The Williams Act, which was passed by the United States Congress in 1968, amended the Securities Exchange Act of 1934 in order to address cash tender offers and mandate disclosure of information when such offers are made for stock purchases. The act was deemed necessary because, during the 1960s, a large number of corporate takeovers occurred unannounced. The unannounced tender offers caused problems because it forced stockholders 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 U.S., tender offers gained popularity over the other form of takeover proceedings, proxy campaigns, because they could be executed quickly. They were alluring because the involved large sums of cash. Proxy campaigns involve swaying enough voting stockholders to take control of the companies board of directors. This takes much more time than tender offers, and proxy campaigns are often sabotaged by other board members who want to retain control of the corporation.
The Williams Act dictates that any person or group offering to purchase a company for a cash price must register the offer with the U.S. Securities and Exchange Commission. Not only must the value of the offer be disclosed, but also the source of the founds, why the offer is being made, what plans the purchasers have for the newly acquired company and any contracts or understandings that have been formed in regard to the target corporation. In addition to cash tender takeovers, anyone who seeks to acquire more than five percent of a corporation also must file their purchase with the Securities and Exchange Commission, and this information is then made available to shareholders and investors.
The Williams Act also outlaws any use of false, incomplete or misleading statements when making a cash tender offer. The act seeks to increase transparency of stock purchases for the good of the investing and general public. The act also enabled the SEC to file lawsuits against those making cash tender offers in order to encourage forthright investing practices. With the proliferation of complex derivatives trading, however, many people have sought to interpret the Williams Act liberally and open loopholes in the legislation. The SEC then attempts to close the loopholes.