A legal drama now unfolding in federal courts in Texas and Louisiana could decide the fate of takeover statutes in more than 30 states and ease the acquisitions process for bidding companies.
U.S. District Court Judge Robert M. Hill, in a ruling issued in Dallas in the Battle of Great Western United Corp. for the Sunshine Mining Co., set the stage last week by declaring Idaho's takeover laws unconstitutional.
Judge Hill's order for permanent injunction barring Idaho state officials from enforcing those statutes against Great Western was entered this Tuesday. On Wednesday, he granted Idaho's request to delay the injunction until Sept. 16 to give the state time to appeal his ruling to the Fifth Circuit Appeals Court in New Orleans.
Great Western said yesterday it has instructed its counsel to oppose any appeal or application for further delay by Idaho officials.
Earlier, Great Western, which is controlled by the oil-rich Hunt brothers of Texas, said it would await the decision on appeal. J. Michael Boswell, executive vice president, said the company is not "proceeding with the tender offer at this time."
While Great Western had challenged the validity of the takeover statues of three states - Maryland, New York and Idaho - Judge Hill had dismissed the motions involving Maryland and New York because of jurisdictional defects.
Wall Street attorneys specializing in acquisitions said if Judge Hill's ruling on the Idaho law is upheld, it will bring into serious question all of the other state takeover statutes.
Acquisition targets enjoy unique protections under such statutes. As one partner in a major New York law firm explained, such laws provide built-in delays which aid a company trying to put together a legal defense or seeking a higher offer for their stock.
The statutes also require that notice of the takeover attempt be given to the target company. Some state laws provide for hearings on the adequacy of the bidding firm's disclosures as well.
A partner in the law firm [WORD ILLEGIBLE] Wachtel Rosen in New York explained that Judge Hill's ruling essentially asserted state takeover statutes create unreasonable burdens on interstate commerce by placing additional disclosure and notice requirements on bidding companies and that federal securities law preempts state legislation in this area.
The arguments in favor of the state legislation are based on a shareholder protection theory, he said. "They give management time to decide if the offer is reasonable and if it will result in fair treatment for the shareholders, he said.
"It gives management time to find alternatives," but "that's not always fair to the bidding company," he added. As the lawyer noted, "Historically, target companies wind up being sold at a higher price than the original offer. State takeover statutes have resulted in higher stock price offers, basically."
Another legal source said such laws also may have caused some bidding firms to begin their acquisition offers at lower levels than they would have without the strictures of state legislation.
"Whether they're starting lower or not, bidding companies are perceived as raiders and the alternative company who comes in during the notice period is always a white knight saving the acquisitions target, no matter how evil the second firm is and no matter how nice the first bidder is," he said. "Maybe it wouldn't be such a bad thing to get rid of them (the state laws)."