Full opinion text
OPINION STAPLETON, District Judge: This case arises in the context of competing tender offers by Alaska Interstate Company (“Alaska”), and Northwest Energy Company (“Energy”), which seek control of Apeo Oil Corporation (“Apeo”). The common stock of each of the three is listed on the New York Stock Exchange. Alaska, in its amended complaint filed on July 15, 1975, alleged a conspiracy among Energy, Apeo and others resulting in violations of §§ 9(a), 10(b), 13(e), 14(a), 14(d), 14(e) and 20 of the Securities Exchange Act of 1934, and various rules and regulations promulgated thereunder. The defendants denied the existence of any illegal conspiracy on their part and counterclaimed against Alaska and its Chairman, O. Charles Honig, alleging violations of Sections 7, 10(b), 13(d), 14(d) and 14(e) and certain regulations issued thereunder. On July 22, 1975, defendants Energy and Apeo moved separately for temporary injunctive relief seeking an order that would, inter alia, restrain Alaska from “taking down” any Apeo shares tendered prior to expiration of Alaska’s amended tender offer at 12:01 A.M., July 26, 1975. After these motions had been argued to the Court, the parties stipulated, on July 25, 1975, that both the Energy and Alaska tender offers then outstanding would be extended until a date to be fixed by the Court following a decision on defendants’ motions for preliminary injunctive relief. In addition, the parties agreed to allow stockholders to withdraw any tendered shares during the interim. August 18, 1975 was fixed as a hearing date for these motions as well as for a motion of Alaska for preliminary injunctive relief against the outstanding Energy offer. During the period from the filing of the original complaint on July 10, 1975 until August 18, 1975, extensive discovery was conducted on an expedited basis. Due to the cooperation of counsel and the parties, there has been a virtually complete production of the relevant documents both of the parties to this action and of related third parties, and numerous depositions have been taken around the country. The parties have agreed to submit the preliminary injunction motions on the mammoth record that has been thus developed. This Opinion is the product of the Court’s review of that record and the authorities cited by the parties in the extensive briefing. Before considering the legal issues raised by the parties, it is necessary to more completely develop the factual background of this case, including the complex corporate interrelationship of the target company, Alaska, and Energy and the terms and chronology of the four competing tender offers. In 1957, Pacific Northwest Company (“PNW") constructed the first natural gas transmission pipeline that served the Pacific Northwest region. In May of the following year, El Paso Natural Gas Company (“El Paso”) acquired virtually all of PNW’s outstanding common stock. An anti-trust action was thereafter commenced and in 1964 the Supreme Court ordered El Paso to divest itself of PNW’s assets. Various corporate entities subsequently made bids to purchase the PNW assets. Among those making such an application was The Tipperary Corporation (“Tipperary”). On August 18, 1971, defendant Tipperary entered into a Joint Venture Agreement with Apeo and Gulf Interstate Company (“Gulf”) whereby the parties agreed to jointly pursue Tipperary’s application for control of the PNW assets. On September 20, 1971, a new joint venture agreement (“the Joint Venture Agreement”) was signed under which Alaska became a member of the “Apeo Group” and agreed jointly to pursue the Tipperary application. On June 16, 1972, the United States District Court for the District of Colorado approved the application of the Apeo Group. On February 7, 1974, the divestiture was accomplished. El Paso had previously caused a new entity called the Northwest Pipeline Corporation (“Pipeline”) to be formed and had transferred all of PNW’s assets to Pipeline. Pursuant to the Joint Venture Agreement, the Apeo Group purchased 20% of Pipeline’s common stock which was held in the following amounts by members of the Apeo Group: Alaska — 7/2 % ; Apeo — 7/2 % ; Gulf — 3%; and Tipperary 2%. The remaining 80% of Pipeline’s common stock was then placed, pursuant to a voting trust agreement of February 7, 1974, (“the Voting Trust Agreement”), in a five year irrevocable voting trust. Voting trust participation certificates representing the trusteed Pipeline shares were then issued to El Paso’s shareholders and these certificates as well as Pipeline’s common stock were .subsequently listed on the New York Stock Exchange. On January 3, 1975, the United States District Court for the District of Colorado approved a reorganization proposed by Pipeline’s directors which called for the creation of a holding company which would have Pipeline as a wholly owned subsidiary. In the reorganization Energy became the parent company of Pipeline through a merger in which the holders of Pipeline common stock received a Energy common stock on a share-for-share basis. As a result, the Apeo Group now holds 20% of Energy common stock and the voting trustee holds virtually all of the remaining 80% of that stock. By the Spring of 1975 differences had arisen between the parties. On July 7, 1975, Alaska announced a tender offer for up to 1.5 million shares (approximately 51% of Apco’s outstanding common stock) at $17.50 per share. By the terms of this offer, Alaska was only committed to purchase tendered Apeo shares if at least 900,000 such shares were tendered prior to the expiration of the offer on July 21, 1975. These purchases were to be financed by an “unsecured” $28 million loan from a commercial bank. Alaska disclosed that its intentions in making the offer were to gain control of Apeo and thereafter Energy and to effect a merger or other combination between itself and the other two entities. On July 10, 1975, Energy made a competing tender offer for at least 1.5 million shares of Apeo, at $20 per share. The purchases were to be financed by a $30 million loan from a commercial bank secured by all the outstanding common stock of Pipeline and by 51 % of the outstanding shares of Apeo, assuming the success of the counter-offer. Energy stated that its purpose in seeking control of Apeo was to effect a combination of Apeo and Energy in a transaction in which Apeo stockholders would receive Energy common stock. On July 14, 1975, Alaska announced an amended tender offer to purchase Apeo shares at $23.50 per share. Alaska, stated that it sought 1.2 million shares (approximately 41% of Apco’s outstanding common stock), but would purchase I. 5 million shares if adequate financing became available. By the terms of this amended offer, no minimum number of shares would be required to be tendered before Alaska became obligated to purchase them. The purchases were to be financed by an “unsecured” $30 million loan and the offer stated that additional loan commitments were being sought which would enable Alaska to purchase at least 51% of the outstanding Apeo shares. The offer was to have expired on July 26, 1975 at 12:01 A.M. By July 24, 1975, Alaska had negotiated an additional loan commitment from its bank up to a total of $43.5 million dollars. On July 22, 1975, Energy amended its prior counter-tender offer, offering to purchase 1.5 million shares of Apeo at $25.00 per share. Energy agreed to purchase no less than 1.5 million shares and