E.On Ag v. Acciona, S.A.

468 F.Supp.2d 559

E.ON AG, E.ON Zwölfte Verwaltungs GmbH and BKB AG, Plaintiffs, v. ACCIONA, S.A. and Finanzas Dos, S.A., Defendants.

No. 06 Civ. 8720(DLC).

United States District Court, S.D. New York.

January 9, 2007.

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Rory O. Millson, Rowan D. Wilson, Gary A. Bornstein, Cravath, Swaine & Moore LLP, New York, NY, for Plaintiffs.

Theodore N. Mirvis, Rachelle Silverberg, Stephen R. DiPrima, William Savitt, Wachtell, Lipton, Rosen & Katz, New York, NY, for Defendants.

OPINION AND ORDER

COTE, District Judge.

A tender offer battle is ongoing in Spain, but not without active litigation in the Southern District of New York. German plaintiffs have brought suit against Spanish defendants, accusing them of violating United States securities laws when they acquired over 13% of a Spanish issuer's stock by purchasing it from investors in this country and abroad. The plaintiffs seek to have the defendants' buying program — which ran for less than two hours — declared an unconventional tender offer, even though it would not be classified as a tender offer in Spain. The plaintiffs hope to obtain court-ordered rescission of the sales and thereby neutralize the defendants in the tender offer battle for the issuer's stock that plaintiffs are waging in Spain.

The defendants have moved to dismiss the plaintiffs' claim, which is pleaded under Section 14(d), 15 U.S.C. § 78n(d) ("Section 14(d)") and Section 14(e), 15 U.S.C. § 78n(e) ("Section 14(e)") of the Securities Exchange Act of 1934 ("Exchange Act"). Most notably, the motion raises the issue of the extent to which the unconventional tender offer doctrine has survived the significant revisions made to the tender offer regulations in 2000, particularly in the context of a cross-border transaction in which an investor takes a stake in a foreign private issuer. As this Opinion explains, the plaintiffs have succeeded in showing that there is subject matter jurisdiction over this dispute, and have stated a claim under Section 14. The review of the merits of plaintiffs' claims and their request for rescission — which defendants urge this Court to undertake now — must await future proceedings.

The European companies are engaged in a battle for control of Spain's largest electrical utility, Endesa, S.A. ("Endesa"), a company whose shares are traded in the United States as American Depository Shares ("ADSs"). See E.ON AG, v. Acciona, S.A., 468 F.Supp.2d 537, 539-40, No. 06 Civ. 8720(DLC), 2006 WL 3357261, at *1 n. 2 (S.D.N.Y. Nov.20, 2006) ("November 20 Opinion") (describing ADS system). Plaintiffs E.ON AG, E.ON Zwölfte Verwaltungs GmbH and BKB AG (collectively "E.ON") are German power and gas companies that have announced their intention to make a tender offer for Endesa. Defendants Acciona, S.A. and Finanzas, S.A. (collectively "Acciona") are Spanish and international corporations engaged in the development and management of infrastructures, services, and renewable energies. They acquired over 10% of the equity of Endesa through a "block trade" on the Madrid stock exchange.

E.ON contends that Acciona was required to file a Schedule TO-T at the time of the stock acquisition because it constituted a tender offer. Among other things, E.ON requests a preliminary injunction enjoining Acciona from purchasing or making any arrangements to purchase any more Endesa securities, requiring Acciona to vote its Endesa shares in the upcoming tender offer battle in proportion to the votes cast by the remaining Endesa shareholders; and requiring Acciona to offer withdrawal rights, through an offer of rescission open for twenty days, to all shareholders who sold shares to Acciona in response to the alleged Acciona tender offer.

Background

The battle for control of Endesa has already been described in the November 20 Opinion, 2006 WL 3357261, and in a second Opinion issued in a related case, Gas Natural v. E.ON AG, 468 F.Supp.2d 595, No. 06 Civ. 13607(DLC), 2006 WL 3734425 (S.D.N.Y. Dec.19, 2006) ("December 19 Opinion"). The following facts are drawn from the complaint in the instant lawsuit and the parties' submissions on both the defendants' motion to dismiss the plaintiffs' Section 14 claim and the plaintiffs' amended motion for a preliminary injunction. The submissions include five depositions,¹ an expert declaration on Spanish law by Juan Fernández-Armesto, Professor of Commercial Law at the Universidad Pontificia Comillas-Icade in Madrid; an expert declaration on Italian law by Carlo Amatucci, Professor of Commercial Law at the University of Naples Federico II; expert declarations from Professor John C. Coffee, Jr., Adolf A. Berle Professor of Law and Director of the Center of Corporate Governance at Columbia University Law. School;² and authenticated documents.

