SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
February 18, 1999
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(Date of earliest event reported)
AMP Incorporated
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(Exact Name of Registrant as Specified in its charter)
Pennsylvania 1-4235 23-0332575
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(State or Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) Identification No.)
P.O. Box 3608, Harrisburg, Pennsylvania 17105-3608
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(Address of principal executive offices, including zip code)
717) 564-0100
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name or former address, if changed since last report)
Item 5. Other Events.
On February 18, 1999, the United States Court of Appeals for the Third
Circuit issued an opinion with respect to the appeal of AlliedSignal Inc.
and PMA Acquisition Corporation (collectively "AlliedSignal") of the
November 18, 1998 ruling of the United States District Court for the
Eastern District of Pennsylvania regarding the shares of common stock of
AMP Incorporated ("AMP") purchased by AlliedSignal. In the November 18,
1998 ruling, the District Court found that the shares of AMP common stock
acquired by AlliedSignal were "control shares" within the meaning of the
applicable Pennsylvania statute, and enjoined AlliedSignal from voting the
shares unless and until voting power is restored in accordance with the
statute.
On February 18, 1999, the Court of Appeals reversed the District
Court's order and remanded the case for further proceedings consistent with
its opinion. The Court of Appeals found that AlliedSignal had not made a
control share acquisition and therefore is not disabled from voting the
9.1% of AMP's common stock which it acquired.
The foregoing description of the order of the Court of Appeals does
not purport to be complete and is qualified in its entirety by the copy of
the opinion of the Court of Appeals filed as Exhibit 99.1 to this Current
Report on Form 8-K and is incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
Exhibit No. Description
99.1 Opinion of the United States Court of Appeals for the Third
Circuit in AMP Incorporated v. AlliedSignal Inc., et. al.
(No. 98-2019), filed February 18, 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
AMP Incorporated
By:/s/ David F. Henschel
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Name: David F. Henschel
Title: General Counsel and
Corporate Secretary
Dated: February 24, 1999
EXHIBIT INDEX
Exhibit No. Description
99.1 Opinion of the United States Court of Appeals for the Third
Circuit in AMP Incorporated v. AlliedSignal Inc., et. al.
(No. 98-2019), filed February 18, 1999.
Exhibit 99.1
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 98-2019
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AMP INCORPORATED
v.
ALLIEDSIGNAL CORPORATION;
PMA ACQUISITION CORPORATION
AlliedSignal Inc. and PMA
Acquisition Corporation,
______ Appellants
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civ. No. 98-4405)
District Judge: Honorable James T. Giles
______
Argued January 20, 1999
BEFORE: GREENBERG, ALITO, and McKEE, Circuit Judges
(Filed: February 18, 1999)
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Jon A. Baughman (argued)
Seth A. Abel
Peter O. Clauss
Pepper, Hamilton & Scheetz
18th & Arch Streets
3000 Two Logan Square
Philadelphia, PA 19103-2799
John G. Harkins, Jr.
Gay P. Rainville
Eleanor M. Illoway
Harkins Cunningham
2005 Market Street
2800 One Commerce Square
Philadelphia, PA 19103
Attorneys for AMP Incorporated
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Alexander R. Sussman (argued)
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
Arlin M. Adams
Schnader, Harrison, Segal & Lewis
1600 Market Street
Suite 3600
Philadelphia, PA 19103
Mary A. McLaughlin
George G. Gordon
Dechert, Price & Rhoads
1717 Arch Street
400 Bell Atlantic Tower
Philadelphia, PA 19103
Attorneys for AlliedSignal,
Inc. and PMA Acquisition Corp.
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OPINION OF THE COURT
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GREENBERG, Circuit Judge.
I. INTRODUCTION
AMP Incorporated brought suit under the Pennsylvania Business
Corporation Law ("PBCL"), 15 Pa. Cons. Stat. Ann. Section 2501 et seq.