announced that it planned, if it gained control of Apeo, to effectuate a complete liquidation of that company. This offer was financed by a $37.5 million loan from First National City Bank, secured by the outstanding stock of Pipeline, all Apeo shares acquired pursuant to the tender offer, and the shares of Northwest Coal Corporation, a wholly-owned subsidiary of Energy. The expiration date of this offer was August 1st. I. THE APPLICABLE LEGAL STANDARDS. The parties are in substantial agreement about the legal standards to be applied in considering the applications now before the Court. First, they agree that in order to be entitled to a preliminary injunction, a movant must show: either a combination of probable success on the merits and the possibility of irreparable injury o'r that plaintiff has raised questions going to the merits so serious, substantial, and difficult as to make them a fair ground for further litigation and deliberations. Plaintiff must also show that the balance of equities sharply weighs in its favor. Ronson Corp. v. Liquifin Aktiengesellschaft, Civ. 785-73 (D.N.J.), aff’d, 483 F.2d 846 (3rd Cir. 1973), cert. denied, 419 U.S. 870 (1974). See also Sonesta International Hotels Corp. v. Wellington Associates, 483 F.2d 247 (2d Cir. 1973); Gulf & Western Industries, Inc. v. Great Atlantic & Pacific Tea Co., 476 F.2d 687, 692 (2d Cir. 1973); Elco Corp. v. Microdot, Inc., 360 F.Supp. 741, 746 (D.Del.1973). Further, the parties agree that the Court must weigh “the balance of the equities” and, in doing so, must consider more than the potential of injury to the movant. As this Court observed in Elco Corp. v. Microdot, Inc., 360 F. Supp. 741, 746 (D.Del.1973): Where preliminary injunctive relief is sought the Court must weigh the potential of irreparable harm to the plaintiff absent judicial intervention, the potential of irreparable harm to the opposing party from judicial interference, the potential harm to the public interest and the likelihood of the plaintiff’s prevailing on the merits. Allis-Chalmers Mfg. Co. v. White Consolidated Indus., Inc., 414 F.2d 506 (3rd Cir. 1969); Winkelman v. New York Stock Exchange, 445 F.2d 786 (3rd Cir. 1971); Nelson v. Miller, 373 F.2d 474 (3rd Cir. 1967). Finally, the parties agree, in general at least, with the advice offered by Judge Friendly in the following two quotations from Electronic Specialty Co. v. International Controls Corp., 409 F.2d 937 (2nd Cir. 1969): Probably there will no more be a perfect tender offer than a perfect trial. Congress intended to assure basic honesty and fair dealing, not to impose an unrealistic requirement of laboratory conditions that might make the new statute a potent tool for incumbent management to protect its own interests against the desires and welfare of the stockholders. These considerations bear on the kind of judgment to be applied in testing conduct — of both sides — and also on the issue of materiality. Id. at 948 (emphasis the court’s). [W]e think that in administering § 14(d) and (e), district judges would do well to ponder whether, if a violation has been sufficiently proved on an application for a temporary injunction, the opportunity for doing equity is not considerably better than it will be later on. The court will have a variety of tools usable at that stage. If the filings are defective or the tender offer misleading, the court can [for example] require correction, along, of course, with an opportunity to withdraw . Id. at 947. With these principles in mind, I turn to an analysis of the attacks on the Alaska and Energy offers. II. THE ATTACK ON THE ALASKA OFFER. A. The Alleged Failure To Adequately Disclose The Purpose of Alaska’s Offer. Energy and Apeo charge that Alaska’s amended tender materials violate the Williams Act in failing to adequately disclose Alaska’s plans in the event it secured control of Apeo. The Court finds this charge to be without foundation on the current record. In a section entitled “Purpose Of Offer”, Alaska discloses that it seeks "to acquire working control of” Apeo. It then states the following concerning its plans for Apeo in the event it secures control: Although the formulation of specific plans or proposals regarding the Company depends upon the results of this Offer and other factors, including the results of the Energy Offer and a combination of the Company and Energy proposed therein and a review of the Company’s business and corporate structure, if the Purchaser acquires control of the Company it presently intends to seek to effect a combination with the Company, sale or exchange of assets of the Company, liquidation of the Company, or acquisition of all or a portion of the remaining Shares through subsequent private or open market purchases or through further tender offers or through exchange offers. Any acquisition (including the purchase of additional Shares), merger or other combination or similar transaction between the Purchaser and the Company may be on terms different from those of this Offer. Such terms would be set with reference to market and other factors considered relevant by the Purchaser at the time and may include the payment of more or less cash, or other consideration having a greater or lesser value, than the price being offered hereby. As indicated above, the Purchaser does not have commitments for borrowings significantly greater than those required to purchase 1,200,000 Shares hereunder, and, accordingly, although the Purchaser does not presently have any definitive plan or arrangement, it has to date given primary consideration to the possible issuance of securities in contemplating any combination with the Company. Alaska’s materials thus reveal that it seeks a combination with Apeo and that, although no specific plan has been decided upon, “primary consideration” is being given to a combination involving the issuance of securities of Alaska. In mounting their offensive on this point, Energy and Apeo stress that Alaska is committed to purchase only 41% of the tendered Apeo stock and that, as a result, Alaska’s plans for a combination with Apeo are of critical importance to all Apeo stockholders, whether or not they ultimately decide to tender. In this context, they argue that Alaska should have disclosed that: (1) its overriding objective from the beginning has been to secure control of Energy, (2) it has formulated specific plans for an Apco-Alaska merger with a one-for-one common stock exchange ratio, a ratio which ascribes a value to Apeo shares at a price 35‘% below the tender price, and (3) it presently intends to effect a major change in the business of Energy if it secures control of that corporation. As will be discussed hereafter, the tender materials disclose Alaska’s interest in securing working control of Energy as well as its interest in securing working control of Apeo. The Court considers this disclosure adequate to permit the Apeo stockholders to make an informed decision without a recitation of the historical development of Alaska’s motivation in making the tender offer. While the second deficiency asserted by Energy and Apeo would be a more serious one if the record supported the allegation regarding the existence of a specific plan for an Alaska-Apeo merger, I conclude that the current record does not suggest the existence of such a specific plan. Alaska’s management, in their affidavits and depositions, deny that any decision has been made with respect to the terms of an