E.ON AG v. ACCIONA, S.A.
468 F.Supp.2d 537 (2006)
United States District Court, S.D. New York.
November 20, 2006.
E.ON has also demonstrated a likelihood of showing that Amendment No. 1 did not disclose all of Acciona's arrangements and understandings with Santander. Amendment No. 1 included copies of the bridge credit contract, credit commitment, and commitment letter between Acciona and Santander for financing Acciona's purchase of Endesa securities and the Master Agreement governing the total return swaps between the entities. In filing Amendment No. 1, Acciona made significant strides in presenting the information which Section 13(d) and its implementing regulations required it to divulge concerning its agreements with Santander about the acquisition of Endesa stock. There is a strong likelihood, however, that these parties had additional, undisclosed agreements about Acciona's control and ultimate acquisition of the shares purchased by Santander including that Acciona would enter a Total Return Swap with Santander after each Santander purchase of Endesa stock so that the economic risk of the purchase would be swiftly transferred to Acciona.
2) Acciona's plans with respect to its purchases of Endesa shares
E.ON has shown a substantial likelihood of proving that Acciona did not accurately disclose its plans with respect to its purchases of Endesa shares in its Schedule 13D, as required by Section 13(d)(1)(C).20 In its October 5 Schedule 13D, Acciona stated that it acquired Endesa securities for "investment purposes" and that it did not have any "plans or proposals" beyond those disclosed in the schedule relating to the acquisition of additional Endesa securities, "extraordinary corporate transaction[s]", or changes in Endesa's board of directors or bylaws. E.ON has shown that these statements in all likelihood misrepresented Acciona's intentions regarding Endesa, including its purpose in making its investment, its intentions regarding E.ON's proposed tender offer, and its desire to join the Endesa board of directors and to change Endesa's bylaws on shareholder voting. E.ON has also demonstrated a likelihood of success in proving that Amendment No. 1 omitted information required to be disclosed under Section 13(d)(1)(c). Amendment No. 1 states that "Acciona, through Finanzas, acquired the shares for investment purposes as part of its strategic interest in the energy sector." Regarding the competing Gas Natural and E.ON bids for Endesa, Amendment No. 1 disavowed any goal to block E.ON stating that Acciona "continue[s] to evaluate [its] options with respect to the proposed E.ON tender offer and may or may not choose to tender shares or ADSs held by them in such offer." Finally, Amendment No. 1 also denies that Acciona has any plans or proposals to amend or repeal the Endesa bylaw providing that no shareholder may vote more than 10% of outstanding shares.
E.ON has demonstrated that it is likely that these statements in Amendment No. 1 regarding Acciona's intentions with respect to E.ON's tender offer for Endesa, its
plans to control and/or manage the company, and its desire to influence Endesa's organizational structure and governance contain misstatements or omissions. E.ON has highlighted public statements to the press by Acciona's chairman and spokesperson expressing the company's intention to "tak[e] control," "be the biggest shareholder," "participate in management" and "lead Endesa." E.ON has also pointed to Acciona's decision to acquire 10% of Endesa shares one day prior to the European Commission's issuance of a decision on the legality of the CNE's conditions on E.ON's tender offer, and Acciona's statement in its Schedule 13D that it plans to acquire up to 25% of Endesa's shares, pending approval by Spanish regulatory authorities, as circumstantial evidence that E.ON has not acquired Endesa shares solely for "investment purposes" as stated in Amendment No. 1. It is unnecessary at this time to address the extent to which any misstatements and omissions are material or the existence of irreparable harm since the parties are engaged in discovery and Acciona may be filing further amendments before the December 11 submissions are due. Suffice it to say that while materiality must be judged in the context of the total mix of information available to Endesa's shareholders, this does not relieve Acciona of its obligations to comply with Section 13(d).
Conclusion
1. Plaintiff E.ON Zwölfte Verwaltungs GmbH is a wholly owned subsidiary of E.ON AG and was formed for the sole purpose of carrying out the tender offer for Endesa. BKB AG is an indirect wholly-owned subsidiary of E.ON AG and owns 46,000 ordinary shares of Endesa. It acquired these shares in the ordinary course of investment activities prior to E.ON's February 2006 announcement of its intent to launch a tender offer for Endesa.
2. In order for a foreign corporation to trade on an American stock exchange, the foreign corporation must issue and deposit American Depository Shares, ("ADSs") with an American financial institution. Kingdom 5-KR-41 Ltd. v. Star Cruises PLC, No. 01 Civ. 2946(DLC), 2005 WL 1863832, at *1 (S.D.N.Y. Aug. 8, 2005). The depository institution then issues American Depository Receipts ("ADRs") to the beneficial owners of the ADSs, who may sell the ADSs on American securities exchanges. Id. The ADR system is the means by which American investors hold and trade equity interests in foreign companies. Id.
3. A Madrid court has enjoined the Gas Natural bid pending a determination of whether the bid violates European antitrust laws; the Supreme Court of Spain also suspended the Spanish government's approval of Gas Natural's bid in April 2006. Gas Natural has also commenced litigation in Spain against E.ON, Endesa, and Deutsche Bank AG of Germany, an Endesa advisor and financier to E.ON.
