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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 12 TO
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
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AMP INCORPORATED
(NAME OF SUBJECT COMPANY)
PMA ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
ALLIEDSIGNAL INC.
(BIDDER)
COMMON STOCK, WITHOUT PAR VALUE
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
(TITLE OF CLASS OF SECURITIES)
031897101
(CUSIP NUMBER OF CLASS OF SECURITIES)
PETER M. KREINDLER, ESQ.
ALLIEDSIGNAL INC.
101 COLUMBIA ROAD
MORRISTOWN, NEW JERSEY 07692
(973) 455-5513
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(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO
RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDERS)
Copies to:
ARTHUR FLEISCHER, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004-1980
(212) 859-8120
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SCHEDULE 13D
CUSIP No. 031897101
1. NAME OF REPORTING PERSONS
S.S. OR I.R.S IDENTIFICATION NO. OF ABOVE PERSON
ALLIEDSIGNAL INC. (E.I.N.: 22-2640650)
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
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3. SEC USE ONLY
- -----------------------------------------------------------------------
4. SOURCE OF FUNDS
BK, WC, OO
- -----------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS
2(d) or 2(c) [ ]
- -----------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
20,000,100 Common Shares
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8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN
SHARES
[ ]
- -----------------------------------------------------------------------
9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
9.1% of outstanding Common Shares
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10. TYPE OF REPORTING PERSON
HC and CO
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SCHEDULE 13D
CUSIP No. 031897101
1. NAME OF REPORTING PERSONS
S.S. OR I.R.S IDENTIFICATION NO. OF ABOVE PERSON
PMA ACQUISITION CORPORATION (E.I.N.: 22-3610482)
- -----------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
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3. SEC USE ONLY
- -----------------------------------------------------------------------
4. SOURCE OF FUNDS
BK, WC, OO
- -----------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS
2(d) or 2(c) [ ]
- -----------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- -----------------------------------------------------------------------
7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
20,000,100 Common Shares
- -----------------------------------------------------------------------
8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN
SHARES
[ ]
- -----------------------------------------------------------------------
9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
9.1% of outstanding Common Shares
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10. TYPE OF REPORTING PERSON
CO
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The Schedule 13D filed by PMA Acquisition Corporation ("PMA"), a
Delaware corporation, a wholly owned subsidiary of AlliedSignal Inc.
("AlliedSignal"), a Delaware corporation, on October 9, 1998 is hereby
amended as follows:
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
(a)(19) Judgment rendered by United States Court of Appeals for the Third
Circuit in connection with AlliedSignal's appeal of the decision
of United States District Court for the Eastern District of
Pennsylvania's decision relating to the application of
Pennsylvania's Control Share Acquisitions Statute to
AlliedSignal's ownership of 20,000,100 shares of AMP Common
Stock.
SIGNATURE
After reasonable inquiry and to the best of their knowledge and
belief, the undersigned certifies that the information set forth in this
statement is true, complete and correct.
Dated: February 22, 1999
PMA ACQUISITION CORPORATION
By: /s/ Peter M. Kreindler
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Name: Peter M. Kreindler
Title: Vice President, Secretary
and Director
ALLIEDSIGNAL INC.
By: /s/ Peter M. Kreindler
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Name: Peter M. Kreindler
Title: Senior Vice President,
General Counsel and
Secretary
EXHIBIT (a)(19)
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 98-2019
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AMP INCORPORATED
v.
ALLIEDSIGNAL CORPORATION;
PMA ACQUISITION CORPORATION
AlliedSignal Inc. and PMA
Acquisition Corporation,
Appellants
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On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civ. No. 98-4405)
Present: Greenberg, Alito and McKee, Circuit Judges
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JUDGMENT
This cause came on to be heard on the record from the United
States District Court for the Eastern District of Pennsylvania and was argued
by counsel on January 20, 1999.
On consideration whereof, it is now here ordered and adjudged by
this court that the judgment of the said District Court entered November 18,
1998, be, and the same is hereby reversed and the cause is remanded to the
District Court for further proceedings consistent with this opinion. Costs
taxed against appellees. All of the above in accordance with the opinion of
this Court.
ATTEST:
[Signature]
Clerk
Dated: 18 February 1999
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 98-2019
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AMP INCORPORATED
v.
