Takeover Bids Vs. Proxy Fights in Contests for Corporate Control
Lucian A. Bebchuk
Harvard Law School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)
Harvard University - Department of Economics; National Bureau of Economic Research (NBER)
ECGI - Finance Working Paper No. 04/2002
Harvard Law and Economics Discussion Paper No. 336
This paper evaluates the primary mechanisms for changing management or obtaining control in publicly traded corporations with dispersed ownership. Specifically, we analyze and compare three mechanisms: (1) proxy fights (voting only); (2) takeover bids (buying shares only); and (3) a combination of proxy fights and takeover bids in which shareholders vote on acquisition offers. We first show how proxy fights unaccompanied by an acquisition offer suffer from substantial shortcomings that limit the use of such contests in practice. We then argue that combining voting with acquisition offers is superior not only to proxy fights alone but also to takeover bids alone. Finally, we show that, when acquisition offers are in the form of cash or the acquirer's existing securities, voting shareholders can infer from the pre-vote market trading which outcome would be best in light of all the available public information. Our analysis has implications for the ongoing debates in the US over poison pills and in Europe over the new EEC directive on takeovers.
Number of Pages in PDF File: 41
Keywords: Corporate governance, corporate control, takeovers, proxy contests, mergers and acquisitions
JEL Classification: G30, G34, K22
Date posted: April 23, 2003 ; Last revised: May 8, 2009
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