By Nancy L. Ross Washington Post Staff Writer
A ban on "golden parachutes" during takeover attempts, a limitation of 20 percent on the amount of a company's stock a raider can acquire in the open market and a mandatory 48-hour cooling-off period are among the final recommendations hammered out yesterday by the Securities and Exchange Commission advisory committee on tender offers.
The blue ribbon panel, composed almost entirely of Wall Street veterans of corporate takeovers, was charged with finding ways to eliminate current abuses in the system including possibly restricting anti-takeover practices. The final version of the 17-member committee's report will be presented to the SEC and Congress on July 8.
Chairman Dean LeBaron, president of Batterymarch Financial Management of Boston, said after the day-long session that the proposals reflect the committee's desire to leave the fundamentally sound market process as unfettered as possible while correcting some of its imperfections. He declined to speculate whether bidders or target companies would benefit more.
However, former Supreme Court justice Arthur Goldberg, one of two independent members on the panel, labeled the panel's views as "cosmetic" changes and said he would submit a minority report to deal with "the essentials." His own far-reaching reforms intended to restore corporate democracy include a freeze on all defensive actions for 60 to 90 days during a tender offer, a requirement that the board of directors approve management's takeover bid, and a ban on partial offers and "gamesmanship" in the marketplace such as golden parachutes, the sale of crown jewels and Pac-Man defenses.
The major recommendations:
* A bidder must notify the SEC before acquiring 5 percent of a target company's stock. After notification, there would be a 48-hour hold on the purchase of additional shares. This would close the current 10-day period between the time a bidder acquires 5 percent and must file the required notice.
* No one would be allowed to acquire more than 20 percent of a company's stock on the open market unless it is purchased from the issuing company or through a public tender offer. This is aimed at preventing "creeping tender offers" by which raiders gradually seize control of a company without the shareholders' knowledge or consent. In May, the panel had decided to place the limit at 15 percent, but several investors and the attorney general's office argued that the cap would make seizing control harder and thus punish shareholders. The committee voted yesterday 9 to 7 to raise the level to 20 percent.
* The period during which stockholders could tender their shares would be increased from 20 business days to 30 calendar days. Each new bidder would get 20 days to attract shareholders. There would be a five-day extension each time the price offered for shares is increased or the number of shares changed. Also, stockholders would have 30 days to withdraw their shares if a better offer were made.
The panel voted to outlaw golden parachutes during tender offers. The panel said the practice of awarding executives of a target company with lucrative contracts in case they are forced out in a change of control wastes stockholders' money and deters takeover attempts.