## Facts

- McGraw-Hill shareholders filed consolidated derivative-style suits alleging McGraw-Hill and its directors made materially false or misleading public statements and omissions responding to American Express acquisition proposals.
- On January 8, 1979, American Express proposed a “friendly business combination” at $34 per share, or alternatively acquisition of up to 49% of McGraw-Hill’s shares; McGraw-Hill stock traded about $26 just before the announcement.
- On January 15, 1979, McGraw-Hill announced its board rejected the proposal and published a letter characterizing it as “reckless,” “illegal,” and “improper.”
- Plaintiffs alleged McGraw-Hill omitted that it had previously approached American Express about a possible merger and mischaracterized the American Express proposals.
- On January 16, 1979, American Express filed a Schedule 14D-1 stating an intention to make a cash tender offer for all McGraw-Hill shares, but the tender offer was never made.
- On January 29, 1979, American Express retracted its announcement and instead submitted a revised $40-per-share proposal conditioned on management’s agreement not to oppose it through “propaganda, lobbying, or litigation.”
- McGraw-Hill rejected the $40 proposal and publicly stated $40 per share was “inadequate.”
- Plaintiffs conceded no tender offer was ever made to shareholders but claimed the tender offer would have occurred absent defendants’ alleged misstatements and omissions, seeking damages under § 14(e) of the Williams Act.

## Issues

1. Whether shareholders may maintain a private damages action under § 14(e) when no tender offer was ever made to them and they were never in a position to tender their shares.

## Decision

- The Second Circuit affirmed dismissal for failure to state a claim.
- The court held shareholders cannot recover damages under § 14(e) where they concede no tender offer was ever made to them.
- Because no tender offer materialized, shareholders lacked the necessary transactional context to show actionable deception “in connection with” a tender offer.

## Legal Principles

- Section 14(e) targets fraudulent statements or omissions made “in connection with” an actual tender offer or closely related solicitations for or against such an offer.
- A § 14(e) damages theory requires a concrete tender-offer setting in which shareholders could act (e.g., tender or decide not to tender) based on the challenged disclosures.
- A presumption of reliance tied to material misstatements does not extend to a hypothetical or abandoned tender offer where no offer was made to shareholders.
- § 14(e) does not provide damages relief merely because alleged management statements may have discouraged a bidder from proceeding to an offer.

## Conclusion

The court limited § 14(e) damages liability to fraud connected to an actual tender offer or related solicitation and held that, absent any tender offer to shareholders, alleged misstatements opposing a proposed acquisition do not support a private damages action.


Lewis v. McGraw, 619 F.2d 192 (2d Cir. 1980)