CTS Corporation v. Dynamics Corporation of America

Indiana passed a law (Indiana Act) requiring a majority vote of all disinterested shareholders in a corporation to give voting rights to an entity that acquires “control shares” in the corporation—an amount of shares that would bring the entity’s amount of shares above 20, 33 1/3, or 50 percent. This gave the minority shareholders a chance to consider the fairness of the tender offer collectively to make a well-informed decision in their best interests. Under the Indiana Act, the shareholders must vote on whether to grant the voting rights to the acquirer within 50 days of the acquisition. Dynamics Corporation of America (Dynamics) (plaintiff) owned 9.6 percent of the stock of CTS Corporation (CTS) (defendant) when it announced a tender offer for another million shares of CTS, an amount that would have brought Dynamics’s ownership interest above the 20 percent threshold under the Indiana Act. Dynamics brought suit alleging that the Indiana Act was preempted by the federal Williams Act, and that the Indiana Act violated the Commerce Clause. The Williams Act was passed to regulate hostile tender offers and protect minority shareholders by putting them “on an equal footing with the takeover bidder.” The Williams Act required (1) the offeror to disclose certain information about the offer and the offeror’s business, and (2) certain procedural rules, including a requirement that the offer remain open for at least 20 business days. Dynamics argued, among other things, that the 50-day allowance under the Indiana Act conflicted with this 20-day period. The district court ruled that the Williams Act preempted the Indiana Act and that the Indiana Act violated the Commerce Clause. The court of appeals affirmed. CTS appealed.