Court Clarifies When Merger Bids Are Illegal

Merger offers may not violate federal securities law unless the true nature of the deal is concealed or misrepresented, the Supreme Court ruled Tuesday.

The 7-0 ruling said that, for a tender offer to be illegally “manipulative,” there must be some chicanery.

“We hold that the term ‘manipulative’ as used in (federal security law) requires misrepresentation or non-disclosure,” said Chief Justice Warren E. Burger for the court.

The dispute stemmed from a tender offer made by Burlington Northern, a transportation and natural resources company, for 25.1 million shares of El Paso Co., an energy business, in December, 1982. The offering price was $24 a share.

The hostile offer was withdrawn after negotiations between the management of the two companies led to a subsequent friendly merger offer, also for $24 a share, by Burlington Northern in January, 1983.

In the intervening period, 25.1 million shares of El Paso common stock had been tendered to Burlington Northern.

But, because of the revised deal, the El Paso shareholders were unable to sell all 25.1 million shares of their stock to Burlington Northern. The revised offer was for 4.1 million fewer shares than the initial offer.

Barbara Schreiber, one of the shareholders who could not sell as many shares under the revised deal, filed suit, charging that the withdrawal of the initial order was illegally manipulative.