Control Transaction Governance Collective Action and Asymmetric Information Problems and Ex post Judicial Policing

Abstract

Why, when and how should control transactions be policed ex post and by a judiciary? This article is the first to 1) articulate the doctrinal prerequisites for effective ex post judicial policing of fiduciaries in control transactions, and 2) theoretically unify two seemingly distinct approaches to police control transactions: the ex post judicial policing in the United States and the ex ante policing by the Takeover Panel in the United Kingdom. Shareholder collective action and asymmetric information problems, and the extent of gatekeeping by fiduciaries together determine the mode of third-party interventions, such as those by judiciaries and the Takeover Panel, in control transactions. The Article’s analysis yields normative conclusions about how judiciaries in the United States, including Delaware’s, should fine-tune gatekeeping by corporate fiduciaries in control transactions. It predicts that multijurisdictional shareholder litigation that seeks anticipatory adjudication will produce negative consequences. Further, it gives policy makers outside of the United States the theoretical foundation for crafting third-party interventions in both types of control transactions, i.e., third-party acquisitions of control and controller freeze-outs, that are optimal for their own jurisdictions. * Kenju Watanabe is a member of the New York State Bar Association. He was a partner at Skadden, Arps, Slate, Meagher & Flom LLP and Paul Hastings LLP focusing on M&As and a visiting scholar at Columbia Law School (2012–14). I wish to first thank Professor Curtis J. Milhaupt for his generosity and invaluable advice throughout the process of writing this paper and Professor Hideki Kanda who, among others, kindly introduced me to Professor Milhaupt. I also thank Professors Harry First and Charles Whitehead, who took interests in this project in its early stages and Professor Peter Mulbert, who, among others, very generously shared his European perspectives. I had conversations with Professor Michael Halberstam, who stresses the importance of civil procedure for corporate governance and has continued interests in this project. For helpful comments on prior drafts and discussion, I am equally grateful to other academics and practitioners, including William Allen, Thomas Allingham, John Armour, Steve Banker, Ed Duffy, Peter Halasz, Koichi Hamada, Takeo Inaba, Hajime Kanagawa, Shin Kikuchi, Etsuro Kuronuma, Hatsuru Morita, Hisashi Ohgaki, Kenichi Osugi, Maria Isabel Saez, Katsuhisa Shimbo, Toshihiko Shimizu, Masakazu Shirai, Wataru Tanaka, Akira Tokutsu, Hiroyuki Watanabe, Noriyuki Yanagawa, and Mitsuhiro Yasuda. Errors in this paper are all mine. The law firms of which the author was a member played roles in some of the cases cited in this paper. DOCUMENT1 (DO NOT DELETE) 2/10/2016 10:35 PM Northwestern Journal of International Law & Business 36:45 (2016)