MEMORANDUM AND ORDER
CANNELLA, District Judge.
Plaintiff's motions for a temporary restraining order and a preliminary injunction are denied. Fed.R.Civ.P. 65(a), (b).
On May 15, 1985, plaintiff, Trans World Airlines, Inc. ["TWA"], filed a complaint seeking injunctive relief and damages, charging defendants with violating section 13(d) of the Williams Act amendments to the Securities and Exchange Act of 1934 [the "Act"], 15 U.S.C. § 78m(d) ["Section 13(d)"]. TWA is a Delaware corporation with its principal places of business in New York City and St. Louis, Missouri. TWA common stock and securities are traded on the New York and Pacific Stock Exchanges and are registered pursuant to the Act, 15 U.S.C. § 78l. This action arises out of the purchases, beginning in September 1984 and continuing until Monday, May 20, of approximately 25% of TWA common stock
Icahn's attention first focused upon TWA in the summer of 1984 when he met with Sanford Rederer, an expert on the airlines business, to discuss a possible acquisition of Frontier Airlines. Although Icahn did not pursue Frontier Airlines, he and his associate, Alfred Kingsley, also discussed with Rederer the airlines business in general and TWA in particular as a potential target for a takeover. Rederer subsequently prepared for Icahn numerous reports on TWA which were transmitted via Kingsley. The reports discussed the operating costs, cash flow, asset value and flight operations of TWA. They also recommended strategies for increasing cash flow and cash value by disposal of assets or elimination of certain operations, the so-called "feeder lines".
On October 28, 1984, Rederer indicated that he was "more convinced than ever that TWA would be worth much more than its current market value with management prepared to move decisively to rationalize the route system and convert certain of the physical assets to cash."
The subsequent reports further develop the theme that TWA would be a valuable takeover target only if the operations were scaled down and/or substantial assets of the company sold. Rederer also indicated that by following these steps the anticipated acquisition debt could be repaid within a year. Additionally, he discussed the potential of a leveraged buyout.
The reports recognized that TWA management was pursuing a different plan whereby the assets would be retained and operations expanded.
Beginning in September 1984, members of the Icahn Group began buying TWA common stock. The purchases continued through the winter and spring. By April 29, 1985, the Group had obtained 5% of TWA's outstanding stock, thereby triggering the requirement of Section 13(d) that the Group file a Schedule 13D disclosing material information about themselves and
During the preregistration period, Icahn clearly intended to pursue the Rederer plan in at least a general way. Icahn testified that he liked the plan because it permitted him to acquire an airline, an industry which he considered to be generally undervalued, without liquidating the entire company after acquisition. He claims he has never favored liquidation plans and that he does not want to have the image of a liquidator. In Icahn's opinion, Rederer's plan called for sale of a limited and unproductive part of TWA's business, while permitting an increased cash flow following the reduction of assets and operations.
On May 3, following the April 29 triggering date, but prior to the Schedule 13D filing, Icahn met for the first time with TWA management. At the meeting, arranged by Drexel Burnham Lambert Inc., Icahn met with Carl E. Meyer, President and Chief Executive officer of TWA. Several associates, legal and financial advisors from each side were also present. Icahn made several suggestions for changes at TWA including the Rederer plan as well as a leveraged buyout. The TWA representatives strongly disputed the feasibility of the Rederer plan or the accrual of additional debt by the airline. Meyer indicated that TWA management had previously studied similar possibilities and rejected them.
On May 5, a second meeting took place, this time with Rederer present to defend his plan. In Icahn's words, the TWA representatives "really tore the plan apart and I think did a pretty good job of [it]."
In his testimony before the Court, Icahn indicated that he did not think the Rederer plan was very different from the Campbell plan because both sought ways to increase the cash flow without fully liquidating the company. He suggested that Rederer also believed that if labor costs could be reduced the company should be expanded. Icahn claimed that he never really was fully committed to the Rederer plan because it required the elimination of operations, but he thought it was better than total liquidation. He preferred the Campbell plan because no operations would have to be shut down.
A third meeting just between Icahn and Meyer took place on May 7. Meyer and Icahn agree that the discussion continued to turn around possible plans for increasing cash flow and for a leveraged buyout. Meyer does not claim that Icahn persisted openly with his plan to sell assets or eliminate operations, but that such an intent could be inferred from Icahn's resistance to TWA's current plans for rapid expansion and purchase of new aircraft.
