In December 1982, respondent Burlington Northern, Inc., made a
hostile tender offer for El Paso Gas Co. to which a majority of El
Paso's shareholders ultimately subscribed. Burlington did not
accept the tendered shares, and instead, in January, 1983, after
negotiations with El Paso, announced a new and friendly takeover
agreement. Pursuant to this agreement, Burlington undertook to
rescind the December tender offer and substitute a new tender
offer. The January tender offer was soon oversubscribed. The
rescission of the first tender offer caused a diminished payment to
those shareholders who had tendered during the first offer, because
those shareholders who retendered were subject to substantial
proration. Petitioner filed suit in Federal District Court on
behalf of herself and similarly situated shareholders, alleging
that Burlington, El Paso, and members of El Paso's board of
directors had violated § 14(e) of the Securities Exchange Act of
1934, which prohibits "fraudulent, deceptive, or manipulative acts
or practices . . . in connection with any tender offer." She
claimed that Burlington's withdrawal of the December tender offer,
coupled with the substitution of the January tender offer, was a
"manipulative" distortion of the market for El Paso stock. The
District Court dismissed the suit for failure to state a claim,
holding that the alleged manipulation did not involve a
misrepresentation, and so did not violate § 14(e). The Court of
Appeals affirmed.
Page 472 U. S. 2
Held:
1. "Manipulative" acts under § 14(e) require misrepresentation
or nondisclosure. To read the term "manipulative" in § 14(e) to
include acts that, although fully disclosed, "artificially" affect
the price of the takeover target's stock conflicts with the normal
meaning of the term as connoting conduct designed to deceive or
defraud investors by controlling or artificially affecting the
price of securities. Pp.
472 U. S. 5-8.
2. This interpretation of the term "manipulative" as used in §
14(e) is supported by the provision's purpose and legislative
history. The purpose of the Williams Act, which added § 14(e) to
the Securities Exchange Act, was to ensure that public shareholders
who are confronted with a tender offer will not be required to
respond without adequate information. Nowhere in the legislative
history is there any suggestion that § 14(e) serves any purpose
other than disclosure, or that the term "manipulative" should be
read as an invitation to the courts to oversee the substantive
fairness of tender offers; the quality of any offer is a matter for
the marketplace. Pp.
472 U. S.
8-12.
3. Applying the above interpretation of the term "manipulative"
to this case, respondents' actions were not manipulative. Pp.
472 U. S.
12-13.
731 F.2d 163, affirmed.
BURGER, C.J., delivered the opinion of the Court, in which all
other Members joined, except POWELL, J., who took no part in the
decision of the case, and O'CONNOR, J., who took no part in the
consideration or decision of the case.
CHIEF JUSTICE BURGER delivered the opinion of the Court.
We granted certiorari to resolve a conflict in the Circuits over
whether misrepresentation or nondisclosure is a necessary element
of a violation of § 14(e) of the Securities Exchange Act of 1934,
15 U.S.C. § 78n(e).
I
On December 21, 1982, Burlington Northern, Inc., made a hostile
tender offer for El Paso Gas Co. Through a wholly
Page 472 U. S. 3
owned subsidiary, Burlington proposed to purchase 25.1 million
El Paso shares at $24 per share. Burlington reserved the right to
terminate the offer if any of several specified events occurred. El
Paso management initially opposed the takeover, but its
shareholders responded favorably, fully subscribing the offer by
the December 30, 1982, deadline.
Burlington did not accept those tendered shares; instead, after
negotiations with El Paso management, Burlington announced on
January 10, 1983, the terms of a new and friendly takeover
agreement. Pursuant to the new agreement, Burlington undertook,
inter alia, to (1) rescind the December tender offer, (2)
purchase 4,166,667 shares from El Paso at $24 per share, (3)
substitute a new tender offer for only 21 million shares at $24 per
share, (4) provide procedural protections against a squeeze-out
merger [
Footnote 1] of the
remaining El Paso shareholders, and (5) recognize "golden
parachute" [
Footnote 2]
contracts
Page 472 U. S. 4
between El Paso and four of its senior officers. By February 8,
more than 40 million shares were tendered in response to
Burlington's January offer, and the takeover was completed.
