Who Writes the Rules for Hostile Takeovers, and Why? The Peculiar Divergence of US and UK Takeover Regulation

74 Pages Posted: 8 Sep 2006 Last revised: 10 Dec 2018

See all articles by John Armour

John Armour

University of Oxford - Faculty of Law; University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

David A. Skeel

University of Pennsylvania Law School; European Corporate Governance Institute (ECGI)

Date Written: 2007

Abstract

Hostile takeovers are commonly thought to play a key role in rendering managers accountable to dispersed shareholders in the Anglo-American system of corporate governance. Yet surprisingly little attention has been paid to the very significant differences in takeover regulation between the two most prominent jurisdictions. In the UK, defensive tactics by target managers are prohibited, whereas Delaware law gives US managers a good deal of room to maneuver. Existing accounts of this difference focus on alleged pathologies in competitive federalism in the US. In contrast, we focus on the supply-side of rule production, by examining the evolution of the two regimes from a public choice perspective. We suggest that the content of the rules has been crucially influenced by differences in the mode of regulation. In the UK, self-regulation of takeovers has led to a regime largely driven by the interests of institutional investors, whereas the dynamics of judicial law-making in the US have benefited managers by making it relatively difficult for shareholders to influence the rules. Moreover, it was never possible for Wall Street to privatize takeovers in the same way as the City of London, because US federal regulation in the 1930s both pre-empted self-regulation and restricted the ability of institutional investors to coordinate. Our account has implications for debates about takeover regulation in both the US and the EU.

Keywords: hostile takeovers, history of corporate law, comparative corporate law, self-regulation, institutional investors, evolution of law, Anglo-American corporate governance

JEL Classification: G23, G34, G38, K22, N20, N40

Suggested Citation

Armour, John and Skeel, David A., Who Writes the Rules for Hostile Takeovers, and Why? The Peculiar Divergence of US and UK Takeover Regulation (2007). Georgetown Law Journal, Vol. 95, p. 1727, 2007; European Corporate Governance Institute (ECGI) - Law Working Paper No. 73/2006. Available at SSRN: https://ssrn.com/abstract=928928

John Armour (Contact Author)

University of Oxford - Faculty of Law ( email )

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HOME PAGE: http://www.law.ox.ac.uk/people/john-armour

University of Oxford - Said Business School ( email )

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Oxford, OX1 1HP
Great Britain

HOME PAGE: http://www.sbs.ox.ac.uk/about-us/people/john-armour

European Corporate Governance Institute (ECGI) ( email )

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

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

David A. Skeel

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-573-9859 (Phone)
215-573-2025 (Fax)

European Corporate Governance Institute (ECGI)

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

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