The Supreme Court's decision Wednesday to strike down the Illinois Business Takeover Act probably means the end of significant state regulation of corporate acquisitions, takeover lawyers and government officials concluded yesterday.
The Maryland and Virginia laws that in the past have helped state firms resist unwelcome offers will be among the 36 state laws cast in doubt by the ruling that the Illinois law is invalid because it obstructs interstate commerce.
Virginia's law, which requires 20 days' advance notice and a possible hearing before a Virginia business can be taken over, is now probably unconstitutional, said Joel Peck, associate general counsel for the State Securities Commission.
Peck labeled the court's decision a "major blow" to Virginia's effort to protect the interests of local corporations and shareholders. He said the state may attempt to redraft the law to comply with the ruling.
Houston Matley, Maryland's securities commissioner, said the decision makes "the waters more treacherous for state regulators." Maryland's law is less restrictive than Virginia's and may survive the Supreme Court ruling, he added. "It sounds like we still have a shot at arguing the validity of our law."
Lawyers for two Wall Street law firms that specialize in corporate acquisitions said the court's ruling leaves the states very little room to regulate takeovers, placing almost all of the authority for securities transactions in the hands of the federal government.
The effectiveness of state laws governing takeovers has been cut to "next to zero," said Robert Mazur, a partner with Wachtel, Lipton, Rosen & Katz.
"As a practical matter, everything is gutted," declared Jeffrey Glekel, a partner with Skadden, Arps, Slate, Meagher & Flom. "I don't see any way around the opinion."
Glekel said states may be able to retain some regulatory power over small corporations whose shareholders are mostly residents of the state. But he added that attempts to regulate the takeover of larger businesses with many shareholders in other states would likely be held in violation of the constitution's interstate commerce clause on which the high court based its opinion.
The Virginia and Maryland takeover statutes have enabled state firms to stall and block recent takeover attempts.
Wednesday's ruling could affect the outcome of a case now before the federal court in Richmond in which Telvest Co., a Chicago-based conglomerate, is trying to acquire a major interest in American Furniture Co. of Martinsville. The judge deciding the case "may find some guidance in the Supreme Court decision," Peck said.
The Virginia law's provisions that stretch out the takeover process are believed to have contributed to a decision by Congoleum Corp. in 1977 to withdraw a tender offer for the shares of Richmond-based Universal Leaf Tobacco Co.
In Maryland, Matley said the state law has played a role in at least three takeover bids in the past two years--the attempts to buy American Distilling, General Dynamics, and McCormick & Co. "It is apparent to me that in those three cases the existence of the Maryland law operated to significantly hinder the efforts of the offeror," he said.