4. E.ON's bid was contingent on the condition 1) that E.ON be tendered a minimum of 50.01% of Endesa stock, and 2) that Endesa shareholders amend an anti-takeover provision in Endesa's articles of incorporation that currently prohibits a shareholder from voting any more than 10% of Endesa stock.
5. The conditions would inhibit E.ON's ability to manage its interest in Endesa and require divestiture of several key assets, effectively breaking up the company.
6. Although not formally part of the parties' submissions, they have advised the Court that Acciona has also filed Amendment No. 4.
7. Acciona did not make this argument in its motion to dismiss, but did raise it in opposition to E.ON's motion for a preliminary injunction and in its reply papers on the motion to dismiss.
8. There is no dispute that Acciona was required to file a Schedule 13D. Therefore, this case does not raise the issue of whether federal registration or filing statutes apply to foreign transactions. See Europe & Overseas Commodity Traders, S.A. v. Banque Paribas London,147 F.3d 118, 123 (2d Cir.1998). 9. A Form 20-F is a statement filed by certain foreign private issuers for purposes of registering with or reporting to the SEC. 17 C.F.R. § 249.220f.
10. Acciona has characterized its standing argument as an issue of subject matter jurisdiction, There is no contention, however, that E.O.N. does not have constitutional standing to bring this action. See Coan v. Kaufman,457 F.3d 250, 256 (2d Cir.2006); Alliance for Envtl.Renewal, Inc. v. Pyramid Crossgates Co.,436 F.3d 82, 85-86 (2d Cir.2006). The precise issue raised by Acciona's motion is whether Section 13(d) creates a private right of action for a plaintiff like E.ON. Statutory standing is ordinarily a jurisdictional issue, Coan, 457 F.3d at 256 n. 3, but is a motion that may be brought under Fed.R.Civ.P. 12(b)(6). See McClellan v. Cablevision of Conn., Inc.,149 F.3d 161, 164, 169 (2d Cir. 1998) (reversing district court's grant of defendants' motion to dismiss under Fed. R.Civ.P. 12(b)(6) on grounds that Cable Communications Policy Act provides an implied private cause of action for violations). In any event, references in this Opinion to E.ON's standing to bring the Section 13(d) claim are intended as references to the existence of a private right of action under the statute. 11. Section 14(e) of the Exchange Act is the antifraud provision of the Williams Act. 15 U.S.C. § 78n(e).
12. It matters little that GAF Corp.'s analysis relied in part on the "now dubious" analysis enunciated in Case Co. v. Borak,377 U.S. 426, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964), to find a private right of action. Hallwood, 621 n. 9. Neither the Supreme Court nor Congress has reconsidered the existence of the right to injunctive relief recognized in GAF Corp., and it is established law. Id. 13. Acciona also relies on the Sixth Circuit's affirmance of Luptak in an unpublished opinion. Luptak v. Central, 647 F.2d 165 (6th Cir.1981). Under the rules of, the Sixth Circuit, "unpublished opinions cannot be cited to the Sixth Circuit Court of Appeals." Id.
14. It, may be more appropriate to view the analysis in Luptak as a decision on the merits rather than one addressed to standing to bring injunctive relief, but the courts did purport to conduct an analysis of standing. Luptak, 1979 WL 1280, at *12.
15. For instance, In re Dow Chemical Sec. Litig., No. 00 Civ. 3364(DC), 2000 WL 1886612, at *2 (S.D.N.Y. Dec. 28, 2000), addressed standing in the context of a claim for both injunctive relief and damages under Sections 13(d) and 20(a) of the Exchange Act brought by shareholders of the acquiring company. The Hon. Denny Chin found that while shareholders of the target company have standing, shareholders of the acquirer do not. Id.
16. Acciona argues that E.ON's standing must be addressed solely from the perspective of its status as a tender offeror and not a shareholder. It points out that Spanish law prevents E.ON from trading Endesa stock during the pendency of its tender offer, and that as a result it does not belong to the class of shareholders that Section 13(d) was designed to protect. See Piper, 430 U.S. at 35-36, 97 S.Ct. 926. It is unnecessary to address this issue further, since for the reasons already described, E.ON has standing as a tender offeror.
17. To the extent that Acciona's Schedule 13D filings were misleading, shareholders who sold their stakes to Acciona—as the stock price rose 17%—may be able to show that they did not have the information to which they were entitled by our nation's securities law.
18. While Acciona made a general claim in its motion that the complaint failed to comply with the heightened pleading standards, by the time of its reply, it had abandoned that general claim and asserted only that the standard had not been met with respect to arrangements between Acciona and third parties other than Santander.
19. The statute has been quoted in relevant part earlier in this Opinion.
20. Section 13(d)(1)(C) requires disclosure "if the purpose of the purchase or prospective purchases is to acquire control of the business of the issuer . . ., [and] any plans or proposals . . . to . . . make any other major change in its business or corporate structure." 15 U.S.C. § 78m(d)(1)(C).