Docket No. 73-1223.
Argued March 8, 1973.
Decided March 12, 1973.
Whitney North Seymour, New York City (William J. Manning, John A. Guzzetta, Melvyn L. Cantor, George H. Hempstead, III, Cynthia M. Cohen, Patrick H. Barth, and Simpson, Thacher Bartlett, New York City, on the brief), for plaintiff-appellant Gulf Western Industries, Inc., and third party defendant-appellant Charles G. Bluhdorn.
Denis McInerney, New York City (Raymond L. Falls, Jr., William T. Lifland, Henry G. Bisgaier, Allen S. Joslyn, Charles Platto, David A. Mead, and Cahill, Gordon, Sonnett, Reindel Ohl, New York City, on the brief), for defendant and third party plaintiff-appellee The Great Atlantic Pacific Tea Co., Inc.
Robert F. Ambrose, Morton E. Grosz, Gerald A. Novack and Barrett, Smith, Schapiro Simon, New York City, for The Josephine H. McIntosh Foundation, Incorporated, amicus curiae.
George D. Reycraft, Eugene J. Leff, Boaz M. Shattan, Jr., and Cadwalader, Wickersham Taft, New York City, for Neuberger Berman, amicus curiae.
Fred Lowenschuss Associates, Philadelphia, Pa., for Fred Lowenschuss Associates Pension Plan and Tendering Shareholders of AP, amicus curiae.
Appeal from the United States District Court for the Southern District of New York.
The issues before us on this appeal by appellants Gulf Western Industries, Inc. (GW) and Charles G. Bluhdorn, the chairman of the board, chief executive officer and largest stockholder of GW, arise from a motion brought on by order to show cause in the District Court for the Southern District of New York before Kevin T. Duffy, District Judge, by The Great Atlantic Pacific Tea Company. Inc. (AP) for a preliminary injunction. AP's motion sought to enjoin consummation of a tender offer by GW to purchase 3,750,000 shares of the common stock of AP. The motion alleged that GW's proposed acquisition of AP stock would violate Section 1 of the Sherman Act, 15 U.S.C. § 1 (1970), and Section 7 of the Clayton Act, 15 U.S.C. § 18 (1970); and that GW's tender offer was in violation of Sections 14(d) and 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78n(d) and (e) (1970), and of Rule 14d-1 promulgated under the 1934 Act, 17 C.F.R. § 240.14d-1 (1972).
We set forth below a more complete statement of the litigation sequence that preceded this motion, including the plenary action out of which the motion arose.
GW's tender offer was announced February 1, 1973. Judge Duffy on February 6 signed an order to show cause bringing on AP's preliminary injunction motion for hearing on February 9. He heard the motion that day. On February 13, he filed a 21 page opinion granting the motion and on the same day entered a preliminary injunction enjoining consummation of the tender offer. On February 20, we granted appellants' motion to expedite their appeal from Judge Duffy's order. We heard the appeal on March 8.
For the reasons stated below, we affirm the preliminary injunction enjoining consummation of the tender offer.
I.  FACTS AND PRIOR PROCEEDINGS
GW is a Delaware corporation. Its principal place of business is in New York City. It is the seventy-fourth largest industrial corporation in the United States. Its sales in 1972 totalled $1,669,671,000. It is one of the largest conglomerates, having acquired since 1957 approximately 100 previously independent companies. Bluhdorn has been at the helm of GW since 1957.
AP is a Maryland corporation. Its executive offices are in New York City. It operates one of the largest chains of retail supermarkets in the United States and is the largest such operator in the New York metropolitan area. Its sales in 1972 were approximately $6 billion.
At the time of the announcement of the tender offer which gave rise to the instant action, GW was the owner of more than one million shares of AP stock. AP had 24,875,224 shares of common stock issued and outstanding. GW thus had acquired more than 4 per cent of AP's stock. Those shares had been purchased on the open market in the year preceding the announcement of the tender offer. They were held in street name by Kidder, Peabody Co., a brokerage firm. AP was unaware of this substantial GW interest in its stock.
On February 1, 1973, GW announced its intention to make a cash tender offer for the acquisition at $20 per share of an additional 3,750,000 shares of AP stock (approximately 15 per cent). As required by Rule 14d promulgated under the 1934 Act, GW filed with the Securities and Exchange Commission a Schedule 13D on February 1. On the following day, the tender offer was communicated to the public.