The rescission of the first tender offer caused a diminished
payment to those shareholders who had tendered during the first
offer. The January offer was greatly oversubscribed, and
consequently those shareholders who retendered were subject to
substantial proration. Petitioner Barbara Schreiber filed suit on
behalf of herself and similarly situated shareholders, alleging
that Burlington, El Paso, and members of El Paso's board of
directors violated § 14(e)'s prohibition of "fraudulent, deceptive,
or manipulative acts or practices . . . in connection with any
tender offer." 15 U.S.C. § 78n(e). She claimed that Burlington's
withdrawal of the December tender offer, coupled with the
substitution of the January tender offer, was a "manipulative"
distortion of the market for El Paso stock. Schreiber also alleged
that Burlington violated § 14(e) by failing in the January offer to
disclose the "golden parachutes" offered to four of El Paso's
managers. She claims that this January nondisclosure was a
deceptive act forbidden by § 14(e).
The District Court dismissed the suit for failure to state a
claim.
568 F.
Supp. 197 (Del.1983). The District Court reasoned that the
alleged manipulation did not involve a misrepresentation, and so
did not violate § 14(e). The District Court relied on the fact
that, in cases involving alleged violations of § 10(b) of the
Securities Exchange Act, 15 U.S.C. § 78j(b), this Court has
required misrepresentation for there to be a "manipulative"
violation of the section. 568 F. Supp. at 202.
The Court of Appeals for the Third Circuit affirmed. 731 F.2d
163 (1984). The Court of Appeals held that the acts
Page 472 U. S. 5
alleged did not violate the Williams Act, because
"§ 14(e) was not intended to create a federal cause of action
for all harms suffered because of the proffering or the withdrawal
of tender offers."
Id. at 165. The Court of Appeals reasoned that § 14(e)
was
"enacted principally as a disclosure statute, designed to insure
that fully-informed investors could intelligently decide how to
respond to a tender offer."
Id. at 165-166. It concluded that the "arguable breach
of contract" alleged by petitioner was not a "manipulative act"
under § 14(e).
We granted certiorari to resolve the conflict, [
Footnote 3] 469 U.S. 815 (1984). We
affirm.
II
A
We are asked in this case to interpret § 14(e) of the Securities
Exchange Act, 82 Stat. 457, as amended, 15 U.S.C. § 78n(e). The
starting point is the language of the statute. Section 14(e)
provides:
"It shall be unlawful for any person to make any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements made, in the light of the
circumstances under which they are made, not misleading, or to
engage in any fraudulent, deceptive, or manipulative acts or
practices, in connection with any tender offer or request or
invitation for tenders, or any solicitation of security holders in
opposition to or in favor of any such offer, request, or
Page 472 U. S. 6
invitation. The Commission shall, for the purposes of this
subsection, by rules and regulations define, and prescribe means
reasonably designed to prevent, such acts and practices as are
fraudulent, deceptive, or manipulative."
Petitioner relies on a construction of the phrase, "fraudulent,
deceptive, or manipulative acts or practices." Petitioner reads the
phrase "fraudulent, deceptive, or manipulative acts or practices"
to include acts which, although fully disclosed, "artificially"
affect the price of the takeover target's stock. Petitioner's
interpretation relies on the belief that § 14(e) is directed at
purposes broader than providing full and true information to
investors.
Petitioner's reading of the term "manipulative" conflicts with
the normal meaning of the term. We have held in the context of an
alleged violation of § 10(b) of the Securities Exchange Act:
"Use of the word 'manipulative' is especially significant. It is
and was virtually a term of art when used in connection with the
securities markets. It connotes intentional or willful conduct
designed to deceive or defraud investors by controlling or
artificially affecting the price of securities."
Ernst & Ernst v. Hochfelder, 425 U.
S. 185,
425 U. S. 199
(1976) (emphasis added).
