Donaldson, Lufkin & Jenrette

Donaldson, Lufkin & Jenrette Securities Corporation 140 Broadway, New York, NY 10005 (212) 902-2000

James B. Dwyer III

Senior Vice President Investment Banking Division

(212) 902-2288

January 25, 1984

Hon. Timothy E. Wirth, Chairman

U.S. House of Represent at i ves

Subcommittee on Telecommunications,

Consumer Protection, and Finance of the

Committee on Energy and Commerce
Washington, D.C. 20515

Dear Congressman Wirth:

Since our Chairman, Dick Jenrette, also is currently Chairman of the Securities Industry Association he has asked me to convey our position here at Donaldson, Lufkin & Jenrette on the various points you have asked us in regard to the SEC Advisory Committee on Tender Offers.

Recommendation

Number

1, 2

3-9, 34

17

14

We agree strongly with the Advisory Committee's two
basic recommendations on the economics of takeovers.
In addition, we do not believe a "public interest" or
similar test should be imposed on takeovers. Determina-
tion as to what is in the public interest is subject to
such widely varying interpretations that we are con-
cerned that any such test could be badly abused and
jeopardize the rights of shareholders. Nor do we
believe that Federal Reserve approval (or similar
measures) of bank loans used in mergers is appropriate.
These funds simply get recycled in the economy and are
not "lost" to other borrowers.

We generally concur with the Advisory Committee's state-
ments regarding federal and state regulation of takeovers.
We agree with having a 30 calendar day minimum offering
period for an initial bid and a 20 calendar day period
for subsequent bids. We also agree that the period for
proration and withdrawal dates should be the same length
as the minimum offering period to avoid unnecessary con-
fusion.

We agree with the prohibition of the acquisition of more than 20% of the voting power of an issuer unless from the issuer or pursuant to a tender. This would curtail creeping tenders and allow the majority of shareholders to share in the premium for control of an enterprise.

13

16

24

31

33-43

15

We agree that no person should acquire more than 5%
without a #13D on file for 48 hours. This eliminates
the 10 day 'window' period during which significant
accumulations were often made before a filing was
required.

Partial and two tier offers should be treated differently.
Giving shareholders an additional two weeks time will per-
mit "non-professionals" to be advised and/or have sufficient
time to decide whether to tender. A partial offer pre-
sents a more complicated choice. A two tier offer should
provide additional time for the "non-professional in-
vestors" to be able to tender into the higher priced
front-end offer.

We agree that special fairness opinions, or approval rights not otherwise called for, should not be required.

We agree that approval by shareholders of a bidder for an acquisition should continue to be an external matter between shareholders and their management and board of directors.

We agree with the support for the systems of state corporate laws and the "business judgment" rule. We believe that the following defensive measures, if consistent with good business judgment on the part of a board of directors, should be permitted:

1. supermajority provisions (where the ability to achieve such a level of support is demonstrable)

2. "golden parachutes" (if in place before a tender has commenced)

3.

4.

5.

6.

7.

counter tenders (unless a 100% cash tender has been made)

sales of "crown jewels" or significant assets

issuance of blocks of stock

standstill agreements

repurchase of a block of company shares at a premium 8. staggered terms for boards of directors

We do not agree with the Advisory Committee's designation of
certain change of control policies as "advisory vote matters"
which would be subject to review on an annual basis at stock-
holders' meetings. Again, we would place primary reliance
on state corporate laws and the use of the "business judgment"
rule by boards of directors.

We would also encourage the Commission to study means to strengthen the concept of a "group" to minimize ongoing abuses resulting in lack of reporting and disclosure.

25

26

38b

49

50.

We agree that all shareholders whose shares are purchased in a tender should be entitled to the highest per share price paid on the offer.

We agree with current prohibitions of the purchase by a bidder of target company shares other than under the offer.

We agreed that "golden parachutes" in existence prior to a tender offer should be disclosed in a company's annual proxy statement.

We agree that federal securities regulation of acquisitions
should not impede the necessary federal antitrust regulations.

We agree that Hart-Scott-Rodino should take into account the
required minimum offering period prescribed under the
Williams Act and should avoid, where practicable, delays
in completion of tender offers due to antitrust review.

We are pleased you and Senator D'Amato have focused on these significant issues and that we at Donaldson, Lufkin & Jenrette are able to submit our views to you.

Sincerely,

Tarnes B. Dwyer Te

James

CC:

Richard H. Jenrette

This letter follows up my letter to you dated April 6, 1984 responding to Congressman Wirth's invitation for comments concerning the Report of Recommendations (the "Report") of the Securities and Exchange Commission's Advisory Committee on Tender Offers (the "Advisory Committee"). It is intended to advise you of the reasons why Advisory Committee Recommendation 43 should not be adopted by the Congress.

Recommendation 43 would require shareholder approval before a corporation could repurchase its own shares at a premium over market1 The Recommendation was prompted by "target company repurchase [s] of stock at a premium to market from a dissident shareholder." Report at 46. Although

Repurchase of a company's shares at a premium to
market from a particular holder or group that has
held such shares for less than two years should
require shareholder approval. This rule would not
apply to offers made to all holders of a class of
securities.

(Footnote omitted).

Recommendation 43 has been described as a proposal to prevent "greenmail" where a dissident stockholder threatens to make a tender offer or engage in a proxy fight if he is not bought out, it applies to all purchases at a premium regardless of whether or not such a threat exists. Indeed, Recommendation 43 would prevent a corporation from going out on the market and buying a block of its stock at a premium if management thought this was an advantageous transaction where there was no hint of any threat against management by the sellers. The broader justification for Recommendation 43 is to share the control premium. Such purchases supposedly require regulation because they are "a practice whereby a control premium may be distributed selectively and not shared equally by all shareholders."

Id.

Thus, Recommendation 43 is motivated by the same desire to spread the "control premium" which caused the Advisory Committee to erroneously suggest in Recommendation 14 that no holder of securities should be allowed to acquire more than 20% of an issuer's outstanding stock without proceeding via a tender offer. It is then not surprising that Recommendation 43 suffers from many of the same ills which plague Recommendation 14.

As a practical matter, Recommendation 43 will make it virtually impossible for the board of directors of a corporation to have the corporation purchase a substantial block of its stock no matter how advantageous that would be for the corporation and regardless of the reason for doing so. The delay, cost, cumbersomeness and uncertainty inherent in a corporation obtaining stockholder approval of any purchase at a premium will make it extremely difficult for corporate management to successfully negotiate such purchases. Since there is always a significant risk that stockholders who are not receiving a premium for their shares will reject such a purchase no matter how beneficial for the corporation, and since the process inevitably requires a lengthy delay from the time the tentative deal is made public until its approval and consummation, many sellers will be unwilling to deal with a corporation wishing to purchase their stock under such limitations. Further, since large blocks of stock are customarily traded at premiums over market, this will severely limit corporations' flexibility to purchase their stock under any circumstances.

The most obvious impact of this restriction will be a significant impingement on the free trading of securities with a consequent impediment on the efficient flow of capital. Simply put, removing a whole category of potential purchasers