Abstract
This Reply develops and defends our earlier analysis of the powerful antitakeover force of staggered boards. We reply to five responses to our work, by Stephen Bainbridge, Mark Gordon, Patrick McGurn, Leo Strine, and Lynn Stout, which are published in this Symposium. We present new empirical evidence that extends our earlier findings, confirms our conclusions, and demonstrates that the alternative theories put forward by some commentators do not adequately explain the evidence. Among other things, we find that having a majority of independent directors does not address the concern that defensive tactics might be abused. We also find that effective staggered boards do not appear to have a significant beneficial effect on premiums in negotiated transactions. Finally, we show that, unlike our approach, the approach that our critics advocate for Delaware takeover jurisprudence to follow is both inconsistent with its established principles and takes an extreme position in the overall debate on takeover defenses. Our analysis and new findings further strengthen the case for limiting the ability of incumbents armed with a staggered board to continue saying no after losing an election conducted over an acquisition offer.
Highlights
** Professor of Law, Harvard Law School. *** Joseph Flom Assistant Professor of Law and Business, Harvard Law School
effective” staggered boards (ESBs) did not seem to provide countervailing benefits in the form of higher premiums in deals that were eventually completed. Putting these three findings together, we found that ESBs reduced shareholder returns for targets in our sample on the order of eight to ten percent in the nine months after a hostile bid was announced. Based on these findings and our analysis of Delaware takeover case law, we proposed that, at least absent explicit shareholder authorization to the contrary, incumbents protected by an ESB who lose one election over an outstanding bid should generally not be allowed by courts to further block the bid by maintaining a poison pill
As a variant of his core argument, Gordon speculates that target boards that do the wrong thing are dominated by the CEO: “In each of those [bad outcome] cases, the chairman and chief executive was a member of the founding family, held a substantial but noncontrolling stake, and had bitter personal and business rivalries with the suitors.”[34]. Again, Pennzoil provides an important counterexample to this claim: CEO James Pate owned 0.6% of the company, no other officer or director owned more than 1%, and the only outside shareholder to hold more than 5% was a single institutional investor, which held 8.0%
Summary
Earlier this year in the Stanford Law Review, we presented a theoretical, empirical, and policy analysis of staggered boards.[1]. Putting these three findings together, we found that ESBs reduced shareholder returns for targets in our sample on the order of eight to ten percent in the nine months after a hostile bid was announced Based on these findings and our analysis of Delaware takeover case law, we proposed that, at least absent explicit shareholder authorization to the contrary, incumbents protected by an ESB who lose one election over an outstanding bid should generally not be allowed by courts to further block the bid by maintaining a poison pill. While none of the commentators challenge either our theoretical account of how ESBs work as a takeover defense, or the three basic empirical findings that are summarized above, all of them, to varying degrees, raise important questions, objections, and areas of further inquiry regarding our analysis and conclusions In this Reply, we respond to these points. Given the current body of theory and evidence, our approach is best both in terms of its substantive effects and in terms of its fit with notions of legitimacy and consent
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