ALLIEDSIGNAL CORPORATION;
PMA ACQUISITION CORPORATION
AlliedSignal Inc. and PMA
Acquisition Corporation,
Appellants
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On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civ. No. 98-4405)
District Judge: Honorable James T. Giles
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Argued January 20, 1999
BEFORE: GREENBERG, ALITO, and McKEE, Circuit Judges
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(Filed: February 18, 1999)
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Jon A. Baughman (argued)
Seth A. Abel
Peter O. Clauss
Pepper, Hamilton & Scheetz
18th & Arch Streets
3000 Two Logan Square
Philadelphia, PA 19103-2799
John G. Harkins, Jr.
Gay P. Rainville
Eleanor M. Illoway
Harkins Cunningham
2005 Market Street
2800 One Commerce Square
Philadelphia, PA 19103
Attorneys for AMP Incorporated
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Alexander R. Sussman (argued)
Fried, Frank, Harris, Shriver &
Jacobson
One New York Plaza
New York, NY 10004
Arlin M. Adams
Schnader, Harrison, Segal &
Lewis
1600 Market Street
Suite 3600
Philadelphia, PA 19103
Mary A. McLaughlin
George G. Gordon
Dechert, Price & Rhoads
1717 Arch Street
400 Bell Atlantic Tower
Philadelphia, PA 19103
Attorneys for AlliedSignal,
---------------------------
Inc. and PMA Acquisition Corp.
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OPINION OF THE COURT
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GREENBERG, Circuit Judge.
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I. INTRODUCTION
AMP Incorporated brought suit under the Pennsylvania Business
Corporation Law ("PBCL"), 15 Pa. Cons. Stat. Ann. ss. 2501 et seq. (West
1995), alleging that 20,000,100 shares of AMP stock acquired by
AlliedSignal, Inc., amounting to 9.1% of outstanding AMP stock, are control
shares within the meaning of the portion of the PBCL commonly known as the
Control Share Acquisitions Statute, 15 Pa. Cons. Stat. Ann. ss.ss. 2561-68
(the "Statute"). AMP charged that because of a voting disqualification in
the Statute, AlliedSignal could not vote those shares. The district court,
construing the Statute, concluded that, although AlliedSignal's acquisition
totaled less than 20% of the outstanding AMP stock, the numerical threshold
for the voting disqualification, the Statute requires that shares bought
with the intent to make a "control share acquisition" as defined by the
Statute are "control shares," and so lose voting rights unless restored as
provided in the Statute. Therefore, the court enjoined AlliedSignal from
voting its shares. AlliedSignal and its subsidiary used in acquiring AMP
shares, PMA Acquisition Corporation, appeal. We conclude that there must be
a "control-share acquisition" triggered upon actual acquisition of at least
20% of the outstanding shares by an acquiring person before voting shares
may be deemed "control shares." Consequently, we will reverse.
II. FACTUAL AND PROCEDURAL HISTORY
AMP is a Pennsylvania corporation which designs, manufactures
and, on a worldwide basis, markets electronic, electrical and electro-optic
connection devices, interconnection systems and connector assemblies. Its
principal place of business is in Harrisburg, Pennsylvania, and it is a
registered corporation within the meaning of section 2502 of the PBCL, 15 Pa.
Cons. Stat. Ann. ss. 2501 et seq. AlliedSignal is a Delaware corporation with
its principal place of business in Morristown, New Jersey, and is the
beneficial owner of 20,000,100 AMP shares, or 9.1% of AMP's outstanding
stock, having bought those shares intending to acquire AMP. AlliedSignal is
an advanced technology and manufacturing company with worldwide operations in
the aerospace, automotive and engineered materials businesses.
In August 1998, AlliedSignal began to make overtures to AMP for a
negotiated merger transaction. On August 4, 1998, AlliedSignal announced
that it would commence an unsolicited tender offer for all of the
outstanding shares of the common stock of AMP and would seek to merge the
two companies. On August 10, 1998, AlliedSignal filed a tender offer
statement on Schedule 14D-1 with the Securities Exchange Commission setting
forth the terms of the tender offer and other information.
On August 21, 1998, the AMP directors formally rejected
AlliedSignal's offer, and filed a complaint in the district court against
AlliedSignal and PMA Acquisition Corporation. While this appeal involves
only state law issues, the overall action also includes federal issues, so
that the district court had jurisdiction under 28 U.S.C. ss.ss. 1331, 1332,
and 1367. In light of AMP's opposition, AlliedSignal amended its offer to
reduce the number of shares it sought to 40,000,000, the approximate number
it could acquire without triggering AMP's then-existing "poison pill." On
September 21, 1998, after AMP's board reduced the share ownership threshold
for triggering the "poison pill" from 20% to 10%, AlliedSignal amended its
offer again to reduce the number of shares sought, this time to 20,000,000,
or approximately 9.1% of all AMP shares outstanding. The next day AMP
amended its complaint to add, among other charges, Count Four, the subject
of this appeal.