(West
1995), alleging that 20,000,100 shares of AMP stock acquired b
AlliedSignal, Inc., amounting to 9.1% of outstanding AMP stock, are control
shares within the meaning of the portion of the PBCL commonly known as the
Control Share Acquisitions Statute, 15 Pa. Cons. Stat. Ann. Sections 2561-
68 (the "Statute"). AMP charged that because of a voting disqualification
in the Statute, AlliedSignal could not vote those shares. The district
court, construing the Statute, concluded that, although AlliedSignal's
acquisition totaled less than 20% of the outstanding AMP stock, the
numerical threshold for the voting disqualification, the Statute requires
that shares bought with the intent to make a "control share acquisition" as
defined by the Statute are "control shares," and so lose voting rights
unless restored as provided in the Statute. Therefore, the court enjoined
AlliedSignal from voting its Shares. AlliedSignal and its subsidiary used
in acquiring AMP shares, PMA Acquisition Corporation, appeal. We conclude
that there must be a "control-share acquisition" triggered upon actual
acquisition of at least 20% of the outstanding shares by an acquiring
person before voting shares may be deemed "control shares." Consequently,
we will reverse.
II. FACTUAL AND PROCEDURAL HISTORY
AMP is a Pennsylvania corporation which designs, manufactures and,
on a worldwide basis, markets electronic, electrical and electro-optic
connection devices, interconnection systems and connector assemblies. Its
principal place of business is in Harrisburg, Pennsylvania, and it is a
registered corporation within the meaning of Section 2502 of the PBCL, 15
Pa. Cons. Stat. Ann. Section 2501 et seq. Allied Signal is a Delaware
corporation with its principal place of business in Morristown, New Jersey,
and is the beneficial owner of 20,000,100 AMP shares, or 9.1% of AMP's
outstanding stock, having bought those shares intending to acquire AMP.
AlliedSignal is an advanced technology and manufacturing company with
worldwide operations in the aerospace, automotive and engineered materials
businesses.
In August 1998, AlliedSignal began to make overtures to AMP for a
negotiated merger transaction. On August 4, 1998, AlliedSignal announced
that it would commence an unsolicited tender offer for all of the
outstanding shares of the common stock of AMP and would seek to merge the
two companies. On August 10, 1998, AlliedSignal filed a tender offer
statement on Schedule 14D-1 with the Securities Exchange Commission setting
forth the terms of the tender offer and other information.
On August 21, 1998, the AMP directors formally rejected
AlliedSignal's offer, and filed a complaint in the district court against
AlliedSignal and PMA Acquisition Corporation. While this appeal involves
only state law issues, the overall action also includes federal issues, so
that the district court had jurisdiction under 28 U.S.C. Sections 1331,
1332 and 1367. In light of AMP's opposition, AlliedSignal amended its
offer to reduce the number of shares it sought to 40,000,000, the
approximate number it could acquire without triggering AMP's then-existing
"poison pill." On September 21, 1998, after AMP's board reduced the share
ownership threshold for triggering the "poison pill" from 20% to 10%,
AlliedSignal amended its offer again to reduce the number of shares sought,
this time to 20,000,000, or approximately 9.1% of all AMP shares
outstanding. The next day AMP amended its complaint to add, among other
charges, Count Four, the subject of this appeal.
In Count Four AMP alleged that the shares which AlliedSignal
proposed to buy pursuant to the amended tender offer are "control shares"
because AlliedSignal had announced its offer to purchase all AMP shares.
Thus, AMP argued that in view of the statutory voting disqualification,
AlliedSignal could not vote the shares it proposed to buy. On October 9,
1998, after the expiration of its amended tender offer, AlliedSignal
purchased 20,00,000 shares of AMP stock at a cost of $890 million. Because
AlliedSignal earlier had purchased 100 shares of AMP stock, AlliedSignal
was and is now the beneficial owner of 20,000,100 shares of AMP stock or
9.1% of AMP's outstanding shares.(1)
On October 15, 1998, AMP moved for partial summary judgment on
Count Four of its first Amended Complaint. In particular, it sought a
declaratory judgment that AlliedSignal's shares in AMP are "control shares"
as defined by the Control Share Acquisitions Statute and an injunction
barring AlliedSignal from voting any AMP shares unless and until
AlliedSignal obtains a restoration of its voting rights in accordance with
the Statute. AlliedSignal cross-moved on October 29, 1998, for partial
summary judgment against AMP dismissing Count Four on the grounds that the
shares it had acquired were not "control shares" and that their acquisition
thus had not triggered a loss of voting rights. A hearing was held on
November 4, 1998, and on November 18, 1998, the district court issued a
Memorandum Opinion and Order granting AMP's motion for partial summary
judgment on Count Four and denying AlliedSignal's cross-motion. Thus,
AlliedSignal, AMP's largest shareholder, cannot vote its shares of AMP with
respect to the consent solicitation as well as any issues voted upon at the
annual 1999 shareholders meeting, including a potential merger between AMP
and Tyco International, Ltd., announced by AMP on November 22, 1998.