The tender offer reserved to GW the right to purchase any shares tendered in excess of that amount. At the hearing in the district court, however, GW informed the court that it would accept no more than 3,750,000. GW accordingly has returned all shares tendered in excess of that amount.
AP's management reacted swiftly in opposition. On February 2, it issued a press release indicating AP's intent to "vigorously oppose" the tender offer. The release stated that not only was the $20 per share offer "inadequate and not in the best interest of [AP's] shareholders", but that "it would seem that the acquisition of a large block of AP shares by Gulf Western raises most serious questions under the antitrust laws." The press release was followed up the next day by a letter to AP's shareholders. Included in the letter were summary statements and statistics indicating that AP was in a "turnaround" situation and that the GW offer, by its "inadequate" terms, was an attempt "to purchase at a cheap price the value [in terms of upward potential] that rightfully belongs to [the AP shareholders]." The implication of possible antitrust liability stated in the initial press release was repeated in the letter to shareholders.
On February 5, GW commenced the instant action against AP in the district court, alleging that AP had made false and misleading statements in its opposition to the tender offer, in violation of Sections 10(b), 14(d) and 14(e) of the 1934 Act. GW, simultaneously with the commencement of its action, presented an order to show cause bringing on its motion for a preliminary injunction against AP. Also on February 5, AP filed its answer, counterclaim and a third-party action against Bluhdorn and against Kidder, Peabody Co., the dealer-manager for GW's tender offer. AP's counterclaim and its motion for a preliminary injunction alleged violations of the antitrust laws and the securities laws. Judge Duffy signed AP's order to show cause on February 6 and made it returnable on February 9, together with GW's order to show cause referred to above. He denied applications by both sides for temporary restraining orders.
GW's motion claimed that AP had violated the securities laws by false and misleading statements in both the February 2 press release and the February 3 letter to shareholders. The district court rejected GW's claims, based on the view "that the alleged omissions were not material omissions and that the plaintiff has failed to show a reasonable expectation of success on the trial of the issues so as to cause this Court to issue the preliminary injunction sought by GW. Nor does this Court find these issues so difficult and doubtful as to tip the balance of hardship toward GW and thus warrant the issuance of injunction . . . ." GW has not appealed from the denial of its motion for a preliminary injunction.
With respect to the antitrust violations, AP alleged probable foreclosure and anticompetitive effects, both horizontal and vertical. It also alleged likelihood of unlawful reciprocal dealing.
The horizontal allegations were based on Bluhdorn's interest in the Bohack Corporation, one of AP's major competitors in the New York area. Bohack is the second largest operator of retail supermarkets in the New York area, AP being the largest. In the period immediately preceding the tender offer, Bluhdorn was the largest shareholder in Bohack, he was a member of its board of directors, and, with three other GW officers on Bohack's board, Bluhdorn clearly had effective control of Bohack. On February 1, the four GW directors of Bohack submitted their resignations from that board, and Bluhdorn placed all of his Bohack shares in a voting trust. Under the final terms of that trust, in the event the tender offer is consummated, Bluhdorn's shares in Bohack must be sold by the trustees within one year after the expiration date of the tender offer.
The voting trust as originally drafted required disposal of the shares "[i]f GW becomes the controlling shareholder of AP", defined as either being the "largest single holder of common stock of AP" or having "a majority of the members of the Board of Directors of AP . . . designees of GW." (emphasis added).
In addition to the claim of horizontal market foreclosure, AP alleged that success of the tender offer would create a probability of price-fixing between AP and Bohack. This was based on the September 1972 denouncement by Bohack's president, Joseph Binder, of AP's "WEO" (profit and price cutting) program as predatory and injurious to competition. That statement followed shortly after a private conversation between Bluhdorn and Binder. Binder, in addition, was named one of the two trustees of the voting trust.
The basis of AP's vertical claim is that GW, among its myriad conglomerate holdings, has a number of companies that deal in products of which AP is a purchaser. AP alleges the "potential exclusion of other suppliers of AP if GW affiliates are able to provide the same products or services on equal terms." The scope of such vertical foreclosure was alleged to be upwards of $100 million. AP also alleged the likelihood of unlawful reciprocity, in that AP suppliers might be expected to direct their purchasers toward GW affiliates in the hope of increasing sales to AP. GW's main response to the vertical and reciprocal charges was evidence of established corporate policy against such practices.
