The federal Williams Act and implementing regulations govern
hostile corporate stock tender offers by requiring,
inter
alia, that offers remain open for at least 20 business days.
An Indiana Act applies to certain business corporations chartered
in Indiana that have specified levels of shares or shareholders
within the State and that opt into the Act's protection. The
Indiana Act provides that the acquisition of "control shares" in
such a corporation -- shares that, but for the Act, would bring the
acquiring entity's voting power to or above certain threshold
levels -- does not include voting rights unless a majority of all
preexisting disinterested shareholders so agree at their next
regularly scheduled meeting. However, the stock acquiror can
require a special meeting within 50 days by following specified
procedures. Appellee Dynamics Corporation announced a tender offer
that would have raised its ownership interest in CTS Corporation
above the Indiana Act's threshold. Dynamics also filed suit in
Federal District Court alleging federal securities violations by
CTS. After CTS opted into the Indiana Act, Dynamics amended its
complaint to challenge the Act's validity. The District Court
granted Dynamics' motion for declaratory relief, ruling that the
Act is preempted by the Williams Act, and violates the Commerce
Clause. The Court of Appeals affirmed, adopting the holding of the
plurality opinion in
Edgar v. MITE Corp., 457 U.
S. 624, that the Williams Act preempts state statutes
that upset the balance between target company management and a
tender offeror. The court based its preemption finding on the view
that the Indiana Act, in effect, imposes at least a 50-day delay on
the consummation of tender offers, and that this conflicts with the
minimum 20-day, hold-open period under the Williams Act. The court
also held that the state Act violates the Commerce Clause, since it
deprives nonresidents of the valued opportunity to accept tender
offers from other nonresidents, and that it violates the
conflict-of-laws "internal affairs" doctrine in that it has a
direct, intended, and
Page 481 U. S. 70
substantial effect on the interstate market in securities and
corporate control.
Held:
1. The Indiana Act is consistent with the provisions and
purposes of the Williams Act, and is not preempted thereby. Pp.
481 U. S.
78-87.
(a) The Indiana Act protects independent shareholders from the
coercive aspects of tender offers by allowing them to vote as a
group, and thereby furthers the Williams Act's basic purpose of
placing investors on an equal footing with takeover bidders.
Moreover, the Indiana Act avoids the problems the plurality
discussed in
MITE, since it does not give either
management or the offeror an advantage in communicating with
shareholders, nor impose an indefinite delay on offers, nor allow
the state government to interpose its views of fairness between
willing buyers and sellers. Thus, the Act satisfies even the
MITE plurality's broad interpretation of the Williams Act.
Pp.
481 U. S.
81-84.
(b) The possibility that the Indiana Act will delay some tender
offers does not mandate preemption. The state Act neither imposes
an absolute 50-day delay on the consummation of tender offers nor
precludes offerors from purchasing shares as soon as federal law
permits. If an adverse shareholder vote is feared, the tender offer
can be conditioned on the shares' receiving voting rights within a
specified period. Furthermore, even assuming that the Indiana Act
does impose some additional delay, the
MITE plurality
found only that "unreasonable" delays conflict with the Williams
Act. Here, it cannot be said that a 50-day delay is unreasonable,
since that period falls within a 60-day period Congress established
for tendering shareholders to withdraw their unpurchased shares. If
the Williams Act were construed to preempt any state statute that
caused delays, it would preempt a variety of state corporate laws
of hitherto unquestioned validity. The longstanding prevalence of
state regulation in this area suggests that, if Congress had
intended to preempt all such state laws, it would have said so. Pp.
481 U. S.
84-87.
2. The Indiana Act does not violate the Commerce Clause. The
Act's limited effect on interstate commerce is justified by the
State's interests in defining attributes of its corporations'
shares, and in protecting shareholders. Pp.
481 U. S.
87-94.
(a) The Act does not discriminate against interstate commerce,
since it has the same effect on tender offers whether or not the
offeror is an Indiana domiciliary or resident. That the Act might
apply most often to out-of-state entities who launch most hostile
tender offers is irrelevant, since a claim of discrimination is not
established by the mere fact that the burden of a state regulation
falls on some interstate companies. Pp.
481 U. S.
87-88.
Page 481 U. S. 71
(b) The Act does not create an impermissible risk of
inconsistent regulation of tender offers by different States. It
simply and evenhandedly exercises the State's firmly established
authority to define the voting rights of shareholders in Indiana
corporations, and thus subjects such corporations to the law of
only one State. Pp.
481 U. S.
88-89.
(c) The Court of Appeals' holding that the Act
unconstitutionally hinders tender offers ignores the fact that a
State, in its role as overseer of corporate governance, enacts laws
that necessarily affect certain aspects of interstate commerce,
particularly with respect to corporations with shareholders in
other States. A State has interests in promoting stable
relationships among parties involved in its corporations, and in
ensuring that investors have an effective voice in corporate
affairs. The Indiana Act validly furthers these interests by
allowing shareholders collectively to determine whether the
takeover is advantageous to them. The argument that Indiana has no
legitimate interest in protecting nonresident shareholders is
unavailing, since the Act applies only to corporations incorporated
in Indiana that have a substantial number of shareholders in the
State. Pp.
481 U. S.
89-93.
(d) Even if the Act should decrease the number of successful
tender offers for Indiana corporations, this would not offend the
Commerce Clause. The Act does not prohibit any resident or
nonresident from offering to purchase, or from purchasing, shares
in Indiana corporations, or from attempting thereby to gain
control. It only provides regulatory procedures designed for the
better protection of the corporations' shareholders. The Commerce
Clause does not protect the particular structure or methods of
operation in a market. Pp.
481 U. S. 93-94.
794 F.2d 250, reversed.
POWELL, J., delivered the opinion of the Court, in which
REHNQUIST, C.J., and BRENNAN, MARSHALL, and O'CONNOR, JJ., joined,
and in Parts I, III-A, and III-B of which SCALIA, J., joined.
SCALIA, J., filed an opinion concurring in part and concurring in
the judgment,
post, p.
481 U. S. 94.
WHITE, J., filed a dissenting opinion, in Part II of which BLACKMUN
and STEVENS, JJ., joined,
post, p.
481 U. S.
97.
Page 481 U. S. 72
JUSTICE POWELL delivered the opinion of the Court.
These cases present the questions whether the Control Share
Acquisitions Chapter of the Indiana Business Corporation Law,
Ind.Code § 23-1-42-1
et seq. (Supp.1986), is preempted by
the Williams Act, 82 Stat. 454, as amended, 15 U.S.C. §§ 78m(d)-(e)
and 78n(d)-(f) (1982 ed. and Supp. III), or violates the Commerce
Clause of the Federal Constitution, Art. I, § 8, cl. 3.
I
A
On March 4, 1986, the Governor of Indiana signed a revised
Indiana Business Corporation Law, Ind.Code § 23-1-17-1
et
seq. (Supp.1986). That law included the Control Share
Acquisitions Chapter (Indiana Act or Act). Beginning on August 1,
1987, the Act will apply to any corporation incorporated in
Indiana, § 23-1-17-3(a), unless the corporation amends its articles
of incorporation or bylaws to opt out of the Act, § 23-1-42-5.
Before that date, any Indiana corporation can opt into the Act by
resolution of its board of directors. § 23-1-17-3(b). The Act
applies only to "issuing
Page 481 U. S. 73
public corporations." The term "corporation" includes only
businesses incorporated in Indiana.
See § 23-1-20-5. An
"issuing public corporation" is defined as:
"a corporation that has:"
"(1) one hundred (100) or more shareholders;"
"(2) its principal place of business, its principal office, or
substantial assets within Indiana; and"
"(3) either:"
" (A) more than ten percent (10%) of its shareholders resident
in Indiana;"
" (B) more than ten percent (10%) of its shares owned by Indiana
residents; or"
" (C) ten thousand (10,000) shareholders resident in
Indiana."
