50. Under this framework, failure to disclose truthful and accurate information would be actionable in suits for injunctive relief and actions for damages pursuant to Section 14(e). Moreover, if shareholders receive adequate information, they may seek to enjoin the subject tender offer in state court based on management's alleged breach of fiduciary duty or take other appropriate measures to protect themselves from financial injury. See, e.g., Healey v. Catalyst Recovery, Inc., 616 F.2d 641 (3d Cir. 1980); Goldberg v. Meridor, 567 F.2d 209 (2d Cir. 1977), cert. denied, 434 U.S. 1069 (1978). As an additional measure, albeit frequently futile, aggrieved shareholders may bring an action against management for waste or seek to vote the "rascals" out in the next election. For such a restrictive view, see Gaines v. Haughton, 645 F.2d 761 (9th Cir. 1981). with 51. The SEC would, of course, have to be provided sufficient resources to enable the agency to adjudicate these matters on an expedited basis. Such a framework, without supporting empirical evidence, is based on the propositions that the SEC's expanded oversight and adjudicatory authority in the tender offer area would (1) not be unduly expensive, (2) would result in more expeditious, uniform and sound interpretations, and (3) would be administratively feasible. Undoubtedly, all of these propositions may be subject to challenge. Nonetheless, although far from ideal, the suggestion offered herein, on a probability basis, offers an arguably attractive alternative to the present framework. We are pleased to have the opportunity to respond to your request for comments regarding corporate takeovers and tender offers. Teachers Insurance and Annuity Association of America ("TIAA") and College Retirement Equities Fund ("CREF") are companion non-profit organizations which fund retirement benefits for college faculties and other employees of non-profit educational institutions. TIAA provides fixed-income pensions based on the investment return of its portfolio of corporate debt issues, mortgages and real estate. CREF provides variable annuities, based on investments in common stocks and other equities. Each of our policyholders elects the proportion of his or her pension contributions to be invested in TIAA or CREF. Currently, some 3,500 institutions and approximately 850,000 individuals participate in the TIAA-CREF program. A large proportion of these individuals view TIAA-CREF as the major source, along with Social Security, of their income during retirement. Since the horizons of a pension organization are long-term, we are very concerned for the long-term economic well-being of the country. We also have a strong fiduciary responsibility to our colleges and individual participants who rely on us. Your request for comments encompasses many different facets of the issues and, therefore, in responding I have drawn upon the views of our executive vice president, James Martin, who is the area manager of CREF investments and senior vice president, Peter Clapman, who is the manager of TIAA-C EF investment law division. Until February 1, 1984, I was the manager of the TIAA investment area and since that date, serve as president of both TIAA and CREF. We are vitally interested in the issues raised in your letter, and the serious national debate as to the effects of tender offers and corporate takeovers. TIAA-CREF is presented with these issues in a number of ways. TIAA, as an investor in corporate debt issues, may be asked to provide funds for an acquisition. As a matter of policy, TIAA has chosen not to participate in hostile takeovers. In some instances, we have participated in friendly takeovers, but only where, in our judgment, the merger is at a fair price and in the best interests of the respective companies. In the case of CREF, the issues arise unavoidably and with some frequency. CREF holds a large and diverse portfolio of equity securities. Many of the issuers of these securities either have been, or anticipate being, targets for acquisition. If there is a contest for control, CREF bases its decision on what it considers to be the best long-term interest of our policyholders and this overriding objective is applied on a case-bycase basis. CREF also sees, with increasing frequency, the attempts by companies to insulate themselves from takeovers by various protective measures. Such efforts, including many of the highly publicized situations, have added colorful new expressions to the investment vocabulary. In our opinion, these efforts have not generally served the best long-term interests of the American economy. In many such instances, managements, seeking to insulate their companies have been motivated in large measure by concern for their own positions, although professing concern for other employees. With respect to any additional role of government in this area, a potential subject of your hearings, we believe that there is already an appropriate and formidable legal and regulatory structure in place. The SEC, the FTC and the Justice Department have jurisdiction to enforce compliance with the securities and antitrust laws and with the specific requirements of the Williams Act and the Hart-Scott-Rodino Act. We do not believe that adding major new laws and regulations to this existing structure will be beneficial. We have received the report of the SEC Advisory Committee