The prospect of passing legislation in 1985 that would alter dramatically the rules governing mergers and acquisitions is slim, House and Senate sources agree.
After many hours of hearings to explore the impact of mergers on the economy, corporate America, shareholders and communities, legislators are drafting proposals that focus on relatively minor changes in the rules governing the takeover process. Most of the proposed rule changes are designed to correct inequities in the process rather than to slow the pace of takeover activity.
The Reagan administration's free-market philosophy has discouraged legislation that would make takeovers more difficult. In addition, Congress' inability through hearings to answer questions including, "Are takeovers good or bad for the nation?" has discouraged radical proposals.
"At this point, there's just not enough evidence -- on either side -- to support a major overhaul," said Rep. Timothy Wirth (D-Colo.), chairman of the House subcommittee on telecommunications, consumer protection and finance.
"I'm still uneasy about the long-term effects of all of this activity, especially the consequences of the increase in leverage in our economy. I'm also concerned that shareholders are treated fairly in this process by both bidders and management," Wirth said.
Although a controversial giant takeover attempt could shift legislative attention, House and Senate sources predicted new takeover rules would be a lower priority in Congress this fall than measures to reform taxes, the troubled government securities market and trade.
One takeover rule that some legislators hope to change is the "13d rule" that allows investors to wait 10 days before notifying the Securities and Exchange Commission and the public that they have acquired 5 percent or more of a pubilc company. During the 10-day period, investors are allowed to increase their holdings, so that an investor may own more than 5 percent of a company by the time of the initial filing. Measures to shorten this 10-day period to about 48 hours, known as "closing the 13d window," have been drafted.
The takeover defense used by Unocal Corp. to stop Mesa Petroleum Chairman T. Boone Pickens Jr.'s hostile takeover bid earlier this year would be outlawed by certain legislative proposals. Unocal stopped Pickens by launching an exclusionary tender offer in which the company offered to buy back shares from all stockholders except Pickens. The SEC has asked for public comment on a proposal that would bar exclusionary tender offers in the future on the grounds that all shareholders ought to be treated equally.
The use of high-yield securities known as "junk bonds" to finance hostile takeover bids led to legislative proposals last spring that would have restricted their use. House and Senate sources said proposals now being drafted, which have a higher likelihood of passing, will not restrict the use of junk bonds in takeovers, but will limit the ability of federally insured savings and loan associations to invest in them.
There is concern in Congress that S&Ls under financial pressure to generate higher yields might agree to purchase too many of the high-yielding securities without sufficient regard for their risk. Proposals are expected to limit, rather than eliminate, the ability of S&Ls to invest in junk bonds.
One other issue that could be resolved legislatively is the "one share, one vote" question. While the New York Stock Exchange requires its member companies to have one class of common stock with equal voting rights, the American Stock Exchange and the over-the-counter market allow companies to have shares with unequal voting rights. Some companies use unequal voting rights as a defense against takeovers, placing shares with superior voting rights in friendly hands.
The exchanges are attempting to settle the "one share, one vote" issue themselves, with the Amex and over-the-counter markets pledged to raising their standards. But if the exchanges fail to act in the near future, they have been warned that Congress will resolve the issue for them.