§ 23-1-42-4(a). [
Footnote
1]
The Act focuses on the acquisition of "control shares" in an
issuing public corporation. Under the Act, an entity acquires
"control shares" whenever it acquires shares that, but for the
operation of the Act, would bring its voting power in the
corporation to or above any of three thresholds: 20%, 33 1/3%, or
50%. § 23-1-42-1. An entity that acquires control shares does not
necessarily acquire voting rights. Rather, it gains those rights
only "to the extent granted by resolution approved by the
shareholders of the issuing public corporation." § 23-1-42-9(a).
Section 23-1-42-9(b) requires a majority vote of all disinterested
[
Footnote 2] shareholders
holding each
Page 481 U. S. 74
class of stock for passage of such a resolution. The practical
effect of this requirement is to condition acquisition of control
of a corporation on approval of a majority of the preexisting
disinterested shareholders. [
Footnote 3]
The shareholders decide whether to confer rights on the control
shares at the next regularly scheduled meeting of the shareholders,
or at a specially scheduled meeting. The
Page 481 U. S. 75
acquiror can require management of the corporation to hold such
a special meeting within 50 days if it files an "acquiring person
statement," [
Footnote 4]
requests the meeting, and agrees to pay the expenses of the
meeting.
See § 23-1-42-7. If the shareholders do not vote
to restore voting rights to the shares, the corporation may redeem
the control shares from the acquiror at fair market value, but it
is not required to do so. § 23-1-42-10(b). Similarly, if the
acquiror does not file an acquiring person statement with the
corporation, the corporation may, if its bylaws or articles of
incorporation so provide, redeem the shares at any time after 60
days after the acquiror's last acquisition. § 23-1-42-10(a).
B
On March 10, 1986, appellee Dynamics Corporation of America
(Dynamics) owned 9.6% of the common stock of appellant CTS
Corporation, an Indiana corporation. On that day, six days after
the Act went into effect, Dynamics announced a tender offer for
another million shares in CTS; purchase of those shares would have
brought Dynamics' ownership interest in CTS to 27.5%. Also on March
10, Dynamics filed suit in the United States District Court for the
Northern District of Illinois, alleging that CTS had violated the
federal securities laws in a number of respects no longer relevant
to these proceedings. On March 27, the board of directors of CTS,
an Indiana corporation, elected to be governed by the provisions of
the Act,
see § 23-1-17-3.
Four days later, on March 31, Dynamics moved for leave to amend
its complaint to allege that the Act is preempted by the Williams
Act, 15 U.S.C. §§ 78m(d)(e) and 78n(d)-(f) (1982 ed. and Supp.
III), and violates the Commerce Clause, Art. I, § 8, cl. 3.
Dynamics sought a temporary restraining order, a preliminary
injunction, and declaratory relief against
Page 481 U. S. 76
CTS' use of the Act. On April 9, the District Court ruled that
the Williams Act preempts the Indiana Act, and granted Dynamics'
motion for declaratory relief.
637 F.
Supp. 389 (ND Ill.1986). Relying on JUSTICE WHITE's plurality
opinion in
Edgar v. MITE Corp., 457 U.
S. 624 (1982), the court concluded that the Act
"wholly frustrates the purpose and objective of Congress in
striking a balance between the investor, management, and the
takeover bidder in takeover contests."
637 F. Supp. at 399. A week later, on April 17, the District
Court issued an opinion accepting Dynamics' claim that the Act
violates the Commerce Clause. This holding rested on the court's
conclusion that
"the substantial interference with interstate commerce created
by the [Act] outweighs the articulated local benefits so as to
create an impermissible indirect burden on interstate
commerce."
Id. at 406. The District Court certified its decisions
on the Williams Act and Commerce Clause claims as final under
Federal Rule of Civil Procedure 54(b).
Ibid.
CTS appealed the District Court's holdings on these claims to
the Court of Appeals for the Seventh Circuit. Because of the
imminence of CTS' annual meeting, the Court of Appeals consolidated
and expedited the two appeals. On April 23 -- 23 days after
Dynamics first contested application of the Act in the District
Court -- the Court of Appeals issued an order affirming the
judgment of the District Court. The opinion followed on May 28. 794
F.2d 250 (1986).
After disposing of a variety of questions not relevant to this
appeal, the Court of Appeals examined Dynamics' claim that the
Williams Act preempts the Indiana Act. The court looked first to
the plurality opinion in
Edgar v. MITE Corp., supra, in
which three Justices found that the Williams Act preempts state
statutes that upset the balance between target management and a
tender offeror. The court noted that some commentators had disputed
this view of the Williams Act, concluding instead that the Williams
Act was "an anti-takeover statute, expressing a view, however
benighted,
Page 481 U. S. 77
that hostile takeovers are bad." 794 F.2d at 262. It also
noted:
"[I]t is a big leap from saying that the Williams Act does not
itself exhibit much hostility to tender offers to saying that it
implicitly forbids states to adopt more hostile regulations. . . .
But whatever doubts of the Williams' Act preemptive intent we might
entertain as an original matter are stilled by the weight of
precedent."
Ibid. Once the court had decided to apply the analysis
of the
MITE plurality, it found the case
straightforward:
"Very few tender offers could run the gauntlet that Indiana has
set up. In any event, if the Williams Act is to be taken as a
congressional determination that a month (roughly) is enough time
to force a tender offer to be kept open, 50 days is too much; and
50 days is the minimum under the Indiana act if the target
corporation so chooses."
Id. at 263.
The court next addressed Dynamic's Commerce Clause challenge to
the Act. Applying the balancing test articulated in
Pike v.
Bruce Church, Inc., 397 U. S. 137
(1970), the court found the Act unconstitutional:
"Unlike a state's blue sky law, the Indiana statute is
calculated to impede transactions between residents of other
states. For the sake of trivial or even negative benefits to its
residents, Indiana is depriving nonresidents of the valued
opportunity to accept tender offers from other nonresidents."
". . . Even if a corporation's tangible assets are immovable,
the efficiency with which they are employed and the proportions in
which the earnings they generate are divided between management and
shareholders depends on the market for corporate control -- an
interstate, indeed international, market that the State of Indiana
is not authorized to opt out of, as in effect it has done in this
statute."
794 F.2d at 264.
Page 481 U. S. 78
Finally, the court addressed the "internal affairs" doctrine,
a
"principle of conflict of laws . . . designed to make sure that
the law of only one state shall govern the internal affairs of a
corporation or other association."
Ibid. It stated:
"We may assume, without having to decide, that Indiana has a
broad latitude in regulating those affairs, even when the
consequence may be to make it harder to take over an Indiana
corporation. . . . But in this case, the effect on the interstate
market in securities and corporate control is direct, intended, and
substantial. . . . [T]hat the mode of regulation involves jiggering
with voting rights cannot take it outside the scope of judicial
review under the commerce clause."
Ibid. Accordingly, the court affirmed the judgment of
the District Court.
Both Indiana and CTS filed jurisdictional statements. We noted
probable jurisdiction under 28 U.S.C. § 1254(2), 479 U.S. 810
(1986), and now reverse. [
Footnote
5]
II
The first question in these cases is whether the Williams Act
preempts the Indiana Act. As we have stated frequently, absent an
explicit indication by Congress of an intent to preempt state law,
a state statute is preempted only
Page 481 U. S. 79
"'where compliance with both federal and state regulations is a
physical impossibility. . . ,'
Florida Lime & Avocado
Growers, Inc. v. Paul, 373 U. S. 132,
373 U. S.
142-143 (1963), or where the state 'law stands as an
obstacle to the accomplishment and execution of the full purposes
and objectives of Congress.'
Hines v. Davidowitz,
312 U. S.
52,
312 U. S. 67 (1941). . .
."
