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A New Approach to Takeover Law and Regulatory Competition

55 Pages Posted: 6 Feb 2001 Last revised: 29 Apr 2009

Lucian A. Bebchuk

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

Allen Ferrell

Harvard Law School; European Corporate Governance Institute (ECGI)

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Abstract

The paper puts forward a new approach to two corporate subjects that have been intensively debated in the last three decades, the regulation of takeovers and state competition in the production of corporate law. During this period, U.S. state takeover law has produced considerable and quite possibly excessive protection for incumbent managers from hostile takeovers. Although the shortcomings of state takeover law have been widely recognized, there has been little support for federal intervention because of the concern that such intervention might produce even worse takeover arrangements. This paper, however, identifies a form of federal intervention in the regulation of takeovers "choice-enhancing" intervention that would address these shortcomings without raising such a concern.

"Choice-enhancing" federal intervention would consist of two elements: (i) an optional body of substantive federal takeover law which shareholders would be able to opt into (or out of) and (ii) a mandatory process rule that would provide shareholders the right to initiate and adopt, regardless of managers' wishes, proposals for opting into (or out of) the federal takeover law. An alternative version of choice-enhancing intervention would provide a federal law requiring states to allow shareholders to initiate and approve opting out of anti-takeover arrangements provided by the state's law. We argue that such a federal role in takeover law cannot harm and would likely improve the regulation of takeovers. Moreover, by showing how federal law can be used to improve regulatory competition in the provision of takeover law rather than preempt it, our analysis lays the groundwork for a more general reconsideration of regulatory competition in the corporate law.

Keywords: Takeovers, mergers and acquisitions, corporate governance, regulatory competition

JEL Classification: G30, H70, K22

Suggested Citation

Bebchuk, Lucian A. and Ferrell, Allen, A New Approach to Takeover Law and Regulatory Competition. Virginia Law Review, Vol. 87, pp. 111-164, 2001 ; Harvard Law and Economics Discussion Paper No. 309. Available at SSRN: https://ssrn.com/abstract=257505 or http://dx.doi.org/10.2139/ssrn.257505

Lucian A. Bebchuk (Contact Author)

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)

Allen Ferrell

Harvard Law School ( email )

Griswold 303 1525 Massachusetts Avenue
Cambridge, MA 02138
United States
(617) 495-8961 (Phone)
(617) 495-1110 (Fax)

European Corporate Governance Institute (ECGI)

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

HOME PAGE: http://www.ecgi.org

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