Outside The Box

Family Feud

Take this simple quiz. If macho lifeguards dream of saving beautiful damsels from drowning, and brave firemen dream of saving terrified children from burning buildings, then creative securities lawyers must dream of saving (what) from (what)?

Text Box: Creative securities lawyers dream of saving corporations from hostile takeovers by bad guys. We have lives, too, you know.

Text Box: In 1976, I represented Bruce and John Lauritzen in staving off a hostile takeover of First National Bank of Omaha by John’s niece and nephew, along with two out-of-town bankers. On the professional level, I am especially proud of this representation because I am a wordsmith. This war was fought and won with words. On the personal level, I wonder what got into the niece and nephew to cause them to wage this war in the first place. I suspect they were mere pawns in a larger game of chess being played by their attorneys. Based upon the facts presented, you can decide: Were they pawns or players? My story is told from my viewpoint, but a whole team of Kutak Rock lawyers were involved, including Bob Kutak. Here’s my story:

           In 1976 as in every year, I wanted to do my Christmas shopping early, because I have a tendency to blow it off until the last minute. Instead I had an “interesting time” at Christmas, as described in the Chinese curse. My Christmas shopping would have to wait until Christmas Eve (once again.)

           After Thanksgiving, Bruce and John Lauritzen had made a tender offer for 30,000 shares of Common Stock of First National Nebraska, Inc., at $31.00 per share. On December 2, the Federal court in Omaha issued a Temporary Restraining Order which stopped  the tender offer cold in its tracks. The TRO was based upon a Complaint filed by Omaha attorney Steve Bloch representing John Lauritzen’s nephew, Tom Davis and the Baird Holm law firm representing John’s niece, Carol Davis Wells.

           The newspaper reported that Tom had contacted Bloch upon his receipt of the tender offer. Rather than telling Tom to make peace with his uncle, Bloch filed a Complaint seeking a Temporary Restraining Order. The Complaint was well constructed and demonstrates knowledge of the securities laws relating to tender offers. Carol and Tom wouldn't have been able to construct such complex arguments on their own, which is your first clue as to whether they were players or pawns.

           John and Bruce came to us because they realized that they needed representation by specialists in SEC law to sort out the substantive claims of the Complaint from the frivolous ones. Their previous counsel had made a few mistakes. We had a partner in the Corporate Finance Department who had been with the Enforcement Division of the SEC, which is the SEC’s police force. He had a lot of trouble taking his Government Cop hat off and adjusting to the realization that all our clients were not securities criminals. His suspicious attitude didn't normally sit well with clients, but he performed masterfully in this situation. My partner knew exactly who to contact at the SEC and what to say. Also, he knew how to deal with the Court in the hearing on the Complaint. We thought we had things under control. Little did we know we were about to be hit by an incoming Scud.

           First National dates back to 1857. Fred Davis and his son T.L. ran the bank from 1914 to 1948 and became the controlling shareholders. T.L. had two children, Elizabeth (who married John Lauritzen) and John Davis, who inherited equal interests in the Bank. John Davis and John Lauritzen were brothers-in-law and ran the Bank from their desks in the lobby for many years. Carol Davis Wells and Tom Davis, who filed the complaint, were John Davis’s children and are first cousins of Bruce Lauritzen and Ann Lauritzen Pape.

           John Davis died in 1972 and Tom quit his Bank job in 1973. Tom and John Lauritzen each told the World Herald that they were friendly until the filing of the tender offer. (Second clue.) Tom reportedly had no head for business (third clue) and no interest in the bank (fourth clue). The World Herald reported that he was described by friends as a “free spirit more interested in art than banking.” Tom left Omaha and moved to Sausalito, California.

           What Bloch and Baird Holm were doing to fuel the Scud was lining up two out-of-town bankers who would make a counter-tender offer for control of the Bank. Carol and Tom’s stock would be put into a voting trust (fifth clue) to enable the stock to be controlled by the bankers, who were the real parties at interest. Under their agreements, Carol and Tom could tender their stock to the Lauritzens if their side lost the battle, and the bankers involved were to receive $4 for each share Carol and Tom tendered (sixth clue).

           They fired their missile on December 10. It was a counter-tender offer for 130,000 shares at $40 a share—$9.00 more than the Lauritzen’s offer of $31. Someone opening the mail in the Bank Trust Department on Saturday, December 11, found the counter-tender and had the presence of mind to call Bruce.

           We were anticipating a hearing in Federal court at 9:00 a.m. on Monday, December 13. We assumed the TRO would be lifted on that day. We had sent a revised offering document to the printer on Friday to be printed over the weekend and mailed as soon as the hearing was over. All of that was now changed. We met all day on Saturday and Sunday. I would have to get those Christmas presents next week.