Ray v. Atlantic Richfield Co., 435 U.
S. 151,
435 U. S. 158
(1978). Because it is entirely possible for entities to comply with
both the Williams Act and the Indiana Act, the state statute can be
preempted only if it frustrates the purposes of the federal
law.
A
Our discussion begins with a brief summary of the structure and
purposes of the Williams Act. Congress passed the Williams Act in
1968 in response to the increasing number of hostile tender offers.
Before its passage, these transactions were not covered by the
disclosure requirements of the federal securities laws.
See
Piper v. Chris-Craft Industries, Inc., 430 U. S.
1,
430 U. S. 22
(1977). The Williams Act, backed by regulations of the SEC, imposes
requirements in two basic areas. First, it requires the offeror to
file a statement disclosing information about the offer, including:
the offeror's background and identity; the source and amount of the
funds to be used in making the purchase; the purpose of the
purchase, including any plans to liquidate the company or make
major changes in its corporate structure; and the extent of the
offeror's holdings in the target company.
See 15 U.S.C. §
78n(d)(1) (incorporating § 78m(d)(1) by reference); 17 CFR §§
240.13d-1, 240.14d-3 (1986).
Second, the Williams Act, and the regulations that accompany it,
establish procedural rules to govern tender offers. For example,
stockholders who tender their shares may withdraw them while the
offer remains open, and, if the offeror has not purchased their
shares, any time after 60 days from commencement of the offer. 15
U.S.C. § 78n(d)(5); 17
Page 481 U. S. 80
CFR § 240.14d-7(a)(1) (1986), as amended, 51 Fed.Reg. 25873
(1986). The offer must remain open for at least 20 business days.
17 CFR § 240.14e-1(a) (1986). If more shares are tendered than the
offeror sought to purchase, purchases must be made on a
pro
rata basis from each tendering shareholder. 15 U.S.C. §
78n(d)(6); 17 CFR § 240.14(8) (1986). Finally, the offeror must pay
the same price for all purchases; if the offering price is
increased before the end of the offer, those who already have
tendered must receive the benefit of the increased price. §
78n(d)(7).
B
The Indiana Act differs in major respects from the Illinois
statute that the Court considered in
Edgar v. MITE Corp.,
457 U. S. 624
(1982). After reviewing the legislative history of the Williams
Act, JUSTICE WHITE, joined by Chief Justice Burger and JUSTICE
BLACKMUN (the plurality), concluded that the Williams Act struck a
careful balance between the interests of offerors and target
companies, and that any state statute that "upset" this balance was
preempted.
Id. at
457 U. S. 632-634.
The plurality then identified three offending features of the
Illinois statute. JUSTICE WHITE's opinion first noted that the
Illinois statute provided for a 20-day precommencement period.
During this time, management could disseminate its views on the
upcoming offer to shareholders, but offerors could not publish
their offers. The plurality found that this provision gave
management "a powerful tool to combat tender offers."
Id.
at
457 U. S. 635.
This contrasted dramatically with the Williams Act; Congress had
deleted express precommencement notice provisions from the Williams
Act. According to the plurality, Congress had determined that the
potentially adverse consequences of such a provision on
shareholders should be avoided. Thus, the plurality concluded that
the Illinois provision "frustrate[d] the objectives of the Williams
Act."
Ibid. The second criticized feature of
Page 481 U. S. 81
the Illinois statute was a provision for a hearing on a tender
offer that, because it set no deadline, allowed management "
to
stymie indefinitely a takeover,'" id. at 457 U.
S. v. Dixon, 633 F.2d 486, 494 (CA7 1980)). The
plurality noted that "`delay can seriously impede a tender offer,'"
457 U.S. at 457 U. S. 637
(quoting Great Western United Corp. v. Kidwell,@ 577 F.2d
1256, 1277 (CA5 1978) (Wisdom, J.)), and that "Congress anticipated
that investors and the takeover offeror would be free to go forward
without unreasonable delay," 457 U.S. at 457 U. S. 639.
Accordingly, the plurality concluded that this provision conflicted
with the Williams Act. The third troublesome feature of the
Illinois statute was its requirement that the fairness of tender
offers would be reviewed by the Illinois Secretary of State. Noting
that "Congress intended for investors to be free to make their own
decisions," the plurality concluded that
"'[t]he state thus offers investor protection at the expense of
investor autonomy -- an approach quite in conflict with that
adopted by Congress.'"
Id. at
457 U. S.
639-640 (quoting
MITE Corp. v. Dixon, supra, at
494).
C
As the plurality opinion in
MITE did not represent the
views of a majority of the Court, [
Footnote 6] we are not bound by its reasoning. We need not
question that reasoning, however, because we believe the Indiana
Act passes muster even under the broad interpretation of the
Williams Act articulated by JUSTICE WHITE in
MITE. As is
apparent from our summary of its reasoning, the overriding concern
of the
Page 481 U. S. 82
MITE plurality was that the Illinois statute considered
in that case operated to favor management against offerors, to the
detriment of shareholders. By contrast, the statute now before the
Court protects the independent shareholder against the contending
parties. Thus, the Act furthers a basic purpose of the Williams
Act, "
plac[ing] investors on an equal footing with the takeover
bidder,'" Piper v. Chris-Craft Industries, Inc., 430 U.S.
at 430 U. S. 30
(quoting the Senate Report accompanying the Williams Act, S.Rep.
No. 550, 90th Cong., 1st Sess., 4 (1967)). [Footnote 7]
The Indiana Act operates on the assumption, implicit in the
Williams Act, that independent shareholders faced with tender
offers often are at a disadvantage. By allowing such
Page 481 U. S. 83
shareholders to vote as a group, the Act protects them from the
coercive aspects of some tender offers. If, for example,
shareholders believe that a successful tender offer will be
followed by a purchase of nontendering shares at a depressed price,
individual shareholders may tender their shares -- even if they
doubt the tender offer is in the corporation's best interest -- to
protect themselves from being forced to sell their shares at a
depressed price. As the SEC explains:
"The alternative of not accepting the tender offer is virtual
assurance that, if the offer is successful, the shares will have to
be sold in the lower priced, second step."
Two-Tier Tender Offer Pricing and Non-Tender Offer Purchase
Programs, SEC Exchange Act Rel. No. 21079 (June 21, 1984), [1984
Transfer Binder] CCH Fed.Sec.L.Rep. � 83,637, p. 86,916 (footnote
omitted) (hereinafter SEC Release No. 21079).
See
Lowenstein, Pruning Deadwood in Hostile Takeovers: A Proposal for
Legislation, 83 Colum.L.Rev. 249, 307-309 (1983). In such a
situation under the Indiana Act, the shareholders as a group,
acting in the corporation's best interest, could reject the offer,
although individual shareholders might be inclined to accept it.
The desire of the Indiana Legislature to protect shareholders of
Indiana corporations from this type of coercive offer does not
conflict with the Williams Act. Rather, it furthers the federal
policy of investor protection.
In implementing its goal, the Indiana Act avoids the problems
the plurality discussed in
MITE. Unlike the
MITE
statute, the Indiana Act does not give either management or the
offeror an advantage in communicating with the shareholders about
the impending offer. The Act also does not impose an indefinite
delay on tender offers. Nothing in the Act prohibits an offeror
from consummating an offer on the 20th business day, the earliest
day permitted under applicable federal regulations,
see 17
CFR § 240.14e-1(a) (1986). Nor does the Act allow the state
government to interpose its views of fairness between willing
buyers and sellers of shares
Page 481 U. S. 84
of the target company. Rather, the Act allows shareholders to
evaluate the fairness of the offer collectively.
D
The Court of Appeals based its finding of preemption on its view
that the practical effect of the Indiana Act is to delay
consummation of tender offers until 50 days after the commencement
of the offer. 794 F.2d at 263. As did the Court of Appeals,
Dynamics reasons that no rational offeror will purchase shares
until it gains assurance that those shares will carry voting
rights. Because it is possible that voting rights will not be
conferred until a shareholder meeting 50 days after commencement of
the offer, Dynamics concludes that the Act imposes a 50-day delay.
