What’s the Williams Law?

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The Williams Act was passed in 1968 to address unannounced corporate takeovers, requiring disclosure of information for cash tender offers and prohibiting false statements. It also mandates registration of offers with the SEC and filing of purchases over 5% of a company. The act aims to increase transparency and prevent loopholes.

The Williams Act, passed by the United States Congress in 1968, amended the Securities Exchange Act of 1934 to address cash tender offers and mandate the disclosure of information when such offers are made to purchase stock. The act was deemed necessary because, during the 1960s, a large number of corporate takeovers occurred without warning. The unannounced takeover bids have caused problems because they have forced shareholders and fund managers to make decisions quickly without being able to process all of the information associated with such complicated business deals. The Williams Act is named after Senator Harrison Williams, of New Jersey, who introduced the legislation.

During the 1960s in the United States, takeover bids gained popularity over the other form of takeover proceedings, proxy campaigns, because they could be executed quickly. They were alluring because they involved large sums of money. Proxy campaigns involve swinging enough voting shareholders to take control of the company’s board of directors. This takes much longer than takeover bids, and proxy campaigns are often sabotaged by other board members who want to keep control of the company.

The Williams Act mandates that any person or group offering to buy a company for cash must register the offer with the US Securities and Exchange Commission. Not only must the value of the offer be disclosed, but also the source of the funds, the reason why the offer is being made, what plans the buyers have for the newly acquired company and any agreements or arrangements entered into about the company goal. In addition to cash auction buyouts, anyone seeking to acquire more than five percent of a company must also file their purchase with the Securities and Exchange Commission, and this information is then made available to shareholders and investors.

The Williams Act also prohibits the use of false, incomplete or misleading statements when making a cash purchase offer. The law aims to increase the transparency of stock purchases for the benefit of investors and the general public. The act also allowed the SEC to file lawsuits against those making cash tender offers in order to encourage forthright investment practices. With the proliferation of trading in complex derivatives, however, many people have sought to loosely interpret the Williams Act and open loopholes in the legislation. The SEC then attempts to close the loopholes.




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