           We had extensive discussions about how to price the Lauritzen’s amended offer. It was customary to raise the price above the counter-tender level, which stood at $40. We talked about raising the price to $42, $45 or $47.50. I advocated, however, that we leave the price at $40, and use the Transmittal Letter of the Offering Document as a blank slate to tell our story. It was thinking outside the box, because the Transmittal Letter generally has a fixed format. I saw it as a place we could write anything we wanted to.

           Ultimately the people involved came to a consensus about going back to the shareholders at the same price of $40 a share that the other side had offered. We wanted the transmittal letter to be professional, while at the same time being folksy and colloquial. We wanted it to sound like John and Bruce dashed it off on the front porch with their No. 2 Ticonderoga pencils. But we wanted them to sound like bankers, not bumpkins. It was also important that we say everything we had to say in one page, because that’s all many people read.

           The resulting letter met all of our objectives. It was subtle. The first time the opponents’ names appeared, so did their home towns to reinforce that they were out-of-towners. Instead of saying “a voting trust would be established” we said colloquially that they were “in the process of setting up” a voting trust. Carol Davis Wells became Mrs. David Wells. Every word was thought through. The letter established the tone for further communications and press releases. I would be a liar if I said I wrote the letter myself, although I did the first draft. It was a group project in which Bruce and John were invaluable.
           We wanted to file our tender offer materials with the SEC before we appeared in court. We booked a Kutak lawyer on the last flight to Washington Sunday evening, which was a connection through Dallas. We called him with additional changes when he was changing planes. At the hearing we told the judge that the plaintiffs had made a counter-tender offer and the TRO was just a ploy to gain time. The case was dismissed.

           The other side responded to our revised offer by raising the offering price to $47.50. We amended our offer to the same price, and wrote another transmittal letter that began “By now you must be bewildered….We believe you deserve a full explanation of just what is going on.”

           When the dust had settled, we had bid for 60,000 shares at $47.50 and they had bid for 130,000 shares at the same price. Our strong letters resulted in 113,000 shares being tendered to us and only a handful being tendered to them. Of course, the letter would not have worked had it not been for the great reputation that the Lauritzen Family had built up in Omaha and among the shareholders over the years.

           We received the results of the tender offer on December 23, 1976, which gave me plenty of time to do my Christmas shopping.

Text Box: Postscript: Players or Pawns?

           There aren’t really good guys and bad guys in business; your clients are always the good guys. There is only legal and illegal and, for lawyers, ethical and unethical. The out-of-town bankers in this picture were not bad guys, because “business is business.” If you can take over a public corporation you do it. There are no issues of right or wrong. But the question remains, “Who masterminded all this?”

           I can’t see the out-of-town bankers coming to the lawyers and saying, “The Lauritzens are making a tender offer. Let’s round up the John Davis heirs and make a counter-tender together.” Logic and timing dictate it must have happened the other way around. Tom Davis approached Bloch and asked for advice on the tender offer. That’s documented by the paper. Carol approaches Baird Holm, perhaps the best known banking lawyers in the State. It’s easy to see how the lawyers could have orchestrated the takeover attempt together and sold their concept to Carol and Tom. It’s more difficult envisioning Carol and Tom hatching this scheme and approaching the out-of-town bankers. The paper paints Tom as unsophisticated in business and not interested in the Bank, and characterizes Carol as a housewife. They are not the kind of people a profiler would identify as corporate takeover artists.

           The key in my mind to the question of who orchestrated this is the voting trust. Carol and Tom tied up their stock in a voting trust for ten years and were only entitled to two out of five votes. How were they better off than they were as holders of shares that they could sell at any time and that they could vote? Apparently they were on good terms with their uncle and didn't want him “out at any cost.”

           Another mystery is why the $4 per share was payable by Carol and Tom if they lost the fight and tendered to their Uncle. Why would the out-of-town bankers want to be reimbursed by Carol and Tom if they lost? Think about it. What would be the biggest expense in a tender offer? Legal fees, of course. One can speculate that if the counter-tender was successful the out-of-town bankers would not have minded paying legal fees. But they might have balked at paying legal fees on a busted deal. So it is just possible that Carol and Tom were not only putting their shares into a voting trust, they were also the source of legal fees if the counter-tender failed. Tom, by the way, departed for Honolulu immediately after the counter-tender offer failed, and did not tender his shares to his Uncle so the $4 was never paid. Carol tendered some, but not all, of her shares.

           For lawyers, the First National Bank of Omaha would be an enormous prize. It would have represented large recurring annual revenue from the Bank itself, direct referrals of business by the trust and commercial banking departments and indirect business gained as a result of the prestige associated with representing the Bank.

           I am not accusing anyone of unethical or illegal behavior, and am not intending to imply that any existed. I’m just a tinkerer. I like to figure out what makes things tick.