This, it argues, conflicts with the shorter 20-business-day period
established by the SEC as the minimum period for which a tender
offer may be held open. 17 CFR § 240.14e-1 (1986). We find the
alleged conflict illusory.
The Act does not impose an absolute 50-day delay on tender
offers, nor does it preclude an offeror from purchasing shares as
soon as federal law permits. If the offeror fears an adverse
shareholder vote under the Act, it can make a conditional tender
offer, offering to accept shares on the condition that the shares
receive voting rights within a certain period of time. The Williams
Act permits tender offers to be conditioned on the offeror's
subsequently obtaining regulatory approval.
E.g.,
Interpretive Release Relating to Tender Offer Rules, SEC Exchange
Act Rel. No. 34-16623 (Mar. 5, 1980), 3 CCH Fed.Sec.L.Rep.
1124,284I, p. 17,758, quoted in
MacFadden Holdings, Inc. v. JB
Acquisition Corp., 802 F.2d 62, 70 (CA2 1986). [
Footnote 8] There is no reason to doubt
that
Page 481 U. S. 85
this type of conditional tender offer would be legitimate as
well. [
Footnote 9]
Even assuming that the Indiana Act imposes some additional
delay, nothing in
MITE suggested that any delay imposed by
state regulation, however short, would create a conflict with the
Williams Act. The plurality argued only that the offeror should "be
free to go forward without
unreasonable delay." 457 U.S.
at
457 U. S. 639
(emphasis added). In that case, the Court was confronted with the
potential for indefinite delay and presented with no persuasive
reason why some deadline could not be established. By contrast, the
Indiana Act provides that full voting rights will be vested -- if
this eventually is to occur -- within 50 days after commencement of
the offer. This period is within the 60-day period Congress
established for reinstitution of withdrawal rights in 15 U.S.C. §
78n(d)(5). We cannot say that a delay within that congressionally
determined period is unreasonable.
Finally, we note that the Williams Act would preempt a variety
of state corporate laws of hitherto unquestioned validity if it
were construed to preempt any state statute that may limit or delay
the free exercise of power after a successful tender offer. State
corporate laws commonly permit corporations to stagger the terms of
their directors.
See Model Business Corp. Act § 37 (1969
draft) in 3 Model Business Corp. Act Ann. (2d ed.1971) (hereinafter
MBCA); American
Page 481 U. S. 86
Bar Foundation, Revised Model Business Corp. Act § 8.06 (1984
draft) (1985) (hereinafter RMBCA). [
Footnote 10] By staggering the terms of directors, and
thus having annual elections for only one class of directors each
year, corporations may delay the time when a successful offeror
gains control of the board of directors. Similarly, state
corporation laws commonly provide for cumulative voting.
See 1 MBCA § 33, � 4; RMBCA § 7.28. [
Footnote 11] By enabling minority shareholders
to assure themselves of representation in each class of directors,
cumulative voting provisions can delay further the ability of
offerors to gain untrammeled authority over the affairs of the
target corporation.
See Hochman & Folger, Deflecting
Takeovers: Charter and By-Law Techniques, 34 Bus.Law. 537, 538-539
(1979).
In our view, the possibility that the Indiana Act will delay
some tender offers is insufficient to require a conclusion that the
Williams Act preempts the Act. The longstanding prevalence of state
regulation in this area suggests that, if Congress had intended to
preempt all state laws that delay the acquisition of voting control
following a tender offer, it would have said so explicitly. The
regulatory conditions that the Act places on tender offers are
consistent with the text and the purposes of the Williams Act.
Accordingly, we
Page 481 U. S. 87
hold that the Williams Act does not preempt the Indiana Act.
III
As an alternative basis for its decision, the Court of Appeals
held that the Act violates the Commerce Clause of the Federal
Constitution. We now address this holding. On its face, the
Commerce Clause is nothing more than a grant to Congress of the
power "[t]o regulate Commerce . . . among the several States . . .
," Art. I, § 8, cl. 3. But it has been settled for more than a
century that the Clause prohibits States from taking certain
actions respecting interstate commerce even absent congressional
action.
See, e.g., 53 U. S. Board of
Wardens, 12 How. 299 (1852). The Court's interpretation of
"these great silences of the Constitution,"
H. P. Hood &
Sons, Inc. v. Du Mond, 336 U. S. 525,
336 U. S. 535
(1949), has not always been easy to follow. Rather, as the volume
and complexity of commerce and regulation have grown in this
country, the Court has articulated a variety of tests in an attempt
to describe the difference between those regulations that the
Commerce Clause permits and those regulations that it prohibits.
See, e.g., Raymond Motor Transportation, Inc. v. Rice,
434 U. S. 429,
434 U. S. 441,
n. 15 (1978).
A
The principal objects of dormant Commerce Clause scrutiny are
statutes that discriminate against interstate commerce.
See,
e.g., Lewis v. BT Investment Managers, Inc., 447 U. S.
27,
447 U. S. 36-37
(1980);
Philadelphia v. New Jersey, 437 U.
S. 617,
437 U. S. 624
(1978).
See generally Regan, The Supreme Court and State
Protectionism: Making Sense of the Dormant Commerce Clause, 84
Mich.L.Rev. 1091 (1986). The Indiana Act is not such a statute. It
has the same effects on tender offers whether or not the offeror is
a domiciliary or resident of Indiana. Thus, it "visits its effects
equally upon both interstate and local business,"
Lewis v. BT
Investment Managers, Inc., supra, at 36.
Page 481 U. S. 88
Dynamics nevertheless contends that the statute is
discriminatory, because it will apply most often to out-of-state
entities. This argument rests on the contention that, as a
practical matter, most hostile tender offers are launched by
offerors outside Indiana. But this argument avails Dynamics
little.
"The fact that the burden of a state regulation falls on some
interstate companies does not, by itself, establish a claim of
discrimination against interstate commerce."
Exxon Corp. v. Governor of Maryland, 437 U.
S. 117,
437 U. S. 126
(1978).
See Minnesota v. Clover Leaf Creamery Co.,
449 U. S. 456,
449 U. S.
471-472 (1981) (rejecting a claim of discrimination
because the challenged statute "regulate[d] evenhandedly . . .
without regard to whether the [commerce came] from outside the
State");
Commonwealth Edison Co. v. Montana, 453 U.
S. 609,
453 U. S. 619
(1981) (rejecting a claim of discrimination because the "tax burden
[was] borne according to the amount . . . consumed and not
according to any distinction between instate and out-of-state
consumers"). Because nothing in the Indiana Act imposes a greater
burden on out-of-state offerors than it does on similarly situated
Indiana offerors, we reject the contention that the Act
discriminates against interstate commerce.
B
This Court's recent Commerce Clause cases also have invalidated
statutes that may adversely affect interstate commerce by
subjecting activities to inconsistent regulations.
E.g.,
Brown-Forman Distillers Corp. v. New York State Liquor
Authority, 476 U. S. 573,
476 U. S.
583-584 (1986);
Edgar v. MITE Corp., 457 U.S.
at
457 U. S. 642
(plurality opinion of WHITE, J.);
Kassel v. Consolidated
Freightways Corp., 450 U. S. 662,
450 U. S. 671
(1981) (plurality opinion of POWELL, J.).
See Southern Pacific
Co. v. Arizona, 325 U. S. 761,
325 U. S. 774
(1945) (noting the "confusion and difficulty" that would attend the
"unsatisfied need for uniformity" in setting maximum limits on
train lengths);
Cooley v. Board of Wardens, supra, at
53 U. S. 319
(stating that the Commerce Clause prohibits States from
regulating
Page 481 U. S. 89
subjects that "are in their nature national, or admit only of
one uniform system, or plan of regulation"). The Indiana Act poses
no such problem. So long as each State regulates voting rights only
in the corporations it has created, each corporation will be
subject to the law of only one State. No principle of corporation
law and practice is more firmly established than a State's
authority to regulate domestic corporations, including the
authority to define the voting rights of shareholders.