Alaska-Apco combination and the documents and depositions reflect no meeting or discussion of the board or top management of Alaska in which such a decision was made. Moreover, since no timetable is reflected in the documents or depositions, and since the exchange ratio could well be effected by market changes in the interim (particularly in light of the competing tender outstanding at the time of Alaska’s amended offer), it is reasonable to think that no definite terms have been determined. Energy and Apeo assert, however, that Alaska was forced to formulate definite plans for an Alaska-Apco merger in order to secure credit for the proposed tender and that a series of documents which were submitted to the banks and relied upon by them disclose a specific plan. The documents referred to by the defendants do show financial figures reflecting a merger of Alaska and Apeo which would involve an exchange of Alaska common for the remaining 49% of the outstanding Apeo common stock. The Court believes defendants read too much into this fact, however. The tender materials did disclose a plan for a combination of the two corporations which would probably involve the issuance of Alaska securities. The relevant question is whether the bank documents evidence the existence of a definite plan for the terms of that combination. A June 5, 1975 “confidential” report reflecting a meeting of representatives of Alaska, its investment banker, Kuhn, Loeb, and its counsel, Milbank, Tweed, contain figures reflecting an AlaskaApco merger. The introductory language clearly indicates that the figures reflect possible merger terms. Three sets of figures are given assuming different market prices for Alaska stock. Each assumes a value for Apeo shares equal to the then contemplated tender price of $15.75 per share, $3.75 over the then market price of Apeo shares. Based on assumed Alaska market prices of $15.75, $17.00 and $20.00, respectively, the memo shows exchange ratios of 1:1, 1 :.926, and 1:.788. Under dates of June 12, 1975 and June 26, 1975, Alaska submitted “highly confidential” reports to the Chemical Bank and Bankers Trust Company, respectively. These reports were updated by a revised report of July 4, 1975, three days before the tender. These report financial data and projections for Alaska alone, Apeo alone, Energy alone, a combination of Alaska-Apco, and a combination of the three corporations. The figures reflecting a combination of Alaska and Apeo are based on the following assumption: Cash tender of $15.75 per share for 51% of [Apeo] . . . followed by merger of the remaining 49% on a one-for-one common share exchange. It is important to note three things about these bank documents: (1) the revised report of July 4, 1975, in setting forth its “assumptions and procedures”, expressly labels the 1:1 exchange ratio as “hypothetical only”, (2) the figures reflecting an ultimate combination of the three companies are calculated on the basis of assumptions of stated specific terms for the Energy acquisition as well as the Apeo one, and (3) the hypothetical Alaska-Apco combination is based on assigning a value to the remaining Apeo shares equal to the then contemplated tender offer price. The documents themselves, accordingly, evidence the hypothetical character of the terms assumed. In addition to the label placed on the exchange ratios, it is clearly unreasonable to suppose that, with all the water that would have to go over the dam prior to an Energy acquisition, management had decided upon specific terms for that transaction. Moreover, in light of the fact that the assumed value for Apeo shares in an Apco-Alaska merger was pegged to the then current tender price, the bank documents clearly do not support the argument that Alaska, at the time of its amended offer, intended a merger in which Apeo stockholders would receive 35% less than the tender price of the second Alaska offer. In this Court’s judgment, the bank documents do reflect a plan on the part of Alaska to acquire Apeo and Energy. They are entirely consistent, however, with the explanation given in the McCall affidavit and deposition that the figures submitted to the bank were for illustrative purposes only and do not demonstrate the existence of a management decision on the terms of either transaction. In every tender offer looking forward to a combination of the offeror and the target, the offeror conducts analyses to determine the feasibility of the tender plan. While every case must be judged on its own facts, when no specific terms for the combination have been decided upon, reference to possible terms, even if so labeled, will not ordinarily provide a basis for informed stockholder judgment and will hold some potential for miscommunication. In support of its third argument concerning Alaska’s statement of its purpose, Energy relies upon deposition testimony of Alaska’s chief executive officer of which the following excerpts are typical: Q And the first sentence says: I am concerned that the management policies that the joint venture group intended Energy follow — policies I testified to in Denver and which were a basis for the award of El Paso Pipeline assets to the joint venture group — have been and are being subverted by Energy’s present management. Could you tell me Mr. Honig, in what respects you thought that the policies to which you referred there were being, had been and were being subverted ? A One of the policy positions we took in the Denver court and were interrogated on at some length, as I recall, was that if we, the Apeo group, if we were the successful applicant, . we would advocate and follow a policy of not diversifying Northwest Pipeline. This was asked because my company as well as some of the others were diversified in varying degrees and the interveners, some of the interveners in that proceeding were interested in what our policy would be to not diversify Northwest Pipeline, to not — I have forgotten the term we used in the testimony, but to not dissipate the management of Northwest Pipeline by having it diversify info other areas of activity. It is my opinion that policy has not been followed. . Q Are there other activities of Northwest Pipeline and Northwest Energy that were undertaken prior to the tender offers that you would regard as having been contrary to the policy against diversification that you mentioned ? A Well, I think any activity that is not directly involved with procuring additional natural gas for the market areas to be served is not directly related to restoring competition or helping to restore competition to California is a diversification that we said we would not do because it takes money and management time. So all of the other activities that are not directly related to Northwest Pipeline’s serving the Northwest with natural gas would fall in that category. Q And the question is: If Alaska Interstate regains its influence in Energy, is it your intention, as chief executive officer of that company — • A Which company ? Q Alaska Interstate — to attempt to cause Northwest Energy, insofar as you are able to do so, to adhere to the policies that you have just described as being appropriate policies ? A Yes. The Honig deposition does reflect a difference between Mr. Honig and Energy’s present management about whether or not Energy should follow a course of diversification. This does not mean, however, that there is a material deficiency in Alaska’s statement of its