Kern County Land Co. v. Occidental Petroleum Corp.

411 U.S. 582 (1973)

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Nature of the Case

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Facts

On May 8, 1967, after unsuccessfully seeking to merge with Kern County Land Co., Occidental Petroleum Corp. announced an offer to expire on June 8, 1967, to purchase on a first come first serve basis 500,000 shares of Kern at a price of $83.50 with a brokerage commission of $1.50 per share. By May 10, 1967, more than 500,000 shares of Kern had been tendered. Occidental then extended its offer for another 500,000 shares. At the close of the tender, Occidental owned 887,549 shares of Kern. Kern management was not idle, took it upon themselves to frustrate Occidental’s offer, told all shareholders that management was engaged in merger discussions with several companies, and sent a telegram to all shareholders advising against the tender. On May 6, 1967, the Board of Directors of Kern announced that it had approved a merger proposal advanced by Tenneco. A new corporation was to be formed, and each shareholder in Kern was to get a share of Tenneco cumulative convertible preference stock in exchange for each share of Old Kern common stock. This new stock was appraised at $105 per share. Occidental then filed two mandamus actions in California seeking to obtain inspection of Kern's books and records. Occidental then took steps to protect itself and negotiated an arrangement with Tenneco whereby Occidental granted Tenneco Corp. a sub of Tenneco, an option to purchase at $105 per share all of Tenneco preferred stock that Occidental would get if the Kern-Tenneco merger were completed. The cost of this option was $10 per share (to be applied to the purchase price) and was to be paid immediately upon signing but could not be exercised prior to December 9, 1967, a date six months and one day after the expiration of Occidental's tender offer. The option was signed on June 2, 1967, and then Occidental announced that it would not oppose the Kern-Tenneco merger. The SEC has refused to exempt Occidental from possible 16(b) liability. The merger was closed on August 30, 1967. The option was exercised on December 11, 1967. Occidental got $93,905,415 for its shares along with dividends of $1,793,439.22. The total profit was $19,506,419.22. The new Kern (P) then instituted a suit against Occidental (D) to recover the profits under 16(b). The District Court granted summary judgment in favor of new Kern holding the exchange of old Kern shares for new Kern shares on August 30 was a sale under 16(b). The court of appeals reversed and ordered summary judgment for D.