was not eroded by the recapitalization. FMC I, 673 F. Supp. at 250-51. Consequently, FMC was not injured by the recapitalization in the manner discussed in Vesco. In Dasho, one corporation's issuance of its shares in exchange for the shares and assets of another corporation constituted a sale. Dasho, 380 F.2d at 266. This exchange of securities was incidental to a merger. Id. As stated above, a merger is the type of major corporate restructuring that allows incidental exchanges of securities to be deemed purchases or sales for the purpose of securities law. See supra at [Slip Op.] 26-28.
In this case, the main effect of the recapitalization was to shift the proportionate equity interests held by the three classes of shareholders. FMC's recapitalization was not a typical one. See FMC I, 673 F. Supp. at 250; Jacobs, Litigation and Practice Under Rule 10b-5, § 117.02, at 5-81 (2d ed. 1985) ("a recapitalization is not a purchase or sale since a stockholder's economic interest remains unchanged"). Nevertheless, several courts have held that diminution or augmentation of a party's equity interest in an ongoing concern does not constitute a fundamental change in that party's investment. Ray v. Karris, 780 F.2d 636, 640 n. 1 (7th Cir. 1985) (citing to Sargent, 492 F.2d at 764-65); Schnorbach, 70 F.R.D. at 439 (a major corporate restructuring was not found notwithstanding the fact that, among other things, the shareholder's equity interest increased by 9 percent); Canadian Javelin, Ltd. v. Brooks, 462 F. Supp. 190, 195-96 (S.D.N.Y. 1978); Union Carbide Corp. Consumer Products Business Securities Litigation, 676 F. Supp. 458, 477 (S.D. N.Y. 1987) (citing to Sargent and Javelin); Rodriguez Cadiz, 579 F. Supp. at 1181 (citing to Javelin).
Thus, the fact that the exchanges of stock incident to the recapitalization resulted in a shift in the proportionate equity interests of the three classes of FMC shareholders does not demonstrate that FMC was a purchaser or seller of securities. Indeed, FMC's public shareholders retained a substantial and controlling interest in the corporation. Cf. Javelin, 462 F. Supp. at 192, 195-96. Moreover, FMC's assumption of the debt did not convert it into a "substantially different entity." See supra, [Slip Op.] at 18-19 (discussion of the effects of the additional debt). Accordingly, Counts I, III, and IV of the amended complaint must be dismissed for this reason as well.
Section 9(a): FMC Failed to Sustain the Requisite Damage
The defendants move to dismiss Count III alleging the violation of § 9(a) of the Exchange Act for the following additional reason. The defendants contend that FMC will be unable to establish damages under § 9(a) even if it is able to show that it was a purchaser or seller of securities and that the defendants manipulated the price of FMC's stock. Under § 9, a plaintiff may seek "recovery for an improper premium" added to the amount paid for the stock subject to the manipulative activity. Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 46, 51 L. Ed. 2d 124, 97 S. Ct. 926 (1977); see also Loss, Fundamentals of Securities Regulations, 920 (1988). The defendants' argument is predicated on the fact that the price of FMC's stock has not declined and has actually risen since the recapitalization. See Northview's Reply, at 14 (citing to Standard and Poor's Stock Guide, June 1987 at 12).
FMC acknowledges that the price of its stock has risen. FMC's Response, at 39. However, it attempts to rebut the defendants' argument by citing to a variety of factors that have purportedly caused the price of FMC's stock to rise. Amended Complaint, para. 58. The speculation that these other factors may have led to an increase in the stock's price is immaterial. The fact that the price of FMC's stock has risen after the recapitalization demonstrates that FMC did not pay an "improper premium" when it "purchased" the old FMC stock from the public shareholders in the course of the recapitalization. The assertion that FMC might have "purchased" the old FMC stock for a lower price but for the defendants' interference is of no consequence as long as FMC was not damaged by the purchase price it actually paid. See Estate Counseling Service, Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 303 F.2d 527, 533 (10th Cir. 1962). For "the question is not what [FMC] might have gained, but what [it] has lost by being deceived into the purchase." Id. (the defendants' liability "does not include the expectant fruits of an unrealized speculation"); Madigan, 498 F.2d at 239-40 (a defrauded buyer is not entitled to the recovery of lost profits). FMC's failure to allege facts showing that it was damaged in a manner compensable under § 9 mandates the dismissal of Count III.
Section 17(a): No Implied Private Right of Action
The defendants move to dismiss Count V of the amended complaint which alleges a violation of § 17(a) of the Exchange Act. Count V will be dismissed because there is no implied private right of action under § 17(a) in the Seventh Circuit. See Schlifke v. Seafirst Corp., 866 F.2d 935, 942-43 (7th Cir. 1989).