purpose. First, the following disclosure is made in that statement: If the Purchaser acquires such control, it will consider and presently intends to seek, at an appropriate time, a combination of the Purchaser, the Company and Energy or a combination of any two of such companies, although there is no assurance that any such combinations will be achieved. In any such event, it is the Purchaser’s intent that Energy would continue as a separate entity devoted solely to supplying energy to Energy’s market area. . . Moreover, the only thing which gives the Apeo stockholders any interest in Alaska’s plans for Energy is the possibility of a combination of Alaska and Apeo or a combination of the three corporations. But, in either of these events, a present Apeo stockholder would wind up as a stockholder in a diversified enterprise and not as a stockholder in a “separate entity devoted solely to supplying energy to Energy’s market area.” B. Alaska’s Alleged Misrepresentation With Respect To Debt Service On The Loan Secured To Finance The Tender. Alaska’s tender materials reveal that “the [funds] . . . required by the Purchaser to purchase the Shares under this Offer . . . will be borrowed by. the Purchaser from a commercial bank under a loan agreement.” The materials then go on to describe the terms of the loan. In the course of this discussion, Alaska states: The purchaser anticipates that the cash generated from its operations for the term of the Loan Agreement will be sufficient to service the loan. Energy and Apeo charge that this statement is misleading. The Court concludes, however, that they have shown no probability of success in connection with this contention. In the Spring of 1974, Mr. Ross, then Assistant Vice President of Economics, in consultation with others members of Alaska’s top management, developed earnings and cash flow projections for Alaska for the period 1974 through 1979. These projections were utilized by Alaska’s management in its planning process and, on May 6, 1974, were submitted to Alaska’s banks in connection with a refinancing of Alaska’s bank debt. Given Alaska’s need in the Spring of 1974 to reestablish credibility with its banks, I find it reasonable to credit Mr. Ross’ statement that: . Considerable caution was exercised by the Company’s management in satisfying ourselves that we had built in enough conservatism in the aggregate to responsibly represent to our banks that the results were achievable, even when certain individual component inputs in the forecast for then unforeseen reasons might prove to be erroneous. From the Spring of 1974 through the first six months of 1975, Alaska’s actual earnings have exceeded the Ross earnings projections in each period. The forecasts and actual results for the full year 1974 and for the first six months of 1975 are as follows: May 6, 1974 Actual Better (Worse) Forecast Results than Forecast Full Year 1974 Net Income $3,577,000 $3,705,000 $128,000 First Half 1975 Net Income 3,142,000 3,234,000 92,000 John Kelsey, an Executive Vice President and Director of Blyth, Eastman, Dillon & Co., Incorporated, has analyzed the Ross projections and financial information of Alaska relevant to their evaluation. His firm has had no significant prior relationship with any party to this controversy. He has concluded: It is my understanding that the assumptions upon which the 1975 profit plan and the 1975-1980 cash flow projections are based were made in the spring of 1974. It is my opinion that these assumptions are reasonable and, in certain instances, conservative. Alaska has shown considerable financial improvement since December 31, 1973. It exceeded its earnings projection for 1974 and it has exceeded its 1975 profit plan for the first six months of 1975 by earning $3,234,000, 132% of the $2,459,000 which was budgeted for the six month period. As is typical of a company which is engaged in a variety of businesses, certain subsidiaries were over budget for these periods and others were under budget. The overall results, however, were significantly in excess of Alaska’s forecast for the period. Thus, according to its projections, Alaska would generate available cash flow during the 1975 to 1980 period in an amount which, in the aggregate, would be in excess of the debt service required on the $37 million loan during such period. I believe that Alaska could reasonably expect to generate internally the net cash flow necessary to repay the bank loan over its term. Members of the Kuhn, Loeb firm are on record with similar opinions and vouch for the acceptability of Ross’ methodology in approaching his task. The 1974 Ross projections provided the basis for the 1975-1980 cash • flow and earnings projections presented to the banks in connection with the refinancing of Alaska’s bank debt in the Spring of 1975 and in connection with the tender offer loan. The Chemical Bank people considered the forecasts to be within the realm of reason and the memorandum from those who examined the figures to the credit committee recited that “we have received company supplied projections which indicate more than adequate cash flows to pay the additional debt. Please see attached analysis for further details.” This is not to say that the entire record supports the view that Alaska will be able to service the tender offer debt from its own operations. Mr. Walter Lubanko of F. Eberstadt & Co., Apeo’s dealer-manager and financial advisor in connection with its tender offer, for example, finds Ross’ cash flow projections, and the earnings projections upon which they are based, to be unrealistic and unreliable. Both he and a statistician from Arthur Little have challenged the methods utilized by Ross. Moreover, the record shows that Bankers’ Trust discounted Alaska’s cash flow projection in the course of the analysis conducted by it before increasing its participation in Alaska’s bank debt. In sum, however, I believe that the current record establishes only that Alaska’s ability to service the tender loan is a subject on which reasonable men skilled in the field have differed. It does not suggest to me that there was no rational basis for the statement made in Alaska’s tender or that Alaska acted in bad faith in making that statement. Accordingly, I believe the relevant questions are: (1) whether one who makes a tender offer may make a good faith statement that it anticipates sufficient cash flow from its own operations under circumstances in which different analysts might reach different conclusions, and (2) if he may, may he do so without including the analysis which supports management’s opinion ? I conclude, that the first of these questions must be answered in the affirmative. Cash flow projection for a five year period is far from an exact science and it is to be expected that there will frequently be room for debate about such projections. Yet, whether or not management anticipates servicing the tender debt from its own operations is something that may be of significant interest to the target company’s stockholders. For this reason, I conclude that the offeror should not be precluded from making a good faith statement of its opinion on this subject merely because reasonable men could differ on the validity of management’s cash flow projections and the underlying assumptions. At the same time, I cannot accept the defendants’ contention that Alaska’s cash flow projections should have been provided for analysis by Apeo stockholders. The