The specific items involved include paper goods, produce and meat, refrigeration equipment, and cigars, each of which is a category of goods which AP purchases and GW can supply. It is further alleged that various financial services offered by GW, not currently utilized by AP, present further vertical foreclosure potential.
The alleged securities law violations generally charged GW with omissions from the tender offer of material facts in contravention of Sections 14(e) and 14(d) of the 1934 Act. As summarized by the district court, the Section 14(e) claim was as follows:
"[T]hat the published tender offer and Schedule 13D filed with the Securities and Exchange Commission by GW, omitted certain material facts in that they failed to disclose GW's intention to acquire dominance of the AP; that it failed to disclose that Bohack was the largest competitor of AP in the New York City metropolitan area; and that Bluhdorn had effective control of Bohack; it failed to disclose the existence of a consent decree between Bohack and the Federal Trade Commission; and it failed to adequately describe GW's business, including, in particular, the areas in which GW controls companies producing products which are actual or potential suppliers of AP."
The Section 14(d) charge alleged a failure by GW to file a Schedule 13D in advance of its pre-tender offer purchases. AP asserted that during the course of those purchases GW had "formed the intention and embarked on a program to acquire more than 5% of the outstanding common stock of AP."
After approximately two days of depositions, the district court heard on the same day the motions for preliminary injunctions brought on by GW and AP, respectively. The record before the court consisted of the testimony of three witnesses, depositions, affidavits and documentary exhibits. Four days after the hearing, the court denied GW's motion for a preliminary injunction, but granted AP's motion for a preliminary injunction against GW and Bluhdorn. The only appeal before us is from the order granting AP's motion.
The following depositions were taken, each of which was received in evidence without objection at the preliminary injunction hearing: Charles G. Bluhdorn (Chairman of the Board and Chief Executive Officer of GW) (by AP); Joel Dolkart (General Counsel and Director of GW) (by AP); Ralph D. DeNunzio (Chairman of the Executive Committee of Kidder, Peabody Co.) (by AP); William J. Kane (Chairman of the Board and Chief Executive Officer of AP); (by GW); and Byron Jay (former Chief Executive Officer of AP, and Trustee of the Hartford Foundation) (by GW).
GW called no witnesses, except that it cross-examined M. Dean Potts (Comptroller of AP) on his affidavit.
AP called as witnesses William J. Kane, see note 6, supra; and John Guest, a member of the brokerage firm of Kuhn, Loeb Co., who testified to a conversation with Bluhdorn concerning a proposed purchase of the Hartford Foundation's AP shares.
The court denied that portion of AP's motion which sought a preliminary injunction against Kidder Peabody on the ground that "[t]here is no showing that Kidder Peabody was acting as anything but a stockbroker for GW. Apparently it had no knowledge of any possible wrongdoing by GW and Bluhdorn." No issue is before us on this appeal regarding Kidder Peabody, since no appeal has been taken from the denial of AP's motion for a preliminary injunction against it.
The essential question before us on this appeal is whether the record supports the district court's order which granted a preliminary injunction enjoining consummation of the tender offer. We hold that it does.
II.  PRELIMINARY INJUNCTION STANDARD
We repeatedly have held that the two-fold requirement for a preliminary injunction is a demonstration of probability of success on the merits and a showing that irreparable harm will result if such relief is denied.
Recently we have emphasized the importance of demonstrating on a preliminary injunction motion the presence of serious questions going to the merits which warrant further investigation and trial. For example, in Stark v. New York Stock Exchange, 466 F.2d 743 (2 Cir. 1972), we recently stated:
"Appellants assumed the burden of demonstrating either a combination of probable success and the possibility of irreparable injury or that they had raised serious questions going to the merits and that the balance of hardships tipped sharply in their favor." 466 F.2d at 744.