Icahn stated at the hearing that he does not necessarily oppose the TWA plan for expansion and purchase of airplanes, but believes that TWA could pursue the plan and still carry an additional $200 million of debt. He believes the acquisition debt can be funded either by TWA cash flow or additional debt or by ACF Industries Inc., ["ACF"], a member of the Icahn Group and previous takeover acquisition by Icahn. A final meeting between Icahn and Meyer took place on May 15, apparently similar in substance to the May 7 meeting. It was clear by this time that TWA management did not want Icahn to control TWA.
Before the third amendment was filed on May 23, Icahn announced, on May 21, a proposed cash merger whereby the Icahn Group would purchase all remaining outstanding shares of TWA at $18 per share. Icahn indicated that ACF and its affiliates would produce $400 million in cash of the $600 million required. He stated that he was so certain the other $200 million would be forthcoming that he promised TWA a two-year standstill if he could not raise it expeditiously. Icahn also indicated that the Group would not accept any offer by TWA to purchase the Group's shares unless the same offer were made available to all shareholders, thus apparently ruling out a "greenmail" option.
The third Schedule 13D reflected these new proposals and also indicated that Icahn intended to operate TWA in its long term interest and that of its employees and the travelling public. He disclosed that if he acquired control, he intended to change the Board of Directors and review assets, operations, properties, policies and management. Icahn indicated that the Group had determined not to eliminate domestic flights, sell assets or conduct a leveraged buyout, but that the sale of some assets might become necessary to pay back acquisition debt if the cash flow is insufficient.
The day after filing the complaint in this Court, TWA filed a complaint alleging state law violations in the Circuit Court of the County of St. Louis, Missouri. See Petition for Declaratory and Injunctive Relief, Cause No. 525256 (Cir.Ct.Mo.) (filed May 16, 1985). On that same day, TWA made an application to the United States Department of Transportation for an inquiry into Icahn's fitness to operate an airline. A conference was held in this Court on Friday May 17, to arrange a discovery schedule. Pursuant to the schedule agreed upon by the parties, discovery was to be expedited and a preliminary injunction hearing held on June 6. Although defendants requested TWA to agree not to use this discovery in
On Monday May 20, however, plaintiff brought on a motion for temporary restraining order by order to show cause in St. Louis. Because defendants received notice too late for their New York attorneys to get to St. Louis for the hearing, they were represented by a St. Louis firm. After hearing argument, the St. Louis judge, the Hon. Bernhardt C. Drumm, Jr., indicated that he favored entering a limited restraining order but that he thought the state action more properly belonged as a pendent matter in the Southern District of New York. At this point, defendants offered to refrain from further purchases of stock and thus maintain the status quo until this Court had had a chance to rule on the motion. TWA agreed, and arrangements were made with this Court for a hearing on a motion for a temporary restraining order the following morning, May 21.
At the May 21 hearing, defendants were ready to defend on state as well as federal claims, but plaintiff declined to raise the Missouri state law claims in this Court. Following brief argument, the Court and the parties had a discussion on the possibility of further expediting discovery and moving up the June 6 hearing date. The St. Louis agreement was accordingly extended pending an evidentiary hearing on the preliminary injunction motion to be held on Friday, May 24, and the Court reserved decision on the temporary restraining order. See Order, 85 Civ. 3677 (JMC) (S.D. N.Y. May 21, 1985). It was revealed for the first time at the May 21 hearing that Icahn had offered to pay for a cash merger at $18 a share. There was no discussion at that time as to whether the offer was a breach of the St. Louis agreement. The Court ordered defendants to file an amended Schedule 13D to reflect the cash merger offer.
On the afternoon of May 21, the parties reappeared before the Court to discuss the full scope of the now public announcement by Icahn of the cash merger proposal and consent procedure. The Court found that there was no violation of the St. Louis agreement. It also declined to enter a temporary restraining order precluding defendants from pursuing the consent procedure, without prejudice to renewal of the motion at the May 24 hearing or thereafter, if any issue had developed as to the propriety of the consent procedure.
On May 24, the preliminary injunction hearing was held. Icahn and Meyer both testified, and numerous documents including the Rederer reports were entered into evidence. TWA raised only one core issue at the hearing and in its papers: whether defendants had improperly failed to disclose that their actual and present intent includes a plan to sell substantial TWA assets and/or eliminate domestic operations. After the close of the hearing, TWA raised a new argument: that Icahn had improperly failed to disclose his intent to remove Meyer as President of TWA. The Court then announced that it would reserve decision on the motions and would issue its written decision by 11:00 a.m. on Tuesday, May 28, the next business day following the Memorial Day weekend.