record in this case amply demonstrates that it is not practicable, at least in a case of this kind, to provide sufficient information in the course of a tender statement to allow a stockholder to intelligently assess the validity of such projections. C. Alaska’s Failure To Include Financial Information About Itself. Alaska’s tender materials include a section entitled “Certain Information With Respect To The Purchaser.” This section contains a general description of Alaska’s business operations, sets forth the name and business address and principal occupation of each of the officers and directors of Alaska and discloses certain information about the ownership of, and transactions in, Apeo stock by officers and directors of Alaska. In addition, this section discloses that Alaska is subject to filing requirements under the Securities Act “and in accordance therewith files reports and other information with the Commission relating to its business, its financial position and results of operations and other matters.” The tender materials then go on to state: Such reports, proxy statements and other information may be inspected at the Commission’s office in Room 6101, 1100 L Street, N.W., Washington, D.C. 20549, and copies thereof may be obtained upon payment of the Commission’s customary charges by writing to that office. Such material may also be inspected at the library of the NYSE, 20 Broad Street, New York, New York 10005, and at the library of the Pacific Stock Exchange, Inc., 301 Pine Street, San Francisco, California 94104. Energy and Apeo do not contest the accuracy of these statements; nor do they dispute that Alaska’s financial history for 1974 and prior years is readily available through Standard & Poor’s and other standard reference materials. While Apeo and Energy do not contend that anything expressly stated in the section about Alaska was affirmatively misleading, they nevertheless maintain that the disclosures therein are insufficient. Their position is that where (1) a tender is made for less than all of the outstanding stock of the target corporation, (2) the offeror proposes an acquisition of the target corporation for securities of the offeror, and (3) the offeror is in a precarious financial condition, a general statement of the offeror’s business is misleading in the absence of some more specific information about the offeror’s financial condition. With regard to the factual allegation that Alaska’s financial position is precarious, the record does establish that Alaska suffered losses in 1973 and has twice refinanced its bank debt since that time. It also establishes, however, that the refinancing in the Spring of 1975 was to take advantage of decreased interest rates and eased restrictions that the banks participating in that refinancing were willing to grant as a result of improved operating results. Even more significant, I believe, is the judgment of the market place. Energy’s Lubanko affidavit supplied the following information on price/earnings ratios: P/E El Paso 6.7x Mississippi River 4.3 No. Natural Gas 5.4 Panhandle 6.6 So. Natural Resources 8.7 Texas Gas Transmission 6.9 Tenneco 6.5 NWPC 4.3 Alaska 9.7 (Emphasis supplied) At its pre-tender price of 13the Apeo price/earnings ratio was 6 (Wall Street Journal, July 7, 1975). This is not to say that segments of Alaska’s operations do not have problems or that advisability of Alaska as an investment cannot be debated. The record does not, however, suggest to the Court that Alaska is generally in a precarious financial situation or that it has a specific problem of particular significance to the Apeo stockholders in determining their response to the competing tenders. Accordingly, this is not a situation where the general statement of the offeror’s business operations is misleading because it impliedly represents, contrary to the fact, that the offeror is a viable business organization and is not beset by any problem which casts in doubt its ability to consummate its offer. Accordingly, so far as the present record discloses, Apeo and Energy have no substantial prospect of success on this issue unless it can be said that the Williams Act is violated whenever one who tenders for less than all of the stock and proposes an acquisition of the target corporation for its own securities fails to provide its financials in the tender materials. Accordingly, I turn to that question of law. The Williams Act requires that a tenderor provide such information as the Commission shall require by regulation and, in addition, that it refrain from making any untrue statement of a material fact as well as refrain from omitting to state any material fact necessary in order to make the statements made not misleading. In a cash tender offer situation, as opposed to an exchange offer, the Commission has not required the inclusion of financials even though it has frequently been pointed out that such financials would be of some interest in making decisions with respect to the tender. An ability to make an evaluation of the general health of the tenderor and the quality of its management may well be of interest to the stockholder in a cash tender in deciding whether and to what extent he may be willing to cast his lot with the offeror’s plans for the future. On the other hand, where the offeror is making an offer to exchange its own securities for those of the target company, the SEC requires disclosure of financials because the stockholders have a specific and paramount interest in evaluating the consideration to be received if they tender. Arguably, the instant case is like an exchange situation because the tender offeror is saying, “tender and take cash or cash and securities in the event of pro-ration, or don’t tender and take securities.” The present situation is materially different, however, from the exchange offer one. No definite exchange ratio for the possible combination of Apeo and Alaska has been decided upon and it is impossible for the Apeo stockholders to evaluate the consideration they may receive for any shares not tendered or not purchased because of proration. As in other cash tender offer situations, the interest of Apeo stockholders in the financials of Alaska is necessarily limited to an interest in being able to evaluate the general health of Alaska and the quality of its management. Given (1) the judgment of the Commission and the apparent rationale for its distinction between cash and exchange offers, (2) the fact that financial information about Alaska sufficient for the purpose of general evaluation is readily available to Apeo stockholders, (3) the fact that nothing has been shown about Alaska’s recent history which would make the publicly available financials materially misleading, and (4) the fact that no affirmative representations were made with respect to Alaska’s financial history or prospects (other than an opinion with respect to debt service), I find no legal basis for implying a duty to include financials in Alaska’s tender materials. I have found no case which suggests that a contrary conclusion should be reached on the facts of this case. Interstate Brands Corporation v. D. P. F. Incorporated, No. 85 CV417W (W.D.Mo. June 23, 1975) lends some support to the result I here reach. In passing, I also note the fact that Energy, in its $20 offer for less than all of the Apeo stock, stated that it contemplated a combination with Apeo in which Apeo stockholders would receive common