and found ourselves in basic agreement with most of its major conclusions and recommendations. For example, partial tender offers can be confusing to many smaller investors and, therefore, should allow greater response time than may be appropriate for tenders for all shares. The Advisory Committee's conclusions as to the practice of "golden parachutes" also are consistent with our evaluation that this is an abuse. Finally, we believe that the long-term economic interests of the country are not well served by some management's attempts to insulate their companies from potential takeovers through by-laws and other corporate changes under state law. We agree with the Advisory Committee that the issues are more appropriately viewed as national in scope, and that federal rather than state standards generally should prevail. In conclusion, TIAA-CREF is concerned with the longer-term effects on the American economy of current takeover activities. Our view is that the existing legal and regulatory structure does work remarkably well and that the marketplace is the appropriate mechanism for punishing excesses and violations of fiduciary duties. We would be pleased to respond to any further comments, questions, or suggestions in connection with your upcoming hearings. We appreciate your consideration of our views. Very truly yours, Walter H. Cheers Walter G. Ehlers Telecommunications, Consumer Protection, and Finance U.S. House of Representatives Thank you for inviting me to comment on the adequacy of current federal regulation of tender offers. Regarding the recommendations of the SEC Advisory Committee, I have the following comments: 1. I agree with Recommendation 1, and I believe that no test should be imposed with respect to takeovers, such as that included in the Rodino-Seiberling proposal. Such a test would constitute an interference in affairs which should be decided by the market. 2. I agree with Recommendation 2, and I believe that no credit control legislation is necessary, such as that proposed by the House Banking Committee Chairman St. Germain. 3. I agree with the objectives of Federal Regulation of Takeovers stated in Recommendations 3 to 9, and 34. 4. I concur with Recommendations 10, 12 to 33, 38a, 38b (i), 39, 41 to 44, 47, and 49 because they are consistent with the objectives of Federal Regulation of Takeovers set forth in Section II. In particular, in Recommendation 41, I would urge that the limit requiring shareholder approval be raised from 15 to 25 percent. 5. I am opposed to Recommendations 11, 35 to 37, 38b(ii), 45, and 46 because they interfere with a priori agreed upon charters established between conseting stockholders, and introduce unnecessary bureaucratic procedures in an efficiently working market. 6. I agree with the first statement of Recommendation 40 but am opposed to the second statement which introduces a prohibition on a 100% cash tender offer. 7. I have no comment on Recommendations 48 and 50. 8. In addition, I would urge that legislation be enacted to assure that all shareholders of a target company are treated fairly. Historically, shareholders have been cheated or dealt with unfairly when either of two types of takeovers occur. A. Shareholders are cheated when an acquiror accumulates a large block of stock of a company and then puts a proposal to the shareholders to acquire the company for less than it is worth. The proposal receives the necessary votes because of the block of stock which the acquiror controls. The chance of this type of unfairness being successful should be reduced by Congress passing legislation which would provide that, if an acquiror owns more than 25% of a target company's stock, and submits an acquisition proposal to the stockholders, successful passage should require supermajority vote of 80% of the outstanding stock. B. Shareholders are treated unfairly when an acquiror makes an original tender offer for less than 100% of the target company's stock and later makes a second offer for the balance of the stock but at a lower price or by offering preferred stock or notes which have a lesser market value than the original offering. It is usually the smaller, less well informed shareholders who get left with the second-tier offering. The institutions and market-wise investors are prompt in turning-in their stock. In this situation, not only are the shareholders who get the second offering cheated and dealt with unfairly, but even the shareholders who accepted the first offering are very likely not getting as good a price for their stock as they could and should get. The reason for this is that, when the shareholders hear of the first offering, they rush to accept it because they do not want to be among those who get a poorer deal in the second offering. They stampede to accept which means that they have no time to invite other companies to make a better offer which they could do if they were not being threatened by being left with a second-tier, lesser-value offer. These problems could be improved by legislation which would specify that, upon acquiring over 45% of a target company's stock, an acquiring company would be required by law to pay all remaining shareholders who want to submit their stock a price equal to or greater than the highest price paid for any of the first 45% of stock acquired. Very cordially yours, George N. Hathspouts George N. Hatsopoulos GNH:LN |