Fed. Sec. L. Rep. P 97,687 McDermott Incorporated v. Wheelabrator-Frye, Inc., Pullman Incorporated

649 F.2d 489, 1980 U.S. App. LEXIS 13704

• Court: Court of Appeals for the Seventh Circuit
• Decided: September 25, 1980
• Docket: 80-2306
• Status: Published

Opinions

FAIRCHILD and SWYGERT, Circuit Judges.

Defendant-appellant, WheelabratorFrye, Inc. (“Wheelabrator”), and plaintiffappellee, McDermott, Inc. (“McDermott”), are engaged in rival tender offers for ownership and control of Pullman Incorporated (“Pullman”). All three are large, highly diversified corporations. Late in the afternoon of September 19, 1980, McDermott moved in the district court for a temporary restraining order alleging that Wheelabrator had violated certain provisions of the Williams Act, 15 U.S.C. §§ 78m(d)-(e), 78n(d)-(f), and regulations promulgated thereunder, 17 C.F.R. §§ 240.14d-l et seq., by increasing the number of Pullman shares it was seeking, without extending the closing date for its tender offer, which was due to expire that midnight. The district court granted McDermott’s motion that evening, and ordered Wheelabrator to extend its tender offer until midnight, October 17, 1980 and to provide Pullman shareholders who had already tendered their shares the right to withdraw their shares within 15 business days of September 15, 1980. For reasons hereinafter stated, we vacate the district court’s order entered September 19, 1980.

For the purposes of this appeal it is sufficient to note the following facts. McDermott began a hostile tender offer for Pullman on July 3, 1980.¹ On August 22, 1980, Wheelabrator began a rival tender offer with the announced purpose of effecting a merger between it and Pullman. Pullman management welcomed this second offer. During the following weeks, McDermott, Wheelabrator and Pullman engaged in a series of maneuvers now typical of tender offer strategy and defense. Pullman has about 11,150,000 shares outstanding which are listed on the New York Stock Exchange.

As of 7 a. m., Chicago time, September 19,1980, Wheelabrator’s tender offer was to purchase 3,000,000 shares of Pullman at $52.50 per share, reserving the right to purchase an additional 1,000,000 shares. This offer was due to expire at midnight, New York time, September 19. If the offer was successful in the second-stage merger, non-tendering Pullman shareholders were to receive 1.1 Wheelabrator shares for each Pullman share. Some 1,000,000 Pullman shares had been tendered under this Wheelabrator offer.

Also on the morning of September 19, McDermott’s tender offer was to purchase 5,400,000 shares of Pullman at $43.50 per share. The McDermott offer was due to expire at midnight, New York time, September 26. McDermott’s announced intention was also to seek a business combination between it and Pullman. McDermott had not yet specified what consideration it would offer to the remaining Pullman shareholders in the second stage of their acquisition of Pullman. As of that morning, some 3,882,000 shares had been tendered to McDermott.

On Friday morning, between 7:45 and 8:40, Chicago time, Wheelabrator announced it was increasing the number of securities it was seeking to 5,500,000. Its press announcement stated that no other terms and conditions of its offer were being changed. Between the time this announcement was made until 2:00 p. m., Chicago time, the number of shares tendered to Wheelabrator did not significantly change, in all likelihood because the arbitrageurs who were holding a majority of the outstanding Pullman shares were waiting for an increased bid expected from McDermott. There was no appreciable reaction to the Wheelabrator announcement on the New York Stock Exchange.

Shortly after 2:00 p. m., Chicago time, McDermott announced that it was increasing its offer to $54 a share and that in the second stage combination, non-tendering Pullman shareholders would receive securities valued at about $39 a share. This offer was extended to September 29. Paradoxically, by midnight, New York time, Friday, September 19, Wheelabrator’s offer was in fact oversubscribed: some 7,300,000 shares had been irrevocably tendered, although Wheelabrator was only seeking 5,500,000. Nearly all of the shares provisionally tendered to McDermott had been withdrawn. Had the district court not intervened, Wheelabrator’s tender offer would have been successful; it would have been able to purchase up to 5,500,000 shares and its 49 percent stake in Pullman would have conferred effective control on Wheelabrator.

However, at 4:15 p. m., Chicago time, September 19, after McDermott increased its offer to $54.00 and while shareholders were nevertheless tendering to Wheelabrator, McDermott appeared before the district court seeking a restraining order against Wheelabrator’s closing offer. During an extended hearing lasting past 8:00 p. m., McDermott argued that the increase in the amount of securities being sought constituted such a material change in the offer that it was in effect a new tender offer and required an additional time extension. The district court agreed, stating:

It seems that the withdrawal period was more than the 10-day period so the consequence of my finding has to be that Wheelabrator is obligated to hold the offer open 20 business days because it is a new offer with 15 business days to withdraw.

During its consideration of the time extension required, the district court discussed several alternative periods of time during which Wheelabrator would be compelled to keep this new offer open, but ultimately concluded that the tender offer rules, 17 C.F.R. § 240.14d-l(a), required a full 20 day extension.

