CTS Corp. v Dynamics Corp of America
S. Ct. 1987
Author: Sam Biers

Relevant Facts:   Under the Act acquisition of “control shares” by an entity occurs when, but for the Act, it acquires shares used to bring its voting power in the corporation to or above any of three thresholds, 20, 331/3, or 50%. Voting rights are granted by the majority of shareholders, and thereby control of a corporation is dependent upon approval of the majority of the pre-existing dis-interested shareholders.  Dynamics tendered an offer for a million shares in CTS as a  merger, CTS used the Act to block the acquisition.

Legal Issue(s): Whether the Control Share Acquisitions Chapter of the Indiana Business Corp. Law, which applies only to an Indiana issuing public corporation, violates the C. Cl?

Court’s Holding: No it does not violate the C. Cl.

Procedure: IN S. Ct. held the Act not in violation with Commerce CL. App Ct. held violated C. Cl.  S. Ct. Reversed.

Law or Rule(s): Congress shall have the sole power to regulate Commerce . . . .

Court Rationale: The Act has the same effect on tender offers whether or not the offeror is a domicillary or resident of IN, thus the effects are equal on interstate and local business. The IN Act does not create an impermissable risk of inconsistent regulation. Every State has enacted laws regulating corporate governance. It is well within the State’s role as overseer of corporate governance to offer this opportunity. If tenders are illusory or coercive the SEC determines such. The Constit. does not require the States to subscribe to any particular economic theory.  Ind. Has  a legitimate purpose of preserving corporations incorporated in IND.The Act does not prohibit any entity, resident or nonresident, from offering to purchase, or from purchasing shares in IND. Corporations, or from attempting to gain control. It only provides regulatory procedures to protect shareholders.  The commodity traded is the corporation, and it owes its existence to the state law it was formed under.

Plaintiff’s Argument: EE/Dynamics- The Act discriminates against nonresident shareholders, by subjecting them to barriers resident shareholders are protected from. The burden on commerce imposed by the Act is excessive in relation to the local benefits.

Defendant’s Argument: The Act evenhandedly determines the voting rights of shares of Ind. Corporations. \

putative - - reputed or supposed