In Count Four AMP alleged that the shares which AlliedSignal
proposed to buy pursuant to the amended tender offer are "control shares"
because AlliedSignal had announced its offer to purchase all AMP shares.
Thus, AMP argued that in view of the statutory voting disqualification,
AlliedSignal could not vote the shares it proposed to buy. On October 9,
1998, after the expiration of its amended tender offer, AlliedSignal
purchased 20,000,000 shares of AMP stock at a cost of $890 million. Because
AlliedSignal earlier had purchased 100 shares of AMP stock, AlliedSignal
was and is now the beneficial owner of 20,000,100 shares of AMP stock or
9.1% of AMP's outstanding shares.(1)
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(1) The parties agreed at the oral argument before us that AlliedSignal is
the beneficial owner of all of those shares, contrary to the
discussion in the district court's Memorandum Opinion and Order, which
stated that "[b]eneficially owned shares...carry a rebuttable
presumption that they are control shares," while "[t]here is no such
rebuttable presumption . . . covering the voting shares actually owned
. . . ." We believe that the district court's reading of beneficial
ownership was incorrect as such ownership clearly includes outright
ownership.
On October 15, 1998, AMP moved for partial summary judgment on
Count Four of its first Amended Complaint. In particular, it sought a
declaratory judgment that AlliedSignal's shares in AMP are "control shares"
as defined by the Control Share Acquisitions Statute and an injunction
barring AlliedSignal from voting any AMP shares unless and until
AlliedSignal obtains a restoration of its voting rights in accordance with
the Statute. AlliedSignal cross-moved on October 29, 1998, for partial
summary judgment against AMP dismissing Count Four on the grounds that the
shares it had acquired were not "control shares" and that their acquisition
thus had not triggered a loss of voting rights. A hearing was held on
November 4, 1998, and on November 18, 1998, the district court issued a
Memorandum Opinion and Order granting AMP's motion for partial summary
judgment on Count Four and denying AlliedSignal's cross-motion. Thus,
AlliedSignal, AMP's largest shareholder, cannot vote its shares of AMP with
respect to the consent solicitation as well as any issues voted upon at the
annual 1999 shareholders meeting, including a potential merger between AMP
and Tyco International, Ltd., announced by AMP on November 22, 1998.
AlliedSignal and PMA Acquisition Corporation filed their notice of appeal
on November 23, 1998. We have jurisdiction under 28 U.S.C. ss. 1292(a)(1)
and, because we decide this case through the application of legal
principles, we exercise plenary review. See AT&T Co. v. Winback and
Conserve Program, Inc., 42 F.3d 1421, 1427 (3d Cir. 1994). In this regard,
we point out that the district court did not suggest that it predicated the
injunction on any basis other than its construction of the Statute.
III. DISCUSSION
Pennsylvania's 1990 Control Share Acquisitions Statute, Chapter
25, Subchapter G of the PBCL, 15 Pa. Cons. Stat. Ann. ss.ss. 2561-68,
requires that tender offers be subject to shareholder approval at a
meeting. This complex statute was one of many similar state laws passed
beginning in the 1980s to protect businesses from certain abusive and
manipulative practices of corporate raiders. See S. Wallman and L. Gordon,
Pennsylvania's Anti-Raider Legislation, 4 No. 8 Insights 38 (Aug. 1990).
The Statute treats a person's acquiring voting power over 20% of
the voting shares of a corporation as a fundamental corporate transaction
requiring prior shareholder approval. Specifically, while not limiting a
purchaser from acquiring shares, the Statute provides that "control shares"
may not be voted until the shareholders grant approval. Control shares are
defined as voting shares providing a person with voting power in three
specified ranges, beginning with 20%. Control shares also include shares
owned by an acquiring person purchased with the intent of making a
control-share acquisition or purchased within 180 days prior to that
person's making a control-share acquisition.
We think that the clearest reading of this rather
confusingly-drafted statute is that an "acquiring person" loses its right
to vote its shares when it actually acquires enough shares to bring its
total shares beneficially owned to or above one of the statutory thresholds
of voting power, starting at 20%. The parties agree that AlliedSignal is an
"acquiring person" as defined by the statute: a "person who makes or
proposes to make a control-share acquisition." 15 Pa. Cons. Stat. Ann. ss.
