475 F. Supp. 783 (S.D.N.Y. 1979)
Fairleigh S. Dickinson, Jr., son of one of BD's founders, served as chief executive from 1948 until 1973 and chairman until April 1977.1 After conflicts with CEO Wesley Howe and COO Marvin Asnes, the board removed Dickinson as chairman on April 20, 1977, giving him the title of Honorary Chairman.2 Dickinson, whose family held roughly 5% of BD shares, met with Salomon Brothers on April 21, 1977, to explore selling his stock to a company interested in acquiring BD.3 He engaged Salomon and, days later, Eberstadt to locate such a buyer. Between April and December 1977 the firms contacted Avon, American Home Products, Monsanto, Hoffman-LaRoche, Schering-Plough and Squibb, representing that Dickinson's, Dunning's, Lufkin's and Chemical Fund's shares would be available.4
In late November 1977 Salomon introduced Sun Company to BD as a diversification candidate. Sun's corporate development committee studied the company and, after meetings in December 1977 and early January 1978, the executive committee authorized a $350 million expenditure to acquire up to 34% of BD.5 On January 14 and 15, 1978, Salomon and Eberstadt offered Dickinson, his daughter Ann Dickinson Turner and J.H. Fitzgerald Dunning the chance to sell at $45 per share or $40 with a most-favored-nation clause.6 On January 16, after the NYSE close, solicitors contacted institutions and several individuals using prepared scripts that stressed confidentiality, a 20% minimum condition and a one-hour response deadline.7
Institutions accepting the offer sold more than six million shares. By January 18 Sun had taken physical possession of the certificates and proxies, securing roughly 34% of BD's outstanding stock.8 Sun filed its Schedule 13D on January 19; Dickinson, Turner and Dunning filed theirs the same day or shortly thereafter. BD launched a lobbying and media campaign urging investigation. The SEC commenced an enforcement action; BD, its officers and shareholders filed suit; and five class actions were consolidated with the Commission's case.9 A bifurcated liability trial began November 13, 1978, and concluded December 8, 1978.10
Whether Sun's January 1978 purchases of BD stock constituted a tender offer requiring a pre-acquisition filing under Section 14(d) of the Securities Exchange Act of 1934?11
Section 14(d) of the Securities Exchange Act of 1934 requires any person making a tender offer for more than 5% of a class of registered equity securities to file a statement with the Commission before the offer is first published or sent. A tender offer is identified by the presence of active and widespread solicitation of public shareholders, an offer for a substantial percentage of the issuer's stock, a premium over market price, firm rather than negotiable terms, contingency on the tender of a fixed number of shares, a limited time period for the offer, and pressure on offerees to sell.12
Yes. The court applied these characteristics to the specific facts of Sun's acquisition.13 On January 16, 1978, after the NYSE close, solicitors contacted institutions and several individuals using prepared scripts that stressed confidentiality, a 20% minimum condition, and a one-hour response deadline.14 The offer was made at $45 per share with a most-favored-nation clause, was contingent on reaching the minimum, and secured more than six million shares in a single integrated project planned to avoid detection.15
These facts establish active and widespread solicitation, a premium price, firm terms, contingency on a fixed number of shares, limited time, and pressure on offerees, satisfying the elements of a tender offer even without publicity.16
Sun's January 1978 purchases constituted a tender offer requiring a pre-acquisition filing under Section 14(d) of the Securities Exchange Act of 1934, which Sun violated.17
Whether Dickinson, Eberstadt, M & D, Lufkin, Dunning and others formed a group required to file a statement under Section 13(d) of the Securities Exchange Act of 1934?18
Section 13(d) of the Securities Exchange Act of 1934 requires any person or group acquiring beneficial ownership of more than 5% of a class of registered equity securities to file a statement within ten days.19 When two or more persons act as a group for the purpose of acquiring, holding, or disposing of securities, the group is deemed a person, and the formation of such a group triggers the filing requirement if the group holds more than 5%.20
Yes. The court applied the group definition to the specific facts of the coordinated effort.21 Dickinson engaged Salomon and Eberstadt in April 1977 to locate a buyer for his shares and those of Dunning, Lufkin, and Chemical Fund as part of a takeover effort.22 Between April and December 1977 the firms contacted multiple companies while representing that the shares of Dickinson, Dunning, Lufkin, and Chemical Fund would be available.23
Eberstadt's Zeller coordinated with the funds' directors to secure approval for the sale, and the participants acted in concert to pool their holdings for a shift in corporate control.24 These facts establish an agreement to act together for the common purpose of disposing of shares to effectuate a change in control, forming a group beneficially owning more than 5%.25
Dickinson, Eberstadt, M & D, Lufkin, Dunning and others formed a group required to file a statement under Section 13(d) of the Securities Exchange Act of 1934, which they violated by failing to file.26
Whether Sun's post-acquisition Schedule 13D filing satisfied the requirements of Section 13(d) of the Securities Exchange Act of 1934?27
Section 13(d) of the Securities Exchange Act of 1934 requires a filing that truthfully discloses the purpose of the transaction, including any plans to seek additional shares, propose a merger, or seek board representation.28 The filing must be complete and accurate to inform investors of potential shifts in corporate control.29
