WLR Foods, Inc. v. Tyson Foods, Inc.
| Decision Date | 22 September 1995 |
| Docket Number | No. 95-1039,95-1039 |
| Citation | 65 F.3d 1172 |
| Parties | , Fed. Sec. L. Rep. P 98,900, 32 Fed.R.Serv.3d 1397 WLR FOODS, INCORPORATED, Plaintiff-Appellee, v. TYSON FOODS, INCORPORATED; WLR Acquisition Corporation, Defendants-Appellants, William H. Groseclose; Herman D. Mason; George E. Bryan; Calvin G. Germroth; Charles W. Wampler, Jr.; James L. Keeler; Charles L. Campbell; Stephen W. Custer; J. Craig Hott; William D. Wampler, Defendants-Appellees, Albemarle Corporation; Bassett Furniture Industries, Incorporated; Cadmus Communications Corporation; Central Fidelity Banks, Incorporated; CFW Communications Company; Chesapeake Corporation; Crestar Financial Corporation; CSX Corporation; Dana Corporation; Dibrell Brothers, Incorporated; Ethyl Corporation; Executone Information Systems, Incorporated; First Colony Corporation; Garan, Incorporated; James River Corporation; Lawyers Title Corporation; Media General, Inc.; Olin Corporation; Owens & Minor, Inc.; Philip Morris Companies, Incorporated; Piedmont Bankgroup, Incorporated; The Pittston Company; TFC Enterprises, Incorporated; Tredegar Industries, Incorporated; Union Camp Corporation; United Dominion Realty Trust, Incorporated; Universal Corporation; Commonwealth of Virginia, Amici Curiae. |
| Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED: Richard Chase Tufaro, Milbank, Tweed, Hadley & McCloy, Washington, DC, for appellants. Douglas Leigh Guynn, Wharton, Aldhizer & Weaver, P.L.C., Harrisonburg, VA, for appellees. ON BRIEF: Thomas F. Farrell, II, Thomas E. Spahn, McGuire, Woods, Battle & Boothe, L.L.P., Richmond, VA, for appellants. Thomas E. Ulrich, Wharton, Aldhizer & Weaver, P.L.C., Harrisonburg, VA, for appellee WLR Foods; John W. Zunka, Richard H. Milnor, Taylor, Zunka, Milnor & Carter, Ltd., Charlottesville, VA, for appellees Bryan, et al. F. Claiborne Johnston, Jr., James S. Crockett, Jr., Mays & Valentine, Richmond, VA, for amici curiae Albemarle Corp., et al. James S. Gilmore, III, Attorney General of Virginia, Catherine C. Hammond, Deputy Attorney General, Richard B. Zorn, Senior Assistant Attorney General, John B. Sternlicht, Assistant Attorney General, Office of the Attorney General, Richmond, VA, for amicus curiae Commonwealth of Virginia.
Before ERVIN, Chief Judge, MURNAGHAN, Circuit Judge, and PHILLIPS, Senior Circuit Judge.
Affirmed by published opinion. Judge MURNAGHAN wrote the opinion, in which Chief Judge ERVIN and Senior Judge PHILLIPS joined.
The instant case arose from an attempt by Tyson Foods, Inc. ("Tyson"), a nationwide poultry producer, to acquire WLR Foods, Inc. ("WLR"), a chicken and turkey producer. In early 1994, Tyson engaged in extensive discussions with certain members of WLR's Board of Directors ("the WLR Board") in an attempt to arrange a merger between Tyson and WLR. The WLR Board, resistant to the idea of being acquired by Tyson, adopted various defensive measures to protect WLR against the takeover. Tyson eventually presented a tender offer directly to the stockholders of WLR, but withdrew the offer several months later, claiming that, due to actions taken by the WLR Board Tyson's offering price was no longer reflective of the value of WLR's stock. Tyson now challenges several rulings of the district court, which found that the defensive tactics adopted by the WLR Board were a valid legal means by which to respond to the threatened takeover of WLR by Tyson.
Tyson is a large poultry producer incorporated in Delaware, with its principal office in Arkansas. Tyson conducts operations in many states, including Virginia. WLR is a Virginia corporation with a substantial turkey operation as well as a chicken business. The stocks of both companies are publicly held and traded.
In late 1993 and again on January 3, 1994, Don Tyson, Chairman of Tyson, contacted James Keeler, President and Chief Executive Officer of WLR, with a proposal to merge WLR with Tyson. Don Tyson's proposal included an offer to buy WLR stock from the shareholders at thirty dollars per share. Keeler informed Don Tyson that WLR was not for sale, but nevertheless met with Mr. Tyson on January 12, 1994 to discuss the proposal.
