Lewis v. McGraw

On January 8, 1979, American Express Company offered to acquire McGraw Hill, Inc. (McGraw) (defendant). McGraw’s stock was trading at $26 per share at the time. McGraw rejected the offer, characterizing it as reckless, illegal, and improper without disclosing its previous approach to American Express about a possible merger. American Express responded the next day by announcing a planned cash tender offer. However, American Express never made a tender offer. Instead, on January 29, American Express offered to pay $40 per share for McGraw with the proviso that the offer would become effective only if McGraw agreed not to oppose it via specified improper methods. On January 31, McGraw rejected American Express’s offer. In doing so, it publicly stated that $40 per share was an inadequate price. Upon the expiration of American Express’s offer, McGraw shareholders (plaintiffs) sued, alleging McGraw’s misstatements and omissions in opposing the acquisition bid violated the tender-offer provision of the Williams Act (codified as § 14(e) of the Securities Exchange Act of 1934). The McGraw shareholders conceded that American Express never made a tender offer for McGraw, but they argued that the tender offer American Express announced it intended to make would have been consummated had McGraw not made the allegedly false assertion that $40 per share was an inadequate price and had it disclosed its prior merger overture to American Express. The McGraw shareholders further cited two cases, which, they asserted, established that they should be presumed to have relied on McGraw’s alleged misstatements and omissions because they were material. The district court dismissed the complaint on the ground that no McGraw shareholder could have relied on the alleged misstatements or omissions because no McGraw shareholder ever was in a position to tender shares to American Express. The shareholders appealed.