The European Takeover Directive: A US Comparison

Abstract

The respective laws of the United States and the European Union regulating takeovers could not be more dissimilar. Under US state law, boards of directors have enormous power to make business decisions, whether those are everyday decisions or less common decisions on takeovers. Federal laws on takeovers are concerned primarily with disclosure and do little to constrain directorial reaction to takeover offers. Similarly, state statutes regulating takeovers tend to empower target directors to resist hostile bids and general corporate statutes authorize the implementation of powerful defensive measures. Further, state common law, specifically the law of Delaware, places few restrictions on directorial ability to resist hostile bids due to its lenient regulation of defensive tactics under state fiduciary duty law. The net effect is that under US law, directors have great power in the takeover context. The European Union approach under the Takeover Directive is vastly different from the US approach with the breakthrough rule and the requirement of board neutrality, among others, placing far more restraints on directorial behavior. The difference in approach towards takeover regulation highlights beliefs about how best to regulate the market for corporate control and how to structure an efficient takeover regime. This paper describes the basic framework of the US approach towards takeover regulation; it does not attempt to capture all of the nuances of the extraordinary amount of scholarly research and discourse on the topic. It aims to provide a sufficient overview of governing law to enable meaningful comparison of the differences between the US and the EU approach. It discusses the variety of sources of US law relevant to takeovers, including federal and state statutes, and judicial decisions interpreting common law duties of directors (and others). The consideration of these sources reveals critical differences in approach towards takeover regulation between the US and the EU.