Bundling and Entrenchment

55 Pages Posted: 4 Aug 2009 Last revised: 12 Nov 2013

Lucian A. Bebchuk

Harvard Law School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)

Ehud Kamar

Tel Aviv University - Buchmann Faculty of Law; European Corporate Governance Institute (ECGI)

Date Written: January 1, 2010

Abstract

Because corporate charters can be amended only with shareholder approval, it is widely believed that new charter provisions appear in midstream only if shareholders favor them. However, the approval requirement may fail to prevent the adoption of charter provisions disfavored by shareholders if management bundles them with measures enjoying shareholder support. This Article provides the first systematic evidence that managements have been using bundling to introduce antitakeover defenses that shareholders would likely reject if they were to vote on them separately. We study a hand-collected dataset of 393 public mergers announced during the period from 1995 through 2007. While shareholders were strongly opposed to staggered boards during this period and generally unwilling to approve charter amendments introducing a staggered board on a stand-alone basis, the deal planners often bundled the mergers we study with a move to a staggered-board structure. In mergers in which the combined firm was one of the parties, a party’s odds of being chosen to survive as the combined firm were significantly higher if it had a staggered board and the other party did not. Similarly, in mergers that combined the parties into a new firm, the new firm was significantly more likely to have a staggered board than the merging parties. Overall, we demonstrate that management has the practical ability to use bundling to obtain shareholder approval for pro-management arrangements that shareholders would not support on a stand-alone basis. We discuss the significant implications our findings have for corporate law theory and policy.

Keywords: Bundling, entrenchment, staggered boards, mergers, charter amendments, charter provisions, shareholder voting, shareholder approval

JEL Classification: G30, G34, K22

Suggested Citation

Bebchuk, Lucian A. and Kamar, Ehud, Bundling and Entrenchment (January 1, 2010). Harvard Law Review, Vol. 123, No. 7, pp. 1551-1595, 2010; CELS 2009 4th Annual Conference on Empirical Legal Studies Paper; Harvard Law and Economics Discussion Paper No. 659; USC CLEO Research Paper No. C10-2. Available at SSRN: https://ssrn.com/abstract=1443512

Lucian A. Bebchuk

Harvard Law School ( email )

Cambridge, MA 02138
United States
617-495-3138 (Phone)
617-812-0554 (Fax)

HOME PAGE: http://www.law.harvard.edu/faculty/bebchuk/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)

Ehud Kamar (Contact Author)

Tel Aviv University - Buchmann Faculty of Law ( email )

Ramat Aviv
Tel Aviv 69978, IL
Israel
972-3-6407301 (Phone)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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