See
Restatement (Second) of Conflict of Laws § 304 (1971) (concluding
that the law of the incorporating State generally should "determine
the right of a shareholder to participate in the administration of
the affairs of the corporation"). Accordingly, we conclude that the
Indiana Act does not create an impermissible risk of inconsistent
regulation by different States.
C
The Court of Appeals did not find the Act unconstitutional for
either of these threshold reasons. Rather, its decision rested on
its view of the Act's potential to hinder tender offers. We think
the Court of Appeals failed to appreciate the significance for
Commerce Clause analysis of the fact that state regulation of
corporate governance is regulation of entities whose very existence
and attributes are a product of state law. As Chief Justice
Marshall explained:
"A corporation is an artificial being, invisible, intangible,
and existing only in contemplation of law. Being the mere creature
of law, it possesses only those properties which the charter of its
creation confers upon it, either expressly or as incidental to its
very existence. These are such as are supposed best calculated to
effect the object for which it was created."
Trustees of Dartmouth College
v. Woodward, 4 Wheat. 518,
17 U. S. 636
(1819).
See First National Bank of Boston v. Bellotti,
435 U. S. 765,
435 U. S.
822-824 (1978) (REHNQUIST, J., dissenting). Every State
in this country has enacted laws regulating corporate
governance.
Page 481 U. S. 90
By prohibiting certain transactions and regulating others, such
laws necessarily affect certain aspects of interstate commerce.
This necessarily is true with respect to corporations with
shareholders in States other than the State of incorporation. Large
corporations that are listed on national exchanges, or even
regional exchanges, will have shareholders in many States and
shares that are traded frequently. The markets that facilitate this
national and international participation in ownership of
corporations are essential for providing capital not only for new
enterprises, but also for established companies that need to expand
their businesses. This beneficial free market system depends at its
core upon the fact that a corporation -- except in the rarest
situations -- is organized under, and governed by, the law of a
single jurisdiction, traditionally the corporate law of the State
of its incorporation.
These regulatory laws may affect directly a variety of corporate
transactions. Mergers are a typical example. In view of the
substantial effect that a merger may have on the shareholders'
interests in a corporation, many States require supermajority votes
to approve mergers.
See, e.g., 2 MBCA § 73 (requiring
approval of a merger by a majority of all shares, rather than
simply a majority of votes cast); RMBCA § 11.03 (same). By
requiring a greater vote for mergers than is required for other
transactions, these laws make it more difficult for corporations to
merge. State laws also may provide for "dissenters' rights" under
which minority shareholders who disagree with corporate decisions
to take particular actions are entitled to sell their shares to the
corporation at fair market value.
See, e.g., 2 MBCA §§ 80,
81; RMBCA § 13.02. By requiring the corporation to purchase the
shares of dissenting shareholders, these laws may inhibit a
corporation from engaging in the specified transactions. [
Footnote 12]
Page 481 U. S. 91
It thus is an accepted part of the business landscape in this
country for States to create corporations, to prescribe their
powers, and to define the rights that are acquired by purchasing
their shares. A State has an interest in promoting stable
relationships among parties involved in the corporations it
charters, as well as in ensuring that investors in such
corporations have an effective voice in corporate affairs.
There can be no doubt that the Act reflects these concerns. The
primary purpose of the Act is to protect the shareholders of
Indiana corporations. It does this by affording shareholders, when
a takeover offer is made, an opportunity to decide collectively
whether the resulting change in voting control of the corporation,
as they perceive it, would be desirable. A change of management may
have important effects on the shareholders' interests; it is well
within the State's role as overseer of corporate governance to
offer this opportunity. The autonomy provided by allowing
shareholders collectively to determine whether the takeover is
advantageous to their
Page 481 U. S. 92
interests may be especially beneficial where a hostile tender
offer may coerce shareholders into tendering their shares.
Appellee Dynamics responds to this concern by arguing that the
prospect of coercive tender offers is illusory, and that tender
offers generally should be favored because they reallocate
corporate assets into the hands of management who can use them most
effectively. [
Footnote 13]
See generally Easterbrook & Fischel, The Proper Role
of a Target's Management in Responding to a Tender Offer, 94
Harv.L.Rev. 1161 (1981). As indicated
supra at
481 U. S. 82-83,
Indiana's concern with tender offers is not groundless. Indeed, the
potentially coercive aspects of tender offers have been recognized
by the SEC,
see SEC Release No. 21079, p. 86,916, and by a
number of scholarly commentators,
see, e.g., Bradley &
Rosenzweig, Defensive Stock Repurchases, 99 Harv.L.Rev. 1377,
1412-1413 (1986); Macey & McChesney, A Theoretical Analysis of
Corporate Greenmail, 95 Yale L.J. 13, 20-22 (1985); Lowenstein, 83
Colum.L.Rev. at 307-309. The Constitution does not require the
States to subscribe to any particular economic theory. We are not
inclined "to second-guess the empirical judgments of lawmakers
concerning the utility of legislation,"
Kassel v. Consolidated
Freightways Corp., 450 U.S. at
450 U. S. 679
(BRENNAN, J., concurring in judgment). In our view, the possibility
of coercion in some takeover bids offers additional justification
for Indiana's decision to promote the autonomy of independent
shareholders.
Page 481 U. S. 93
Dynamics argues in any event that the State has "
no
legitimate interest in protecting the nonresident shareholders.'"
Brief for Appellee 21 (quoting Edgar v. MITE Corp., 457
U.S. at 457 U. S.
644). Dynamics relies heavily on the statement by the
MITE Court that "[i]nsofar as the . . . law burdens
out-of-state transactions, there is nothing to be weighed in the
balance to sustain the law." 457 U.S. at 457 U. S. 644.
But that comment was made in reference to an Illinois law that
applied as well to out-of-state corporations as to in-state
corporations. We agree that Indiana has no interest in protecting
nonresident shareholders of nonresident corporations. But
this Act applies only to corporations incorporated in Indiana. We
reject the contention that Indiana has no interest in providing for
the shareholders of its corporations the voting autonomy granted by
the Act. Indiana has a substantial interest in preventing the
corporate form from becoming a shield for unfair business dealing.
Moreover, unlike the Illinois statute invalidated in MITE,
the Indiana Act applies only to corporations that have a
substantial number of shareholders in Indiana. See
Ind.Code § 23-1-42-4(a)(3) (Supp.1986). Thus, every application of
the Indiana Act will affect a substantial number of Indiana
residents, whom Indiana indisputably has an interest in
protecting.
D
Dynamics' argument that the Act is unconstitutional ultimately
rests on its contention that the Act will limit the number of
successful tender offers. There is little evidence that this will
occur. But even if true, this result would not substantially affect
our Commerce Clause analysis. We reiterate that this Act does not
prohibit any entity -- resident or nonresident -- from offering to
purchase, or from purchasing, shares in Indiana corporations, or
from attempting thereby to gain control. It only provides
regulatory procedures designed for the better protection of the
corporations' shareholders. We have rejected the "notion that the
Commerce
Page 481 U. S. 94
Clause protects the particular structure or methods of operation
in a . . . market."
