Dingell to Offer Bill to Tighten Takeover Rules : Disclosure Requirements, ‘Greenmail’ Are Targeted
Responding to the unfolding Wall Street scandals, the chairmen of the House Energy and Commerce Committee and its securities subcommittee say they will introduce legislation today to “restore the balance and fairness” in corporate takeover attempts.
Reps. John Dingell (D-Mich.), and Edward J. Markey (D-Mass.), said they will ask Congress to require quicker and more complete disclosure of takeover attempts and to eliminate “greenmail” and “golden parachutes,” often cited as abuses of the system.
The bill also requires a one-share, one-vote standard to be maintained among publicly traded firms. Some exchanges are weakening the rule that shareholders be voting owners of the corporation.
Their legislation would close the so-called 13-D window in securities law that helps make inside information so valuable and illegal inside trading so lucrative.
Under current law, a raider trying to take over a firm must file a public disclosure of intent within 10 days after buying a 5% stake.
The bill proposed by Dingell and Markey would close the window by requiring the disclosure within 24 hours after a raider hits the 5% mark. And it would forbid the raider from acquiring additional stock for two days after filing.
Greenmail--the practice of a company repurchasing its stock from a raider at a premium price to avoid being taken over--would be forbidden. The bill would prohibit repurchases at above-market rates from shareholders who have held more than 3% interest for less than two years, unless approved by shareholders or if the same price is offered to all stockholders.
Golden parachutes, or lavish severance benefits, also would be prohibited. The bill bars prospective termination agreements, large salary increases or stock options while a tender offer is pending.
The legislation also authorizes the Securities and Exchange Commission to put restrictions on other defensive tactics, including “poison pills” and “tin parachutes.”
