Kern County Land Co. v. Occidental Petroleum Corp.

Facts

Failing to arrange a merger with Kern County Land Co., Occidental Petroleum Corporation then decided to attempt a takeover of Kern by tender offer for Kern shares at $83.50 per share. While the initial offer to accept 500,000 shares was to begin in May 1967 and end one month later, a few days after the offer started, all shares had been tendered and Occidental expanded its offer to double the shares and by the offer’s closing date, Occidental has procured 887,549 shares of Kern. Within the first few days of the initial offer, Occidental had become a 10% holder of all outstanding Kern shares and, as required by the SEC, registered as an “insider” and all acquisitions made after that time were also reported, as required. During this time, the board of directors at Kern had been resisting the tender offer with letters urging shareholders not to sell and began negotiating a merger with Tenneco which would merge Kern into Tenneco. The merger agreement was announced by Kern’s board in late May. As per the merger terms, the Kern shareholders would get one share of Tenneco convertible, cumulative stock for each share of Kern they owned. The Tenneco stock was appraised by Occidental at $105 per share and accepted that its takeover attempt would fail and that it may constitute liability for insider trading as per § l6(b). There was an option for Tenneco to purchase back the shares Occidental gained in the merger at the appraised price although the option could not be implemented until after December 9th 1967 (six months and one day after the tender offer expired) and in return for an option fee of $10 a share to be credited against the buying price if implemented. On June 2, the option was granted and the option price paid. On July 17, 1967, at a shareholders meeting, the merger plan with Tenneco was approved. At the time, no opposition to the plan was provided by Occidental, but they did not vote their shares. So as not to subject Occidental to an § 16(b) liability, many attempts were made to delay the merger’s completion, though none were successful and once approval was attained from the California Corporations Commissioner, the merger was completed on August 30, 1967. Then, the right to exchange the Kern shares for the Tenneco shares was vested and mandatory. The exchange was not completed by Occidental until December 11, 1967 and at that time Tenneco utilized its option and bought all of Occidental’s shares which resulted in almost a $20 million profit to Occidental. A suit was initiated by Kern to recover those profits under § 16(b) of the Securities Exchange Act of 1934 because that section states that any director, officer, or holder of over 10% of a corporations shares is liable for any profits sale and purchase, or vice versa, of a corporations shares within a six month time frame.