ARTICLE: The Appropriate Limits of Section 14(e) of the Securities Exchange Act of 1934. + Skip over navigation
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Copyright (c) 1984 Texas Law Review
Texas Law Review

ARTICLE: The Appropriate Limits of Section 14(e) of the Securities Exchange Act of 1934. +

+ Copyright 1984 by James J. Junewicz. All rights reserved.

April, 1984

62 Tex. L. Rev. 1171


James J. Junewicz *


I. Introduction

Each tender offer for a public corporation seems to introduce a new offensive or defensive strategy that the disadvantaged party promptly challenges under section 14(e) of the Securities Exchange Act of 1934, which was added by the Williams Act in 1968. 1 Section 14(e), among other things, mandates full and truthful disclosure by the parties to a tender offer and outlaws "fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer." 2 In recent years, as litigation over defensive takeover tactics has increased dramatically, the federal courts have conflicted over the appropriate limits of section 14(e). This conflict is costly: it inhibits the planning of major business transactions, gives rise to uncertainty and expensive litigation amid takeover battles, and raises questions regarding the rulemaking authority of the Securities and Exchange Commission. 3 The conflict is likely to be resolved by the Supreme Court. But the Court, in determining the appropriate limits of section 14(e), will receive little guidance from the lower courts, which have yet to analyze the section thoroughly.

The source of the sharpest disagreement among the courts is the treatment under section 14(e) of defensive strategies against tender offers, particularly the so-called "lock-up options." A lock-up option, which can be either a stock option or an option to buy a major corporate asset, is given by a target corporation to a preferred suitor to prevent an acquisition by a hostile tender offeror. 4 In Mobil Corp. ...
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