Balancing Law and Economics: The Case of Partial Takeovers

Abstract

Approaches to the regulation of partial takeovers differ significantly among countries. The author reviews the regulatory approaches adopted in a number of countries noting that statutory amendments in Australia have virtually eliminated partial takeovers in that country. The justifications for partial takeovers are evaluated, most notably the argument that partial takeovers are an essential part of an active market for corporate control which, in turn, is necessary to ensure competent management of companies. Opposing arguments include the possible exploitation of remaining minority shareholders by the new controlling shareholder and the alleged coercive nature of partial takeovers. Empirical evidence is utilised to challenge the assumption that partial takeovers are inevitably coercive. The author concludes that while most discussion on partial takeovers has centred upon the need to protect the shareholders of target companies, a broader inquiry, which considers the effects of partial takeovers on other interested groups, including creditors, employees and also shareholders in acquiring companies, is required.