Competing for Managerial Talent: What Antitrust Can Tell Us About Antitakeover Statutes

Abstract

This paper looks at the antitrust implications of state antitakeover statutes. After a wave of hostile takeovers in the 1980s, many state legislatures, lobbied by the managerial interests, enacted laws that made it more difficult for outsiders to take over target corporations. This, in turn, has led to inefficient entrenchment of management and adverse consequences for shareholders. This paper argues that such inefficiencies are inconsistent with the aims and purposes of antitrust laws. Hence, in so far as antitakeover statutes conflict with the goals of antitrust, the latter should trump the former.

The paper examines the controversy surrounding antitakeover legislation. The paper will discuss both the theories supporting strong managerial protection and the elimination of hostile takeovers and the theories supporting the claim that takeovers are a productive method of improving the control and management of assets.

The analysis of various antitakeover statutes and its effects on the market for corporate control is provided along with the discussion of whether antitakeover legislation decreases the shareholder value and unjustifiably entrenches targets' management. State legislatures, competing for corporate charters, have enacted stricter antitakeover legislation, giving the management rights that shareholders were not willing to give. Antitakeover defenses are numerous and extensive and allow managers to just say no without breaching their fiduciary duties.

Such legislation deprives shareholders of a substantial premium, protects inefficient management, and has negative effects on the national economy as a whole. This is contrary to the goals of efficiency that lay at the foundation of antitrust laws.

Keywords: antitrust, takeovers, antitakeover statutes

JEL Classification: K21, K22