I Told You So

Abstract

I am informed by my betters, of whom there are many, that it is unseemly to say "I told you so." But, I told you so. Back in 1988, a mere quarter of a century ago, when Delaware's legislature was debating the merits of Section 203, and while I had the privilege of serving as a Commissioner of the United States Securities and Exchange Commission, I wrote a series of three letters to the Corporate Law Section of the Delaware State Bar Association. All three letters sought to make a single, simple point: Section 203's exemption threshold that was originally proposed be set at 90%, and that was later reduced to 85%, was far too high. Based on the empirical data available as of 1988, it was highly improbable that bidders would, in any material number of cases, be able to achieve those thresholds. A more realistic, though still ambitious threshold might, I suggested, be set at 75%. Professor Subramanian's important article picks up the story from 1988 and makes the point that Section 203's exemptive threshold has indeed been set at a level that has made it impossible for any transaction to qualify. He ably documents that "between 1990 and 2010, not a single bidder was able to achieve the 85% threshold required by Section 203." He also documents that the empirical evidence on which courts have previously relied in judging the constitutionality of Section 203 is fatally flawed, and that when subject to careful examination actually underscores the historic impossibility of achieving Section 203's 85% exemption threshold. From these observations, Professor Subramanian argues that Section 203 could well be unconstitutional and suggests that to avoid such a finding, Delaware consider amending Section 203 to lower the exemptive threshold to 70%. In commenting on Professor Subramanian's insightful analysis, I will initially take a historical perspective and then follow that up with a realpolitik analysis of the policy implications that follow from the data. As readers will observe, my conclusion is that even if Professor Subramanian's empirical analysis is precisely correct, as I believe it is, the probability that Delaware will sua sponte amend Section 203 is quite low, and the probability that courts will rule Section 203 to be unconstitutional is subject to a set of legal judgments that are difficult to predict on the current record.

Keywords: Delaware, Journal, Corporate, Law, Joseph, Grundfest, I, Told, You, So, Section 203, Exemption, Threshold