Facilitating the Optimal Mechanism in Mergers & Acquisitions: A Comparative Perspective from the Commonwealth and United States

Abstract

This paper attempts to identify the salient economic features of M&A transactions that are relevant to takeover regulation. While attainment of the optimal mechanism in every instance may not be possible, we have suggested general guidelines as to how takeover regulation should move towards the optimal mechanisms that are applicable given real-world assumptions. With efficiency as the appropriate normative yardstick, we suggest the removal of defensive measures, the removal of Revlon-type duties and the enforcement of ex-ante deal protection measures as simple reforms that would substantially improve a given takeover regime. This represents the state of Singapore presently, which arguably has merged the best of the US and UK laws. The efficiency properties of the regime arise from the recognition of a proper purpose rule. Simply put, in cases where the exercise of a power would affect the strength and relative positions within the company of different sections or classes of shareholders, we should consider whether or not the power in the hands of directors was properly exercised in accordance with welfarist standards. This balancing process is vital in takeovers where the use of soft law and flexible standards are administered by a market regulator, as opposed to the use of specific rules, which are better implemented by courts.