Yes. The court applied the disclosure standard to the specific facts of Sun's filing.30 Sun's January 19 Schedule 13D stated that it sought a significant equity interest while evaluating the company and was considering purchasing additional shares, proposing a merger, or seeking board representation.31 The statement also disclosed that Sun's 34.1% holding would allow it to use the equity method and block mergers or charter amendments under New Jersey law and BD's governing documents.32
These facts show that the filing sufficiently disclosed Sun's options and the power its stake conferred, satisfying the statutory requirements despite not explicitly stating a plan for a 100% takeover.33
Sun's post-acquisition Schedule 13D filing satisfied the requirements of Section 13(d) of the Securities Exchange Act of 1934.34
Whether Eberstadt violated Sections 17(d) and 17(e) of the Investment Company Act of 1940 by involving the Chemical and Surveyor Funds in the Sun transaction?35
Section 17(d) of the Investment Company Act of 1940 prohibits an affiliated person from effecting a transaction in which a registered investment company is a joint participant without Commission approval.36 Section 17(e) prohibits an affiliated person acting as agent from accepting compensation for the purchase or sale of property to or for the registered company except in the ordinary course of business as an underwriter or broker.37
Yes. The court applied these prohibitions to the specific facts of Eberstadt's role.38 Eberstadt, as 75% owner of M & D which advised the Chemical and Surveyor Funds, was an affiliated person.39 Zeller involved the funds in the Sun transaction from the outset by polling directors for blind approval of the sale and arranging for Eberstadt to receive a $350,000 fee conditioned on the acquisition.40
Eberstadt reimbursed the funds for a portion of the fee but did not obtain prior Commission approval.41 These facts establish that the funds were joint participants and that Eberstadt accepted compensation while acting as agent without the required approval.42
Eberstadt violated Sections 17(d) and 17(e) of the Investment Company Act of 1940 by involving the Chemical and Surveyor Funds in the Sun transaction, and Zeller and M & D aided and abetted the violation.43
Whether Sun violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-13 by purchasing shares from Dickinson and Turner on terms different from those offered other solicitees?44
Rule 10b-13 under the Securities Exchange Act of 1934 prohibits a tender offeror from making purchases on terms different from those of the tender offer during the offer's duration.45 The rule safeguards the interests of persons who have tendered by preventing the offeror from granting advantages to some shareholders that others cannot obtain.46
Yes. The court applied the rule to the specific facts of the purchases from Dickinson and Turner.47 Sun offered Dickinson and Turner the option to receive part of the payment in cash and the remainder in installments over eight years at 8% interest, a tax benefit not extended to other solicitees such as Willock, Smith, and Drake.48 The deferred payment arrangement was made while the overall acquisition was underway and differed from the uniform $45 or $40 most-favored-nation terms offered to institutions and other individuals.49
These facts establish that Sun made purchases on different terms during the transaction, violating the rule.50
Sun violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-13 by purchasing shares from Dickinson and Turner on terms different from those offered other solicitees.51
Whether BD, its officers and shareholders had standing to seek equitable relief for alleged violations of the Williams Act?52
A target company has standing to seek post-acquisition equitable relief for violations of the Williams Act when the acquisition has been consummated in a manner that prevents pre-acquisition relief.53 Shareholders of the target company who were deliberately bypassed in a selective offer also have standing because they are within the class the Act was designed to protect.54
Yes. The court applied the standing principles to the specific facts of the litigation.55 BD sought equitable relief after Sun had secretly acquired 34% of its stock through a swift maneuver that prevented BD from obtaining a preliminary injunction before consummation.56 The class plaintiffs were shareholders who were not given the opportunity to decide whether to sell because they were deliberately bypassed in favor of a select group of institutions and individuals.57
These facts place BD and the shareholders within the protected class and establish that equitable relief remains available after consummation.58
BD, its officers and shareholders had standing to seek equitable relief for alleged violations of the Williams Act.59
Whether the class plaintiffs had standing to assert claims under Sections 13(d), 14(d) and 14(e) of the Securities Exchange Act of 1934?60
Shareholders of the target corporation have standing to assert claims under Sections 13(d), 14(d) and 14(e) of the Securities Exchange Act of 1934 when they are part of the class the Williams Act was designed to protect, including those who were not confronted with a tender offer because they were deliberately bypassed.61
Yes. The court applied the standing principles to the specific facts of the class action.62 The class plaintiffs were all persons who owned BD stock or convertible debentures as of January 16, 1978, except defendants and those who sold to Sun.63 They were deliberately excluded from the selective solicitation that allowed Sun to acquire 34% of the company without prior disclosure.64
These facts establish that the class plaintiffs are within the protected class of target shareholders and have standing to assert the claims even though no offer was made directly to them.65
The class plaintiffs had standing to assert claims under Sections 13(d), 14(d) and 14(e) of the Securities Exchange Act of 1934.66