The opinion of the court was delivered by: FISHER
In view of the status of this case, where now the parties are before the Court on a final hearing for permanent injunctive relief, a brief review of the procedural history is necessary. The complaint was filed as the result of a tender offer by defendant Liquifin Aktiengesellschaft ("Liquifin"), a Liechtenstein company and a wholly-owned subsidiary of a large Italian industrial company, defendant Liquigas S. p. A., ("Liquigas") to buy Ronson common stock at $8.50 per share.
This tender offer was publicly announced in newspapers and financial publications and filed with the Securities and Exchange Commission ("SEC") on May 31, 1973. On June 5, 1973 this Court entered a temporary restraining order and directed expedited discovery.
After a hearing, a preliminary injunction was entered on July 5, 1973 which was subsequently affirmed by the Court of Appeals for this Circuit. Ronson Corporation v. Liquifin Aktiengesellschaft, 483 F.2d 846 (3d Cir. 1973) and Ronson Corporation v. Liquifin Aktiengesellschaft, 483 F.2d 852 (3d Cir. 1973).
Upon the return of the case to this forum, the defendants moved to modify or vacate the preliminary injunction on the basis of amendments to the tender offer. Their motion, based upon the amendments of July 13 and the unpublished amendments of August 1, was denied on August 15, 1973. On September 26, 1973 this Court denied a similar motion of defendants based upon a restated tender offer dated September 11, 1973 (hereinafter referred to as the "Restatement"). However, this denial was without prejudice to renew at the final hearing for permanent injunctive relief. Defendants' renewal of this motion is now before the Court.
In an effort to resolve promptly and fairly only the claims for injunctive relief, this Court reviewed plaintiff's requests for discovery, and by orders of September 26, 1973, October 12, 1973, October 25, 1973 and December 5, 1973, directed the course of discovery. As stated previously, these orders were entered pursuant to F.R. Civ. P. 26 which provides a remedy to protect any party from financial embarrassment, undue burden, or expense. Both parties during this litigation have submitted confidential commercial information to the Court in camera.3
Throughout these proceedings it has been obvious that the foreign defendants are subject to this nation's securities laws. If they chose not to furnish certain information, they could be faced with a choice between revealing such information or having the lawful restraints of this Court continued against them.
Finally, after thorough review of all the in camera materials, I am satisfied that sufficient need has been demonstrated by the parties to keep these documents under seal and that none of the parties have been prejudiced by the orders of the Court.
One other matter deserves brief comment at this point. Defendants have complained that the plaintiff target company has utilized this litigation to preserve the corporate life of its incumbent management, and has, with this purpose in mind, taken every opportunity to further delay these proceedings. See, e.g., Transcript of Motion of November 21, 1973 at 11, 13-14, 18.
These arguments have not aided the Court to resolve the complex issues presented here. It is clear that Ronson, as the target corporation, has standing to sue the defendants for injunctive relief. Gulf & Western Indus., Inc. v. Great A. & P. Tea Co., Inc., 476 F.2d 687, 696 n. 14 (2d Cir. 1973). However, the legislative history of Section 14(e) reveals that Congress was hardly motivated by concern for incumbent management of the target company or intended the use of the statute to frustrate tender offers. The overriding purpose of this Section is the protection of the investing stockholders of the public so that they may have the benefit of full and fair disclosure of all material facts to make an informed investment decision. While counsel have zealously engaged in protecting their clients' rights in this high stakes struggle for corporate control of Ronson, this Court has not forgotten that Section 14(e) may not be diverted from its important purpose of protecting the public investor to be utilized solely for the benefit of incumbent management or control groups "jockeying" for corporate power. Nicholson File Company v. H. K. Porter Co., 341 F. Supp. 508, 520 (D.R.I. 1972), aff'd, 482 F.2d 421, 423-425 (1st Cir. 1973); see also Butler Aviation Int'l, Inc. v. Comprehensive Designers, Inc., 425 F.2d 842, 844-845 (2d Cir. 1970).
