Sir Gordon White instructed Robert Pirie to terminate Hanson’s $72 per share tender offer

The following quotes are excerpted from Hanson Trust PLC v. SCM Corp, (2d Cir. 1985)

  • Citation Code 774 F.2d 47
  • Docket No. 412, Docket 85-7745
  • Hanson Trust PLC, HSCM Industries, Inc., and Hanson Holdings Netherlands B.V. (hereinafter sometimes referred to collectively as “Hanson”) appeal from an order of the Southern District of New York, 617 F.Supp. 832 (1985), Shirley Wohl Kram, Judge, granting SCM Corporation’s motion for a preliminary injunction restraining them, their officers, agents, employees and any persons acting in concert with them, from acquiring any shares of SCM and from exercising any voting rights with respect to 3.1 million SCM shares acquired by them on September 11, 1985. The injunction was granted on the ground that Hanson’s September 11 acquisition of the SCM stock through five private and one open market purchases amounted to a “tender offer” for more than 5% of SCM’s outstanding shares, which violated §§ 14(d)(1) and (6) of the Williams Act, 15 U.S.C. § 78n(d)(1) and (6) and rules promulgated by the Securities and Exchange Commission (SEC) thereunder. See 17 C.F.R. §§ 240.14(e)(1) and 240.14d-7. We reverse.
  • The setting is the familiar one of a fast-moving bidding contest for control of a large public corporation: first, a cash tender offer of $60 per share by Hanson, an outsider, addressed to SCM stockholders; next, a counterproposal by an “insider” group consisting of certain SCM managers and their “White Knight,” Merrill Lynch Capital Markets (Merrill), for a “leveraged buyout” at a higher price ($70 per share); then an increase by Hanson of its cash offer to $72 per share, followed by a revised SCM-Merrill leveraged buyout offer of $74 per share with a “crown jewel” irrevocable lock-up option to Merrill designed to discourage Hanson from seeking control by providing that if any other party (in this case Hanson) should acquire more than one-third of SCM’s outstanding shares (66 2/3 % being needed under N.Y.Bus.L. § 903(a)(2) to effectuate a merger) Merrill would have the right to buy SCM’s two most profitable businesses (consumer foods and pigments) at prices characterized by some as “bargain basement.” The final act in this scenario was the decision of Hanson, having been deterred by the SCM-Merrill option (colloquially described in the market as a “poison pill”), to terminate its cash tender offer and then to make private purchases, amounting to 25% of SCM’s outstanding shares, leading SCM to seek and obtain the preliminary injunction from which this appeal is taken.
  • Within a period of two hours on the afternoon of September 11 Hanson made five privately-negotiated cash purchases of SCM stock and one open-market purchase, acquiring 3.1 million shares or 25% of SCM’s outstanding stock. The price of SCM stock on the NYSE on September 11 ranged from a high of $73.50 per share to a low of $72.50 per share. Hanson’s initial private purchase, 387,700 shares from Mutual Shares, was not solicited by Hanson but by a Mutual Shares official, Michael Price, who, in a conversation with Robert Pirie of Rothschild, Inc., Hanson’s financial advisor, on the morning of September 11 (before Hanson had decided to make any private cash purchases), had stated that he was interested in selling Mutual’s Shares’ SCM stock to Hanson. Once Hanson’s decision to buy privately had been made, Pirie took Price up on his offer. The parties negotiated a sale at $73.50 per share after Pirie refused Price’s asking prices, first of $75 per share and, later, of $74.50 per share. This transaction, but not the identity of the parties, was automatically reported pursuant to NYSE rules on the NYSE ticker at 3:11 P.M. and reported on the Dow Jones Broad Tape at 3:29 P.M.
  • Pirie then telephoned Ivan Boesky, an arbitrageur who had a few weeks earlier disclosed in a Schedule 13D statement filed with the SEC that he owned approximately 12.7% of SCM’s outstanding shares. Pirie negotiated a Hanson purchase of these shares at $73.50 per share after rejecting Boesky’s initial demand of $74 per share. At the same time Rothschild purchased for Hanson’s account 600,000 SCM shares in the open market at $73.50 per share. An attempt by Pirie next to negotiate the cash purchase of another large block of SCM stock (some 780,000 shares) from Slifka Company fell through because of the latter’s inability to make delivery of the shares on September 12.
  • Following the NYSE ticker and Broad Tape reports of the first two large anonymous transactions in SCM stock, some professional investors surmised that the buyer might be Hanson. Rothschild then received telephone calls from (1) Mr. Mulhearn of Jamie Co. offering to sell between 200,000 and 350,000 shares at $73.50 per share, (2) David Gottesman, an arbitrageur at Oppenheimer Co. offering 89,000 shares at $73.50, and (3) Boyd Jeffries of Jeffries Co., offering approximately 700,000 to 800,000 shares at $74.00. Pirie purchased the three blocks for Hanson at $73.50 per share. The last of Hanson’s cash purchases was completed by 4:35 P.M. on September 11, 1985.
  • In the early evening of September 11 SCM successfully applied to Judge Kram in the present lawsuit for a restraining order barring Hanson from acquiring more SCM stock for 24 hours. On September 12 and 13 the TRO was extended by consent pending the district court’s decision on SCM’s application for a preliminary injunction. Judge Kram held an evidentiary hearing on September 12-13, at which various witnesses testified, including Sir Gordon White, Hanson’s United States Chairman, two Rothschild representatives (Pirie and Gerald Goldsmith) and stock market risk-arbitrage professionals (Robert Freeman of Goldman, Sachs Co., Kenneth Miller of Merrill Lynch, and Daniel Burch of D.F. King Co.). Sir Gordon White testified that on September 11, 1985, after learning of the $74 per share SCM-Merrill leveraged buyout tender offer with its “crown jewel” irrevocable “lock-up” option to Merrill, he instructed Pirie to terminate Hanson’s $72 per share tender offer, and that only thereafter did he discuss the possibility of Hanson making market purchases of SCM stock. Pirie testified that the question of buying stock may have been discussed in the late forenoon of September 11 and that he had told White that he was having Hanson’s New York counsel look into whether such cash purchases were legally permissible.
  • The order of the district court is reversed, the preliminary injunction against Hanson is vacated, and the case is remanded for further proceedings in accordance with this opinion. The mandate shall issue forthwith.

Source: Casemine