Legal Definitions - Williams Act

The Williams Act is a federal law enacted in 1968 that updated the existing Securities Exchange Act of 1934. Its primary purpose is to ensure fairness and transparency in situations where investors acquire a significant portion of a company's stock or attempt to take over a company.

Specifically, the Williams Act imposes two main requirements:

• It requires investors who accumulate more than 5% of a company's voting shares to publicly disclose their identity, the number of shares they own, their purpose for acquiring the shares (e.g., for investment, or to seek changes in management), and the source of their funds to the U.S. Securities and Exchange Commission (SEC). This disclosure alerts other investors and the company's management to a significant new stakeholder and their potential intentions.
• It sets out specific rules and disclosure requirements that must be followed when an entity makes a "tender offer." A tender offer is a public offer to buy a company's shares directly from its shareholders, often at a premium price, as part of an attempt to gain control of the company. These rules ensure that shareholders receive comprehensive and timely information to make informed decisions about whether to sell their shares.

Here are some examples illustrating the Williams Act:

• Example 1: Individual Investor's Significant Stake

  Imagine a wealthy individual investor, Mr. Chen, believes that "GreenTech Innovations Inc." is undervalued and has strong growth potential. Over several months, he quietly purchases shares of GreenTech Innovations through various brokerage accounts. Once his total ownership stake in GreenTech Innovations reaches 5.2%, the Williams Act mandates that Mr. Chen must file a Schedule 13D with the SEC. This filing would publicly disclose his identity, the exact number of shares he owns, his intention (e.g., purely for investment, or perhaps to advocate for a change in company strategy), and how he financed the purchases. This ensures that GreenTech Innovations' management and other shareholders are aware of his significant influence and potential plans.

• Example 2: Corporate Takeover Attempt

  "MegaCorp Holdings" decides it wants to acquire "Innovate Solutions Inc." To achieve this, MegaCorp announces a tender offer, proposing to buy all outstanding shares of Innovate Solutions directly from its shareholders at a price significantly higher than the current market value. Under the Williams Act, MegaCorp must file detailed documents with the SEC. These documents would include the specific terms of the offer, MegaCorp's plans for Innovate Solutions if the takeover is successful, and financial information about MegaCorp itself. Innovate Solutions' board of directors also has the opportunity to respond to the offer, providing their recommendation to shareholders. This process ensures that Innovate Solutions' shareholders have all necessary information to evaluate the offer before deciding whether to sell their shares.

• Example 3: Investment Fund Accumulating Shares

  "Global Growth Fund," a large institutional investment firm, identifies "HealthCare Diagnostics Corp." as a promising investment. As Global Growth Fund gradually accumulates shares in HealthCare Diagnostics, once its ownership crosses the 5% threshold, it must comply with the Williams Act's disclosure requirements. If Global Growth Fund's intent is purely passive investment, it would file a Schedule 13G. However, if it intends to influence management or strategy, it would file a Schedule 13D. If, at a later point, Global Growth Fund decides to launch a tender offer to acquire a controlling interest in HealthCare Diagnostics, it would then also be subject to the Williams Act's specific rules governing tender offers, ensuring all HealthCare Diagnostics shareholders receive fair and timely information about the proposed acquisition.