stock of Energy. Its tender materials contained a similar general description of Energy’s business, but contained no financial statements. Moreover, Apeo counterclaimed in this suit for an injunction against the Alaska tender but, while noting the existence of Energy’s $20 offer, did not seek to challenge it on the ground that financial information was not disclosed. The Court believes these facts reflect the general understanding in the securities industry regarding the position of the Commission in situations of this kind. D. The Alleged Failure To Reveal Substantial Obstacles To Alaska’s Acquisition Of Control Of Energy. Apeo and Energy maintain that there are three impediments to Alaska’s avowed intention to secure control of Energy which were either not disclosed or inadequately disclosed in Alaska’s tender materials. I discuss each in turn. 1. The New York Stock Exchange Agreement. On February 18, 1975, Alaska, Apeo, Gulf Interstate, and Tipperary Corporation executed a “Stock Ownership Agreement” in connection with their attempt to secure listing on the New York Stock Exchange for the Energy shares and the participation certifications of Energy. The Agreement provided in part: No party to this agreement will individually acquire in excess of 30% of the common stock of Energy. Apeo and Energy maintain that Alaska failed to disclose that its plans with respect to Energy would violate this agreement. The Court does not agree. An acquisition of Apeo by Alaska would result in Alaska holding only 15% of the common stock of Energy. As far as Alaska’s plans thereafter are concerned, the tender materials reveal that Alaska hopes to secure working control of Energy by virtue of this 15% and that it anticipates a possible combination of Alaska and Energy through “merger or consolidation.” Since 80% of the common stock of Energy is held by the voting trustee, Alaska has no reasonable expectation of obtaining more than 20% of the common stock of Energy at any time in the near future. As far as a possible merger or consolidation of Energy and Alaska are concerned, the New York Stock Exchange agreement would not be violated literally and the purpose of that agreement would not suggest that it was intended in spirit to foreclose such a combination. 2. The Joint Venture Agreement Restrictions On Combinations With Energy. Section D of the Joint Venture Agreement provides that: In view of the intent of the parties that New Company [Energy] shall operate as a separate entity, no party to this Agreement shall acquire the stock or assets of New Company by merger, reorganization, consolidation, exchange or otherwise (or merge, reorganize, consolidate into or sell its assets to New Company) without the written consent of the parties to this Agreement holding at least two-thirds of all stock in New Company then owned by the parties to this Agreement.- Apeo and Energy assert that if Alaska is permitted to consummate its tender and its proposed acquisitions, Alaska will violate its duty under this provision because of the underlying intent to keep Energy as a separate entity. The Court finds this argument unpersuasive. Sections C and D of the joint venture agreement clearly contemplate that a joint venturer may acquire the stock of other joint venturers and may acquire Energy with the approval of two-thirds in interest of the joint venturers. Alaska’s tender materials expressly disclose that the acquisition of Energy by Alaska would require the approval of two-thirds in interest of the joint venturers, i. e. Alaska and Apeo. Moreover, contrary to the contention of Energy and Apeo, I find that the joint venture agreement clearly contemplates that Alaska can exercise its vote under this provision of the joint venture agreement in accordance with what it perceives to be Alaska’s own interest without violating any fiduciary obligation to the other joint venturers. I say this because the agreement clearly contemplates that there may be a transaction involving the acquisition of Energy’s stock or assets despite minority dissent. 3. The Voting Trust And Joint Venture Agreement As They Relate To Control Of Energy. Finally, Energy contends that Alaska failed to adequately disclose the impediments posed by the voting trust and joint venture agreements to its achieving the goal of working control of Energy. This is said to be a material omission since this goal was disclosed in Alaska’s tender materials and might well influence a stockholder to tender or not tender, depending upon his view of the merits of this proposal, or, if he approves it, to encourage him either to tender some of his stock to Alaska or accept the risk of proration with Alaska rather than with Energy. An understanding of Energy’s argument requires some additional background. In the Spring of this year, Robert Baldwin, a director of Energy, announced his intention to resign. Alaska took the position that he had been on the board as its designee pursuant to Section A(4) of the original Joint Venture Agreement which provided that “the parties’ respective interests shall be entitled to representation on the Board of Directors of the New Company in the same relative proportions as their stock ownership is to that of the other parties hereto.” Accordingly, Alaska proposed a replacement to fill the vacancy created by Mr. Baldwin’s resignation. This action spawned a number of requests to counsel regarding the effect of the Joint Venture Agreement. Energy received two opinions of Cahill, Gordon & Reindel, its counsel. The first, dated April 24, 1975, expressed the view that the directors of Energy had a duty to exercise their own best judgment and could not be compelled to elect the proposed nominee. The second opinion expressed the additional view, based on a detailed review of the original agreement and the subsequent amendment thereto, that Section A (4) had been intended to apply only until the successful applicant had been chosen by the Colorado Court and had been superseded by the provisions of the first amendment in which the parties agreed upon a stated list of individuals who would constitute the Pipeline Board following acquisition of the PNW assets. Mr. Honig has acknowledged that he received copies of these opinions prior to the issuance of the tender offer materials here under attack. Apeo secured an opinion, dated May 14, 1975, from Fullbright & Jaworski which expressed a different view of the effect of the joint venture agreement. It conceded that there was support in that document for the view that Section A (4) had been superseded, but stated the opinion that it had not, and that the designees of the Apeo Group on the Energy Board had an implied obligation to vote in “such a manner as to effect the intent of the agreement regarding relative representation on the board.” The opinion noted, however, that “with Mr. Baldwin’s resignation, it would appear that there . . . [were] five ‘representatives’ of the Apeo Group on the board [e. g. Alaska 1, Apeo 2, Gulf 1 and Tipperary 1] and six members of the board who were not ‘representatives’ of the Apeo group.” The opinion, therefore, concluded that the Apeo Group representatives could not carry the day on filling the vacancy or in directing the vote of the voting trustee at the next election of directors. While the record is not clear about just who on the Energy Board are designees of the Apeo Group, it is clear from contemporary documents that the members of the Apeo