A Helping Hand for Entrenched Managers
Wall Street Journal, November 4, 1987
6 Pages Posted: 10 May 2004
After slackening off during the recent market crash, takeovers are picking up. As a result, anti-takeover activity is due for a second wind as well. Congressional Democrats, eager to please the CEOs of some of our largest and worst-run corporations, are engaged in several tax and regulatory efforts. Existing requirements that purchasers disclose their holdings and intentions within 10 days of acquiring 5% or more of a company's shares already discourage tender offers unduly by creating free-rider problems. These onerous strictures would be tightened if Sen. William Proxmire's bill to further regulate tenders is passed. Under current law, purchasers who reach the 5% trigger point are required to file within 10 days a 13d report with the Securities and Exchange Commission, disclosing the identity of the owner, the number of shares owned, and the purpose of the acquisition. The Proxmire bill would require the 13d to be filed within five days of acquisition of 5% of a firm's shares and would prohibit further acquisition of shares until the 13d is filed.
While disclosure rules may appear to benefit shareholders by giving them quick access to valuable information, in fact they fundamentally damage both shareholders and security markets. Disclosure requirements are the security market's equivalent of an anti-patent law. They effectively deny private rights in valuable, privately produced information by forcing the producer to make that information public in a way that harms his interests. By doing so the regulations substantially reduce individual incentives to produce information. How does this happen?
Keywords: tender offers, Proxmire Bill, regulation, SEC, disclosure, 13d reporting, free rider problems, market for corporate control
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