An informal WLR Board meeting was held on January 20, 1994 regarding the Tyson offer. No minutes were recorded at the meeting, and no votes were taken. The consensus of the Board at the meeting was that it preferred for WLR to remain independent and would reject Tyson's offer. On January 24, 1994, Keeler informed Don Tyson that he had spoken with the Board, and that WLR wished to remain independent. On that same day, Don Tyson delivered a letter to WLR's Board describing the acquisition proposal. In response, on January 25, 1994, Keeler issued a letter to WLR shareholders asserting that WLR was "not for sale," but stating:
As it must, WLR Foods Board will meet in the near future to evaluate Tyson's offer. Be assured that your Board will listen carefully to its advisors and management and make a decision it believes is in the best interest of, and appropriately protects, our shareholders, employees and producers. In this regard, the Board's historical commitment to the continued independence of WLR Foods will be keenly important.
WLR next sought advisors to provide guidance concerning the proposed merger. Keeler travelled to Washington, D.C. and with the help of WLR management and counsel, interviewed potential financial advisors. At a WLR Board meeting on January 25, 1994, the Board approved the suggestion of the management team to hire Goldman, Sachs & Co. and Wheat, First, Butcher & Singer for financial advice, as well as to retain the services of two law firms, Sullivan & Cromwell and Wharton, Aldhizer & Weaver. On January 28, 1994, the WLR Board met with its management, advisors, and counsel to discuss the implications of the merger proposal and to receive information from the advisors. The minutes of the meeting reflect that no decision was reached that day regarding the merger.
On February 4, 1994, the WLR Board reconvened to discuss the merger with its advisors. After representatives of Goldman, Sachs & Co. concluded that Tyson's offer of thirty dollars per share was inadequate, the Board considered the recommendation and voted to reject the Tyson merger proposal. The Board also adopted certain measures to defend against a possible takeover attempt. The Board amended WLR's bylaws to provide that the chairman and vice-chairman of the WLR Board were not officers of the corporation. It further amended the bylaws to establish that the record date for purposes of any vote under the Virginia Control Share Acquisitions Act would be the date on which an acquiring person requested a special shareholder's meeting for such a vote. 1 In addition, four WLR directors, Charles Wampler, William Wampler, Herman Mason, and George Bryan, resigned from their positions as WLR employees, and the Board approved a package of lifetime health benefits for each of them. Finally, the WLR Board adopted a shareholder rights plan, or "poison pill," in order to provide that the acquisition by Tyson of fifteen percent or more of WLR's stock would trigger an option for all shareholders except Tyson, the acquiring shareholder, to purchase WLR stock at a favorable price, thereby diluting the value and voting rights of Tyson's stock. WLR notified Don Tyson by a letter dated February 6, 1994 that the Board had unanimously decided not to pursue merger negotiations with Tyson.
WLR initiated the instant action in the United States District Court for the Western District of Virginia on February 6, 1994, seeking declaratory relief regarding the constitutionality of certain Virginia statutes as well as the validity of the shareholder rights plan adopted at the February 4, 1994 WLR Board meeting. Tyson answered WLR's complaint on February 25, 1994 and asserted counterclaims against WLR. Tyson sought a declaration that the Virginia statutes which allow companies to adopt defensive measures against takeover attempts were unconstitutional, as well as an injunction against defensive actions taken by the WLR Board under those statutes.
On March 9, 1994, Tyson presented its thirty dollars per share cash tender offer directly to WLR's stockholders. The offer was launched through Tyson's wholly-owned subsidiary, WLR Acquisition Corp., a company that was created to effectuate the merger with WLR. On April 14, 1994, Tyson submitted a control share statement to WLR. April 14 thus became the Control Share Acquisitions Act record date under WLR's amended bylaws, and a special shareholders meeting and control share referendum were set for May 21, 1994. At the shareholders meeting, the WLR directors urged the shareholders to vote against the referendum, which would have permitted Tyson to vote its shares in favor of a takeover. Tyson was not able to secure a majority of the shares eligible to vote, and the referendum was, therefore, defeated.
On July 27, 1994, WLR entered into an agreement with Cuddy Farms, Inc. and Cuddy International Corp. (collectively, "Cuddy") to acquire Cuddy's assets in exchange for cash and a percentage of WLR's common stock. As part of the transaction, WLR and Cuddy came to an agreement which provided that Cuddy would vote the approximately ten percent of WLR's stock that it had acquired in the transaction in accordance with the directions of the WLR Board for a four-year period. The Cuddy transaction further diluted the voting power of Tyson's WLR stock. Tyson terminated its tender offer on August 4, 1994, feeling that its offer of thirty dollars per share was no longer an accurate reflection of the worth of WLR's stock.
On December 6, 1994, the district court in the instant case entered a final order denying relief to Tyson on its claims. On appeal, Tyson both renews the claims raised in the district court against WLR, and challenges a district...
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