The Securities and Exchange Commission appears to be charting a new, more hands-off course on takeover issues.
In a series of long-awaited actions, the agency Thursday decided that it would not attempt to control some of the most controversial aspects of the takeover phenomena on grounds that market forces are correcting the problems.
Principally, the SEC decided not to act on a range of maneuvers that have sprung out of the takeover boom, including "junk bonds," "golden parachutes," "greenmail" and "white knight lock-ups."
Junk bonds are high-risk, unrated securities often used to finance takeovers. Golden parachutes are lucrative bonuses promised to top management if their companies are taken over. Greenmail is a company's payment of a premium price to buy a raider's stock and win its freedom. White knight lock-ups are agreements by target companies to sell valuable assets to a friendly suitor company in an effort to discourage a hostile takeover.
Bad ideas, new Commissioner Edward H. Fleischman said, "but a wonderful addition to the lexicon."
Commissioner Charles C. Cox called several of them "yesterday's problems" that have been cured by court action or disarmed by the reactions of the stock market.
"Bad ideas tend to die of their own weight," Commissioner Joseph A. Grundfest said in explaining why action was not required or advisable.
The SEC also requested public comment on a fifth takeover ploy: "poison pills." These defensive tactics involve damaging financial steps that would automatically take effect if a hostile takeover succeeded. They are designed to be so harmful to the company that a hostile raider would be scared off.
SEC Chairman John S. R. Shad noted that they are defenses on which shareholders have no voice, but which can make a takeover prohibitively expensive. They are being widely adopted by large corporations, and the commission will consider regulating them after a public comment period.
In other actions, the commission also:
- Decided to try to write a new definition of tender offers, the initial public announcement that a bidder is seeking to buy the stock of a target company. The SEC's prior, long-standing definition is being shredded by court decisions in takeover cases, and an updated definition--if the commissioners can agree on one--could create a new regulatory climate, commission officials said.
- Delayed action on a proposal to require bidders to extend a tender offer to all stockholders and to pay every stockholder the same price. In its successful takeover defense last year, Unocal made a tender offer to its shareholders that specifically excluded an investor group headed by Texas oilman T. Boone Pickens, who was mounting the takeover attempt. The SEC staff Thursday proposed a modification of the proposal, and Shad said he hoped the commission could vote on the altered "all holders" proposal within 90 days.
- Decided to consider a proposal that would permit corporations to establish the kind of exclusionary takeover defense that Unocal used, if approved by shareholders.
The surprise proposal by Grundfest, one of the commission's new members, in effect would permit companies to "opt out" of the all-holders requirement. Grundfest's proposal passed by a 3-2 vote.
That led to a proposal to consider allowing companies to "opt out" of all of the SEC's disclosure and stockholder protection rules on tender offers contained in the Williams Act of 1968--a basic SEC statute.
Commissioner Aulana L. Peters, who made the suggestion, opposed Grundfest's proposal, saying it could "wreak havoc" with SEC processes. In offering her proposal, she appeared to want to open the issue up fully to public reaction.
Grundfest, 34, came to the commission from President Reagan's Council of Economic Advisers, where he was counsel, chief economist and author of a lengthy Administration policy statement on takeovers last year that minimized the need for federal regulation.
Asked about Peters' proposal, Grundfest said he had no intention of gutting the Williams Act. "I think people opposed to regulatory humility are trying to conjure up fears that everything under the sun would be exempted (from regulation)," Grundfest said. "That's not my intention. It's a straw man."
In its only action to alter SEC regulations, the commission voted 3-2 to ask Congress to narrow a rule requiring investors to announce when they have acquired more than 5% of a company's stock. Currently, investors must make that disclosure within 10 days after passing the 5% threshold.
The addition in recent weeks of the two new commissioners, Fleischman and Grundfest, put the five-member commission at full-strength for the first time in nine months--an event that Chairman Shad had said he would await before tackling merger and takeover policies.