Williams Act

A federal act, passed in 1968, that defines the rules in regards to acquisitions and tender offers.

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In the 1960s, a large number of takeovers occurred unannounced. This created difficulties for managers and stockholders who were forced to make crucial decisions with very little preparation.

The Williams Act was created in order to protect investors from these occurrences. The bidders must include all details of their tender offer in their filing to the SEC and the target company. Their file must include the terms, cash source, their plans for the company after takeover, etc. There are also time constraints that stipulate the minimum period of time the offer may be open and the number of days after the offering in which shareholders have the right to change their minds.

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Federal legislation enacted in 1968 that imposes requirements with respect to public Tender Offers. It was inspired by a wave of unannounced Takeovers in the 1960s, which caught managers unawares and confronted stockholders with decisions they were ill prepared to make, The Williams Act and amendments now comprise Sections 13(d) and 14(d) of the Securities Exchange Act of 1934. The law requires the bidder opening a tender to file with both the Securities and Exchange Commission and the Target Company a statement detailing the terms of the offer, the bidder's background, the cash source, and his or her plans for the company if there is a takeover. The same information is required within 10 days from any person or company acquiring 5% or more of another company. The law mandates a minimum offering period of 20 days and gives tendering shareholders 15 days to change their minds. If only a limited number of shares are accepted, they must be prorated among the tendering stockholders. See also Saturday Night Special.

A 1968 federal law that amended the Securities and Exchange Act of 1934 (15 U.S.C.A. § 78a et seq.) to require mandatory disclosure of information regarding cash tender offers.

When an individual, group, or corporation seeks to acquire control of another corporation, it may make a tender offer. A tender offer is a proposal to buy shares of stock from the stockholders for cash or some type of corporate security of the acquiring company. Since the mid-1960s, cash tender offers for corporate takeovers have become favored over the traditional alternative, the proxy campaign. A proxy campaign is an attempt to obtain the votes of enough shareholders to gain control of the corporation's board of directors.

Because of abuses with cash tender offers, Congress passed the Williams Act in 1968, whose purpose is to require full and fair disclosure for the benefit of stockholders, while at the same time providing the offeror and management equal opportunity to fairly present their cases.

The act requires any person who makes a cash tender offer (which is usually 15 to 20 percent in excess of the current market price) for a corporation that is required to be registered under federal law to disclose to the federal Securities and Exchange Commission (SEC) the source of the funds used in the offer, the purpose for which the offer is made, the plans the purchaser might have if successful, and any contracts or understandings concerning the target corporation.

Filing and public disclosures with the SEC are also required of anyone who acquires more than 5 percent of the outstanding shares of any class of a corporation subject to federal registration requirements. Copies of these disclosure statements must also be sent to each national securities exchange where the securities are traded, making the information available to shareholders and investors.

The law also imposes miscellaneous substantive restrictions on the mechanics of a cash tender offer, and it imposes a broad prohibition against the use of false, misleading, or incomplete statements in connection with a tender offer. The Williams Act gives the SEC the authority to institute enforcement lawsuits.

See: mergers and acquisitions.