And in Checker Motors Corp. v. Chrysler Corp., 405 F.2d 319 (2 Cir.), cert. denied, 394 U.S. 999 (1969), the standard which we find particularly applicable here was set forth as follows:
"The purpose of a preliminary injunction is to maintain the status quo pending a final determination of the merits . . . . It is an extraordinary remedy, and will not be granted except upon a clear showing of probable success and possible irreparable injury (emphasis that of the Court) . . . . However, `the burden [ of showing probable success] is less where the balance of hardships tips decidedly toward the party requesting the temporary relief.' Dino De Laurentiis Cinematografica, S. p. A. v. D-150, Inc., 366 F.2d 373, 375 (2 Cir. 1966). In such a case, the moving party may obtain a preliminary injunction if he has raised questions going to the merits so serious, substantial, and difficult as to make them a fair ground for litigation and thus for more deliberate investigation. Unicon Management Corp. v. Koppers Co., 366 F.2d 199, 205 (2 Cir. 1966); Dino De Laurentiis Cinematografica, S. p. A. v. D-150, Inc., supra; Hamilton Watch Co. v. Benrus Watch Co., 206 F.2d 738, 740 (2 Cir. 1953)." (emphasis added) (some citations omitted). 405 F.2d at 323.
Moreover, in government antitrust actions involving alleged Clayton Act violations, a "balancing of the equities — in terms of injury to the public interest if an injunction were denied, as against injury to the defendants if it were granted — is a relevant factor, once the probability of success standard has been met, in deciding whether to deny or grant injunctive relief." United States v. International Telephone Telegraph Corp., 306 F.Supp. 766, 797 n. 95 (D. Conn. 1969), appeal dismissed, 404 U.S. 801 (1972), and cases there cited. In the instant case, the magnitude and far reaching consequences of the alleged violations of the antitrust and securities laws are such that, in our view, the public interest requires the application of a like standard.
With this standard in mind, we turn directly to a consideration of the substantiality of the alleged violations of the antitrust and securities laws, and the probability of AP's success on the merits on such claims after trial; and then, depending upon our conclusions on that issue, we shall consider the balance of equities as between the parties, keeping foremost in mind the paramount public interest.
III.  PROBABILITY OF SUCCESS ON THE MERITS
(A) Claims of Antitrust Law Violations
The antitrust claims of AP are based on Section 7 of the Clayton Act which provides in relevant part:
"No corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock . . . of another corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly."
At this stage of the litigation, we of course need not decide whether AP has proven a violation of that provision. We are required, however, to decide whether the evidence at the hearing below demonstrated that AP's allegations were of sufficient substance to warrant an examination of the other requirements necessary to the grant of preliminary injunctive relief.
GW's primary defense to the Section 7 claims is that the evidence demonstrated that its tender offer comes within the proviso to that section — to wit, that its offer to purchase AP stock is "solely for investment and not . . . to bring about . . . the substantial lessening of competition." Section 7, ¶ 3. In arguing for a broad definition of "investment", GW relies on Pennsylvania R.R. Co. v. ICC, 66 F.2d 37 (3 Cir. 1933), aff'd per curiam by equally divided Court, 291 U.S. 651 (1934). In our view, however, that case says no more than that the court's attention should be focused less on whether the purchase constitutes an "investment" than on whether the effect (indeed at this juncture the reasonably likely effect) is substantially to lessen competition.
GW next contends that each of the potential anticompetitive effects claimed by AP depend on the attainment of control by GW. Put another way, the argument is that, without control over the policies and practices of AP, the feared horizontal, vertical and reciprocal practices are no more likely to occur than they were with GW entirely out of the AP corporate picture.
We reject that contention both on the facts and on the law. Factually, it must be remembered that the reciprocal allegations relate to the actions of third-parties — in this case, suppliers of AP who might determine that it would be in their best interest to purchase whenever possible from GW companies. It is the third-parties' perception of what course would be to their best advantage that may give rise to reciprocal dealing by creating a market structure conducive to reciprocity or reciprocity effect. Particularly with companies of the size and power of those here involved, "the actual or potential implementation of coercive reciprocity, which presupposes the existence of leverage, is inimical to a competitive economic society." United States v. General Dynamics Corp., 258 F.Supp. 36, 59 (S.D.N.Y. 1966).
Furthermore, with respect to all the antitrust claims, we are satisfied that the record demonstrates a substantial likelihood that GW will seek to obtain control of AP and that it has the potential to attain that goal. Our views in this regard are more fully set forth in our discussion of the securities law claims below.
