## Facts

- A bidding group (MAI Basic Four, Choice Corporation, and Brooke Partners) launched a hostile tender offer to acquire Prime Computer, offering $20 per share.
- The bidders retained Drexel Burnham Lambert as financial adviser and as the principal architect and underwriter of acquisition financing.
- The transaction contemplated issuing roughly $875 million in high-yield debt to fund the offer and related restructuring.
- Drexel also would receive a minority equity interest in the post-transaction enterprise and had substantial economic incentives tied to the deal’s completion.
- Prime counterclaimed under the Williams Act, alleging the offer materials failed to provide required disclosures about Drexel because Drexel was effectively a “bidder.”
- The district court treated the counterclaim as seeking preliminary injunctive relief and enjoined consummation of the tender offer, then continued the injunction after concluding additional Drexel-related disclosures were required.
- The bidders appealed the continuation of the preliminary injunction.

## Issues

1. Whether an investment bank acting as adviser, financier, underwriter, and minority investor in a tender offer may be treated as a “bidder” under § 14(d) of the Williams Act and SEC Rule 14d-1(b)(1) even without seeking majority ownership.
2. Whether the district court committed legal error or abused its discretion by continuing a preliminary injunction blocking the tender offer pending further disclosures about Drexel.

## Decision

- The First Circuit affirmed the continued preliminary injunction.
- The court held Drexel could be treated as a “bidder” in light of the transaction’s practical realities, despite Drexel’s minority equity position.
- Because bidder status triggered broader disclosure duties under the Williams Act and SEC rules, the district court acted within its discretion in requiring additional Drexel-related disclosures before allowing the offer to proceed.

## Legal Principles

- A “bidder” includes any person who makes a tender offer or on whose behalf a tender offer is made; the determination turns on the practical substance of the deal, not a fixed ownership-percentage test.
- Bidder status may extend to a financier/underwriter with a central role in structuring and funding the transaction and a significant economic stake, even if it will not hold a controlling equity interest.
- Williams Act disclosure provisions are interpreted to ensure target shareholders receive full and fair information material to the tender decision, including about key participants whose incentives and financial condition may affect the transaction.
- Appellate review of a preliminary injunction is for error of law or abuse of discretion; where a disclosure claim shows a likelihood of success and inadequate disclosure risks irreparable harm, an injunction pending corrective disclosures may be appropriate.

## Conclusion

The court upheld injunctive relief requiring additional tender-offer disclosures, ruling that an investment bank deeply involved as the deal’s principal financier and underwriter could be treated as a Williams Act “bidder” based on the transaction’s real-world structure and the statute’s investor-protection purpose.


MAI Basic Four, Inc. v. Prime Comput., Inc., 871 F.2d 212 (1st Cir. 1989)