PILLS AND PARTISANS: UNDERSTANDING TAKEOVER DEFENSES

Corporate takeover defenses have long been a focal point of academic and popular attention. However, no consensus exists on such fundamental questions as why different corporations adopt varying levels of defenses and whether defenses benefit or harm target corporations' shareholders or society...

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Bibliographic Details
Published in:University of Pennsylvania law review 2012-02, Vol.160 (3), p.633-713
Main Authors: Barry, Jordan M., Hatfield, John William
Format: Article
Language:English
Subjects:
Acquisitions & mergers
Business structures
Commercial law
Corporate anti-takeover measures
Corporate regulation
Corporate synergy
Corporation law
Corporations
CORPORATIONS LAW
Expected utility
Legal defense
Modeling
Pills
Public welfare
Shareholder rights plans
Shareholders
SHARES AND SHAREHOLDERS
SOCIAL WELFARE
Stockholders
Tender offers
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Summary:Corporate takeover defenses have long been a focal point of academic and popular attention. However, no consensus exists on such fundamental questions as why different corporations adopt varying levels of defenses and whether defenses benefit or harm target corporations' shareholders or society generally. Much of the disagreement surrounding takeover defenses stems from the lack of a fully developed formal analytical framework for considering their effects. Our Article presents several formal models built upon a common core of assumptions that together create such a theoretical framework. These models incorporate the reality that target corporate insiders have superior information about the target but are imperfect agents of its shareholders. They suggest that modern defenses enable target shareholders to extract value from acquirers by empowering corporate insiders, but that takeover defenses do not benefit society as a whole. They also help explain why corporations with different characteristics may choose to adopt varying levels of takeover defenses. Our findings have implications for the longstanding debate about who is best served by state-level control of corporate law and the desirability of increased federal involvement in corporate law.
ISSN:0041-9907
1942-8537