Group contemplated from the outset that there would be outside representation on the Board. Neither Alaska’s initial designee for the vacancy nor two other subsequently suggested alternative designees were elected by the Energy Board to fill the vacancy. Indeed, Mr. Honig could not get a second for any of his nominations at the July 8,1975 meeting. These opinion letters reflect the fact, also evident to the Court from a review of the relevant documents, that Alaska’s amended tender materials were issued at a time when there was a substantial dispute on several questions: (1) Was the proportional representation clause of the original agreement still in effect? and (2) Even if it was, would it nevertheless not enable a member of the Apeo Group holding a majority of the Apeo Group’s stock to elect a majority of Energy’s Board (a) because the discretion of the present board could not be legally bound, (b) because the present directors, even if bound, were bound only to maintain proportional representation vis-a-vis the other members of the Apeo Group, or (c) because less than a majority of the board had an obligation under the Joint Venture Agreement? Alaska has vigorously asserted that these are frivolous questions conjured up by counsel for interested parties and that the Colorado Court which approved the original arrangement intended control of Energy by the Apeo Group and did not intend control by a self-perpetuating board. Energy, on the other hand, points with equal fervor to, among other things, the fact that the Voting Trust Agreement did not call for the trustee to vote at the direction of the members of the Apeo Group, as it might have done, but rather at the direction of the Energy board, which, it is said, has a fiduciary duty to all holders of Energy stock and Energy voting trust certificates. It is neither necessary nor appropriate for me in the present context to resolve this dispute between the parties. The critical facts for present purposes are that at the time of Alaska’s tender (1) the ability of the holder of a majority of the Apeo Group’s stock to secure working control of Energy turned on substantial and litigable questions, and (2) at least a majority of Energy’s present board, in the Baldwin matter, had acted in a manner which indicated that they would not voluntarily accede to Alaska control of Energy in the event it acquired Apco’s Energy stock. I agree with Energy’s position that these were material facts. At the time of the Alaska offer, it appeared that substantial litigation stood between it and its stated'goal of control of Energy and that there could be no assurance that that litigation would be successful. I, accordingly, turn to the Alaska materials to determine the adequacy of their disclosure in this area. The Alaska tender revealed the existence of the Voting Trust Agreement and the identity and holdings of the present Energy, stockholders. It then stated: The 20% of Energy’s stock owned by the members of the Group is subject to a joint venture agreement which provides, among other things, for representation of the members of the Group on the board of Energy in proportion to their holdings in Energy, although the board is presently not so constituted. Mr. O. Charles Honig, the Chairman of the Board, President and Chief Executive Officer of the Purchaser, [Alaska], is a director and Chairman of the Executive Committee of Energy, and three persons who were or are directors of the Company [Apeo] are directors of Energy, and a fourth director of the Company, its Chairman, is a special consultant to the board of directors of Energy. The voting trust agreement provides that the voting trustee thereunder will vote the stock of Energy only as directed by the board of directors of Energy. In making this Offer, the Purchaser is also seeking to acquire control of the Company’s interest in Energy which acquisition would be consistent with the provisions of the joint venture agreement. . . . Although it is not certain because of apparent inconsistencies between the joint venture agreement and the voting trust agreement, the total of 15% of Energy stock that would be directly and indirectly controlled by the Purchaser should, through the vehicle of the voting trust, provide the Purchaser with effective control of Energy as well, since control of 15% of the stock of Energy should enable the Purchaser to elect at least a majority of the board of Energy. It is fair to say that Alaska’s tender materials convey the impression that, while not a certainty, acquisition of Apco’s Energy shares should, through the vehicle of the voting trust, enable Alaska to obtain effective control of Energy. While it is also revealed that there were currently differences between Energy’s Board and Mr. Honig and that Energy was itself tendering for Apco’s stock and resulting control of Apco’s Energy stock, nowhere is it disclosed in Alaska’s tender that Energy’s present board, whose directors the voting trustee was directed to follow by the Voting Trust Agreement, did not share Alaska’s view that control of Apco’s Energy shares “should, through the vehicle of the voting trust, provide [Alaska] with effective control of Energy as well.” Energy is substantially larger than either Alaska or Apeo both in terms of assets and earnings. In view of Alaska’s stated goal of acquiring control of Energy, the potential for achieving this goal would be a significant consideration to an Apeo stockholder in deciding how to react to the competing offers. Accordingly, the position of the Energy Board and the probability of litigation before control of Energy could be secured was something to which “a reasonable man would attach importance [to them] in determining his choice of action in the transaction in question.” Rochez Bros., Inc. v. Rhoades, 491 F.2d 402, 408 (3rd Cir. 1974); Mayer v. Development Corporation of America, 396 F.Supp. 917 (D.Del.1975). Alaska’s tender was materially deficient in these respects. E. The Alleged Inadequate Disclosure Concerning The Buy-Sell Agreement. Alaska’s tender materials make the following disclosure with respect to a buy and sell provision of the Joint Venture Agreement: The joint venture agreement also provides that either of the Purchaser [Alaska] or the Company [Apeo] may notify the other of a price for its Energy stock and that upon the giving of such notice the recipient thereof has 90 days in which to elect to sell to the other the Energy stock which it holds or to buy from the other that person’s Energy stock, in either case at the price specified in the notice. Neither the Purchaser nor the Company, therefore, may be assured that it may acquire the other’s stock interest in Energy if it were to initiate this procedure. In making this Offer, the Purchaser is also seeking to acquire control of the Company’s interest in Energy which acquisition would be consistent with the provisions of the joint venture agreement. Control of the Company would permit the Purchaser to control the operation of the foregoing buy-sell agreement. . . . Energy and Apeo do not maintain that this disclosure misdescribes the rights of the parties under the Joint Venture Agreement. Rather, they maintain that it is inadequate because it does not specifically reveal that Alaska’s control of Apeo would permit the exercise of rights under the buy-sell agreement so as to benefit Alaska at the expense of Apeo. It seems to the Court, however, that the risk to Apeo inherent