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The Illinois Business Take-Over Act, Ill. Rev. Stat., ch. 121 1/2, para. 137.51 et seq. (1979), is unconstitutional under the test of Pike v. Bruce Church, for even when a state statute regulates interstate commerce indirectly, the burden imposed on that commerce must not be excessive in relation to the local interests served by the statute.
The Illinois Business Take-Over Act requires a tender offeror to notify the Secretary of State and the target company of its intent to make a tender offer and the terms of the offer 20 days before the offer becomes effective. During that time, the offeror may not communicate its offer to the shareholders, but the target company is free to disseminate information to its shareholders concerning the impending offer. The Act also requires any takeover offer to be registered with the Secretary of State. A target company is defined as a corporation of which Illinois shareholders own 10% of the class of securities subject to the takeover offer or for which any two of the following conditions are met: the corporation has its principal office in Illinois, is organized under Illinois laws, or has at least 10% of its stated capital and paid-in surplus represented within the State. An offer becomes registered 20 days after a registration statement is filed with the Secretary of State unless he calls a hearing to adjudicate the fairness of the offer. Appellee MITE Corp., a corporation organized under Delaware laws with its principal office in Connecticut, initiated a tender offer for all outstanding shares of Chicago Rivet & Machine Co., an Illinois corporation, by filing with the Securities and Exchange Commission the schedule required by the Williams Act. MITE, however, did not comply with the Illinois Act, and brought an action in Federal District Court seeking a declaratory judgment that the Illinois Act was pre-empted by the Williams Act and violated the Commerce Clause, and also seeking injunctive relief. The District Court issued a preliminary injunction prohibiting enforcement of the Illinois Act against MITE's tender offer. MITE then published its offer. Subsequently, the District Court issued the requested declaratory judgment and a permanent injunction. Shortly thereafter, MITE and Chicago Rivet entered into an agreement whereby both MITE's tender offer and an offer made by Chicago Rivet before the District Court entered its judgment were withdrawn and MITE was given a specified time to make another offer. Ultimately, MITE decided not to make another offer. The Court of Appeals affirmed the District Court.
Was the Illinois Business Take-Over Act unconstitutional under the Commerce Clause?
The Court held that the Act was unconstitutional under the Commerce Clause, but it failed to reach a majority decision on the Supremacy Clause issue. The Act provided that any takeover offer for shares of a target company had to be registered with the Secretary of State, and a target company could be a corporation not incorporated in Illinois, or not having its principal place of business in the state. The Court held that this violated the Commerce Clause under its decision in Pike v. Bruce Church, which established that, even when a state statute regulated interstate commerce indirectly, the burden imposed on that commerce could not be excessive in relation to the local interests served by the statute. According to the Court, the statute's application to out-of-state corporations imposed a burden on interstate commerce that was not outweighed by the state's interests in protecting resident security holders and regulating the internal affairs of companies incorporated in Illinois.