Hostile Share Acquisitions and Corporate Governance: A Framework for Evaluating Antitakeover Activities
84 Pages Posted: 8 Jul 2011 Last revised: 29 Jul 2011
Date Written: January 1, 1986
In recent years, there has been a significant increase in the number of hostile share acquisitions of American businesses. The authors examine the validity of the various defensive measures employed by target companies to defeat or deter a hostile takeover bid. They argue that antitakeover activity should not be viewed as a separate subset of legal analysis; rather, it should be analyzed according to four traditional principles of corporate governance: (1) the discretion afforded corporate management by the business judgment rule; (2) the prohibition against discriminating between members of the same class of shareholders; (3) the prohibition against shifting control from the shareholders to the board of directors for actions reserved by statute to the shareholders; and (4) the prohibition against shifting control from a majority to a minority of shareholders for decisions reserved by statute to the majority.
Moreover, the authors assert that even if a court uses these principles of corporate government as the basis for its decision, the court's analysis is still incomplete if it focuses only on the target board's initial decision to resist a hostile share acquisition. Rather, a court must undertake a two-step analysis, whereby it looks first at the target board's initial decision to resist the hostile takeover, and second, to the means employed by the target board to effectuate that decision.
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