Carter Hawley Hale Stores’ purchase of some of its own stock in a successful attempt to fend off a takeover bid was upheld Monday by a federal appeals court, which rejected a challenge by the Securities and Exchange Commission.
The U.S. 9th Circuit Court of Appeals ruled that the stock repurchase was not a tender offer, a type of transaction that would have taken more time and given more rights to stockholders whose shares were being bought.
Carter Hawley management did not subject stockholders to “untoward pressure” to sell their shares, the court said.
The court said U.S. District Judge A. Wallace Tashima ruled correctly in denying an injunction sought by the SEC that would have stopped Carter Hawley management from using the repurchase to increase its voting power to repel the takeover attempt.
The Los Angeles-based retailer, which operates several department store chains across the nation, including Neiman-Marcus and the Broadway, was the target of a takeover attempt in April, 1984, by the Limited Inc.
The Limited bid for 20.3 million shares of Carter Hawley stock, or 55% of the total outstanding, in a tender offer.
Twelve days after the Limited’s bid was unveiled, Carter Hawley announced its opposition.
Management sold shares amounting to 22% of its voting stock to a “friendly” company, General Cinema.
Carter Hawley also said it would repurchase up to 15 million shares of its own stock, a plan that would increase General Cinema’s voting strength to 33%.
Management bought those shares plus an additional 2.5 million. The Ohio company withdrew its offer a month later.