CORPORATIONS-VOLUNTARY REORGANIZATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935-VALUATION OF STOCK OPTION WARRANT

Authors

William H. Bates, University of Michigan Law SchoolFollow

Abstract

Appellant corporation submitted a voluntary reorganization plan to the Securities and Exchange Commission pursuant to sections II(h)(2) and II(e) of the Public Utility Holding Company Act of 1935. The plan consisted of two parts. The first proposed consolidation of three of the appellant's subsidiaries into a newly formed operational company. The second part provided for dissolution of the appellant corporation, with the holders of securities therein being issued stock in the new corporation to the extent of the value of their interest in the appellant corporation. All the security holders of appellant were allowed participation in the securities of the new corporation except the holders of Class B stock option warrants, which, it was claimed, had no recognizable value. There were outstanding 497,191.5 of such option warrants, each of which entitled the holder to 1 1/6 shares of common stock upon the surrender of one warrant and payment of $50. Since 1932 the common stock had risen to a high of 18½ and had fallen to a low of % on the market. The high for the option warrants in the same period was 5 and the low was ¼. In 1949 the high option warrant market price was ¼ and the low, ¼. The SEC found there was no reasonable expectation that the holders of the option warrants would ever participate in the earnings of the appellant corporation; it approved the plan with minor modifications concerning other securities, and conditioned acceptance upon the order of the district court as allowed by statute. The district court ordered the plans carried out, but appellee, a holder of stock option warrants, secured review by the court of appeals under section 24(a) of the act. The court of appeals, holding that there was no substantial evidence to support the findings of the SEC in light of the market values, ordered the plan to be reconsidered. Held, on appeal to the United States Supreme Court, reversed. Niagara Hudson Power Corporation v. Leventritt, (U.S. 1951) 71 S.Ct. 341.

Recommended Citation

William H. Bates, CORPORATIONS-VOLUNTARY REORGANIZATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935-VALUATION OF STOCK OPTION WARRANT, 49 Mich. L. Rev. 1232 (1951).
Available at: https://repository.law.umich.edu/mlr/vol49/iss8/16