GW's argument that, aside from its asserted lack of intent, there is no possibility of gaining control is not supported by the record. That contention rests on the premise that the Hartford Foundation, and the various shareholding members of the Hartford family, together form a monolithic block with considerably more than 50% of the outstanding shares. The district court concluded that the evidence showed no block voting among the various Hartford interests. We agree.
At the argument of this appeal, moreover, we were informed that the Foundation was not unwilling to reduce its interest. Upon the announcement of the tender offer, the Foundation voted to tender some 1.5 million shares to GW. On February 14, it actually did tender 500,000 shares, although these shares were returned by GW due to the oversubscription of the tender offer at that time.
We note further that under the provisions of Section 49-43 of the Tax Reform Act of 1969, 26 U.S.C. § 4943 (1970), the Hartford Foundation is in a position where divestment of a sizeable portion of its AP holdings soon will be highly probable. In short, we find no basis in fact for the argument that the current dominance of the various Hartford interests precludes GW control of AP at some future date.
As a matter of law, we are not aware of any decision that requires numerical control in order to establish an antitrust violation. Several cases have held to the contrary. E.g. American Crystal Sugar Co. v. Cuban-American Sugar Co., 152 F.Supp. 387, 393 (S.D. N.Y. 1957), aff'd, 259 F.2d 524 (2 Cir. 1958); Hamilton Watch Co. v. Benrus Watch Co., 114 F.Supp. 307, 317 (D. Conn.), aff'd, 206 F.2d 738 (2 Cir. 1953). Rather, the critical question is whether the probable future effect of the transaction will be substantially to lessen competition. Brown Shoe Co. v. United States, 370 U.S. 294, 332 (1962); United States v. Von's Grocery Co., 384 U.S. 270, 278 (1966).
In Denver Rio Grande Western R. R. Co. v. United States, 387 U.S. 485, 501 (1967), the Court held that, while the ICC's duty to consider anticompetitive effects of the acquisition of stock of a common carrier under Section 5 of the Interstate Commerce Act, 49 U.S.C. § 5 (1970), "arises only after the threshold fact of control is established, [n]o such preliminary finding need be made to trigger the ICC's duty under the Clayton Act. A company need not acquire control of another company in order to violate the Clayton Act." See also United States v. E. I. duPont deNemours Co., 353 U.S. 586 (1957).
In assessing that issue, we turn now to the allegations of vertical integration. In discussing the vertical claim by way of illustration, we do not indicate any view as to the relative strength of that claim vis-a-vis the other antitrust claims asserted by AP.
The leading case in the vertical area of course is Brown Shoe Co. v. United States, supra, in which the Supreme Court held unlawful under Section 7 a merger between a leading shoe manufacturer and a leading shoe retailer. We find the present case sufficiently similar to that one to permit a conclusion that AP has shown a reasonable likelihood of success on the vertical claim at the trial on the merits.
Passing over the essential, but here uncontested, definition of the relevant product and geographical markets, the issue centers on the probable effect of the acquisition by GW of over 19% of the AP shares. As in Brown Shoe, "[a] most important . . . factor to examine is the very nature and purpose of the arrangement." 370 U.S. at 329. Here, the record before us supports the conclusion that the purpose of the acquisition is very likely to provide a basis for eventual control of AP by GW. The record further supports the conclusion that the nature of the post-acquisition arrangement will be such as to give GW a substantial advantage over its competitors in the sale to AP of products which the latter either uses or retails and which GW can supply.
In support of those conclusions, the record here discloses many of the same troublesome ingredients that led to the Brown Shoe decision: the tender offer here "involve[s] neither small companies nor failing companies", 370 U.S. at 331; because of the absolute size of the firms involved "in this industry, no merger between a manufacturer and an independent retailer could involve a larger potential market foreclosure", 370 U.S. at 331-32; and the trend toward concentration of the industry has been well-documented, 370 U.S. at 332. Furthermore, in light of the present production capacity of AP and the great possibilities for expansion, the potential foreclosure is well above the "de minimis" level.
While AP's recent performance may be said to have been lackluster, the data provided in its own response to the tender offer negates any possible claim that it is "failing".
The FTC has found distinct trends toward concentration in both the food distribution and grocery products manufacturing industries. 1 CCH Trade Reg. Rep. ¶ 4525, at 6904; ¶ 4530 at 6908 (1971).