AlliedSignal and PMA Acquisition Corporation filed their notice of appeal
on November 23, 1998. We have jurisdiction under 28 U.S.C. Section
1292(a)(1) and, because we decide this case through the application of
legal principles, we exercise plenary review. See AT&T Co. v. Winback and
Conserve Program, Inc., 42 F.3d 1421, 1427 (3d Cir. 1994). In this regard,
we point out that the district court did not suggest that it predicated the
injunction on any basis other than its construction of the Statute.
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(1) The parties agreed at the oral argument before us that AlliedSignal
is the beneficial owner of all of those shares, contrary to the
discussion in the district court's Memorandum Opinion and Order, which
stated that "[b]eneficially owned shares . . . carry a rebuttable
presumption that they are control shares," while "[t]here is no such
rebuttable presumption . . . covering the voting shares actually
owned . . ." We believe that the district court's reading of beneficial
ownership was incorrect as such ownership clearly includes outright
ownership.
III. DISCUSSION
Pennsylvania's 1990 Control Share Acquisitions Statute, Chapter 25,
Subchapter G of the PBCL, 15 Pa. Cons. Stat. Ann. Sections 2561-68,
requires that tender offers be subject to shareholder approval at a
meeting. This complex statute was one of many similar state laws passed
beginning in the 1980s to protect businesses from certain abusive and
manipulative practices of corporate raiders. See S. Wallman and L. Gordon,
Pennsylvania's Anti-Raider Legislation, 4 No. 8 Insights 38 (Aug. 1990).
The Statute treats a person's acquiring voting power over 20% of
the voting shares of a corporation as a fundamental corporate transaction
requiring prior shareholder approval. Specifically, while not limiting a
purchaser from acquiring shares, the Statute provides that "control shares"
may not be voted until the shareholders grant approval. Control shares are
defined as voting shares providing a person with voting power in three
specified ranges, beginning with 20%. Control shares also include shares
owned by an acquiring person purchased with the intent of making a control-
share acquisition or purchased within 180 days prior to that person's
making a control-share acquisition.
We think that the clearest reading of this rather confusingly-
drafted statute is that an "acquiring person" loses its right to vote its
shares when it actually acquires enough shares to bring its total shares
beneficially owned to or above one of the statutory thresholds of voting
power, starting at 20%. The parties agree that AlliedSignal is an
"acquiring person" as defined by the Statute: a "person who makes or
proposes to make a control-share acquisition." 15 Pa. Cons, Stat. Ann.
Section 2562.
A "control-share acquisition" is defined in section 2562 as
An acquisition . . . that, but for this subchapter, would, when
added to all voting power of the person over other voting shares
of the corporation . . . entitle the person to cast . . . [votes
in these ranges]: (1) at least 20% but less than 331/3%, (2) at
least 33 1/3% but less than 50%, or (3) 50% or more.
AMP concedes that under the statutory definition there has not been a
"control-share acquisition" in the sense of AlliedSignal's reaching a
statutory threshold for it has not acquired 20% of AMP's shares. Br. at
10. However, in effect, AMP is arguing that the definition of "control
shares" operates such that an "acquiring person" can have its "control
shares" stripped of voting power without having made an actual "control-
share acquisition."
The appeal largely boils down to how "control shares" is defined in
Section 2562.
