Broc is blogging this newsworthy item as our heroes are too busy with their study to blog…
On April 6th, the US Court of Appeals for the DC District issued an opinion finding the SEC’s “cease-and-desist” order against WHX Corporation to be arbitrary and capricious. Some of you may recall that in March 1997, WHX launched a hostile “two-step” tender offer for Dynamics Corporation of America. WHX’s first-step tender offer for 19.9% – just below DCA’s pill threshold – was initially structured to include a “record holder” condition requiring DCA shareholders to be a holder of record on the record date for DCA’s upcoming annual meeting in order to be eligible to tender in the offer.
WHX’s goal was to acquire as many shares as possible with a right to vote at the annual meeting without triggering DCA’s poison pill. At the time, WHX’s lawyer contacted the SEC’s Office of Mergers & Acquisitions on a pre-commencement basis seeking guidance as to whether the proposed record date condition would violate the All-Holders, Best-Price Rule (i.e. Rule 14d-10). Despite the informal advice of a staffer in OM&A that such a condition would violate Rule 14d-10, WHX proceeded to launch its tender offer with the record holder condition intact. After a threat of an SEC enforcement action, WHX amended its offer to eliminate the record holder condition.
During the pendency of the offer, however, the SEC brought action against WHX for alleged violations of Rule 14d-10. An administrative law judge upon hearing the case ruled in WHX’s favor. Ultimately, WHX’s offer was unsuccessful because DCA was acquired by a white knight.
Nevertheless, a year later the SEC proceeded to issue a “cease-and-desist” order against WHX, prohibiting the company from committing or causing future violations of the rule. Here is a copy of the opinion finding the SEC’s action “arbitrary and capricious.” Thanks to Jim Moloney of Gibson Dunn for this fine recap and analysis!