The Williams Act

The Williams Act was passed in 1968 as one of the most important pieces of security legislation in the area of M & A.

It was significant, in terms of, merger activities in the 1970s and 80s.

Earlier the tender offers were mostly unregulated, which created a kind of concerning situation before the 1960s when only a few tenders were offered.

In the 1960s, the use of such offers became popular as it provided a means for organizations and people to take control of corporations.

The offer made use of the securities as a consideration, and the Securities Act of 1933 provided certain limited regulation in this regard. 

The Senator and the Banking Committee chairman Harrison Williams proposed laws to regulate such activities,

which had 4 main objectives – 

• To provide procedures and give disclosures for acquisitions as a proper valuation of the acquiring firm shares depends on the availability of their detailed financial data. 

• To provide the shareholders with timely information to make decisions regarding the offers.

• To increase the confidence in the securities market and provide information to lower the worries of investors. 

• The stockholders of the target firms stampeded into tendering their shares to avoid receiving less advantageous terms.

Section 13(d) of the act was, especially, made to provide an early warning system for the stockholders and target management, to alert them about the possible threats. 

It is related to the disclosures made by the buyer if their holdings reach 5% of the firm’s total outstanding, they need to provide information related to their origin –

through the offers, open market purchase, private, or others.

The filing should be done in 10 days of acquiring 5% of the issuer’s outstanding stock.

There are certain parties exempt from filing these requirements like brokerage and the underwriters, who acquire the shares for 40 days. 

If the party does not belong to any of exempt category they need to provide the details like -

Name and Address of the issuing firm and the type of securities to be acquired. 

• Detailed information about the background of the individual (that must include any kind of part criminal activity).

• Information about the number of shares owned and the purpose of the transaction and also the source of funds.

• All the bidders need to provide all details about the transactions that occurred in over 60 days' time to the offer. 

• here is a special provision for various categories of investors like the institutional investors who acquire 5% or more but did not acquire more than 2% in the last 12 months and those who have no interest in taking control of the firm. Such investors may not require filing the form in detail. 

• he acts also provides disclosure for information in the tender offers through Section 14(d). 

• The act failed to address certain issues in such offers. The State’s anti-takeover legislation and other corporate mechanisms were designed to address the problems that led to hostile takeovers in the 1980s. 

These days it is difficult to find a publicly held firm that is not shielded by a poison pill or antitakeover statute or both.

In the modern system, the management had the upper hand incorporate government and the composition of shareholders has changed since the 1960s

When individual shareholders held the firm’s majority of shares, who, sometimes, remained ill-informed, biased, and atomized.

Today the shares are held by institutional investors who handle the resources and incentives in the manner that the control of the firm cannot be held even by accumulating 10% or higher position. 

Also, the role of shareholders has increased, typically, the hedge funds who do not seek to get control over the firm instead they need information related to the operations, corporate governance and liquidity, strategies, and capital allocations to create value for themselves and the other shareholders.