The two-sentence provision defines "control shares" as:
Those voting shares of a corporation that, upon acquisition of
voting power over such shares by an acquiring person, would
result in a control-share acquisition. Voting shares
beneficially owned by an acquiring person shall also be deemed to
be control shares where such beneficial ownership was acquired by
the acquiring person:
(1) within 180 days of the day the person makes a control-share
acquisition; or
(2) with the intention of making a control-share acquisition.
15 Pa. Cons. Stat. Ann. section 2562 (emphasis added).
The trouble lies in subsection (2) of the second sentence, which
the district court held to mean that if an acquiring person has bought
shares with the express intention of buying more shares to make a control-
share acquisition, those shares already acquired are "control shares." But
the use of the past tense in the second sentence-- "was
acquired . . . . wit
the intention" and the use of the word "deemed,"
suggest that the subsectio
looks backward in time, so as to be applied to
those shares an acquiring
person buys which, when added to those it already
purchased, bring its
beneficial ownership to the 20% threshold. The
previously-acquired shares
would be "deemed" retroactively to be "control
shares" and covered under
subsection (2), when, as here, they were
"acquired . . . . with the intentio
of making a control-share
acquisition." Thus, when the acquiring person's
holdings actually reach
the 20% threshold, all of the stock it has acquired
even that acquired
before it reached the threshold, is deemed "control share
stock, since,
under the first sentence of the definition, the acquiring perso
now has
made a "control-share acquisition." The inclusion of the second
sentence
shows that those last shares which one buys to reach the 20%
threshold are
not the only ones that are "control shares" subject to the
voting
disqualification; rather, all those shares purchased within the
previous
180 days and those bought at any time in the past with intent to
make a
"control-share acquisition" are subject to the disqualification.
In this regard, we point out that the Control Share Acquisitions
Statute is set forth in a subchapter in the PBCL entitled "Control-Share
Acquisitions": our conclusion reconciles the statutory definition of
"control-share acquisition," which sets forth the three acquisition
thresholds, with the rather complicated definition of "control shares."
The district court's construction of "control shares" is difficult to
harmonize with the 20%, 331/3 and 50% acquisition triggers, since under its
view intent alone could create control shares where there is no actual
control-share acquisition or where the acquiring person has accumulated
only a small number of shares in the company to be acquired. We recognize,
of course, that the definition of "acquiring person" includes a person who
"proposes to make" a control-share acquisition. 15 Pa. Cons. Stat. Ann.
Section 2562. The district court used this definition as evidence that
shares one buys with intent to make a later control-share acquisition are
control shares. Nevertheless, we believe that the critical issue is how to
reconcile the definitions of "control shares" and "control-share
acquisition." Our definition of "control shares" accords with the
definition of "acquiring person" in that AlliedSignal, which does intend to
make a control-share acquisition in the future, may be an "acquiring
person" without its shares being stripped of voting rights when numerically
they do not even approach the 20% threshold.
Applicable legislative history is sparse, but we believe that the
evidence suggests that the Statute was intended to "kick in" once an actual
threshold has been reached. The Draftsmen's Comment states that the term
"control-share acquisition"
utilizes the concept of voting power in three specified ranges,
beginning with 20% . . . . In many instances a much lower
percentage could be utilized as the percentage at which control
could be affected, but for purposes of the subchapter and its
general applicability to corporations the 20% threshold was
selected.
Draftsmen's Comment to Section 2562, at 477, 2 Zeiter, Pennsylvania
Associations Code and Related Materials (West 1992).
We believe that the whole Statute must operate with the definition of
"control-share acquisition" and its specified thresholds kept in mind. The
various provisions and definitions must be read together in harmony.
Furthermore, it seems clear that Pennsylvania's Statute, like those
of other states, was modeled upon Indiana's, which is triggered by actual
share acquisitions of 20% of outstanding stock. See, e.g., Ind. Code Ann.
Section 23-1-42-1; N.C. Gen. Stat. Section 55-9A-01; Neb. Rev. Stat. Section
21-2439.(2) The Draftsmen's Comment to section 2562 shows that the Draftsmen
did have the anti-raider laws of other states in mind ("the 20% threshold
is within the range of levels set in similar statutes in other states").(3)
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(2) Under Pennsylvania law, we may consider similar statutes of other
jurisdictions in construing the Statute. General Elec. Envtl. Serv.,
Inc. v. Envirotech Corp., 763 F. Supp. 113, 118-19 (M.D. Pa. 1991).