Under Section 14(e), as in any civil suit, the burden falls upon the plaintiff to demonstrate by a preponderance of the evidence that it is entitled to permanent injunctive relief.
Neither the offeror nor the target company may omit or misrepresent a material fact to the stockholders of the target company.
The obligation for full and accurate disclosure of all material facts in the offer is "placed squarely" on the offeror and may not be shifted "to the shoulders of others"; otherwise the purposes of the Williams Act might be avoided by permitting the offeror to look to the target corporation to correct the deficiencies in the offer. Sonesta International Hotels Corp. v. Wellington Associates, 483 F.2d 247, 255 (2d Cir. 1973). Sonesta, however, does not shift any burden of proof in this litigation to the defendants. There the Court of Appeals merely indicated that the target company need not, in its communications to its stockholders, point out specific faults in the disclosures of the offeror. Sonesta, supra at 254-255. Under Section 14(e) the plaintiff target company, Ronson, has the burden at trial of establishing that any alleged omissions or misrepresentations in the offer are material and that any of the tendering stockholders would probably not have tendered their shares if the alleged violations had not occurred. Gulf & Western, supra at 696.
On the other hand, the offeror clearly has the right to amend its offer to cure any defects,
and then rely upon those amendments to satisfy the requirements of Section 14(e). Ronson, supra, 483 F.2d at 850, 852; Nicholson File Company, supra, 341 F. Supp. at 521. In this action defendants have amended their offer on several occasions. They now assert that the previous deficiencies in the offer have been corrected by the Restatement so that the injunction against them may be removed.
The most important of plaintiff's allegations is that the defendants have failed to disclose adequately or materially misrepresented the methods used to fund and the persons behind the tender offer.
The Restatement describes how the twenty million dollars for the purchase of Ronson common stock was advanced to the account of the offeror, Liquifin. Restatement, paragraph 7(d) at 14-16. Briefly, at the direction of Liquigas, Liquimportex Aktiengesellschaft ("Liquimportex") another wholly-owned subsidiary of Liquigas, sold a forty-nine percent interest in Liquipar S.A. ("Liquipar"), a subsidiary holding company for the Brazilian operations of Liquigas.
This minority interest in Liquipar was sold for cash to Capitalfin International Limited ("Capitalfin"), a Bahamian company, in May, 1973. The funds on deposit in defendant Franklin National Bank were acquired in this sale. The Restatement also describes the Liquigas-Liquipar Brazilian operations, and even explains that their capitalization came from Turner Anstalt, a Liechtenstein trust created by Holding Gasliq S.A., a wholly-owned Swiss subsidiary of Liquigas. Testimony at trial, extensive depositions and production of documents demonstrate that the funds for this tender offer were in fact provided through the Liquimportex to Capitalfin sale of Liquipar stock.
The only indication that perhaps the funds for the tender offer were raised by another method is the theory that these funds are related to or commingled with a fifty million dollar unsecured loan by several major international banks to Liquigas Jersey (Holdings) Limited, a wholly-owned Liquigas subsidiary. This loan for additional capital for Liquigas' South American operations was finalized in August, 1973. Defendant Marfuggi admitted in his deposition on October 1, 1973 that negotiations for this loan had commenced prior to the tender offer. Plaintiff speculates that perhaps the funds on deposit did not originate from an arm's length sale with Capitalfin, but by a sale dependent upon the concurrent financing arrangements of the loan, especially since Capitalfin participated in both the loan and the sale of Liquipar stock.
The record, however, does not support this theory. The loan occurred well after Capitalfin purchased the interest in Liquipar and after the twenty million dollars to pay for the tendered shares were deposited in defendant Franklin National Bank. The depositions of Ursini, Marfuggi and Bianchi, as well as the documents produced,
all indicate that this loan was completely unrelated to the sale of Liquipar stock to Capitalfin.
Because this loan is not related to the source of funds for the tender offer, Section 14(e) is not violated if the defendants omit a description of this transaction in the offer. It is unnecessary to discuss in the offer an unrelated, ordinary business transaction between the ...