Exxon Corp. v. Governor of Maryland,
437 U.S. at
437 U. S. 127.
The very commodity that is traded in the securities market is one
whose characteristics are defined by state law. Similarly, the very
commodity that is traded in the "market for corporate control" --
the corporation -- is one that owes its existence and attributes to
state law. Indiana need not define these commodities as other
States do; it need only provide that residents and nonresidents
have equal access to them. This Indiana has done. Accordingly, even
if the Act should decrease the number of successful tender offers
for Indiana corporations, this would not offend the Commerce
Clause. [
Footnote 14]
IV
On its face, the Indiana Control Share Acquisitions Chapter
evenhandedly determines the voting rights of shares of Indiana
corporations. The Act does not conflict with the provisions or
purposes of the Williams Act. To the limited extent that the Act
affects interstate commerce, this is justified by the State's
interests in defining the attributes of shares in its corporations
and in protecting shareholders. Congress has never questioned the
need for state regulation of these matters. Nor do we think such
regulation offends the Constitution. Accordingly, we reverse the
judgment of the Court of Appeals.
It is so ordered.
* Together with No. 86-97,
Indiana v. Dynamics Corporation
of America, also on appeal from the same court.
[
Footnote 1]
These thresholds are much higher than the 5% threshold
acquisition requirement that brings a tender offer under the
coverage of the Williams Act.
See 15 U.S.C. §
78n(d)(1).
[
Footnote 2]
"Interested shares" are shares with respect to which the
acquiror, an officer, or an inside director of the corporation "may
exercise or direct the exercise of the voting power of the
corporation in the election of directors." § 23-1-42-3. If the
record date passes before the acquiror purchases shares pursuant to
the tender offer, the purchased shares will not be "interested
shares" within the meaning of the Act; although the acquiror may
own the shares on the date of the meeting, it will not "exercise .
. . the voting power" of the shares.
As a practical matter, the record date usually will pass before
shares change hands. Under Securities and Exchange Commission (SEC)
regulations, the shares cannot be purchased until 20 business days
after the offer commences. 17 CFR § 240.14e-1(a) (1986). If the
acquiror seeks an early resolution of the issue -- as most
acquirors will -- the meeting required by the Act must be held no
more than 50 calendar days after the offer commences, about three
weeks after the earliest date on which the shares could be
purchased.
See § 23-1-42-7. The Act requires management to
give notice of the meeting "as promptly as reasonably practicable .
. . to all shareholders of record as of the record date set for the
meeting." § 23-1-42-8(a). It seems likely that management of the
target corporation would violate this obligation if it delayed
setting the record date and sending notice until after 20 business
days had passed. Thus, we assume that the record date usually will
be set before the date on which federal law first permits purchase
of the shares.
[
Footnote 3]
The United States and appellee Dynamics Corporation suggest that
§ 23-1-42-9(b)(1) requires a second vote by all shareholders of
record. Brief for SEC and United States as
Amici Curiae,
and n. 6; Brief for Appellee 2-3, and n. 5. Indiana disputes this
interpretation of its Act. Brief for Appellant in No. 86-87, p. 29,
n. Section 23-1-42-9(b)(1) provides:
"[T]he resolution must be approved by:"
"(1) each voting group entitled to vote separately on the
proposal by a majority of all the votes entitled to be cast by that
voting group, with the holders of the outstanding shares of a class
being entitled to vote as a separate voting group if the proposed
control share acquisition would, if fully carried out, result in
any of the changes described in [Indiana Code § 23-1-38-4(a)
(describing fundamental changes in corporate organization)]."
The United States contends that this section always requires a
separate vote by all shareholders, and that the last clause merely
specifies that the vote shall be taken by separate groups if the
acquisition would result in one of the listed transactions. Indiana
argues that this section requires a separate vote only if the
acquisition would result in one of the listed transactions. Because
it is unnecessary to our decision, we express no opinion as to the
appropriate interpretation of this section.
[
Footnote 4]
An "acquiring person statement" is an information statement
describing,
inter alia, the identity of the acquiring
person and the terms and extent of the proposed acquisition.
See § 23-1-42-6.
[
Footnote 5]
CTS and Dynamics have settled several of the disputes associated
with Dynamics' tender offer for shares of CTS. The case is not
moot, however, because the judgment of this Court still affects
voting rights in the shares Dynamics purchased pursuant to the
offer. If we were to affirm, Dynamics would continue to exercise
the voting rights it had under the judgment of the Court of Appeals
that the Act was preempted and unconstitutional. Because we decide
today to reverse the judgment of the Court of Appeals, Dynamics
will have no voting rights in its shares unless shareholders of CTS
grant those rights in a meeting held pursuant to the Act.
See Settlement Agreement, p. 7, par. 12, reprinted in
letter from James A. Strain, Counsel for CTS, to Joseph F. Spaniol,
Jr., Clerk of the United States Supreme Court (Mar. 13, 1987).
[
Footnote 6]
JUSTICE WHITE's opinion on the preemption issue, 457 U.S. at
457 U. S.
630-640, was joined only by Chief Justice Burger and by
JUSTICE BLACKMUN. Two Justices disagreed with JUSTICE WHITE's
conclusion.
See id. at
457 U. S.
646-647 (POWELL, J., concurring in part);
id.
at
457 U. S. 655
(STEVENS, J., concurring in part and concurring in judgment). Four
Justices did not address the question.
See id. at
457 U. S. 655
(O'CONNOR, J., concurring in part);
id. at
457 U. S. 664
(MARSHALL, J., with whom BRENNAN, J., joined, dissenting);
id. at
457 U. S. 667
(REHNQUIST, J., dissenting).
[
Footnote 7]
Dynamics finds evidence of an intent to favor management in
several features of the Act. It argues that the provision of the
Act allowing management to opt into the Act,
see §
23-1-17-3(b), grants management a strategic advantage because
tender offerors will be reluctant to take the expensive preliminary
steps of a tender offer if they do not know whether their efforts
will be subjected to the Act's requirements. But this provision is
only a temporary option available for the first 17 months after
enactment of the Act. The Indiana Legislature reasonably could have
concluded that corporations should be allowed an interim period
during which the Act would not apply automatically. Because of its
short duration, the potential strategic advantage offered by the
opportunity to opt into the Act during this transition period is of
little significance.
The Act also imposes some added expenses on the offeror,
requiring it,
inter alia, to pay the costs of special
shareholder meetings to vote on the transfer of voting rights,
see § 23-1-42-7(a). In our view, the expenses of such a
meeting fairly are charged to the offeror. A corporation pays the
costs of annual meetings that it holds to discuss its affairs. If
an offeror -- who has no official position with the corporation --
desires a special meeting solely to discuss the voting rights of
the offeror, it is not unreasonable to have the offeror pay for the
meeting.
Of course, by regulating tender offers, the Act makes them more
expensive, and thus deters them somewhat, but this type of
reasonable regulation does not alter the balance between management
and offeror in any significant way. The principal result of the Act
is to grant shareholders the power to deliberate collectively about
the merits of tender offers. This result is fully in accord with
the purposes of the Williams Act.
[
Footnote 8]
Although the SEC does not appear to have spoken authoritatively
on this point, similar transactions are not uncommon. For example,
Hanson Trust recently conditioned consummation of a tender offer
for shares in SCM Corporation on the removal of a "lockup option"
that would have seriously diminished the value of acquiring the
shares of SCM Corporation.
See Hanson Trust PLC, HSCM v. ML SCM
Acquisition Inc., ML L.B.O., 781 F.2d 264, 272, and n. 7 (CA2
1986).
[
Footnote 9]
Dynamics argues that conditional tender offers are not an
adequate alternative, because they leave management in place for
three extra weeks, with "free rein to take other defensive steps
that will diminish the value of tendered shares." Brief for
Appellee 37. We reject this contention. In the unlikely event that
management were to take actions designed to diminish the value of
the corporation's shares, it may incur liability under state law.
But this problem does not control our preemption analysis. Neither
the Act nor any other federal statute can assure that shareholders
do not suffer from the mismanagement of corporate officers and
directors.
Cf. Cort v. Ash, 422 U. S.
66,
422 U. S. 84
(1975).