(3)
See also April 23, 1990 Pennsylvania Senate Journal at 1947 (Comments
of Senator Wenger) (statute bars "a raider who acquires more than 20
percent of a company from voting [its] shares to change corporate
control without the approval of the remaining shareholders").
AMP admits that under Indiana's law, AlliedSignal would prevail.
Br. at 29. Indiana explicitly covers those shares which "added to all
other shares" reach the 20% threshold "immediately after" they are
bought. Inc. Code Ann. Section 23-1-42-1 (quoted below). AMP has not
offered any indication that the Pennsylvania legislators intended a
departure from the norm of Indiana and other states, which require reaching
an actual threshold before voting shares are disenfranchised. AMP argues
that the Pennsylvania statute was intended to be different from the Indiana
statute because the definitions of "control share" differ. Br. at 29. AMP
focuses upon the fact that the Indiana statute's definition of "control
shares" stops without a second sentence comparable to that in
Pennsylvania's Statute. "Control shares" are defined in Indiana as:
shares that, except for this chapter, would have voting power
with respect to shares of an issuing public corporation that,
when added to all other shares of the issuing public corporation
owned by a person or in respect to which that person may exercise
or direct the exercise of voting power, would entitle that
person, immediately after acquisition of the shares (directly or
indirectly, alone or as a part of a group), to exercise or direct
the exercise of the voting power of the issuing public
corporation in the election of directors within any of the
following ranges of voting power:
(1) One-fifth (1/5) or more but less than one-third (1/3) of all
voting power.
(2) One-third (1/3) or more but less than a majority of all
voting power.
(3) A majority or more of all voting power.
Ind. Code Ann. section 23-1-42-1.
Inasmuch as AMP recognizes that under the Indiana statute, AlliedSignal's
stock would not be control shares, AMP's argument hinges upon the
Pennsylvania statute's inclusion of subsection (2) of the second sentence
of the definition of "control shares": AMP argues that this language
differs enough from that in statutes in other states to demonstrate that
the Pennsylvania legislature intended it to operate differently in
Pennsylvania. However, the Indiana statute's definition of "control share
acquisition" contains language resembling Pennsylvania statute's definition
of "control shares," for it covers shares bought within a certain time
frame as well as previously-bought shares acquired with the intention to
reach a threshold. Ind. Code Ann. Section 23-1-42-2(b). The Indiana
definition of "control share acquisition" provides that, for purpose of the
disenfranchisement provision, "shares acquired within ninety (90) days or
shares acquired pursuant to a plan to make a control share acquisition are
considered to have been acquired in the same acquisition." Id. See also
CTS Corp. v. Dynamics Corp. of America, 481 U.S. 69, 74, 107 S.Ct. 1637,
1641 (1987) (explaining operation of Indiana control share acquisitions
statute).
Finally, as construed by the district court, the Statute provides
no way for a beneficial owner stripped of voting power but not yet having
met one of the thresholds specified in the definition of "control-share
acquisition" to regain voting rights. Here, for example, under the
district court's opinion, AlliedSignal has become the owner of "control
shares" but has not made a "control-share acquisition." Under the Statute,
a special meeting to restore voting rights will be called if the acquiring
person "makes a control-share acquisition or a bona fide written offer to
make a control-share acquisition," 15 Pa. Cons. Stat. Ann. Section
2565(a)(3), "files an information statement fully conforming to section
2566," id. Section 2565(a)(1), and has "entered into a definitive financing
agreement to provide for any amounts of financing of the control-share
acquisition not to be provided" by it. Id. Section 2565(d)(2)(i). The
acquirer then has 90 days after restoration of voting rights to consummate
the control-share acquisition or those rights lapse. Id. Section 2564(b).