To obtain injunctive relief plaintiff must establish irreparable harm and either (1) a likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly in its favor. See 754 Orange Ave., Inc. v. City of West Haven, Connecticut, 761 F.2d 105, 110 & n. 2 (2d Cir.1985); Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir.1979) (per curiam); Crown Zellerbach Corp. v. Goldsmith, et al., 609 F.Supp. 187, 188-189 (S.D.N.Y.1985). In determining whether there will result irreparable harm in the absence of injunctive relief
Accordingly, the question before the Court is whether there is any continuing violation of Section 13(d). Among the purposes that must be disclosed pursuant to Section 13(d), are "(c) A sale or transfer of a material amount of assets of the issuer ...; (d) Any change in the present board of directors or management of the issuer ...; (f) Any other material change in the issuer's business or corporate structure ...." 17 C.F.R. § 240.13d-101 (1984); see GAF Corp. v. Milstein, 453 F.2d 709, 717 (2d Cir.1971), cert. denied, 406 U.S. 910, 92 S.Ct. 1610, 31 L.Ed.2d 821 (1972). There is little question that if Icahn intends to sell material assets of TWA or dispense with domestic flights, he is required to so state in his Schedule 13D.
In his most recent 13D, Icahn states that defendants had "previously considered the possibility of eliminating some of [TWA's] domestic flights and selling certain planes; however, the [defendants] have been advised by [TWA's] management, and believe, as previously reported in this Schedule 13D, that such a strategy would not be feasible."
Icahn has, therefore, expressly disavowed any fixed plan to sell assets or eliminate operations. He has, however, disclosed the possibility that certain assets might be sold if necessary to repay acquisition debt. The factual issue before the Court then is whether, despite his denial, Icahn in fact maintains the intent to sell substantial assets or dispose of local operations without regard to the availability of other sources of cash or debt for repayment of acquisition costs.
It is readily apparent from the evidence before the Court that Icahn came into the TWA gambit entertaining as a primary plan the sale of assets and discontinuance of domestic flights. Rederer's numerous reports, as well as the testimony of both Icahn and Meyer, make it clear that Rederer's plan was foremost in Icahn's mind at least until May 5. Icahn states that he gave up the plan after the May 5 meeting and felt even more convinced of its inadequacy after speaking with Campbell. Plaintiff argues that it is incredible that Icahn would so quickly discard the voluminous reports of his own consultant upon the word of TWA management, for whom Icahn seems to have little respect and whom Fortune Magazine recently credited with managing the third least admired major
The Court has reviewed the record and listened to the testimony and finds Icahn to be credible. It is not unreasonable for him to have changed his mind after having his consultant's report heavily criticized by the people who had been running TWA in recent years and who had, themselves, had a similar report made recently, which indicated that to sell off planes and discontinue routes would be disasterous for the company. That Icahn may replace some of the existing management with his own choices does not mean that he has no respect for any of their decisions or opinions. Moreover, the nature of the fast moving takeover battle requires quick and semi-intuitive decisions. As Icahn testified, he often operates by seat of the pants instinct in these situations. Thus to make a decision based in part upon an essentially unsubstantiated oral report by Campbell is not an impossibility. Nor can the Court infer from his past conduct that Icahn has a particular pattern or gameplan that necessarily or even most likely implicates the sale of major assets or a "greenmail" attempt. Evidence that Icahn may have sold substantial assets or divisions of previously acquired companies on two occasions is some evidence of his current intent. It does not overcome, however, the explicit and public statements made repeatedly by Icahn in his Schedule 13D, on the stand, in the press, and in recent letters to Senator John C. Danforth, Chairman of the Senate Committee on Commerce, Science and Transportation, and Congressman James J. Howard, Chairman of the House Committee on Public Works and Transportation.
TWA's most recent argument is that Icahn, having disclosed in his testimony that he may replace Meyer as President, must also disclose this plan on his Schedule 13D. There is of course authority, aside from the plain wording of Section 13D, that disclosure of plans to replace management must be disclosed. See Gulf & Western Indus., Inc., v. Great A. & P. Tea Co., 476 F.2d 687, 696-97 (2d Cir.1973).
Icahn, as noted above, has disclosed that he intends to remove the Board of Directors, of which Meyer is a member, and to review the management of the company if he gains control. The Court is mindful
Accordingly, the Court finds that there is no material violation of Section 13D that is ongoing at this time. It makes no decision with respect to any prior violations, currently corrected, because any such violations would be adequately remedied in an action for damages. Because plaintiff has failed to show probable success on the merits of any continuing violation, or even serious questions going to the merits of such a claim, there is no irreparable harm and no injunction may issue.
Plaintiff's motions for a temporary restraining order and a preliminary injunction are denied. Fed.R.Civ.P. 65(a), (b).