In making this determination the district court had before it its own September 3, 1980 order in the related case Pullman Incorporated v. J. Ray McDermott, Inc., No. 80-C-3555.² There the district court found that McDermott’s August 29, 1980, modification of its tender offer constituted a new tender offer and mandated the triggering of a complete 20 day tender offer period.³

With this previous order before it, the district court on September 19 granted a temporary restraining order, ordering that the Wheelabrator tender offer be extended 20 days, until October 17, and that shareholders withdrawal rights be extended 15 days.⁴

On September 22, Wheelabrator appealed to this court,⁵ filing at the same time an emergency motion for stay or in the alternative to vacate the preliminary injunction and for suspension of the rules. On that day we ordered oral argument on the emergency motion and on the appeal to be heard on September 23.⁶ Fed.R.App.P. 2.⁷ In light of the reasons set out hereinafter, we vacate the order issued by the district court.

The prerequisites for a granting of a preliminary injunction are well-settled in this circuit. In Fox Valley Harvestore v. A. O. Smith Harvestore Prod., 545 F.2d 1096 (7th Cir. 1976), we set out the criteria for a preliminary injunction and the standard we would apply to examine a district court’s grant of such an injunction. We said,

The grant of preliminary injunction is the exercise of an extremely far reaching power not to be indulged in except in a case clearly warranting it. ... The universally accepted standard for the appellate test of a preliminary injunction is whether there was an abuse of discretion in granting or denying it.... The discretion exercised by the district court is measured against several prerequisites: (1) the plaintiffs have no adequate remedy at law and will be irreparably harmed if the injunction does not issue; (2) the threatened injury to the plaintiffs outweighs the threatened harm the injunction may inflict on the defendant; (3) the plaintiffs have at least a reasonable likelihood of success on the merits; and (4) the granting of a preliminary injunction will not disserve the public interest.... A preliminary injunction is an extraordinary remedy which is not available unless the plaintiffs carry their burden of persuasion as to all of the prerequisites.

Id. at 1097 (footnotes, citations omitted). In our review of the district court’s order, we limit our analysis to the third criterion of Fox Valley. We must conclude that the preliminary injunction was improperly granted since it was based on an erroneous rule of law.

The district court’s order can only rest upon the proposition that the announcement of the increase in the number of shares Wheelabrator obligated itself to buy created a new tender offer, thereby triggering the time requirements of, the statute and regulations attendant upon the commencement of a tender offer. We conclude that this proposition is untenable, based upon our reading of the statute and regulations thereunder. Even an increase in consideration is not treated as a new tender offer. See 17 C.F.R. § 240.14e-l(b). It is illogical to assume that when the SEC, acting under rule-making authority granted by Congress, expressly required a ten day waiting period after a change in the consideration offered, id., it intended that an increase in the number of shares sought be the commencement of a new tender offer, triggering more extensive requirements than the SEC thought necessary for a change in the price.

It is argued that the regulations treat a change in the number of shares sought as a change in information, requiring the lapse of some reasonable time thereafter during which the tender offer must remain outstanding. 17 C.F.R. § 240.14d-4(c). Under the order appealed from, the offer has remained open while this appeal has been pending. Assuming without deciding that the regulations require the offer to remain outstanding for a reasonable period after the announcement made the morning of September 19, we think that the period of time which has already lapsed since the order of the district court on September 19 has clearly been an adequate period. We therefore see no need to remand to the district court to fix the reasonable time under this theory.⁸

Accordingly, the order appealed from is vacated and this court’s mandate shall issue forthwith.

1 . An appeal arising out of that offer, No. 80-2071, was decided September 24, 1980, 631 F.2d 736.

2 . Another order in 80-C-3555 was appealed in No. 80-2071, supra note 1. The district court’s September 3, 1980, order was not appealed by McDermott and is of course not before us today.

3 . These August 29 changes were: an increase in offering price from $28 to $43.50; increase in number of shares sought to provide control; announcement of intention to effect a business combination; and other conditions.

4 . At the same hearing before the district court, when Wheelabrator contended that McDermott would be given an advantage since its offer was scheduled to close earlier, the district court ordered McDermott’s offer to run on the same schedule as Wheelabrator’s. McDermott has not appealed this aspect of the district court’s order.

5 . Since the district court’s temporary restraining order in effect compelled Wheelabrator to extend its tender offer 20 days, and in view of the extraordinary consequences of that order we are treating the order as a preliminary injunction. Fed.R.Civ.P. 65; Sampson v. Murray, 415 U.S. 61, 86, 94 S.Ct. 937, 951, 39 L.Ed.2d 166 (1974). The district court also certified that its order involved a controlling question of law the resolution of which would materially advance the ultimate determination of the litigation. 28 U.S.C. § 1292(b). Since we treat the order as a preliminary injunction, we do not have to exercise our discretion granting review under 28 U.S.C. § 1292(b).

6 . That same day we informally invited the Securities and Exchange Commission to present a memorandum of law amicus curiae. Such a memorandum was filed September 24, 1980.

7 . We were prepared to take this appeal on an expedited basis since this same panel was to hear oral argument in the related case, No. 80-2071, which had been fully briefed. The panel was thus familiar with elements of this case’s background. Under other circumstances, this court may well hesitate to hear such matters as expeditiously.

8 . Wheelabrator also questions McDermott’s standing as a rival tender offeror to seek injunctive relief under the Williams Act. Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 47 n.33, 97 S.Ct. 926, 952 n.33, 51 L.Ed.2d 124 (1977), Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975). Since we have disposed of the merits in this case adversely to McDermott, we do not address this issue. See also Piper v. Chris-Crañ Industries, Inc., supra at 35-36, 97 S.Ct. at 946-47 (tender offeror’s standing as a shareholder).