Dynamics Corp. of America (Plaintiff) argued that the tender offer provisions of the Indiana Business Corporations Law were invalid.
The tender offer provisions of the Indiana Business Corporations Law are valid.
The Indiana Business Corporations Law was enacted in Indiana in 1986. A portion of the statute addressed tender offers. According to the law, the producers of tender offers to corporations incorporated in Indiana, or having their principal place of business in Indiana, had to follow certain rules. One rule required the offeree’s shareholders to approve a takeover, or the acquired shares would not come with voting rights. Other provisions include a 50-day waiting period from announcement to actual offer. Dynamics Corp. of America (Plaintiff), which had made a tender offer for control of CTS Corp. (Defendant), an Indiana entity, challenged the law. The district court held the law was preempted by the Williams Act and conflicted with the dormant Commerce Clause. The Seventh Circuit affirmed. Defendant appealed.
Are the tender offer provisions of the Indiana Business Corporations Law valid?
(Powell, J.) Yes. The tender offer provisions of the Indiana Business Corporations Law are valid. The Williams Act, the federal law that regulates tender offers, does not specifically preempt state law. And so, preemption will occur only if the laws contain inconsistent provisions that make mutual compliance impossible, or if the state law violates the intention behind the federal law. In this case, compliance with both laws is possible. In addition, it appears that the intention behind the Williams Act was to protect shareholders by guaranteeing a level playing field between the offeror and management. The law here gives power directly to the shareholders, which is a different approach than that of the Williams Act but not inconsistent with it. With regards to the dormant Commerce Clause, the law here does not discriminate against interstate commerce. While it may hinder tender offers, nothing in the Commerce Clause prevents states from regulating the procedures used by and concerning its corporations, which, after all, are simply creatures of state law. So, the law violates neither the Williams Act nor the Commerce Clause, and is therefore valid. Reversed.
(White, J.) The law in question undermines the Williams Act by effectively preventing minority shareholders from selling their stock if the majority does not approve the offer.
(Scalia, J.) The Commerce Clause analysis requires only a finding that there is no existing discrimination against interstate regulation, or that no likelihood of inconsistent state regulation exists.
The prior Supreme Court ruling concerning anti-takeover laws was Edgar V. Mite Corp., 457 U.S. 624 (1982). That action involved a challenge to an Illinois law that required tender offers receive governmental approval. The Court, in a plurality opinion, found this to upset the balance between offeror and management struck by the Act.