[
Footnote 10]
Every State except Arkansas and California allows classification
of directors to stagger their terms of office.
See 2 Model
Business Corp. Act Ann. § 8.06, p. 830 (3d ed., Supp.1986).
[
Footnote 11]
"Cumulative voting is a means devised to protect minorities by
providing a method of voting which assures to a minority, if it is
sufficiently purposeful and cohesive, representation on the board
of directors to an extent roughly proportionate to the minority's
size. This is achieved by permitting each shareholder . . . to cast
the total number of his votes for a single candidate for election
to the board, or to distribute such total among any number of such
candidates (the total number of his votes being equal to the number
of shares he is voting multiplied by the number of directors to be
elected)."
1 MBCA § 33, � 4 comment. Every State permits cumulative voting.
See 2 Model Business Corp. Act Ann. § 7.28, pp. 675-677
(3d ed., Supp.1986).
[
Footnote 12]
Numerous other common regulations may affect both nonresident
and resident shareholders of a corporation. Specified votes may be
required for the sale of all of the corporation's assets.
See 2 MBCA § 79; RMBCA § 12.02. The election of directors
may be staggered over a period of years to prevent abrupt changes
in management.
See 1 MBCA § 37; RMBCA § 8.06. Various
classes of stock may be created with differences in voting rights
as to dividends and on liquidation.
See 1 MBCA § 15; RMBCA
§ 6.01(c). Provisions may be made for cumulative voting.
See 1 MBCA § 33, � 4; RMBCA § 7.28;
n 9,
supra. Corporations may adopt
restrictions on payment of dividends to ensure that specified
ratios of assets to liabilities are maintained for the benefit of
the holders of corporate bonds or notes.
See 1 MBCA § 45
(noting that a corporation's articles of incorporation can restrict
payment of dividends); RMBCA § 6.40 (same). Where the shares of a
corporation are held in States other than that of incorporation,
actions taken pursuant to these and similar provisions of state law
will affect all shareholders alike wherever they reside or are
domiciled.
Nor is it unusual for partnership law to restrict certain
transactions. For example, a purchaser of a partnership interest
generally can gain a right to control the business only with the
consent of other owners.
See Uniform Partnership Act § 27,
6 U.L.A. 353 (1969); Uniform Limited Partnership Act § 19 (1916
draft), 6 U.L.A. 603 (1969); Revised Uniform Limited Partnership
Act §§ 702, 704 (1976 draft), 6 U.L.A. 259, 261 (Supp.1986). These
provisions -- in force in the great majority of the States -- bear
a striking resemblance to the Act at issue in this case.
[
Footnote 13]
It is appropriate to note when discussing the merits and
demerits of tender offers that generalizations usually require
qualification. No one doubts that some successful tender offers
will provide more effective management or other benefits such as
needed diversification. But there is no reason to
assume
that the type of conglomerate corporation that may result from
repetitive takeovers necessarily will result in more effective
management, or otherwise be beneficial to shareholders. The
divergent views in the literature -- and even now being debated in
the Congress -- reflect the reality that the type and utility of
tender offers vary widely. Of course, in many situations, the offer
to shareholders is simply a cash price substantially higher than
the market price prior to the offer.
[
Footnote 14]
CTS also contends that the Act does not violate the Commerce
Clause -- regardless of any burdens it may impose on interstate
commerce -- because a corporation's decision to be covered by the
Act is purely "private" activity beyond the reach of the Commerce
Clause. Because we reverse the judgment of the Court of Appeals on
other grounds, we have no occasion to consider this argument.
JUSTICE SCALIA, concurring in part and concurring in the
judgment.
I join Parts I, III-A, and III-B of the Court's opinion.
However, having found, as those Parts do, that the Indiana
Page 481 U. S. 95
Control Share Acquisitions Chapter neither "discriminates
against interstate commerce,"
ante at
481 U. S. 88,
nor "create[s] an impermissible risk of inconsistent regulation by
different States,"
ante at
481 U. S. 89, I
would conclude without further analysis that it is not invalid
under the dormant Commerce Clause. While it has become standard
practice at least since
Pike v. Bruce Church, Inc.,
397 U. S. 137
(1970), to consider, in addition to these factors, whether the
burden on commerce imposed by a state statute "is clearly excessive
in relation to the putative local benefits,"
id. at
397 U. S. 142,
such an inquiry is ill-suited to the judicial function, and should
be undertaken rarely, if at all. This case is a good illustration
of the point. Whether the control shares statute "protects
shareholders of Indiana corporations," Brief for Appellant in No.
86-97, p. 88, or protects incumbent management, seems to me a
highly debatable question, but it is extraordinary to think that
the constitutionality of the Act should depend on the answer.
Nothing in the Constitution says that the protection of entrenched
management is any less important a "putative local benefit" than
the protection of entrenched shareholders, and I do not know what
qualifies us to make that judgment -- or the related judgment as to
how effective the present statute is in achieving one or the other
objective -- or the ultimate (and most ineffable) judgment as to
whether, given importance-level
x, and effectiveness-level
y, the worth of the statute is "outweighed" by
impact-on-commerce
z.
One commentator has suggested that, at least much of the time,
we do not in fact mean what we say when we declare that statutes
which neither discriminate against commerce nor present a threat of
multiple and inconsistent burdens might nonetheless be
unconstitutional under a "balancing" test.
See Regan, The
Supreme Court and State Protectionism: Making Sense of the Dormant
Commerce Clause, 84 Mich.L.Rev. 1091 (1986). If he is not correct,
he ought to be. As long as a State's corporation law governs only
its own corporations and does not discriminate against out-of-state
interests, it should survive this Court's scrutiny under
Page 481 U. S. 96
the Commerce Clause, whether it promotes shareholder welfare or
industrial stagnation. Beyond that, it is for Congress to prescribe
its invalidity.
I also agree with the Court that the Indiana Control Share
Acquisitions Chapter is not preempted by the Williams Act, but I
reach that conclusion without entering into the debate over the
purposes of the two statutes. The Williams Act is governed by the
anti-preemption provision of the Securities Exchange Act of 1934,
15 U.S.C. § 78bb(a), which provides that nothing it contains
"shall affect the jurisdiction of the securities commission (or
any agency or officer performing like functions) of any State over
any security or any person insofar as it does not conflict with the
provisions of this chapter or the rules and regulations
thereunder."
Unless it serves no function, that language forecloses
preemption on the basis of conflicting "purpose," as opposed to
conflicting "provision." Even if it does not have literal
application to the present case (because, perhaps, the Indiana
agency responsible for securities matters has no enforcement
responsibility with regard to this legislation), it nonetheless
refutes the proposition that Congress meant the Williams Act to
displace all state laws with conflicting purpose. And if any are to
survive, surely the States' corporation codes are among them. It
would be peculiar to hold that Indiana could have pursued the
purpose at issue here through its blue-sky laws, but cannot pursue
it through the State's even more sacrosanct authority over the
structure of domestic corporations. Prescribing voting rights for
the governance of state-chartered companies is a traditional state
function with which the Federal Congress has never, to my
knowledge, intentionally interfered. I would require far more
evidence than is available here to find implicit preemption of that
function by a federal statute whose provisions concededly do not
conflict with the state law.
I do not share the Court's apparent high estimation of the
beneficence of the state statute at issue here. But a law can
Page 481 U. S. 97
be both economic folly and constitutional. The Indiana Control
Share Acquisitions Chapter is at least the latter. I therefore
concur in the judgment of the Court.
JUSTICE WHITE, with whom JUSTICE BLACKMUN and JUSTICE STEVENS
join as to Part II, dissenting.