A. Gas Natural and E.ON Bids for Endesa

On September 5, 2005, Gas Natural SDG, S.A. ("Gas Natural"), the largest supplier of natural gas in Spain, announced an intention to commence a tender offer for Endesa at Q22 per share, which was below the price at which Endesa's shares were trading at the time. Endesa strongly opposed Gas Natural's bid.

On February 21, 2006, E.ON announced its intention to launch a competing all cash tender offer for Endesa securities for Q27.5 per share, worth a total of Q29.1 billion. While Endesa has not made a formal recommendation on E.ON's proposed bid, on March 8, it filed with the Securities and Exchange Commission ("SEC") a Schedule 14D-9A in which it officially recommended that its shareholders reject Gas Natural's offer. Between March 21 and April 26, Gas Natural's bid was enjoined by Spanish courts to resolve, inter alia, antitrust concerns.

On July 27, the Spanish National Energy Commission ("CNE") "approved" E.ON's bid subject to nineteen conditions. By November 4, the CNE had lifted each of the conditions to which E.ON objected and on November 16, the Spanish securities regulator, the Comisión Nacional del Mercado de Valores ("CNMV"), "approved" E.ON's proposed tender offer.

Since there are currently two bidders for Endesa—Gas Natural and E.ON—the CNMV is required by. Spanish law to organize a closed envelope auction. The CNMV will issue a notice permitting Gas Natural and E.ON a single opportunity to submit simultaneously their final, sealed bids for Endesa's shares within five days from the date of the CNMV's notice. If there is more than one sealed bid, the CNMV will announce the winner of the sealed bid process the following day. The winner will then be permitted to commence formally its tender offer and acquire Endesa shares. The auction may occur as early as this month.

B. Acciona's Arrangement with Santander to Purchase Endesa Shares

On September 25, Acciona acquired over 13% of Endesa's outstanding stock for Q32 per share, a price 9% above Endesa's closing price on that same day, Q29.4. This was also significantly higher than both the Gas Natural and E.ON proposed bid prices. Banco Santander Central Hispano, S.A. ("Santander"), Spain's largest bank; Bear, Stearns & Co., Inc. ("Bear Stearns"), an American investment firm, and Fidentis Equities ("Fidentis")³ assisted Acciona in identifying and securing sellers of Endesa securities in the United States and Europe during the course of several hours after the Spanish stock exchange closed on September 25.

Discussions between Acciona and Santander regarding the arrangements to purchase Endesa securities began at least as early as September 16. On September 19, Santander developed a script for its salespeople, which highlighted the "premium" price that an unnamed "Spanish industrial group" was offering for Endesa shares. Santander and Acciona agreed that if Santander's solicitation succeeded in attracting more than 10% of Endesa securities, Acciona would acquire the first 10% and the rest would become subject to a "Total Return Swap" in which Santander would hold the shares for eventual transfer to Acciona.⁴

In a Stock Purchase Order ("Order"), Acciona directed Santander to "contact entities that, depending on their knowledge of the market, may hold packages associated with [Endesa] shares" and to "ask them to prepare sell offers indicating the number of shares they are planning to sell at the price in question." According to the Order, the book building procedure would take place between 5:40 p.m. on September 25 and 8:30 a.m. on September 26, Madrid time, through communications that would not be "substantially different" from a script outlined in Addendum 1 of the Order. The Addendum explained that:

— The operation consists of a book building of sell offers on ENDESA shares for up to 10% of its capital.

— The buyer is a Spanish Company of the first rate property sector. It does not have stock purchase agreements with any of the parties involved in the OPA Public Offering. It does not plan on formulating an OPA,⁵ but rather to assume a strategic position.

— Price: 32Q/share

— Offer submission period: 5:40 a.m. [sic] on the 25th until 8:30 a.m. on the 26th, unless there is an extension or early termination.

— Offers may not be conditioned on more than the price and sale of the total number of shares included in it.

— Once the book building is closed, a determination will be made as to whether the goal has been reached (10% at 32Q/share) and if so, confirmation will be sent about the operation for it to be executed.

— The client reserves the right to terminate the process in the event of risk of having its identity disclosed before the operation is closed.

The terms contained in Addendum 1 were non-negotiable. The Stock Purchase Order indicated that if the required 10% minimum was not attained at the stipulated price of Q32 per share, the order would be null and void. If successful, Acciona would pay Santander a commission of .8%. The Stock Purchase Order also specified that Acciona's identity must not be disclosed until the operation was...