65 Pages Posted: 31 May 2002 Last revised: 10 May 2009
This paper argues that once undistorted shareholder choice is ensured - which can be done by making it necessary for hostile bidders to win a vote of shareholder support - boards should not have veto power over takeover bids. The paper considers all of the arguments that have been offered for board veto - including ones based on analogies to other corporate decisions, directors' superior information, bargaining by management, pressures on managers to focus on the short-run, inferences from IPO charters, interests of long-term shareholders, aggregate shareholder wealth, and protection of stakeholders. Examining these arguments both at the level of theory and in light of all available empirical evidence, the paper concludes that none of them individually, nor all of them taken together, warrants a board veto. Finally, the paper discusses the implications that the analysis has for judicial review of defensive tactics.
Keywords: corporate governance, corporate control, takeovers, mergers and acquisitions, takeover bids, tender offers, takeover defenses
JEL Classification: G30, G34, K22
Suggested Citation: Suggested Citation
Bebchuk, Lucian A., The Case Against Board Veto in Corporate Takeovers. University of Chicago Law Review, Vol. 69, pp. 973-1035, 2002; Harvard Law and Economics Discussion Paper No. 361, 2002. Available at SSRN: https://ssrn.com/abstract=314703 or http://dx.doi.org/10.2139/ssrn.314703