The majority today upholds Indiana's Control Share Acquisitions
Chapter, a statute which will predictably foreclose completely some
tender offers for stock in Indiana corporations. I disagree with
the conclusion that the Chapter is neither preempted by the
Williams Act nor in conflict with the Commerce Clause. The Chapter
undermines the policy of the Williams Act by effectively preventing
minority shareholders, in some circumstances, from acting in their
own best interests by selling their stock. In addition, the Chapter
will substantially burden the interstate market in corporate
ownership, particularly if other States follow Indiana's lead, as
many already have done. The Chapter, therefore, directly inhibits
interstate commerce, the very economic consequences the Commerce
Clause was intended to prevent. The opinion of the Court of Appeals
is far more persuasive than that of the majority today, and the
judgment of that court should be affirmed.
I
The Williams Act expressed Congress' concern that individual
investors be given sufficient information so that they could make
an informed choice on whether to tender their stock in response to
a tender offer. The problem with the approach the majority adopts
today is that it equates protection of individual investors, the
focus of the Williams Act, with the protection of shareholders as a
group. Indiana's Control Share Acquisitions Chapter undoubtedly
helps protect the interests of a majority of the shareholders in
any corporation subject to its terms, but in many instances, it
will effectively prevent an individual investor from selling his
stock at a premium. Indiana's statute, therefore, does not
Page 481 U. S. 98
furthe[r] the federal policy of investor protection,"
ante at
481 U. S. 83
(emphasis added), as the majority claims.
In discussing the legislative history of the Williams Act, the
Court, in
Piper v. Chris-Craft Industries, Inc.,
430 U. S. 1 (1977),
looked to the legislative history of the Williams Act and concluded
that the Act was designed to protect individual investors, not
management and not tender offerors:
"The sponsors of this legislation were plainly sensitive to the
suggestion that the measure would favor one side or the other in
control contests; however, they made it clear that the legislation
was designed solely to get needed information to the investor, the
constant focal point of the committee hearings."
Id. at
430 U. S. 30-31.
The Court specifically noted that the Williams Act's legislative
history shows that Congress recognized that some "takeover bids . .
. often serve a useful function."
Id. at
430 U. S. 30. As
quoted by the majority,
ante at
481 U. S. 82,
the basic purpose of the Williams Act is "
plac[ing]
investors on an equal footing with the takeover bidder.'"
Piper, supra, at 430 U. S. 30
(emphasis added).
The Control Share Acquisitions Chapter, by design, will
frustrate individual investment decisions. Concededly, the Control
Share Acquisitions Chapter allows the majority of. a corporation's
shareholders to block a tender offer, and thereby thwart the
desires of an individual investor to sell his stock. In the context
of discussing how the Chapter can be used to deal with the coercive
aspects of some tender offers, the majority states:
"In such a situation under the Indiana Act, the shareholders as
a group, acting in the corporation's best interest, could reject
the offer, although individual shareholders might be inclined to
accept it."
Ante at
481 U. S. 83. I
do not dispute that the Chapter provides additional protection for
Indiana corporations, particularly in helping those corporations
maintain the
status quo. But it is clear to me that
Indiana's scheme conflicts with the Williams Act's careful balance,
which was intended to protect individual investors and permit them
to decide whether it is in their best interests
Page 481 U. S. 99
to tender their stock. As noted by the plurality in
MITE,
"Congress . . . did not want to deny shareholders 'the
opportunities which result from the competitive bidding for a block
of stock of a given company,' namely, the opportunity to sell
shares for a premium over their market price. 113 Cong.Rec. 24666
(1967) (remarks of Sen. Javits)."
Edgar v. MITE Corp., 457 U. S. 624,
457 U. S. 633,
n. 9 (1982).
The majority claims that, if the Williams Act preempts Indiana's
Control Share Acquisitions Chapter, it also preempts a number of
other corporate-control provisions such as cumulative voting or
staggering the terms of directors. But this view ignores the
fundamental distinction between these other corporate-control
provisions and the Chapter: unlike those other provisions, the
Chapter is designed to prevent certain tender offers from ever
taking place. It is transactional in nature, although it is
characterized by the State as involving only the voting rights of
certain shares.
"[T]his Court is not bound by '[t]he name, description or
characterization given [a challenged statute] by the legislature or
the courts of the State,' but will determine for itself the
practical impact of the law."
Hughes v. Oklahoma, 441 U. S. 322,
441 U. S. 336
(1979) (quoting
Lacoste v. Louisiana Dept. of
Conservation, 263 U. S. 545,
263 U. S. 550
(1924)). The Control Share Acquisitions Chapter will effectively
prevent minority shareholders in some circumstances from selling
their stock to a willing tender offeror. It is the practical impact
of the Chapter that leads to the conclusion that it is preempted by
the Williams Act.
II
Given the impact of the Control Share Acquisitions Chapter, it
is clear that Indiana is directly regulating the purchase and sale
of shares of stock in interstate commerce. Appellant CTS' stock is
traded on the New York Stock Exchange, and people from all over the
country buy and sell CTS' shares daily. Yet, under Indiana's
scheme, any prospective purchaser will be effectively precluded
from purchasing CTS'
Page 481 U. S. 100
shares if the purchaser crosses one of the Chapter's threshold
ownership levels and a majority of CTS' shareholders refuses to
give the purchaser voting rights. This Court should not countenance
such a restraint on interstate trade.
The United States, as
amicus curiae, argues that
Indiana's Control Share Acquisitions Chapter
"is written as a restraint on the
transferability of
voting rights in specified transactions, and it could not be
written in any other way without changing its meaning. Since the
restraint on the transfer of voting rights is a restraint on the
transfer of shares, the Indiana Chapter, like the Illinois Act [in
MITE], restraint 'transfers of stock by stockholders to a
third party.'"
Brief for Securities and Exchange Commission and United States
as
Amici Curiae 26. I agree. The majority ignores the
practical impact of the Chapter in concluding that the Chapter does
not violate the Commerce Clause. The Chapter is characterized as
merely defining "the attributes of shares in its corporations,"
ante at
481 U. S. 94.
The majority sees the trees, but not the forest.
The Commerce Clause was included in our Constitution by the
Framers to prevent the very type of economic protectionism
Indiana's Control Share Acquisitions Chapter represents:
"The few simple words of the Commerce Clause -- 'The Congress
shall have no Power . . . To regulate Commerce . . . among the
several States . . .' -- reflected a central concern of the Framers
that was an immediate reason for calling the Constitutional
Convention: the conviction that, in order to succeed, the new Union
would have to avoid the tendencies toward economic Balkanization
that had plagued relations among the Colonies, and later among the
States under the Articles of Confederation."
Hughes, supra, at
441 U. S.
325-326.
The State of Indiana, in its brief, admits that at least one of
the Chapter's goals is to protect Indiana corporations. The State
notes that the Chapter permits shareholders "to determine
Page 481 U. S. 101
. . . whether [a tender offeror] will liquidate the company or
remove it from the State." Brief for Appellant in No. 86-97, p.19.
The State repeats this point later in its brief:
"The Statute permits shareholders (who may also be community
residents or employees or suppliers of the corporation) to
determine the intentions of any offeror concerning the liquidation
of the company or its possible removal from the State."
Id. at 90. A state law which permits a majority of an
Indiana corporation's stockholders to prevent individual investors,
including out-of-state stockholders, from selling their stock to an
out-of-state tender offeror, and thereby frustrate any transfer of
corporate control, is the archetype of the kind of state law that
the Commerce Clause forbids.
Unlike state blue sky laws, Indiana's Control Share Acquisitions
Chapter regulates the purchase and sale of stock of Indiana
corporations in interstate commerce. Indeed, as noted above, the
Chapter will inevitably be used to block interstate transactions in
such stock. Because the Commerce Clause protects the "interstate
market" in such securities,
Exxon Corp. v. Governor of
Maryland, 437 U. S. 117,
437 U. S. 127
(1978), and because the Control Share Acquisitions Chapter
substantially interferes with this interstate market, the Chapter
clearly conflicts with the Commerce Clause.
With all due respect, I dissent.