2562.
A "control-share acquisition" is defined in section 2562 as
An acquisition . . . that, but for this subchapter,
would, when added to all voting power of the person
over other voting shares of the corporation . . . entitle
the person to cast . . . [votes in these ranges]:
(1) at least 20% but less than 33 1/3%, (2) at
least 33 1/3% but less than 50%, or (3) 50% or more.
AMP concedes that under the statutory definition there has not been a
"control-share acquisition" in the sense of AlliedSignal's reaching a
statutory threshold for it has not acquired 20% of AMP's shares. Br. at 10.
However, in effect, AMP is arguing that the definition of "control shares"
operates such that an "acquiring person" can have its "control shares"
stripped of voting power without having made an actual "control-share
acquisition."
The appeal largely boils down to how "control shares" is defined
in section 2562. The two-sentence provision defines "control shares" as:
Those voting shares of a corporation that, upon
acquisition of voting power over such shares by an
acquiring person, would result in a control-share
acquisition. Voting shares beneficially owned by an
acquiring person shall also be deemed to be control
shares where such beneficial ownership was acquired
by the acquiring person:
(1) within 180 days of the day the person makes a
control-share acquisition; or
(2) with the intention of making a control-share
acquisition.
15 Pa. Cons. Stat. Ann. ss. 2562 (emphasis added).
The trouble lies in subsection (2) of the second sentence, which
the district court held to mean that if an acquiring person has bought
shares with the express intention of buying more shares to make a
control-share acquisition, those shares already acquired are "control
shares." But the use of the past tense in the second sentence -- "was
acquired . . . with the intention" -- and the use of the word "deemed,"
suggest that the subsection looks backward in time, so as to be applied to
those shares an acquiring person buys which, when added to those it already
purchased, bring its beneficial ownership to the 20% threshold. The
previously-acquired shares would be "deemed" retroactively to be "control
shares" and covered under subsection (2), when, as here, they were
"acquired . . . with the intention of making a control-share acquisition."
Thus, when the acquiring person's holdings actually reach the 20%
threshold, all of the stock it has acquired, even that acquired before it
reached the threshold, is deemed "control share" stock, since, under the
first sentence of the definition, the acquiring person now has made a
"control-share acquisition." The inclusion of the second sentence shows
that those last shares which one buys to reach the 20% threshold are not
the only ones that are "control shares" subject to the voting
disqualification; rather, all those shares purchased within the previous
180 days and those bought at any time in the past with intent to make a
"control-share acquisition" are subject to the disqualification.
In this regard, we point out that the Control Share Acquisitions
Statute is set forth in a subchapter in the PBCL entitled "Control-Share
Acquisitions": our conclusion reconciles the statutory definition of
"control-share acquisition," which sets forth the three acquisition
thresholds, with the rather complicated definition of "control shares." The
district court's construction of "control shares" is difficult to harmonize
with the 20%, 33 1/3% and 50% acquisition triggers, since under its view
intent alone could create control shares where there is no actual
control-share acquisition or where the acquiring person has accumulated
only a small number of shares in the company to be acquired. We recognize,
of course, that the definition of "acquiring person" includes a person who
"proposes to make" a control-share acquisition. 15 Pa. Cons. Stat. Ann. ss.
2562. The district court used this definition as evidence that shares one
buys with intent to make a later control-share acquisition are control
shares. Nevertheless, we believe that the critical issue is how to
reconcile the definitions of "control shares" and "control-share
acquisition." Our definition of "control shares" accords with the
definition of "acquiring person" in that AlliedSignal, which does intend to
make a control-share acquisition in the future, may be an "acquiring
person" without its shares being stripped of voting rights when numerically
they do not even approach the 20% threshold.
Applicable legislative history is sparse, but we believe that the
evidence suggests that the Statute was intended to "kick in" once an actual
threshold has been reached. The Draftsmen's Comment states that the term
"control-share acquisition"
utilizes the concept of voting power in three
specified ranges, beginning with 20%. . . . In many
instances a much lower percentage could be utilized
as the percentage at which control could be affected,
but for purposes of the subchapter and its general
applicability to corporations the 20% threshold was
selected.
Draftsmen's Comment to ss. 2562, at 477, 2 Zeiter, Pennsylvania Associations
Code and Related Materials (West 1992).
We believe that the whole Statute must operate with the definition of
"control-share acquisition" and its specified thresholds kept in mind. The
various provisions and definitions must be read together in harmony.
