The Securities and Exchange Commission may challenge a recent court decision upholding a novel defensive tactic against hostile takeovers by ruling that corporations making tender offers for their stock must make them to all shareholders.
At a hearing yesterday on takeovers held by the House subcommittee on telecommunications, consumer protection and finance, SEC Chairman John S. R. Shad also agreed to furnish Congress with complete records of securities violations by the country's top half-dozen corporate raiders.
The tender-offer proposal would aim to clarify the 1968 Williams Act, which created tender-offer rules but is silent on whether corporations can exclude any shareholders from self-tenders. Shad said yesterday that most readers of the act would say it does not permit unequal treatment of shareholders. Such a proposal is expected to come up for a vote in about a month, according to SEC General Counsel Daniel Goelzer.
The question arose recently in the case of T. Boone Pickens' bid for Unocal. Last week the Delaware Supreme Court ruled that, under the special circumstances of some hostile bids, the target company's directors can take actions favoring most shareholders at the expense of the bidder.
The Delaware decision has been interpreted as bad news for corporate raiders making hostile bids. An SEC regulation mandating equal treatment in self-tenders would prevent a company from defending itself against takeovers the way Unocal did against Pickens.
On another aspect of corporate democracy, Shad admitted that he had "jawboned" the chiefs of the three stock exchanges on the subject of unequal voting rights. While the chairman of the New York and American stock exchanges told the committee on Wednesday that they favor raising their standards to require listed companies to have only one class of common stock, the president of the National Association of Securities Dealers declined to join them. Shad said yesterday he expects any attempt by the SEC to force NASD to adopt a one-share, one-vote rule to result in litigation.
Sen. Howard Metzenbaum (D-Ohio), a witness, stated he soon will introduce legislation mandating equal voting rights, but grandfathering those corporations that already have two classes of stock. He also plans a bill outlawing greenmail, or the payment of premiums to raiders to make them go away, prohibiting popular defensive tactics, prohibiting partial tender offers without the issuer's approval, and closing the 10-day window that allows a raider who owns 5 percent of a company's stock to accumulate more shares before filing with the SEC.
With the exception of closing the 10-day window, the SEC has removed its support for legislation to reform the tender-offer process, preferring to rely on the marketplace and the courts. Shad noted yesterday that since 35 companies have moved to prohibit greenmail, the practice has diminished. He gave no figures. He said 600 corporations are expected to adopt antitakeover measures during this proxy season, three times the number that did in 1983.
But Dean LeBaron, president of Batterymarch Financial Management, summed up the opinion of institutional investors when he said "the only successful antitakeover device is a high stock price."
Rep. John Dingell (D-Mich.), declaring that raider Carl Icahn was a "chronic violator of securities laws rather than an American hero" (Icahn has pictured himself as the stockholders' benefactor), asked the SEC to provide a full record of all enforcement actions against him. Dingell asked for similar information about raiders Ivan Boesky, Pickens, Irwin Jacobs, Saul Steinberg and Victor Posner. SEC and Hill sources agreed this was the first time that such a request had been made en masse.
The subcommittee will use the data to judge whether the watchdog agency is doing its job. But a Dingell aide added that the committee also could be looking at whether the raiders were "finding other ways to skin the cat" after signing consent decrees and whether Congress might stop the irregularities.