WILLIAMS ACT

The Williams Act of 1968 amended the Securities and Exchange Act of 1934 (15 U.S.C.A. § 78a et seq.) to require mandatory disclosure of information regarding cash tender offers. When an individual, group, or corporation seeks to acquire control of another corporation, it may make a tender offer. A tender offer is a proposal to buy shares of stock from the stockholders for cash or some type of corporate security of the acquiring company. Since the mid-1960s, cash tender offers for corporate takeovers have become favored over the traditional alternative, the proxy campaign. A proxy campaign is an attempt to obtain the votes of enough shareholders to gain control of the corporation's board of directors.

Because of abuses with cash tender offers, Congress passed the Williams Act in 1968, whose purpose is to require full and fair disclosure for the benefit of stockholders, while at the same time providing the offeror and management equal opportunity to fairly present their cases.

The act requires any person who makes a cash tender offer (which is usually 15 to 20 percent in excess of the current market price) for a corporation that is required to be registered under federal law to disclose to the federal securities and exchange commission (SEC) the source of the funds used in the offer, the purpose for which the offer is made, the plans the purchaser might have if successful, and any contracts or understandings concerning the target corporation.

Filing and public disclosures with the SEC are also required of anyone who acquires more than 5 percent of the outstanding shares of any class of a corporation subject to federal registration requirements. Copies of these disclosure statements must also be sent to each national securities exchange where the securities are traded, making the information available to shareholders and investors.

The law also imposes miscellaneous substantive restrictions on the mechanics of a cash tender offer, and it imposes a broad prohibition against the use of false, misleading, or incomplete statements in connection with a tender offer. The Williams Act gives the SEC the authority to institute enforcement lawsuits.

further readings

Fleming, Rusty A. 2003. "A Case of 'When' Rather Than 'What': Tender Offers Under the Williams Act and the All Holders and Best Price Rules." Southern Illinois University Law Journal 27 (winter).

Tyson, William C., and Andrew A. August. 1983. "The Williams Act after RICO: Has the Balance Tipped in Favor of Incumbent Management?" Hastings Law Journal 35 (September).

cross-references

Mergers and Acquisitions; Securities and Exchange Commission.