Section 14(e): FMC's Recapitalization was not a Tender Offer
The defendants move to dismiss Count II of the amended complaint which alleges a violation of § 14(e) of the Exchange Act ("Williams Act"). The Williams Act proscribes fraudulent or manipulative activity in connection with a tender offer. 15 U.S.C. § 78n(e). The defendants move to dismiss Count II on the grounds that FMC's recapitalization is not a "tender offer" as the term has been construed for the purposes of the Williams Act. The court agrees and finds that this deficiency also compels the dismissal of Count II.
The Williams Act contains no statutory definition of the term tender offer. See Dyer v. Eastern Trust and Banking Co., 336 F. Supp. 890, 907 (D.Me. 1971). Courts have reviewed the legislative history to determine what sort of activity that the Williams Act was designed to regulate. As the Seventh Circuit has noted, the Williams Act was "passed in 1968 in response to the growing use of cash tender offers as a means for achieving corporate takeovers." Indiana National Corp. v. Rich, 712 F.2d 1180, 1183 (7th Cir. 1983); see also Dyer, 336 F. Supp. at 907 ("The legislative history . . . makes it clear that the type of activity intended to be regulated by Section 14(e) . . . is the acquisition of control of a corporation by outsiders through the purchase of its shares").
Tender offers typically involve a contest for control of the corporation. See Rich, 712 F.2d at 1181, 1183; Smallwood v. Pearl Brewing Co., 489 F.2d 579, 598-99 (5th Cir.), cert. denied, 419 U.S. 873, 42 L. Ed. 2d 113, 95 S. Ct. 134 (1974) (citing Dyer); Dyer, 336 F. Supp. at 907; S.E.C. v. Texas International Co., 498 F. Supp. 1231, 1240 (N.D.Ill. 1980) (Marshall, J.); see generally Panter v. Marshall Field & Co., 646 F.2d 271, 285-86 (7th Cir.), cert. denied, 454 U.S. 1092, 70 L. Ed. 2d 631, 102 S. Ct. 658 (1981); Loss, Fundamentals of Securities Regulations, 497 (1988) ("There are two ways to capture control of an unwilling target company: proxy contests and tender offers"); Case note, Problems in Defining "Tender Offer" 17 Loyola (Ill.) L.J. 693, 696-700 (1986). As the Fifth Circuit stated in Smallwood, "a corporation does not become a tender offeror simply by proposing a paper exchange of securities. There must be contemplated some change of control. If actual control does not shift, it is difficult to see why the shareholder needs the protection of Section 14(e)." Smallwood, 489 F.2d at 599.
Tender offers typically share several other characteristics as well. See Wellman v. Dickinson, 475 F. Supp. 783, 823-24 (S.D.N.Y. 1979), aff'd, 682 F.2d 355 (2d Cir. 1982), cert. denied, 460 U.S. 1069, 75 L. Ed. 2d 946, 103 S. Ct. 1522 (1983). In Wellman, the court found that tender offers are often characterized by some or all of the following elements:
(1) active and widespread solicitation of public shareholders for the shares of an issuer; (2) solicitation made for a substantial percentage of the issuer's stock; (3) offer of purchase made at a premium over the prevailing market price; (4) terms of the offer are firm rather than negotiable; (5) offer contingent on the tender of a fixed maximum number to be purchased; (6) offer open only a limited period of time; (7) offeree subjected to pressure to sell his [or her] stock . . . [and (8)] the public announcements of a purchase program precede or accompany rapid accumulation of large amounts of the target company's securities.
Id.; S.E.C. v. Carter Hawley Hale Stores, Inc., 760 F.2d 945, 950 (9th Cir. 1985) (the court endorses the Wellman factors).
After reviewing the facts as alleged in the amended complaint along with the attached exhibits, the court finds that FMC's recapitalization was not a "tender offer" for the following reasons. First, the court finds FMC's proxy statement/prospectus, which is attached to the amended complaint as Exhibit K, to be most revealing of the true nature of the stock exchange. The proxy statement/prospectus states in part that
in the normal process of formulating the Company's (FMC's) business and financial plans, members of the Company's management regularly conduct studies of the Company's long-term prospects in the light of an anticipated general economic and business conditions and management's forecasts for the specific businesses in which the Company is engaged. In recent years, management has considered a number of alternatives designed to maximize shareholder values in view of the Company's strong financial position, its record of sustained cash flow and the relatively mature, low-growth nature of its principal businesses. These alternatives have included a recapitalization of the Company, a leveraged buy-out transactions, a repurchase of Shares in the open market or through a tender offer and significant acquisitions of new businesses. . . .