Niagara Hudson Power Corp. v. Leventritt, 340 U.S. 336 (1951)
Niagara Hudson Power Corp. v. Leventritt
No. 211
Argued December 5, 1950
Decided January 15, 1951 *
340 U.S. 336
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
Syllabus
The Securities and Exchange Commission approved a plan of reorganization as "fair and equitable" within the meaning of § 11 of the Public Utility Holding Company Act of 1935, although the plan made no provision for participation of outstanding stock option warrants relating to common stock of the company to be reorganized. The warrants represented options to purchase at any time, for a specified price, shares of the company’s common stock. The Commission found that there was no reasonable expectation, within the foreseeable future, that the market price of the common stock would exceed the exercise price of the warrants, and that, upon consideration of all the circumstances, there was no justification for recognizing any present value in the warrants at the expense of the common stock.
Held: the District Court properly ordered enforcement of the plan. Pp. 338-348.
1. The fact that the plan provides for no participation by the outstanding warrants despite their conceded, but low, market value does not preclude the Commission, as a matter of law, from concluding that the plan is "fair and equitable" within the meaning of § 11(e) of the Act when informed estimates of future earnings indicate that they have no investment value. Pp. 340-348.
2. The fact that the options in the warrants were exercisable "at any time (without limit)," and thus had a "perpetual feature," did not require that the Commission, as a matter of law, recognize some present value in the warrants. Pp. 344-345.
3. The fact that a purchaser may be willing to pay a nominal price for a warrant which has no investment value, on the mere chance that it may be saleable in a rising market, is not an adequate basis for allowing a value to the warrants at the expense of the common stock, in a reorganization under the Act. Pp. 345-346.
4. In determining the fairness and equity of compensation to be allowed holders of warrants, the Commission is not bound as a matter of law, any more than in the case of other securities, to limit itself precisely to the values which the market recognizes. P. 346.
5. The informed judgment of the Commission, rather than that of the market, is the appropriate guide to fairness and equity under the Act, and that informed judgment looks for investment values on a going concern basis measured primarily by the Commission’s estimate of earnings within the foreseeable future. Pp. 346-347.
6. In the absence of abuse of its discretion, the Commission’s approval of plan is as lawful and binding when it recognizes a value of zero for a security as when it selects any other figure. P. 347.
7. In this case, the Act does not require proof that the warrants are wholly worthless and without any market value in order to sustain the Commission’s judgment that the plan is "fair and equitable," though denying them participation. It is enough that the Commission, within its discretion, has given the warrants careful consideration, and, under all the circumstances, including the market value of the warrants, has found the plan to be "fair and equitable" within the meaning of § 11 of the Act. P. 347.
179 F.2d 615 reversed.
The District Court ordered enforced a plan of reorganization approved by the Securities and Exchange Commission under the Pubic Utility Holding Company Act of 1935. 86 F.Supp. 697. The Court of Appeals reversed that part of the order relating to stock option warrants, and remanded the cause to the District Court for further proceedings. 179 F.2d 615. This Court granted certiorari. 340 U.S. 809. Reversed, p. 348.