Securities And Exchange Commission v. Carter Hawley Hale Stores, Inc.

760 F.2d 945 (9th Cir. 1985)

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Nature of the Case

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Facts

On April 4, 1984, Limited commenced a cash tender offer for 20.3 million shares of D common stock representing approximately 55% of the total shares outstanding, at $30 per share. D was trading at approximately $23.78 per share (pre-tender offer price). Limited disclosed that if its offer succeeded, it would exchange the remaining D shares for a fixed amount of Limited shares in a second-step merger. Limited filed a schedule 14D-1 disclosing all pertinent information about its offer. The schedule stated that (1) the offer would remain open for 20-days, (2) the tendered shares could be withdrawn until April 19, 1984, and (3) in the event the offer was oversubscribed, shares would be subject to purchase on a pro rata basis. D filed an action to enjoin Limited's attempted takeover. D's motion for an injunction was denied. D's management discussed a response to Limited's offer. On April 16, 1984 D issued a press release announcing its opposition to the offer because it was 'inadequate and not in the best interests of D or its shareholders.' D also sold one million shares of convertible preferred stock to General Cinema for $300 million. The preferred shares possessed a vote equivalent to 22% of voting shares outstanding. General Cinema's shares were to be voted pursuant to D's Board of Directors recommendations. General Cinema was also granted an option to purchase Walden Book Company, Inc., a profitable D subsidiary, for approximately $285 million. D also announced a plan to repurchase up to 15 million shares of its own common stock for an amount not to exceed $500 million. If all 15 million shares were purchased, General Cinema's shares would represent 33% of D's outstanding voting shares. D filed a Schedule 14D-9 and Rule 13e-1 transaction statement. D began to repurchase its shares and in a one-hour period purchased approximately 244,000 shares at an average price of $25.25 per share. On April 17, 1984, D purchased approximately 6.5 million shares in a two-hour trading period at an average price of $25.88 per share. By April 22, 1984, CHH had purchased a total of 15 million shares. It then announced an increase in the number of shares authorized for purchase to 18.5 million. On April 24, 1984, the same day Limited was permitted to close its offer and start purchasing, D terminated its repurchase program having purchased approximately 17.5 million shares, over 50% of the common shares outstanding. On April 25, 1984, Limited revised its offer increasing the offering price to $35.00 per share and eliminating the second-step merger. The market price reached a high of $32.00 per share. On May 21, 1984, Limited withdrew its offer. The market price of CHH promptly fell to $20.62 per share, a price below the pre-tender offer price. P then filed this action for injunctive relief alleging that D's repurchase program constituted a tender offer conducted in violation of section 13(e) of the Exchange Act, 15 U.S.C. § 78m(e) and Rule 13e-4, 17 C.F.R. § 240.13e-4. The court found that D's repurchase program was not a tender offer because the eight-factor test proposed by the SEC and adopted in Wellman v. Dickinson had not been satisfied. The court also refused to adopt the alternative test of what constitutes a tender offer as enunciated in S-G Securities, Inc. v. Fuqua Investment Co. P appealed.