Where, as here, there is no outstanding bona fide written offer,
information statement and financing arrangement to make a control-share
acquisition, i.e., to reach the 20% threshold, Section 2565(a) does not
provide a clear process through which voting rights can be reinstated by
other shareholders. 15 Pa. Cons. State. Ann. Section 2565(a).(4) Moreover,
an acquiring person who buys shares gradually however few at any one time
would have to continue to petition to have its voting rights restored,
unless it chose to accelerate the process by consummating the acquisition
within 90 days; such a result is impractical, as well as having the
undesired effect of hastening tender offers rather than delaying them.
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(4) AMP responds that AlliedSignal previously has made a written offer,
br. at 26, but it is not clear that the existence of such a prior
offer, especially without an information statement and financing
arrangements, will enable AlliedSignal to request the special meeting.
A reading contrary to ours, in addition to creating the
unreasonable results identified above, would burden the market for
corporate control substantially and would entrench management in a manner
likely to harm the long-term interests of shareholders. These undesirable
consequences provide further support for our interpretation of the Statute.
First, while under AMP's reading it still would be possible for a bidder
such as AlliedSignal to solicit proxies to gain control of the target, as a
practical matter, the expense and unlikelihood of wining a proxy contest
without an appreciable number of votes committed to the solicitor's
position effectively eliminates this type of challenge to the control of
management. Second, AMP's reading almost certainly would eliminate the
practice of buying a sizeable stake of the company (say 6%) and threatening
a control contest to prod management toward better corporate policy.(5) This
practice would be eliminated as a practical matter because the shares would
lose their voting rights upon acquisition and any creditable threat to
control would be neutralized. Finally, it is difficult to reconcile AMP's
interpretation of the Statute with the prevailing rule regarding the
propriety of corporate defensive tactics viz., that the defensive measure
must be reasonable in relation to the threat posed. See Unocal Corp. v.
Mesa Petroleum Co., 493 A.2d 946, 955 (Del. 1985). We believe that a
defensive measure that disenfranchises even a single share acquired with an
intent to contest control of the company would not pass this test of
proportionality.
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(5) See Steven Bailey and Steven Syre, "Playing Tough Guy to Get the Deals
Done: Value Investor Michael Price Shows No Doubt in Using Clout," Boston
Globe, June 26, 1997, at C1 (describing Price's use of this tactic in
merger between Chase Manhattan Corp. and Chemical Banking Corp.).
Thus, AlliedSignal's interpretation of the Statute can be
reconciled with the statutory language and avoids the unreasonable results
that AMP's interpretation would produce results that we cannot believe
the Pennsylvania Legislature intended. Lehigh Valley Coop. Farmers v.
Commonwealth of Pa., 447 A.2d 948, 950-51 (Pa. 1982) (in construing
statute, court may presume that General Assembly did not intend absurd or
unreasonable result). If we were to affirm we, in effect, would be holding
that Pennsylvania's takeover law departs from that of all other states'
takeover laws and that the Pennsylvania Legislature effected this radical
departure without providing any clear evidence that it meant to do so.
Moreover, it would be difficult to reconcile that construction of the
Statute with the available procedure to restore the lost voting rights of
control shares in situations including the present case in which an
acquirer gradually purchases stock as it moves towards the 20% threshold.
It is true that a purchase of 19.99% of shares or 17%, or,
perhaps, 9.1% by an "acquiring person" may create the same sorts of
corporate-control dilemmas for a company being acquired as would a purchase
of 20% or 20.01%. Still, the definition of "control-share acquisition"
here, as elsewhere, clearly specifies a level of acquisition to be reached
before a shareholder suffers the serious disability of losing voting
rights.
IV. CONCLUSION
We conclude that the Pennsylvania Control Share Acquisitions
Statute requires an "acquiring person" to purchase shares such that its
total ownership of outstanding shares amounts to or exceeds the level of
20% (or 331/3 or 50%, as the case may be), when those shares include
previously-acquired shares bought with an intent to make a control-share
acquisition or bought within 180 days before the disenfranchising effect of
the Statute is triggered. We therefore will reverse the district court's
order of November 18, 1998, granting the motion for partial summary
judgment and enjoining AlliedSignal from voting its 20,000,010 shares of
AMP stock, and will remand the matter to the district court for further
proceedings consistent with this opinion.
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