Other cases interpreting the term reflect its use as a general
term comprising a range of misleading practices:
"The term refers generally to practices, such as wash sales,
matched orders, or rigged prices, that are intended to mislead
investors by artificially affecting market activity. . . . Section
10(b)'s general prohibition of practices deemed by the SEC to be
"manipulative" -- in this technical sense of artificially affecting
market activity in order to mislead investors -- is fully
consistent with the fundamental purpose of the 1934 Act "
to
substitute
Page 472 U. S.
7
a philosophy of full disclosure for the philosophy of
caveat emptor. . . .'" . . . Indeed, nondisclosure is
usually essential to the success of a manipulative scheme. . . . No
doubt Congress meant to prohibit the full range of ingenious
devices that might be used to manipulate securities prices. But we
do not think it would have chosen this "term of art" if it had
meant to bring within the scope of § 10(b) instances of corporate
mismanagement such as this, in which the essence of the complaint
is that shareholders were treated unfairly by a
fiduciary."
Santa Fe Industries, Inc. v. Green, 430 U.
S. 462,
430 U. S.
476-477 (1977). The meaning the Court has given the term
"manipulative" is consistent with the use of the term at common
law, [
Footnote 4] and with its
traditional dictionary definition. [
Footnote 5]
She argues, however, that the term "manipulative" takes on a
meaning in § 14(e) that is different from the meaning it has in §
10(b). Petitioner claims that the use of the disjunctive "or" in §
14(e) implies that acts need not be deceptive or fraudulent to be
manipulative. But Congress used the phrase "manipulative or
deceptive" in § 10(b) as well, and we have interpreted
"manipulative" in that context to require
Page 472 U. S. 8
misrepresentation. [
Footnote
6] Moreover, it is a "
familiar principle of statutory
construction that words grouped in a list should be given related
meaning.'" Securities Industry Assn. v. Board of Governors,
FRS, 468 U. S. 207,
468 U. S. 218
(1984). All three species of misconduct, i.e.,
"fraudulent, deceptive, or manipulative," listed by Congress are
directed at failures to disclose. The use of the term
"manipulative" provides emphasis and guidance to those who must
determine which types of acts are reached by the statute; it does
not suggest a deviation from the section's facial and primary
concern with disclosure or congressional concern with disclosure
which is the core of the Act.
B
Our conclusion that "manipulative" acts under § 14(e) require
misrepresentation or nondisclosure is buttressed by the purpose and
legislative history of the provision. Section 14(e) was originally
added to the Securities Exchange Act as part of the Williams Act,
82 Stat. 457.
"The purpose of the Williams Act is to insure that public
shareholders who are confronted by a cash tender offer for their
stock will not be required to respond without adequate
information."
Rondeau v. Mosinee Paper Corp., 422 U. S.
49,
422 U. S. 58
(1975). [
Footnote 7]
It is clear that Congress relied primarily on disclosure to
implement the purpose of the Williams Act. Senator Williams, the
bill's Senate sponsor, stated in the debate:
"Today, the public shareholder, in deciding whether to accept or
reject a tender offer, possesses limited information. No matter
what he does, he acts without adequate knowledge to enable him to
decide rationally what is the best course of action. This is
precisely the dilemma
Page 472 U. S. 9
which our securities laws are designed to prevent."
113 Cong.Rec. 24664 (1967).
The expressed legislative intent was to preserve a neutral
setting in which the contenders could fully present their
arguments. [
Footnote 8] The
Senate sponsor went on to say:
"We have taken extreme care to avoid tipping the scales either
in favor of management or in favor of the person making the
takeover bids. S. 510 is designed solely to require full and fair
disclosure for the benefit of investors. The bill will at the same
time provide the offeror and management equal opportunity to
present their case."
Ibid.
To implement this objective, the Williams Act added §§ 13(d),
13(e), 14(d), 14(e), and 14(f) to the Securities Exchange Act. Some
relate to disclosure; §§ 13(d), 14(d), and 14(f) all add specific
registration and disclosure provisions. Others -- §§ 13(e) and
14(d) -- require or prohibit certain acts so that investors will
possess additional time within which to take advantage of the
disclosed information. [
Footnote
9]
Page 472 U. S. 10
Section 14(e) adds a "broad antifraud prohibition,"
Piper v.
Chris-Craft Industries, Inc., 430 U. S.