The import of these views, once again, is not that AP is necessarily correct in its allegations of a vertical integration in violation of the antitrust laws. Rather, we hold only that a sufficient likelihood of success on that claim has been demonstrated to satisfy AP's burden on the motion for preliminary injunction.
(B) Claims of Securities Law Violations
AP claims that GW has violated Section 14(e) of the Securities Exchange Act of 1934 by omitting certain material facts from its tender offer announcement: (1) GW's intention to acquire a controlling position in AP or at least to exercise influence over AP's management and policies; and (2) GW's holdings in other companies which indicate that GW's acquisition of AP stock is likely to result in violations of the antitrust laws by both companies. The question here is whether, on the basis of the evidence presented below, it appears that AP stands a strong chance of proving at trial that GW's failure to disclose these facts in its announcement of the tender offer violated § 14(e). We hold that AP has demonstrated a probability of success on the merits with regard to its § 14(e) claim.
Section 14(e) reads in pertinent part:
"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 invitation."
While § 14(e) is a relatively new statute, in general it tracks the language of Rule 10b-5, 17 C.F.R. § 240.10b-5 (1972), except that § 14(e) applies to tender offers rather than the purchase or sale of securities. The elements of an action for injunctive relief are essentially the same under § 14(e) as under Rule 10b-5. See Chris-Craft Industries, Inc. v. Piper Aircraft Corp., 480 F.2d 341, 362 (2 Cir. 1973), slip op. 4897, 4929-30 (March 16, 1973). With respect to AP's § 14(e) claim, in order to succeed at the trial on the merits, AP need only establish that the omissions were material and that "`any of the stockholders who tendered their shares would probably not have tendered their shares' if the alleged violations had not occurred." Electronic Specialty Co. v. International Controls Corp., 409 F.2d 937, 948 (2 Cir. 1969), quoting Symington Wayne Corp. v. Dresser Industries, Inc., 383 F.2d 840, 843 (2 Cir. 1967).
Our Court has had occasion to construe § 14(e) on at least four previous occasions. Butler Aviation International, Inc. v. Comprehensive Designers, Inc., 425 F.2d 842 (2 Cir. 1970); Crane Co. v. Westinghouse Air Brake Co., 419 F.2d 787 (2 Cir. 1969), cert. denied, 400 U.S. 822 (1970); Iroquois Industries, Inc. v. Syracuse China Corp., 417 F.2d 963 (2 Cir. 1969), cert. denied, 399 U.S. 909 (1970); Electronic Specialty Co. v. International Controls Corp., 409 F.2d 937 (2 Cir. 1969). See Chris-Craft Industries, Inc. v. Piper Aircraft Corp., 480 F.2d 341, 357 (2 Cir. 1973), slip op. 4897, 4920-59 (March 16, 1973).
AP's standing, as the target corporation of a tender offer, to bring suit under § 14(e) for a preliminary injunction against GW, the offeror, is clear. Butler Aviation International, Inc. v. Comprehensive Designers, Inc., supra, 425 F.2d at 843 n. 1; Susquehanna Corp. v. Pan American Sulphur Co., 423 F.2d 1075 (5 Cir. 1970). See also Electronic Specialty Co. v. International Controls Corp., supra, 409 F.2d at 940-41, 944-46.
There can be no doubt that if GW intended, when it announced its tender offer, to take control of AP or to participate extensively in its management, its failure to disclose that intention constituted a violation of § 14(e). Cf. Susquehanna Corp. v. Pan American Sulphur Co., 423 F.2d 1075, 1082-86 (5 Cir. 1970). Any of the tendering shareholders who did not tender all of their AP holdings to GW would be influenced in their decision whether or not to tender by the fact that GW would eventually control or substantially influence the operations of AP. For example, such shareholders might be disinclined to facilitate GW's takeover attempt, if it were to create a substantial risk that their remaining holdings in AP would suffer a decline in value, because present management would be replaced by less efficient GW management. On the other hand, they might want to retain all their shares because of their belief that the incoming management team would be superior. In short, GW's intentions with regard to directing AP's policies and operations are of such significance that the tendering shareholders would have weighed them in their decision whether or not to sell. Moore v. Greatamerica Corp., 274 F.Supp. 490, 492-93 (N.D.Ohio 1967).
