Redirecting State Takeover Laws at Proxy Contests

Abstract

During the 1980s, many states adopted statutes intended to regulate corporate takeovers. The Supreme Court validated one of these statutes, The Indiana Control Shares Acquisition Statute, in CTS Corp. v. Dynamics Corp., 481 U.S. 69 (1987), against both preemption and commerce clauses challenges. Since CTS, state takeover laws have routinely withstood constitutional scrutiny, even though it is generally acknowledged that, by erecting new barriers to hostile tender offerors, they make tender offers less attractive.

At the time this article was published (1992), proxy contests were becoming an increasingly important component of hostile takeover battles. Today, of course, proxy contests and various other forms of shareholder activism have become a common feature of the corporate governance scene.

This article considered whether state laws designed to regulate proxy contests would withstand constitutional scrutiny. It surveys whether such laws would be preempted by the federal proxy rules or the Williams Act’s tender offer regulations. It also briefly touches upon the Commerce Clause aspects of any such challenge. The article concludes that state regulation of proxy contests should withstand constitutional challenge.

Keywords: proxy contest, preemption, commerce clause, takeovers, proxy, constitution

JEL Classification: K22