Furthermore, it seems clear that Pennsylvania's Statute, like
those of other states, was modeled upon Indiana's, which is triggered by
actual share acquisitions of 20% of outstanding stock. See, e.g., Ind. Code
Ann. ss. 23-1-42-1; N.C. Gen. Stat. ss. 55-9A-01; Neb. Rev. Stat. ss.
21-2439.(2) The Draftsmen's Comment to section 2562 shows that the
Draftsmen did have the Anti-raider laws of other states in mind ("the 20%
threshold is within the range of levels set in similar statutes in other
states.").(3)
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(2) Under the Pennsylvania law, we may consider statutes of other
jurisdictions in construing the Statute. General Elec. Envtl. Serv.,
Inc. v. Envirotech Corp., 763 F. Supp. 113, 118-19 (M.D. Pa. 1991).
(3) See also April 23, 1990 Pennsylvania Senate Journal at 1947 (Comments
of Senator Wenger) (statute bars "a raider who acquires more than 20
percent of a company from voting [its] shares to change corporate
control without the approval of the remaining shareholders").
AMP admits that under Indiana's law, AlliedSignal would prevail.
Br. at 29. Indiana explicitly covers those shares which -- "added to all
other shares" -- reach the 20% threshold "immediately after" they are
bought. Ind. Code Ann. ss. 23-1-42-1 (quoted below). AMP has not offered
any indication that the Pennsylvania legislators intended a departure from
the norm of Indiana and other states, which require reaching an actual
threshold before voting shares are disenfranchised. AMP argues that the
Pennsylvania statute was intended to be different from the Indiana statute
because the definitions of "control share" differ. Br. at 29. AMP focuses
upon the fact that the Indiana statute's definition of "control shares"
stops without a second sentence comparable to that in Pennsylvania's
Statute. "Control shares" are defined in Indiana as:
shares that, except for this chapter, would have
voting power with respect to shares of an issuing
public corporation that, when added to all other
shares of the issuing public corporation owned by a
person or in respect to which that person may
exercise or direct the exercise of voting power,
would entitle that person, immediately after
acquisition of the shares (directly or indirectly,
alone or as a part of a group), to exercise or direct
the exercise of the voting power of the issuing
public corporation in the election of directors
within any of the following ranges of voting power:
(1) One-fifth (1/5) or more but less than one-third
(1/3) of all voting power.
(2) One-third (1/3) or more but less than a majority
of all voting power.
(3) A majority or more of all voting power.
Ind. Code Ann. ss. 23-1-42-1.
Inasmuch as AMP recognizes that under the Indiana statute,
AlliedSignal's stock would not be control shares, AMP's argument hinges
upon the Pennsylvania statute's inclusion of subsection (2) of the second
sentence of the definition of "control shares": AMP argues that this
language differs enough from that in statutes in other states to
demonstrate that the Pennsylvania legislature intended it to operate
differently in Pennsylvania. However, the Indiana statute's definition of
"control share acquisition" contains language resembling Pennsylvania
statute's definition of "control shares," for it covers shares bought
within a certain time frame as well as previously-bought shares acquired
with the intention to reach a threshold. Ind. Code Ann. ss. 23-1-42-2(b).
The Indiana definition of "control share acquisition" provides that, for
purposes of the disenfranchisement provision, "shares acquired within
ninety (90) days or shares acquired pursuant to a plan to make a control
share acquisition are considered to have been acquired in the same
acquisition." Id. See also CTS Corp. v. Dynamics Corp. of America, 481 U.S.
69, 74, 107 S.Ct. 1637, 1641 (1987) (explaining operation of Indiana
control share acquisitions statute).
Finally, as construed by the district court, the Statute provides
no way for a beneficial owner stripped of voting power but not yet having
met one of the thresholds specified in the definition of "control-share
acquisition" to regain voting rights. Here, for example, under the district
court's opinion, AlliedSignal has become the owner of "control shares" but
has not made a "control-share acquisition." Under the Statute, a special
meeting to restore voting rights will be called if the acquiring person
"makes a control-share acquisition or a bona fide written offer to make a
control-share acquisition," 15 Pa. Cons. Stat. Ann. ss. 2565(a)(3), "files
an information statement fully conforming to section 2566," id. ss.