Former SEC Chairman Cohen has made some especially relevant comments on the importance of disclosing an intended change of control:
"Information about a potential change in control can be particularly essential to an informed decision. A change in control brings with it the possibility of different operating results and different investment results, or perhaps the possibility of realizing on a company's liquidation value. This may be either good, or bad, depending on the facts and circumstances involved. But no investor can reach a conclusion on the possible effects of a change in control until the facts are available to him." See Cohen, A Note On Takeover Bids and Corporate Purchases of Stock, 22 Business Lawyer 149, 151 (1966), quoted in, Moore v. Greatamerica Corp., supra, 274 F.Supp. at 493.
Considerable evidence was adduced at the hearing which indicates that GW purchased AP stock not for the purpose of investment but with a view to exercising influence or control. Proof of such intent obviously is difficult, particularly where only limited discovery is possible, as in the case below due to the time limitations. Nevertheless, the Bluhdorn deposition, as well as other evidence adduced, strongly indicates that such intent was present. GW has a well-established practice of eventually acquiring firms in which it initially purchased only a small percentage of the outstanding shares. It is likely that this acquisition practice will be applied to AP, especially since GW's present commitment to purchase AP shares represents the largest single commitment in GW's history. In addition, AP is such an "overpriced" and "rundown" corporation, in the opinion of Bluhdorn, that it could not possibly succeed as an "investment". But since in Bluhdorn's view much of AP's difficulty is attributable to its present management, it is the type of company that probably would make a sound acquisition with a replacement of management. Bluhdorn indeed remarked that his "Bohack management team" possessed the skills and experience necessary to cause a turnaround of AP. These facts and circumstances indicate that AP has a probability of success in proving at trial that GW had an intention to obtain control of AP or to influence substantially its management, which intentions it failed to disclose in violation of § 14(e).
It appears that GW also has failed to comply with the requirements of Section 14(d) of the 1934 Act and Regulations 14d-1 through 14d-4, 17 C.F.R. §§ 240.14d-1 to 14d-4 (1972). Section 14(d) requires that a tender offer which will result in more than 5% ownership of the target company cannot be made until the offeror files a Schedule 13D with the Commission providing specified information. Item 4 on Schedule 13D in part requires that the following information be provided:
"Item 4. Purpose of Transaction. State the purpose or purposes of the purchase or proposed purchase of securities of the issuer. If the purpose or one of the purposes of the purchase or proposed purchase is to acquire control of the business of the issuer, describe any plans of proposals which the purchasers may have to liquidate the issuer, to sell its assets or to merge it with any other persons, or to make any other major change in its business or corporate structure, . . . ."
GW did not supply such information — in violation of § 14(d).
It also appears that GW omitted to state certain material facts indicating that there are substantial antitrust obstacles to GW's purchasing a large portion of AP's shares. As stated above, Bluhdorn's ownership of a controlling interest in Bohack, combined with GW's large purchases of AP stock, creates a strong likelihood of antitrust litigation to prevent unlawful foreclosure of competition in the supermarket business. GW also owns or controls several companies which are actual or potential suppliers of AP, and apparently has plans to expand such operations so as to take advantage of its shareholder position in AP. We have discussed above the exposure of GW to potential antitrust liability for engaging in unlawful vertical integration.
The facts that, at the time it announced its tender offer, an antitrust action had not been commenced against GW, and that its liability was uncertain, does not excuse GW's failure to disclose all these relevant circumstances so that AP shareholders could weigh them in reaching their decision whether or not to tender their shares. As we said in SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 849 (2 Cir. 1968) (en banc), cert. denied sub nom. Kline v. SEC, 394 U.S. 976 (1969), the disclosure requirements of the securities laws require "nothing more than the disclosure of basic facts so that outsiders may draw upon their own evaluative experience in reaching their own investment decisions with knowledge equal to that of the insiders." Those "basic facts" bearing upon GW's possible liability for antitrust violations were of obvious concern to those AP shareholders who retained part of their holdings.
We hold that the record before the district court demonstrated a probability of AP's success on the merits on its claims of securities law violations.
IV.  BALANCING THE EQUITIES
Having determined that AP has established a probability of success on the merits at trial on at least some of its claims, we turn now to a consideration of the balancing of the equities.