1,
430 U. S. 24
(1977), modeled on the antifraud provisions of § 10(b) of the Act
and Rule 10b-5, 17 CFR § 240.10b-5 (1984). [
Footnote 10] It supplements the
Page 472 U. S. 11
more precise disclosure provisions found elsewhere in the
Williams Act, while requiring disclosure more explicitly addressed
to the tender offer context than that required by § 10(b).
While legislative history specifically concerning § 14(e) is
sparse, the House and Senate Reports discuss the role of § 14(e).
Describing § 14(e) as regulating "fraudulent transactions," and
stating the thrust of the section:
"This provision would affirm the fact that persons engaged in
making or opposing tender offers or otherwise seeking to influence
the decision of investors or the outcome of the tender offer are
under an obligation to make
full disclosure of material
information to those with whom they deal."
H.R.Rep. No. 1711, 90th Cong., 2d Sess., 11 (1968) (emphasis
added); S.Rep. No. 550, 90th Cong., 1st Sess., 11 (1967) (emphasis
added). Nowhere in the legislative history is there the slightest
suggestion that § 14(e) serves any purpose other than disclosure,
[
Footnote 11] or that the
term "manipulative" should be read as an
Page 472 U. S. 12
invitation to the courts to oversee the substantive fairness of
tender offers; the quality of any offer is a matter for the
marketplace.
To adopt the reading of the term "manipulative" urged by
petitioner would not only be unwarranted in light of the
legislative purpose, but would be at odds with it. Inviting judges
to read the term "manipulative" with their own sense of what
constitutes "unfair" or "artificial" conduct would inject
uncertainty into the tender offer process. An essential piece of
information -- whether the court would deem the fully disclosed
actions of one side or the other to be "manipulative" -- would not
be available until after the tender offer had closed. This
uncertainty would directly contradict the expressed congressional
desire to give investors full information.
Congress' consistent emphasis on disclosure persuades us that it
intended takeover contests to be addressed to shareholders. In
pursuit of this goal, Congress, consistent with the core mechanism
of the Securities Exchange Act, created sweeping disclosure
requirements and narrow substantive safeguards. The same Congress
that placed such emphasis on shareholder choice would not at the
same time have required judges to oversee tender offers for
substantive fairness. It is even less likely that a Congress
implementing that intention would express it only through the use
of a single word placed in the middle of a provision otherwise
devoted to disclosure.
C
We hold that the term "manipulative," as used in § 14(e),
requires misrepresentation or nondisclosure. It connotes "conduct
designed to deceive or defraud investors by controlling or
artificially affecting the price of securities."
Ernst &
Ernst v. Hochfelder, 425 U.S. at
425 U. S. 199.
Without misrepresentation or nondisclosure, § 14(e) has not been
violated.
Applying that definition to this case, we hold that the actions
of respondents were not manipulative. The amended complaint fails
to allege that the cancellation of the first
Page 472 U. S. 13
tender offer was accompanied by any misrepresentation,
nondisclosure, or deception. The District Court correctly found:
"All activity of the defendants that could have conceivably
affected the price of El Paso shares was done openly." 568 F. Supp.
at 203.
Petitioner also alleges that El Paso management and Burlington
entered into certain undisclosed and deceptive agreements during
the making of the second tender offer. The substance of the
allegations is that, in return for certain undisclosed benefits, El
Paso managers agreed to support the second tender offer. But both
courts noted that petitioner's complaint seeks only redress for
injuries related to the cancellation of the first tender offer.
Since the deceptive and misleading acts alleged by petitioner all
occurred with reference to the making of the second tender offer --
when the injuries suffered by petitioner had already been sustained
-- these acts bear no possible causal relationship to petitioner's
alleged injuries. The Court of Appeals dealt correctly with this
claim.
III
The judgment of the Court of Appeals is
Affirmed.
JUSTICE POWELL took no part in the decision of this case.
JUSTICE O'CONNOR took no part in the consideration or decision
of this case.