2565(a)(1), and has "entered into a definitive financing agreement to
provide for any amounts of financing of the control-share acquisition not
to be provided" by it. Id. ss. 2565(d)(2)(i). The acquirer then has 90 days
after restoration of voting rights to consummate the control-share
acquisition or those rights lapse. Id. ss. 2564(b). Where, as here, there
is no outstanding bona fide written offer, information statement and
financing arrangement to make a control-share acquisition, i.e., to reach
the 20% threshold, section 2565(a) does not provide a clear process through
which voting rights can be reinstated by other shareholders. 15 Pa. Cons.
Stat. Ann. ss. 2565(a).(4) Moreover, an acquiring person who buys shares
gradually -- however few at any one time -- would have to continue to
petition to have its voting rights restored, unless it chose to accelerate
the process by consummating the acquisition within 90 days: such a result
is impractical, as well as having the undesired effect of hastening tender
offers rather than delaying them.
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(4) AMP responds that AlliedSignal previously has made a written offer,
br. at 26, but it is not clear that the existence of such a prior
offer, especially without an information statement and financing
arrangements, will enable AlliedSignal to request the special meeting.
A reading contrary to ours, in addition to creating the
unreasonable results identified above, would burden the market for
corporate control substantially and would entrench management in a manner
likely to harm the long-term interests of shareholders. These undesirable
consequences provide further support for our interpretation of the Statute.
First, while under AMP's reading it still would be possible for a bidder
such as AlliedSignal to solicit proxies to gain control of the target, as a
practical matter, the expense and unlikelihood of winning a proxy contest
without an appreciable number of votes committed to the solicitor's
position effectively eliminates this type of challenge to the control of
management. Second, AMP's reading almost certainly would eliminate the
practice of buying a sizeable stake of the company (say 6%) and threatening
a control contest to prod management toward better corporate policy.(5)
This practice would be eliminated as a practical matter because the shares
would lose their voting rights upon acquisition and any credible threat to
control would be neutralized. Finally, it is difficult to reconcile AMP's
interpretation of the Statute with the prevailing rule regarding the
propriety of corporate defensive tactics -- viz., that the defensive
measure must be reasonable in relation to the threat posed. See Unocal
Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955 (Del. 1985). We believe that
a defensive measure that disenfranchises even a single share acquired with
an intent to contest control of the company would not pass this test of
proportionality.
- -----------
(5) See Steven Bailey and Steven Syre, "Playing Tough Guy to Get the
Deals Done: Value Investor Michael Price Shows No Doubt in Using
Clout," Boston Globe, June 26, 1997, at C1 (describing Price's use of
this tactic in merger between Chase Manhattan Corp. and Chemical
Banking Corp.).
Thus, AlliedSignal's interpretation of the Statute can be
reconciled with the statutory language and avoids the unreasonable results
that AMP's interpretation would produce -- results that we cannot believe
the Pennsylvania Legislature intended. Lehigh Valley Coop. Farmers v.
Commonwealth of Pa., 447 A.2d 948, 950-51 (Pa. 1982) (in construing
statute, court may presume that General Assembly did not intend absurd or
unreasonable result). If we were to affirm we, in effect, would be holding
that Pennsylvania's takeover law departs from that of all other states'
takeover laws and that the Pennsylvania Legislature effected this radical
departure without providing any clear evidence that it meant to do so.
Moreover, it would be difficult to reconcile that construction of the
Statute with the available procedure to restore the lost voting rights of
control shares in situations -- including the present case -- in which an
acquirer gradually purchases stock as it moves towards the 20% threshold.
It is true that a purchase of 19.99% of shares -- or 17%, or,
perhaps, 9.1% -- by an "acquiring person" may create the same sorts of
corporate-control dilemmas for a company being acquired as would a purchase
of 20% or 20.01%. Still, the definition of "control-share acquisition"
here, as elsewhere, clearly specifies a level of acquisition to be reached
before a shareholder suffers the serious disability of losing voting
rights.
III. CONCLUSION
We conclude that the Pennsylvania Control Share Acquisitions
Statute requires an "acquiring person" to purchase shares such that its
total ownership of outstanding shares amounts to or exceeds the level of
20% (or 33 1/3 or 50%, as the case may be), when those shares include
previously-acquired shares bought with an intent to make a control-share
acquisition or bought within 180 days before the disenfranchising effect of
the Statute is triggered. We therefore will reverse the district court's
order of November 18, 1998, granting the motion for partial summary
judgment and enjoining AlliedSignal from voting its 20,000,010 shares of
AMP stock, and will remand the matter to the district court for further
proceedings consistent with this opinion.
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