Mai Basic Four, Inc. v. Prime Computer, Inc.

871 F.2d 212 (1st Cir. 1989)

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Nature of the Case

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Facts

In this counterclaim, P alleged, principally, that D had violated the Williams Act Amendments to the Securities Exchange Act (the Act), 15 U.S.C. §§ 78m(d)-(e), 78n(d)-(f), by failing to disclose in its Offer to Purchase sufficient information concerning the involvement, interests, and condition of its investment advisor, investor, and underwriter, Drexel Burnham Lambert, Inc. (Drexel). P contends that Drexel fell under the Act's disclosure requirements because it was, in reality, a 'bidder.' SEC Rule 14d-1(b)(1), 17 C.F.R. § 240.14d-1(b)(1); Rule 14d-6, 17 C.F.R. § 14d-6; SEC Schedule 14D-1, 17 C.F.R. § 240.14d-100. D is offering $20 a share in cash for all shares of P, a price that exceeds the pre-offer market price. Approximately 61 percent of P stock had been tendered. D's offer is conditioned upon there being tendered, prior to its expiration, 67 percent of the shares on a fully diluted basis. The financing consists of $20 million in cash, supplied by Brooke Partners, L.P.; $650 million in bank financing; and $875 million in high yield, interest-bearing, increasing rate notes (junk bonds), placement to be arranged by Drexel. Upon consummation of the offer, D intends to merge itself and P and cash out any remaining Prime stockholders at $20 a share. Drexel's undertaking, as financial advisor for this transaction, is to 'include, but not be limited to . . . advising and assisting D in determining the possible alternative ways in which the Transaction might be structured, and advising and assisting D with respect to the completion of the Transaction.' Drexel has an equity interest in D, which will be 5 percent on a diluted basis, with a right to purchase at half price another 9 percent. It possesses, through two intermediary partnership entities a 17 percent equity interest in Brooke Partners. LeBow, Inc., is the sole owner of L. Holdings, which is Brooke's sole general partner. As of the date of the offer, Drexel also, through a stockholders agreement, had the right to name one of the three directors of LeBow, Inc., with veto power over some corporate actions. The fee for placing $875 million in junk bonds will entitle it to $65 million in fees if the placement is successful. None of these notes have been sold. Even if the offer fails, Drexel will be entitled to 15 percent of any profit D realizes from selling Prime stock now held. Eventually, the District Court issues an injunction based on its opinion that Drexel must be considered a bidder. This appeal resulted. D challenges the court's finding that Drexel is a bidder. It argues that even if Drexel could be considered a bidder, no additional disclosure is required by the Act. P maintains that Drexel should, as a bidder, furnish all items of information required for compliance with Schedule 14D-1.