v.

43.

Repurchase of a company's shares at a premium to market
from a particular holder or group that has held such
shares for less than two years should require shareholder
approval. This rule would not apply to offers made to
all holders of a class of securities.

Regulation of Market Participants

44.

45.

46.

47.

48.

The Commission should continue the current prohibition on short tendering set forth in Rule 10b-4. To ensure the effectiveness of that provision, the Commission also specifically should prohibit hedged tendering.

In furtherance of the policy goals of Rule 10b-4, the Commission generally should require in a partial offer that all shares tendered pursuant to a guarantee be physically delivered, rather than permitting delivery only of the certificates for those shares to be actually purchased by the bidder.

Rule 10b-4 should be amended to include a specific
prohibition of multiple tendering.

The Commission should revise its interpretation of Rule 10b-4 so that for the purposes of determining whether a person has a "net long position" in a security subject to the tender offer, call options on such security which a person has sold and which a person should know are highly likely to be exercised prior to expiration of the offer shall be deemed to constitute sales of the security underlying such options and therefore netted against such person's position in that security.

Without commenting on the technical aspects of the
proposal, the Committee recommends aloption of the
Commission's proposed Rule 17A2-14 under the Exchange

Act.

VI. Interrelationships of Various Regulatory Schemes

49.

50.

Federal securities regulation of acquisition of corporate control should not impede or otherwise handicap the necessary and appropriate workings of federal antitrust regulations designed to review transactions for antitrust implications prior to their consumration.

Premerger notification waiting periods under the HartScott-Rodim Antitrust Improvements Act should be modified so as to take account of the required mininum offering period prescribed under the Williams Act and to avoid, to the extent practicable, delay in comple tion of a tender offer due to antitrust review.

Your letter dated December 5, 1983 to Governor Deukmejian has
been referred to me for response. As Commissioner of the state
agency responsible for securities regulation in California, the
governor believed it would be most appropriate for me to respond
to your request. We appreciate the opportunity to provide com-
ments to assist your committee in its deliberations regarding
regulation of tender offers.

Although you have asked for comments on each of the Advisory
Committee's recommendations, I am refraining from commenting on
each recommendation for several reasons: many of the recommen-
dations are of self-evident worth, many are outside my area of
expertise, and some of the recommendations involve matters about
which I have insufficient data to develop an opinion.

of chief concern is the series of recommendations of the Advisory
Committee directed to the extent to which federal law should
preempt state law in regulating takeovers. Existing federal law
in this area preempts only those state laws which purport to
regulate the aspects of a tender offer which are regulated by the
Williams Act, e.g., state takeover statutes. The Advisory Com-
mittee appears to be suggesting that a much broader preemption
might be appropriate, except as limited by Recommendations 9.b.,
c. and d. The Advisory Committee's recommendations relating to
the preemption issue seem to mirror the suggestions of some
segments of the securities industry. The Securities Industry
Association, in a letter of rather strident tone by the chairman
of its state regulation committee, delivered in connection with
the SEC-NASAA hearings on state-federal securities regulation
held on September 12, 1983, proposed the following:

"We call upon the SEC to seek additional legislative powers
where necessary and to utilize existing powers where appro-
priate to provide for a truly national uniform system of
regulation or in the alternative to preempt states from
concurrent regulation of any area of activity in which the
SEC exercises its authority in the future."

I have a great concern for the sweeping utilization of the preemption tool as an easy and convenient mechanism for the single-minded achievement of the federal interest. I note with considerable disappointment the ill-considered language in Recommendation 34 which declared:

State law and regulations regardless of their form, that
restrict the ability of a company to make a tender offer
should not be permitted because they constitute an undue
burden on interstate commerce. (Emphasis added.)

It should be noted that in the corporate and securities field,
the federal government has traditionally bowed to the states in
matters of internal governance and has permitted the continued
development of state regulation of securities at the same time as
the federal system has developed.

Multiple state and federal regulation has developed because in
the corporate and financial world, there is a historical and
important state interest which has been and continues to be a
significant factor which is deserving of recognition along with
federal interests. The corporation is a creature of the state,
born and governed in accordance with state law. The capital of
the corporation is dictated by the rules of the state. The
rights of its shareholders in corporate governance and the duties
of its directors are also dictated by state policy. The financing
of the corporation and the reorganization of the corporation
similarly fall under the jurisdiction of the state.

Moreover, to the extent that capital is raised in a state by tapping the financial resources of the state's citizens, it seems to me that a legitimate state interest is perceivable without difficulty. As Justice Powell pointed out in Edgar v. Mite Corporation, the local interest is clearly affected by such factors as the moving of corporate headquarters and the closing of plants. while there are different and varied bases for the state's interest, they are genuine ones which can be substantial to the local welfare.

So

Preemption, unfortunately, allows for no such weighing once the step is taken. The state's interests become totally subservient to those of the federal government in every instance. Even if one were to assume that overriding national interest dictated the subservience of local interest to forbid a direct state statute dealing with takeovers, the sweep of the Advisory Committee's recommendation would require the elimination of all state laws "regardless of their form" which affected, directly or indirectly, the accomplishment of a tender offer. I would submit that the federal interest in presumably maintaining neutrality in tender offers is insufficient to grant it such overwhelming priority over state laws of corporate governance. I strongly urge Congress to reject the Advisory Committee's recommendations in this area on the grounds that they are overbroad and have the potential of preempting a large member of beneficial state laws.

I appreciate the opportunity to participate in your review of takeover regulations and would be pleased to respond to any questions or additional requests you may have.

Sincerely,

FRANKLIN TOM

Commissioner of Corporations

FT: ad

CC: Karen Spencer, Director

Washington, D.C. Governor's Office

The Honorable Timothy E. Wirth, Chairman

U.S. House of Representatives

Subcommittee on Telecommunications, Consumer Protection and Finance of the Committee on Energy and Commerce Room B-331

Rayburn House Office Building

Washington, D.C. 20515

Re:

Comments on Recommendations of the Securities and Exchange
Commission Advisory Committee on Tender Offers

Dear Representative Wirth:

Governor William A. O'Neill has asked that I, as Banking Commissioner of the State of Connecticut, respond to your letter of December 5, 1983 (with attachments) wherein you seek comments on the recommendations of the Securities and Exchange Commission Advisory Committee on Tender Offers. As Banking Commissioner, I am charged with the administration of Chapter 661a of the Connecticut General Statutes, the Connecticut Tender Offer Act (the "Act").

With respect to the specific issues raised in the attachment to your letter, please be advised that the Act requires an offeror to make fair and full disclosure to offerees of all information material to a decision to accept or reject the offer. I believe the objective of federal and state takeover legislation is to ensure that shareholders be provided with an opportunity to make an informed decision on whether to tender their shares. A takeover bid should remain open for a sufficient time to enable target shareholders to make such an informed decision. The threshold applicable to an offeror should be approximately ten percent. Socalled "creeping tenders" should, I believe, be subject to just as great a degree of regulatory scrutiny as other tender offers. I endorse full and fair disclosure of the price paid by the acquiror. I also believe that defensive tactics utilized by target companies generally should be permitted unless those tactics jeopardize the interests of shareholders.

With regard to the enumerated recommendations, my comments will focus on their possible impact on state takeover laws and on state corporation laws (e.g. the business judgment rule).