[
Footnote 1]
A "squeeze-out" merger occurs when Corporation A, which holds a
controlling interest in Corporation B, uses its control to merge B
into itself or into a wholly owned subsidiary. The minority
shareholders in Corporation B are, in effect, forced to sell their
stock. The procedural protection provided in the agreement between
El Paso and Burlington required the approval of non-Burlington
members of El Paso's board of directors before a squeeze-out merger
could proceed. Burlington eventually purchased all the remaining
shares of El Paso for $12 cash and one-quarter share of Burlington
preferred stock per share. The parties dispute whether this
consideration was equal to that paid to those tendering during the
January tender offer.
[
Footnote 2]
Petitioner alleged in her complaint that respondent Burlington
failed to disclose that four officers of El Paso had entered into
"golden parachute" agreements with El Paso for
"extended employment benefits in the event El Paso should be
taken over, which benefits would give them millions of dollars of
extra compensation."
The term "golden parachute" refers generally to agreements
between a corporation and its top officers which guarantee those
officers continued employment, payment of a lump sum, or other
benefits in the event of a change of corporate ownership. As
described in the Schedule 14D-9 filed by El Paso with the
Securities and Exchange Commission on January 12, 1983, El Paso
entered into "employment agreements" with two of its officers for a
period of not less than five years, and with two other officers for
a period of three years. The Schedule 14D-9 also disclosed that El
Paso's Deferred Compensation Plan had been amended
"to provide that for the purposes of such Plan a participant
shall be deemed to have retired at the instance of the Company if
his duties as a director, officer or employee of the Company have
been diminished or curtailed by the Company in any material
respect."
[
Footnote 3]
The Court of Appeals for the Sixth Circuit has held that
manipulation does not always require an element of
misrepresentation or nondisclosure.
Mobil Corp. v. Marathon Oil
Co., 669 F.2d 366 (1981),
cert. denied, 455 U.S. 982
(1982). The Court of Appeals for the Second and Eighth Circuits
have applied an analysis consistent with the one we apply today.
Feldbaum v. Avon Product, Inc., 741 F.2d 234 (CA8 1984);
Buffalo Forge Co. v. Ogden Corp., 717 F.2d 757 (CA2),
cert. denied, 464 U.S. 1018 (1983);
Data Probe
Acquisition Corp. v. Datatab, Inc., 722 F.2d 1 (CA2 1983),
cert. denied, 465 U. S. 1052
(1984).
[
Footnote 4]
See generally L. Loss, Securities Regulation 984-989
(3d ed.1983). For example, the seminal English case of
Scott v.
Brown, Doering, McNab & Co., [1892] 2 Q. B. 724 (C. A.),
which broke new ground in recognizing that manipulation could occur
without the dissemination of false statements, nonetheless placed
emphasis on the presence of deception. As Lord Lopes stated in that
case, "I can see no substantial distinction between false rumours
and false and fictitious acts."
Id. at 730.
See also
United State v. Brown, 5 F. Supp.
81, 85 (SDNY 1933) ("[E]ven a speculator is entitled not to
have any present fact involving the subject matter of his
speculative purchase or the price thereof misrepresented by word or
act").
[
Footnote 5]
See Webster's Third New International Dictionary 1376
(1971) (Manipulation is "management with use of unfair, scheming,
or underhanded methods").
[
Footnote 6]
Santa Fe Industries, Inc. v. Green, 430 U.
S. 462,
430 U. S.
476-477 (1977);
Piper v. Chris-Craft Industries,
Inc., 430 U. S. 1,
430 U. S. 43
(1977);
Ernst & Ernst v. Hochfelder, 425 U.
S. 185,
425 U. S. 199
(1976).
[
Footnote 7]
For a more thorough discussion of the legislative history of the
Williams Act,
see Piper v. Chris-Craft Industries, Inc.,
supra, at
430 U. S.
24-37.
[
Footnote 8]
The process through which Congress developed the Williams Act
also suggests a calculated reliance on disclosure, rather than
court-imposed principles of "fairness" or "artificiality," as the
preferred method of market regulation. For example, as the bill
progressed through hearings, both Houses of Congress became
concerned that corporate stock repurchases could be used to distort
the market for corporate control. Congress addressed this problem
with § 13(e), which imposes specific disclosure duties on
corporations purchasing stock and grants broad regulatory power to
the Securities and Exchange Commission to regulate such
repurchases. Congress stopped short, however, of imposing specific
substantive requirements forbidding corporations to trade in their
own stock for the purpose of maintaining its price. The specific
regulatory scheme set forth in § 13(e) would be unnecessary if
Congress at the same time had endowed the term "manipulative" in §
14(e) with broad substantive significance.
