), and the rules and regulations promulgated thereunder by the Securities and Exchange Commission ("SEC"). Shamrock seeks corrective disclosure and pre-clearance of certain materials with the SEC. The Court has jurisdiction pursuant to Section 27 of the Exchange Act, 15 U.S.C. § 78aa and 28 U.S.C. §§ 1331, 2201 and 2202. This Opinion shall constitute the Court's Findings of Fact and Conclusions of Law as required by F.R.C.P. 52(a).

I. BACKGROUND

A. Facts and Procedural History

Much of the background of the protracted litigation between Polaroid and Shamrock has been presented elsewhere, see Polaroid Corp. v. Disney, 698 F.Supp. 1169, 1171-73 (D.Del.1988), aff'd in part and vacated in part, 862 F.2d 987, 990-91 (3d Cir.1988), and thus will not be repeated here except as relevant. On September 9, 1988, Shamrock commenced a $2.6 billion hostile tender offer for all outstanding common shares of Polaroid at $42 per share, excluding shares held through Polaroid's Employee Stock Ownership Plan ("ESOP"), the validity of which Shamrock is challenging in separate litigation in the Delaware state courts.² Polaroid filed suit in this Court on September 20, 1988, against Shamrock and several individual defendants. It sought an injunction against Shamrock's offer based, inter alia, on several alleged violations of the securities laws.

On October 14, 1988, this Court denied Polaroid's motion for a preliminary injunction. See Polaroid Corp. v. Disney, 698 F.Supp. 1169 (D.Del.1988). On November 23, 1988, the United States Court of Appeals for the Third Circuit reversed the District Court's refusal to grant Polaroid's motion for a preliminary injunction and remanded the case to the District Court. See Polaroid Corp. v. Disney, 862 F.2d 987 (3d Cir.1988). The District Court preliminarily enjoined the Shamrock offer on November 29, 1988. Following distribution by Shamrock of supplemental disclosure and a press release pursuant to Court order, the Court vacated the injunction by order dated December 14, 1988.

On January 19, 1989, Shamrock amended its tender offer to increase its offer price to $45 per share, including the ESOP shares. Like its initial offer, Shamrock's revised offer is subject to a number of terms and conditions, which are set forth in the Second Supplement to Shamrock's Offer to Purchase ("Revised Offer"). Shamrock indicated that it intends to extend the Revised Offer from time to time until the earlier of (a) a final judicial determination of whether the ESOP shares were validly issued or (b) the 1989 annual meeting of Polaroid shareholders, now scheduled for May 9. If there is a final judicial determination that the ESOP shares were not validly issued, Shamrock has stated that it intends to amend its offer to increase the price to be paid to $47 per share for 100% of Polaroid's then outstanding shares, which would presumably exclude the ESOP shares. On March 15, 1989, Shamrock extended its offer until May 15, 1989.

In conjunction with the Revised Offer, Shamrock announced that, if the offer is not consummated prior to the scheduled May 9, 1989, annual meeting of Polaroid shareholders, Shamrock intends to seek the election at the meeting of a slate of directors who will be committed to the sale of Polaroid. Shamrock further disclosed that it anticipates that, following their election, the new directors will effectuate the sale of Polaroid to Shamrock pursuant to the Revised Offer unless a bona fide third-party offer is made for all outstanding Polaroid shares at a higher price and on other terms and conditions that are no less favorable to Polaroid shareholders. In the latter event, the new directors will facilitate the sale of Polaroid pursuant to such other offer.

On February 3, 1989, Schedule 14B filings were made on behalf of persons required to make such filings under SEC Rule 14a-11(c)(1), 17 C.F.R. § 240.14a-11(c)(1). That same day, Shamrock also announced its slate of 14 nominees for election as new directors. On February 12, 1989, Schedule 14B filings were made by Polaroid.

On January 24, 1989, Polaroid announced that its board had met and determined to reject Shamrock's Revised Offer and to recommend to stockholders that they not tender to Shamrock. Polaroid stated that among the factors that the board considered in deciding to reject the Revised Offer was that "until the ultimate amount of the recovery in the Kodak litigation is finally adjudicated, such recovery is likely to be undervalued by third parties as a result of uncertainty and their own lack of knowledge of the full merits of the Company's claim."³ Offer at 10. Polaroid further stated that its board had relied on the opinion of Polaroid's investment banker, Shearson Lehman Hutton, Inc. ("Shearson"), that the Revised Offer was "inadequate from a financial point of view." Id.

On January 30, 1989, Polaroid announced a "recapitalization", which included a preferred stock issuance and a share repurchase program. The preferred stock issuance is part of the financing for the repurchase program. Offer at 4. That same day, Polaroid, in exchange for an aggregate purchase price of $300 million, issued $300 million in convertible preferred shares to an investor group led by Corporate Partners, L.P. ("Corporate Partners"), a Delaware limited partnership organized by the investment banking firm of Lazard, Freres & Co. The shares pay dividends of 11% to 11.5%. The preferred stock is convertible into common stock at $50 per share, thus amounting to six million new Polaroid shares. Corporate Partners also received the right, for seven years, to convert 635,000 warrants for an equal amount of common stock, also at $50 apiece, thus raising its potential total holdings of Polaroid common stock to at least 6.6 million shares. Additionally, the agreement provided that Corporate Partners and its fellow investors may designate two new Polaroid directors, thus increasing the size of the board from its current 12 members to 14.

As the second part of its recapitalization plan, Polaroid announced its intention to repurchase $1.125 billion of its outstanding shares.⁴ As is set forth in Polaroid's Offer of February 21, 1989, $800 million (16 million shares at $50 per share) of those shares are to be repurchased by means of the self-tender offer, scheduled to expire March 20, 1989, unless extended. The Offer states that, after the consummation of the self-tender offer, Polaroid intends to purchase the remaining $325 million of shares "in the open market, in privately negotiated transactions or otherwise." ("Selective Buyback") Offer at 4.⁵

The Offer is not conditioned on any minimum number of shares being tendered. Offer at 1. If more than 16 million shares are validly tendered, Polaroid will accept shares for payment on a pro rata basis. Id. at 3.

B. Related Litigation

On January 30, 1989, Shamrock commenced a lawsuit in the Delaware Chancery Court seeking, inter alia, to enjoin Polaroid's preferred stock issuance and the stock repurchase program. See Complaint in Shamrock Holdings, Inc. v. Polaroid Corp., No. 10582, 1989 WL 7033 (Del.Ch. filed Jan. 30, 1989). The focus of that dispute is whether Polaroid and its directors have fulfilled their fiduciary duties under Delaware law in making the self-tender and in issuing the preferred stock. The amended complaint in that action seeks, inter alia, recision of the issuance of the preferred stock. Vice Chancellor Berger heard oral argument on Shamrock's request for a preliminary injunction on February 27, 1989.

On March 6, 1989, the Delaware Supreme Court, which was considering an appeal of Vice Chancellor Berger's January 6, 1989, decision upholding the validity of the Poloroid ESOP, ordered that the dispute concerning the validity of the ESOP be considered in conjunction with Shamrock's challenge to the Polaroid recapitalization plan. In re Polaroid Shareholders Litig., Del.Supr., No. 13, 1989, Horsey, J. (March 6, 1989) (Order).

On March 17, 1989, Vice Chancellor Berger issued an Opinion that constituted a decision on the plaintiffs' ...