in this buy-sell agreement, in the event Alaska acquires control of Apeo, is adequately revealed. F. The Failure of Disclosure With Respect to Regulation T. Apeo and Energy urge in support of their respective motions that the Alaska tender offer is materially misleading in that it fails to disclose that the tender offer financing had been arranged in violation of Regulation T, 12 C.F.R. § 220. Since this argument is predicated upon the actual existence of a violation of Regulation T, it is appropriate to determine whether the record suggests that such a violation has occurred. Apco and Energy maintain that Alaska’s investment advisor, Kuhn, Loeb & Co. (“Kuhn, Loeb”), arranged the tender offer financing in contravention of the regulation’s prohibition of such conduct by a broker-dealer. Section 7(c) of the Securities Exchange Act of 1934 makes it unlawful for a broker or dealer to extend, or arrange for the extension of, credit without collateral or in contravention of the margin regulations promulgated by the Federal Reserve Board under the authority of Section 7. Regulation T, in turn, prohibits a broker-dealer from extending credit or arranging for the extension of credit collateralized by securities not listed on a national securities exchange. 12 C.F. R. § 220.109. Since Alaska’s tender offer financing is either unsecured or secured in part by unregistered securities, it is clear that Regulation T and Section 7(c) of the '34 Act have been violated if Kuhn, Loeb “arranged” the loan from Chemical Bank (“Chemical”). The central legal question raised by defendants’ charge is the scope of the term “arranging” as used in Regulation T. Apeo and Energy jointly contend that any activity of a broker related to an extension of credit by another constitutes “arranging” unless the broker’s sole “function, activity, or connection . is to execute the customer’s orders and follow the customer’s instructions as to the delivery of securities and receipt of payment,” citing In the Matter of Sutro Bros. & Co., 41 S.E.C. 443, 452 (1963). Alaska, on the other hand, argues that there can never be a finding of “arranging” absent an affirmative showing that the credit would not have been extended “but for” the broker’s participation. According to Alaska, if credit would have been forthcoming anyway, a broker cannot have “arranged” the credit, regardless of the nature or degree of the actions undertaken by the broker. While I believe Alaska is closer to the mark, I am unable to accept either view. It is clear that certain types of conduct by a broker in connection with an extension of credit constitute arranging. For example, the negotiation of a loan by a broker for its customer has been characterized in an SEC letter ruling as falling within the class of activities that constitute arranging. Broker’s Arranging of Credit, CCH Fed.Sec.L.Rep. ¶[ 79,464 at p. 83,299 (Aug. 3, 1973) [1972-73 Transfer Binder]. See also In the Matter of Sutro Bros. & Co., 41 S.E.C. at 456. Similarly, the Federal Reserve Board has opined that a broker-dealer who proposed the completion of credit applications and promissory notes on behalf of its customers and, when executed, their submission to a bank having no preexisting relationship with the would-be borrowers, would be acting in violation of Reg.T. 12 C.F.R. § 220.109. Neither of these opinions addresses itself to whether the credit would have been extended “but for” the broker’s activities. Initiating contact with the lender and negotiating the loan present such a substantial risk of bringing about an extension of credit which the broker could not himself extend, that the agencies responsible for the interpretation and enforcement of Section 7 apparently consider such activities per se violations. It seems to the Court, however, that these agencies have taken a different view with respect to other broker-dealer activities less directly related to the extension of credit and, as will be discussed more fully hereafter, that the distinction seems warranted in light of the purposes of Section 7 and Regulation T. Compare 12 C.F.R. § 220.109 and In the Matter of Sutro Bros. & Co., 41 S.E.C. 443 (1963) with Junger v. Hertz, Neumark & Warner, 426 F.2d 805 (2nd Cir. 1970). The Sutro Bros, decision, rather than supporting defendants’ somewhat draconian interpretation of arranging, expressly refused to adopt a standard whereby any acts by a broker for the purpose of assisting his customer in obtaining credit would constitute arranging. 41 S.E.C. at 451-2. Instead, the SEC, deeming it unnecessary to define the various situations short of initiation or negotiation that might involve a broker in unlawful arranging, stated that: “ . . .we think it clear that when a broker permits himself to become the intermediary between customer and factor with respect to the customer’s account or dealings with the factor, as by conveying the customer’s communications or instructions to the factor or by responding to requests or directives of the factor concerning the customer’s transactions, the broker becomes so involved in the extension or maintenance of credit for the customer by the lender as to be held to be arranging. These are activities in relation to the credit absent which the credit would not be supplied by the factor.” Id. at 457 (emphasis supplied). See also In the Matter of Russell L. Irish, 24 S.E.C. 777, 780 (1965), CCH Fed.Sec.L.Rep. ¶ 77,297 [1964-66 Transfer Binder]. This approach, whereby the degree of the broker’s participation and its propensity to cause an extension of credit in a situation where credit might not otherwise be extended, has been followed by courts faced with challenges to activities allegedly conducted in violation of Regulation T. See, e. g., Junger v. Hertz, Neumark & Warner, 426 F.2d 805 (2nd Cir. 1970). But cf. Weiss, Registration and Regulation of Brokers and Dealers, 77, n. 28 (1965 ed.). Regulations, like statutes, should be interpreted in a manner designed to effectuate their underlying purpose. This principle, which has been given express recognition by the Federal Reserve Board in its interpretations of Regulation T, see 12 C.F.R. § 220.119 citing United States v. American Trucking Ass’n, 310 U.S. 534, 60 S.Ct. 1059, 84 L.Ed. 1345 (1940), and 2 J. Sutherland, Statutes and Statutory Construction, Chap. 45 (3d ed. 1943), necessitates an examination of the purposes underlying Regulation T and Section 7(c) of the ’34 Act. Comment, “Application of Margin Requirements to the Cash Tender Offer.” 116 Pa.L.Rev. 103, 112-116 (1967). See generally, Karmel, “The Investment Banker and the Credit Regulations”, 45 N.Y.U.L.Rev. 59 (1970). There appear to have been three rationales for Congress’ decision to include credit controls in the Securities Exchange Act of 1934. 2 L. Loss, Securities Regulation § 1242-3 (1961 ed.); Comment, 116 Pa.L.Rev. 103, 114-5 (1967). “First, it intended to limit and control speculation which diverted credit resources into the stock market. .” Id. at 114. Second, there was Congressional solicitude for the “lamb”, the small investor who purchased securities on an extremely thin margin, such that “a person cannot get in the market on a shoe string one day and be one of the sheared lambs when he wakes up the next morning.” 78 Cong.Ree. 7700 (1934). And see authorities cited in Comment, 116 Pa.L.Rev. at 114, n. 65. Third, Congress was concerned with undue market fluctuations caused or exacerbated by the presence of exc