[
Footnote 9]
Section 13(d) requires those acquiring a certain threshold
percentage of a company's stock to file reports disclosing such
information as the purchaser's background and identity, the source
of the funds to be used in making the purchase, the purpose of the
purchase, and the extent of the purchaser's holdings in the target
company. 15 U.S.C. § 78m(d). Section 13(e) imposes restrictions on
certain repurchases of stock by corporate issuers. 15 U.S.C. §
78m(e). Section 14(d) imposes specific disclosure requirements on
those making a tender offer. 15 U.S.C. § 78n(d)(1). Section 14(d)
also imposes specific substantive requirements on those making a
tender offer. These requirements include allowing shareholders to
withdraw tendered shares at certain times during the bidding
process, 15 U.S.C. § 78n(d)(5), the proration of share purchases
when the number of shares tendered exceeds the number of shares
sought, 15 U.S.C. § 78n(d)(6), and the payment of the same price to
all those whose shares are purchased, 15 U.S.C. § 78n(d)(7).
Section 14(f) imposes disclosure requirements when new corporate
directors are chosen as the result of a tender offer.
[
Footnote 10]
Section 10(b) provides:
"It shall be unlawful for any person, directly or indirectly, .
. ."
"(b) To use or employ, in connection with the purchase or sale
of any security registered on a national securities exchange or any
security not so registered, any manipulative or deceptive device or
contrivance in contravention of such rules and regulations as the
Commission may prescribe as necessary or appropriate in the public
interest or for the protection of investors."
15 U.S.C. § 78j(b). Rule 10b-5 provides:
"It shall be unlawful for any person, directly or indirectly, by
the use of any means or instrumentality of interstate commerce, or
of the mails or of any facility of any national securities
exchange,"
"(a) To employ any device, scheme, or artifice to defraud,"
"(b) To make any untrue statement of a material fact or to omit
to state a fact necessary in order to make the statements made, in
the light of the circumstances under which they were made, not
misleading, or"
"(c) To engage in any act, practice or course of business which
operates or would operate as a fraud or deceit upon any person, in
connection with the purchase or sale of any security."
17 CFR § 240.10b-5 (1984).
Because of the textual similarities, it is often assumed that §
14(e) was modeled on § 10(b) and Rule 10b-5.
See, e.g., Panter
v. Marshall Field & Co., 646 F.2d 271, 283 (CA7),
cert. denied, 454 U.S. 1092 (1981). For the purpose of
interpreting the term "manipulative," the most significant changes
from the language of § 10(b) were the addition of the term
"fraudulent," and the reference to "acts" rather than "devices."
Neither change bears in any obvious way on the meaning to be given
to "manipulative."
Similar terminology is also found in § 15(c) of the Securities
Exchange Act, 15 U.S.C. § 78O(C), § 17(a) of the Securities Act of
1933, 15 U.S.C. § 77q(a), and § 206 of the Investment Advisers Act
of 1940, 15 U.S.C. § 80b-6.
[
Footnote 11]
The Act was amended in 1970, and Congress added to § 14(e) the
sentence,
"The Commission shall, for the purposes of this subsection, by
rules and regulations define, and prescribe means reasonably
designed to prevent, such acts and practices as are fraudulent,
deceptive, or manipulative."
Petitioner argues that this phrase would be pointless if § 14(e)
was concerned with disclosure only.
We disagree. In adding the 1970 amendment, Congress simply
provided a mechanism for defining and guarding against those acts
and practices which involve material misrepresentation or
nondisclosure. The amendment gives the Securities and Exchange
Commission latitude to regulate nondeceptive activities as a
"reasonably designed" means of preventing manipulative acts,
without suggesting any change in the meaning of the term
"manipulative" itself.