A federal judge in Los Angeles issued an order Monday halting Martin T. Sosnoff's $971-million takeover bid against Caesars World, at least until major revisions are made in his financing plan.
The order was issued after lawyers for Sosnoff and Caesars had argued extensively in court late last week.
The New York money manager was reported to be huddling with his lawyers late Monday, presumably to plan their next step. Although no spokesman was available, it appeared that Sosnoff would have to choose between a court appeal and a restructuring of the financing.
Meanwhile, U.S. District Judge William J. Rea also restrained Caesars World from proceeding with its special stockholders' meeting this Friday until it provides certain additional information on its own $960-million recapitalization plan.
It is expected that the revisions could postpone the meeting for about a month. The plan was made to counter Sosnoff's $35-a-share tender offer.
Sosnoff's acquisition of a large block of Caesars' stock on "excessive" margin credit as part of his financing "would place minority shareholders at risk of a rapid deflation of their stock," Judge Rea's order said.
The judge also found that Sosnoff's financing plan violated the Federal Reserve Bank's Regulation U, which provides that a purchaser may borrow no more than 50% of the funds used to purchase stock if that stock is to be pledged as security to the lender. The violation, said the judge, is in the plan to issue debt securities to raise $475 million of the purchase price for Caesars stock and to borrow almost $500 million in secured loans for the balance.
"Accordingly," his order found, "nearly all of (Sosnoff's) purchase will be financed with borrowings secured by Caesars stock in violation of Regulation U."
In enjoining Caesars at the same time, Rea ruled that Sosnoff had demonstrated a probability of being irreparably harmed by "incomplete and misleading statements" in Caesars' proxy materials. The special meeting was enjoined until 30 days after the company can circulate to shareholders supplemental proxy materials.
Caesars Studies Ruling
A Caesars World spokesman declined to comment on the court orders until its management and lawyers could study them.
In addition to the recapitalization proposal, several anti-takeover measures were scheduled for a vote at the meeting.
Caesars World, headquartered in Los Angeles, operates three casinos: Caesars Palace and Caesars Tahoe in Nevada and Caesars Atlantic City in New Jersey.
Sosnoff began his tender offer March 9 and has twice revised it upward from the initial $28 a share. The company has revised upward a proposed special cash dividend to $26.25 from $25.
Earlier Monday, the company disclosed a new message in which it urged its stockholders to reject Sosnoff's improved tender offer, as well as his campaign to delay their scheduled vote on that offer from Friday until June 24.
Caesars, in a letter to stockholders, said they could vote to receive a $26.25 cash dividend and still "keep 100% of their shares" under its own recapitalization proposal.
The alternative, the company said, is to "succumb to a tender offer in which only part of your shares will be purchased and your remaining interests will be exchanged for securities and cash on terms dictated by Sosnoff himself."
Sosnoff has been seeking to buy up to 26.5 million more Caesars shares for $35 each, which would boost his holding to 85.6% from the present 13.7%.
As reported last week, Sosnoff launched a mail proxy solicitation asking shareholders to vote at Friday's special shareholders' meeting to postpone the scheduled vote on the company's plan and on the anti-takeover measures. His offer had been set to expire June 19, a week after the meeting.
In a mail solicitation last month, Sosnoff failed to get enough proxies to unseat four top management officials from the Caesars board of directors.
"You should know that Sosnoff's tender offer has been continuing for three months without him being able to acquire even one share of Caesars stock," the latest company letter said, in reference to Sosnoff's effort to postpone the voting Friday. "His tender offer is still highly conditional, and you have absolutely no guarantee that Sosnoff will buy your shares if the shareholders meeting is adjourned and the recapitalization plans win shareholder approval.
"Under his new offer, Sosnoff has reduced the number of shares he is willing to buy from you--so that if he gains majority control you then have no assurance whatsoever as to how he will accommodate the balance of your holdings that he does not buy . . . ."