What is the Williams Act?
The Williams Act came into existence in 1968 with the objective of safeguarding the interest of shareholders by subduing the attempts of any hostile takeover by the corporate raiders. Under this act, the hostile bidder has to release all potentially critical information to the securities and exchange commission as well as to the company along with the declaration of intent.
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Source: Williams Act (wallstreetmojo.com)
How Does it Work?
When the business looks to acquire another business, it has to initiate a tender offerTender OfferA tender offer is a public proposal by an investor to all the current shareholders to purchase their shares. Such offers can be executed without the permission of the firm’s Board of Directors and the acquirer can coordinate with the shareholders for taking over the firm.read more to the business targeted for acquisitionAcquisitionAcquisition refers to the strategic move of one company buying another company by acquiring major stakes of the firm. Usually, companies acquire an existing business to share its customer base, operations and market presence. It is one of the popular ways of business expansion.read more. The business may also resort through proxy routes and may acquire reasonable levels of shares, which is good enough to control the shareholders.
The Williams act comes into action when such a corporate event is triggered. As per the provisions of the laws, the acquiring company or the corporate raiderCorporate RaiderA corporate raider is an investor who benefits by buying a significant stake in an undervalued company either to influence the decision-making process or to sell it for a profit. The most common example is a change of the board of directors, helping them influence the vital decisions.read more has to file details of the tender offer with the securities and exchange commission. A copy is to be shared with the target business.
Additionally, the act requires sharing all disclosures with respect to the available information on the tender offer. They have to make a tender offer at a price that is above the current market priceMarket PriceMarket price refers to the current price prevailing in the market at which goods, services, or assets are purchased or sold. The price point at which the supply of a commodity matches its demand in the market becomes its market price.read more of the target business, approximately 15 to 20 percent.
Williams Act Section 13(d)
As per the section of the Williams Act, a prospective corporate acquirer has to file a Schedule 13D disclosure document with the securities and exchange commission. Schedule 13 d is basically a variant of the form available at the website of the securities and exchange commission. A prospective acquirer, either a business or an individual holding more than 5 percent of any class of the public traded entity, has to access this form from the securities and exchange commission and have to file it with them to meet the regulatory requirements.
The Schedule 13D is termed as a report of beneficial ownership. The schedule is regarded as a useful measure as it shares valuable information on ownership structure to new and prospective owners. The Schedule 13d would report the name of an acquirer, the amount or percentage of ownership in the company, and the intentions of the investors who have made such purchase, which generally exceed over 5 percent, and such a document has to file within ten business days.
Expansion of the Williams Act
The top professionals and experts have recommended that the Williams act requires review and expansion to meet the never-ending evolution process of corporate governanceCorporate GovernanceCorporate governance is a set of rules or practices through which an entity is directed and controlled to increase shareholders wealth by increasing the economic value and is concerned about its relations with various entity stakeholders.read more. They state that the act was in line with the 21st century, and specific provisions are now obsolete as per the modern time. The information on the mergers and shareholders is now readily available with the shareholders, whether they are new or existing holders.
Additionally, there has been a significant change in the demographics of the shareholdersShareholdersA shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. The ownership percentage depends on the number of shares they hold against the company's total shares.read more. Even the provisions that were meant to make tender offers ineffective are almost obsolete and ineffective in some way. The knowledge base of the shareholders has enhanced to an almost a new level and now has thorough knowledge with respect to the mergers and acquisitions. Moreover, there is an emergence of a new segment of shareholders that pursue investments actively and distinctively.
Importance
Williams Act is essential as it looks and works towards investor confidence. Harrison A. Williams, who was a senator from New Jersey, proposed the need to have legislation that protected the rights of the investors. There was a need for a law or legislation that mandated the trivial disclosures of information with respect to the takeover bidTakeover BidThe price offered by the acquiring company to the target company to purchase the company is known as a takeover bid. Such bids are typically placed by larger companies to buy smaller companies in the market and the bids can be in the form of cash, equity, or a combination of both.read more.
The law mandated the tender offers bidders to file all vital information relating to the offer to the securities and exchange commission, and a copy be shared with the target company. The filing should include the terms as well as covenants of offers, bidder plans towards the organization, and what are the sources of funds that the bidder utilized to take over the organization.
The act is critical in the sense that before its applicability, the shareholders were pressurized to accept the offer within the due period. They were in the situation whether they would accept the terms of the offer or not and how would the future of the business be after they take up the offer. The act safeguarded the investors from undue coercion and misleading statements or information.
Advantages
- It tames down the attempts of a hostile takeoverHostile TakeoverA hostile takeover is a type of acquisition of a target company by an acquiring company in which the target company's management is not in favour of the acquisition but the bidder still uses other channels to acquire the company, such as acquiring the company through tender offer by directly making an offer to the public to buy the shares of the target company at a pre-specified price that is higher than the prevailing market prices.read more by the corporate raider.
- It makes the process of acquisition of shares open and transparent as the corporate raider has to file the information release form and all disclosures to the business and the securities and exchange commission.
- It safeguards the interests of the shareholder.
- It provides the shareholder with a reasonable time to decide whether they want to undertake the offer or not.
- It additionally provides top management with a reasonable amount of time, whether it should accept the offer or not.
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