Schreiber v. Burlington Northern, 472 U.S. 1 (1985)

Schreiber v. Burlington Northern, Inc.

No. 83-2129

Argued January 9, 1985
Decided June 4, 1985
472 U.S. 1

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE

THIRD CIRCUIT

Syllabus

In December 1982, respondent Burlington Northern, Inc., made a hostile tender offer for El Paso Gas Co. to which a majority of El Paso’s shareholders ultimately subscribed. Burlington did not accept the tendered shares, and instead, in January, 1983, after negotiations with El Paso, announced a new and friendly takeover agreement. Pursuant to this agreement, Burlington undertook to rescind the December tender offer and substitute a new tender offer. The January tender offer was soon oversubscribed. The rescission of the first tender offer caused a diminished payment to those shareholders who had tendered during the first offer, because those shareholders who retendered were subject to substantial proration. Petitioner filed suit in Federal District Court on behalf of herself and similarly situated shareholders, alleging that Burlington, El Paso, and members of El Paso’s board of directors had violated § 14(e) of the Securities Exchange Act of 1934, which prohibits "fraudulent, deceptive, or manipulative acts or practices . . . in connection with any tender offer." She claimed that Burlington’s withdrawal of the December tender offer, coupled with the substitution of the January tender offer, was a "manipulative" distortion of the market for El Paso stock. The District Court dismissed the suit for failure to state a claim, holding that the alleged manipulation did not involve a misrepresentation, and so did not violate § 14(e). The Court of Appeals affirmed.

Held:

1. "Manipulative" acts under § 14(e) require misrepresentation or nondisclosure. To read the term "manipulative" in § 14(e) to include acts that, although fully disclosed, "artificially" affect the price of the takeover target’s stock conflicts with the normal meaning of the term as connoting conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities. Pp. 5-8.

2. This interpretation of the term "manipulative" as used in § 14(e) is supported by the provision’s purpose and legislative history. The purpose of the Williams Act, which added § 14(e) to the Securities Exchange Act, was to ensure that public shareholders who are confronted with a tender offer will not be required to respond without adequate information. Nowhere in the legislative history is there any suggestion that § 14(e) serves any purpose other than disclosure, or that the term "manipulative" should be read as an invitation to the courts to oversee the substantive fairness of tender offers; the quality of any offer is a matter for the marketplace. Pp. 8-12.

3. Applying the above interpretation of the term "manipulative" to this case, respondents’ actions were not manipulative. Pp. 12-13.

731 F.2d 163, affirmed.

BURGER, C.J., delivered the opinion of the Court, in which all other Members joined, except POWELL, J., who took no part in the decision of the case, and O’CONNOR, J., who took no part in the consideration or decision of the case.