The opinion of the court was delivered by: BECHTLE
By Order of February 4, 1981, this Court preliminarily enjoined the enforcement of the Pennsylvania Takeover Disclosure Law, Pa.Stat.Ann., tit. 70, §§ 71-85 (Purdon Supp. 1980-1981) ("Pennsylvania Act"), in respect to the plaintiff corporation's tender offer for shares of the defendant corporation's common stock. This memorandum is in support of that Order.
Plaintiff Crane Company ("Crane") is a publicly held corporation, incorporated in Illinois, with its principal place of business at New York, New York. Crane's securities are registered with the Securities Exchange Commission ("SEC") pursuant to § 12 of the Securities and Exchange Act of 1934, 15 U.S.C. §§ 78a et seq. ("Exchange Act").
Defendants Robert M. Lam, Cole B. Price, Jr., and Frank A. Ursomarso are Commissioners of the Pennsylvania Securities Commission (collectively, "Pennsylvania Commission"), an agency of the Commonwealth of Pennsylvania organized under the Pennsylvania Securities Act of 1972, Pa.Stat.Ann., tit. 70, §§ 1-601 to 610 (Purdon Supp. 1980-1981). The Pennsylvania Commission is charged with the administration and enforcement of the Pennsylvania Act. See Pa.Stat.Ann., tit. 70, § 79 (Purdon Supp. 1980-1981).
Defendant Leroy S. Zimmerman is the Attorney General of the Commonwealth of Pennsylvania. Pursuant to § 12 of the Pennsylvania Act, upon request of the Commission, the Attorney General is empowered to enforce the Pennsylvania Act in certain respects. 70 Pa.Stat.Ann., tit. 70, § 82 (Purdon Supp. 1980-1981).
Finally, defendant Harsco Corporation ("Harsco") is a Delaware corporation with its principal place of business at Camp Hill, Pennsylvania. Harsco also has substantial assets in Pennsylvania. Harsco's common stock is registered with the SEC pursuant to § 12 of the Exchange Act and is publicly traded. As of December 11, 1979, Harsco had approximately 10,077,144 shares of common stock, held by 12,815 shareholders of record who are located throughout the United States. Seventeen percent or 2,132 of Harsco's shareholders are residents of Pennsylvania.
On January 26, 1981, Crane's Board of Directors voted to commence a cash tender offer for up to 1,600,000 shares of Harsco's common stock, at a price of $ 38 per share. Shortly thereafter, on the same day, Crane issued a press release announcing its intention to make the tender offer and stating the offer's principal terms.
Since the tender offer involves the use of means and instrumentalities of interstate commerce and since Harsco's common stock is registered under § 12 of the Exchange Act, Crane's tender offer is subject to the tender offer provisions of the Exchange Act, 15 U.S.C. §§ 78n(d), (e) ("Williams Act"), and the regulations promulgated thereunder by the SEC. See 15 U.S.C. § 78n(d) (1). The Williams Act requires the disclosure of certain information, imposes substantive restrictions and includes a general anti-fraud provision. It also confers broad rule-making authority upon the SEC. In particular, SEC Rule 14d-2(b), promulgated under the Williams Act, requires an offeror to commence or withdraw the tender offer within five business days of the first public announcement of the tender offer. 17 C.F.R. § 240.14d-2(b). As the Court of Appeals for the Third Circuit explained:
The commencement of the offer is the time at which an offeror is required to disseminate to shareholders the material information regarding the offer that the federal securities laws require. An offeror must file a disclosure statement on schedule 14D-1 with the (SEC), and must take certain additional steps to effect actual receipt by the shareholders of material information relating to the offer, the companies involved in the offer, and the terms of the offer. The federal policy underlying these requirements is to insure the prompt dissemination of all material information after the first public announcement. The information is necessary because the announcement of the offer itself will precipitate significant market activity in the securities of the target company, thus confronting public investors with an immediate need to make investment decisions. See SEC Release No. 34-16384, 44 Fed.Reg. 70326, 70329 n.15 (1979).
Kennecott Corp. v. Smith, 637 F.2d 181 (Current) CCH Fed.Sec.L.Rep. para. 97,731 at 98,829, 98,830 to 98,831 (3d Cir. 1980).
To be specific, the pre-commencement waiting period provisions make it unlawful for any offeror to make a tender offer:
unless at least 20 days prior thereto such offeror (i) files with the commission a registration statement containing the information prescribed by section 5, (ii) sends a copy of the registration statement by certified mail to the target company at its principal office and to the collective bargaining representative, if any, of the employees employed at the principal place of business of the target company and (iii) publicly discloses the offering price of the proposed offer and the fact that a registration statement has been filed with the commission which contains substantial additional information about the proposed offer, which registration statement is available for inspection at the commission's principal office during business hours.
Pa.Stat.Ann., tit. 70, § 74(a) (Purdon Supp. 1980-1981) (emphasis added). As to the possibility of hearings before the Pennsylvania Commission, the Pennsylvania Act provides:
(d) A takeover offer automatically becomes effective 20 days after the date of filing the registration statement with the commission unless delayed by order of the commission or unless prior thereto, the commission schedules a hearing with respect to the offer. The commission may schedule a hearing, on its own initiative or at the request of the target company, if the commission has reason to believe that the takeover offer fails to provide full and fair disclosure to offerees of all material information concerning the offer, or is in violation of this act or the act of December 5, 1972 (P.L. 1280, No. 284), referred to as the "Pennsylvania Securities Act of 1972." If a hearing is scheduled, the offer shall not become effective until registered by order of the commission. Registration is not deemed to be approval of the offer by the commission and any representation to the contrary is unlawful.
Id. at § 74(d) (emphasis added). The hearing, if called, must commence within 30 days of the offer's registration, and a decision must be reached within 30 days of the hearing's conclusion. Id. at § 74(e).
In light of the apparent conflicts between the Williams Act and the Pennsylvania Act, Crane brought this action, on the same day it announced the tender offer, seeking (1) a declaratory judgment that the Pennsylvania Act is unconstitutional, alleging both that it conflicts with and is preempted by federal law and that it imposes an excessive burden on interstate commerce;
and, (2) preliminary and permanent injunctive relief restraining enforcement of the Pennsylvania Act against Crane's tender offer. In addition, on the same day Crane filed its complaint, Crane applied for and obtained a temporary restraining order from this Court restraining the defendants from enforcing the Pennsylvania Act pending the Court's hearing on Crane's motion for a preliminary injunction and prohibiting defendants from commencing other litigation on the validity of the Pennsylvania Act.
On February 3, 1981, this Court held a hearing on Crane's motion for a preliminary injunction. Upon consideration of the hearing memoranda and the arguments of counsel, and in light of the developing case law both within and without this circuit, the Court granted plaintiff's motion and entered a preliminary injunction by Order dated February 4, 1981.
II. The Request for a Preliminary Injunction
As the Court of Appeals for the Third Circuit recently reiterated:
To obtain a preliminary injunction, the moving party must show (1) a reasonable probability of eventual success in the litigation, and (2) that irreparable injury will ensue if relief is not granted. In addition, the court may consider (3) the possibility of harm to other interested ...