(A) Interest of AP
The district court's opinion indicates that above all else its conclusion was based on its perception of the harm that would accrue to AP in the absence of preliminary relief:
"[T]o permit the tender offer to go forward could have serious detrimental effects on AP. It is possible that AP would be involved in a violation of the antitrust laws. There is testimony in the record that the executives of AP have already suffered a tremendous downgrading of morale with just the suggestion that the company was about to be taken over by GW. Moreover, if this Court permitted the tender offer to be consummated and at some later date were to find the violations charged by AP, it would be almost impossible to unravel the situation."
We agree. Moreover, considering the entire record, that is a finding that certainly cannot be said to be clearly erroneous.
(B) Interest of GW
The only interest of GW urged upon us that bears on the propriety of the preliminary injunction is that GW has the right to invest on behalf of its shareholders at such time as it deems ripe and profitable. Certainly this is one factor to be considered and we have done so. But we think that it is important, in weighing this interest, to bear in mind that (1) the interest urged can only be so where a lawful acquisition or investment is involved; and (2) the preliminary relief granted is not nearly as final as GW urges. Here, the probability that the "investment" is unlawful, as shown above, is sufficiently strong to call into serious question GW's right to proceed with the tender offer. Further, if after trial on the merits GW is vindicated, it will not be foreclosed from renewing its tender offer. While that may be said to be something less than a full blessing for GW, its right to act at will is not absolute. In a case of strong likelihood of unlawfulness, that right must be at least temporarily subordinated.
GW argues that after April 3 the tendering shareholders have the right to withdraw their tendered shares, thereby effectively destroying the tender offer. Suffice it to note that the provision of the Williams Act referred to, 15 U.S.C. § 78n(d) (5) (1970), merely gives shareholders the option of withdrawing; it says nothing about re-solicitation of those shares; and indeed it authorizes adding to the attractiveness of the tender offer. 15 U.S.C. § 78n(d)(7).
(C) Interest of AP Shareholders
In Butler Aviation International, Inc. v. Comprehensive Designers, Inc., 425 F.2d 842, 845 (2 Cir. 1970), we said:
"While courts should vigorously enforce the policy of honesty and fair dealing prescribed by federal securities legislation, they must guard against the risk that, at the instance of incumbent management, they may be frustrating informed stockholders from doing what the latter want."
We have given careful attention to that consideration here. What we said in Butler Aviation, however, clearly presupposes that the shareholders are indeed informed — a premise which we have indicated above has been drawn into serious doubt in this case. AP shareholders, moreover, like GW, have no inherent right to proceed with an unlawful tender; a requirement of lawfulness is included by implication in every tender offer.
(D) Interest of the Public
Finally, in balancing the equities, the public interest must be considered. If GW is in fact proceeding in violation of the antitrust and securities laws, a preliminary injunction would serve the public interest as much as AP's private interests. In this regard, by asserting these claims, AP is assuming a dual role, including that of a private attorney general. Since it is impossible as a practical matter for the government to seek out and prosecute every important violation of laws designed to protect the public in the aggregate, private actions brought by members of the public in their capacities as investors or competitors, which incidentally benefit the general public interest, perform a vital public service. As the Supreme Court said in J.I. Case Co. v. Borak, 377 U.S. 426, 432 (1964), private actions provide "a necessary supplement" to actions by the government and "the possibility of civil damages or injunctive relief serves as a most effective weapon in the enforcement" of laws designed to protect the public interest. Therefore, as in actions brought by the government, doubts as to whether an injunction sought is necessary to safeguard the public interest — when the public interest involved is as clear, pervasive and vital as the record here demonstrates — should be resolved in favor of granting the injunction. See United States v. First National City Bank, 379 U.S. 378, 383 (1965); Mitchell v. Pidcock, 299 F.2d 281, 287 (5 Cir. 1962).
In our view, the present case involves precisely that strong showing of public interest which we hold is paramount.
Upon balancing the equities in accordance with the standard stated above, we hold that the record clearly supports the district court's order which granted a preliminary injunction enjoining consummation of the tender offer.
Under all the circumstances, we suggest to the district court that it expedite further proceedings in this case, as it so commendably has done to date, with a view to the earliest possible date for trial on the merits consistent with the rights of the parties. We are confident that counsel will fully cooperate to that end.
Finally, we express our appreciation to able counsel for all parties for their excellent briefs and oral arguments which have facilitated our task on this expedited appeal.