Abstract
The development of U.S. state takeover law in the past three decades 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 puts forward a novel form of federal intervention in the regulation of takeovers that would address these shortcomings without raising such a concern. Rather than mandating particular substantive takeover arrangements, this form of federal intervention would focus on increasing shareholder choice. 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. 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 area.
Highlights
The development of U.S state takeover law in the past three decades has produced considerable — and quite possibly excessive — protection for incumbent managers from hostile takeovers
This paper offers a new approach to two corporate law subjects that have been among the most intensively debated in the last quarter of a century — the competition between states in the production of corporate law and takeover regulation
We identify in this paper a new form of federal intervention that can address this potential problem with state competition in the provision of takeover regulation without imposing any mandatory substantive arrangements
Summary
The development of U.S state takeover law in the past three decades has produced considerable — and quite possibly excessive — protection for incumbent managers from hostile takeovers. "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. We argue that such a federal role in takeover law cannot harm — and would likely improve — the regulation of takeovers. 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 are
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