Mandatory Bid Rule Research Articles

Derogations from the mandatory bid rule

Derogations from the mandatory bid rule

Polish Takeover Regulation: The Recent Chapter in the Long Story of Flawed Rules, Legislative Hesitation and Policy Mistakes

This paper presents a critical examination of recent Polish takeover regulation from a perspective of evolution of capital market law in Poland. The study is based on both legal analysis and an empirical and statistical approach. Firstly, as a starting point, it briefly describes the mandatory bid rule and Takeover Bids Directive as well as the development of early Polish provisions. Secondly, the paper elaborates on the normative model of takeovers, which was in force until 2022. Using a case study and a comprehensive statistical examination of all mandatory bids carried out between 2008 and 2017, it shows how the unusual and incorrect legislative structure of two thresholds of control (33% and 66% of votes) allowed the actual circumvention of mandatory bids, to the detriment of minority shareholders. The paper also describes political considerations and political influences on the legislative process, which led to the failure of the 2014–2015 takeover law proposal. The core of the paper is devoted to the current takeover rules. Statistical research of ownership structures in Poland shows that the threshold of control set at 50% of votes is undoubtedly too high, which entails risks to investor protection that may arise from the adopted model. Based on research on significant holdings in Polish listed companies, the paper further elaborates on the notion of control over a public company and proposes a regulatory utility function to determine the desired threshold of control. This leads to the conclusion that the optimal regulatory threshold of control, given the characteristics of the Polish capital market, is 30% of votes.

Negative Implications of Greater Access to the Courts in the Takeover Process

Abstract 358 Recent judgments of the Court of Justice of the European Union involving Austria and Italy raises the question of whether greater access to the courts makes ineffective the duty of supervisory authorities in enforcing the mandatory bid rule. This question is discussed in the context of provisions in the Takeover Bid Directive that enables Member States to avoid disruptive greater access to the courts. The overarching argument advanced in this article is that a system of takeover regulation that provides parties the ability to challenge regulatory decisions in courts is bound to cause delays and uncertainty in the takeover process. In the UK, the Takeover Bid Directive was implemented in a way that limits greater access to the courts for parties that are required to comply with the ruling of the supervisory authority. The article suggest that the UK approach may provide a benchmark for reform in EU countries. 359

의무공개매수제도 도입이 지배의 사적이익에 미치는 영향 분석

의무공개매수제도 도입이 지배의 사적이익에 미치는 영향 분석

Takeovers, Mandatory Bid Rules and Schemes of Responsive Regulation

Takeovers, Mandatory Bid Rules and Schemes of Responsive Regulation

FAIRNESS THROUGH EFFICIENCY: THE CASE FOR A NONMANDATORY MANDATORY BID RULE Y BID RULE

It is commonly believed that the Mandatory Bid Rule is necessary to ensure the protection of minority shareholders, and that the inefficiency it causes is the price we must pay for fairness. In this paper, we challenge that belief. We suggest that efficiency and fairness are not competing notions – instead, in the Indian market for corporate control, an efficient regulatory regime is most likely to lead to fair outcomes. To make this point, we demonstrate that the protection the MBR grants is inherently less valuable in India than in the UK, where it originates, since takeovers in India are seller-driven and are therefore, prima facie likely to be good for the company. In this background, we empirically evaluate the takeovers that occurred between October 2015 and February 2022 to demonstrate that minority shareholders neither really need, nor particularly want the protection of the MBR. In fact, both they and every other stakeholder would likely be better off without it. However, recognising the inertia built into the regulatory framework, and the players it governs, we propose a temporary system where the MBR would not apply by default, but companies can nonetheless choose to have it be applicable to them. It is our hope that such a transitory regime will generate further evidence on the comparative fairness and efficiency outcomes of each system, allowing both companies and policymakers to make better decisions thereafter.

A Panacea or a Wisdom Tooth? Assessing the Misconstrued Mandatory Bid Rule

The Mandatory Bid Rule (MBR) requires a bidder who acquires control over a firm to make a general offer to all remaining shareholders to purchase their residual shares. It is the most powerful institution that requires controlling shareholders to share the control premium with other shareholders in a control transaction. The MBR is considered to be a key method of protection for minority shareholders, but nevertheless faces strong criticism over high implementation costs and an ongoing debate over its effectiveness in practice. From a utilitarianism perspective, the paper shows the relevance between the MBR and the effectiveness of minority shareholder protection mechanisms in a jurisdiction of legal transplantation. Using Mainland China as the test sample where the MBR was adopted, removed and then reintroduced, the paper employs the empirical research methodology to highlight market reactions when the rule is removed. The paper analyzes the efficiency of the MBR and outlines the types of environments and jurisdictional specifications where the MBR can operate at an optimal level, and alternatively, where the MBR will not be value-maximizing. It offers ideal legislation suggestions for similar jurisdictions considering transplanting MBR.

Transformation of the Legal Regulation Mode of Delisting from the STAR Market under the Registration System : Focus on the Proper Protection of Investors

Delisting is an important basic system in the capital market. The registration-based IPO reform on the STAR Market provides an unprecedented historical opportunity for the reform of delisting regime. Listing creates the civil legal relationship between the issuer and the Shanghai Stock Exchange (SSE) while delisting eliminates the relationship. Specifically, the legal attribute of voluntary delisting is the termination of agreement, while mandatory delisting is the practice of agreed termination right. Delisting will have two legal effects: On the one hand, the stock of the issuer will lose the possibility of continuing to trade in the STAR Market and therefore the issuer has no subsequent obligations to obey the self-discipline management rules of the SSE; on the other hand, the stock held by investors will lose the high liquidity and tradability in the STAR Market beneficial from the listing. Consequently, investors will suffer a severe economic loss due to the delisting. The current laws and regulations expose serious distortions in the regulatory concept and deviations in the regulatory path, leading to the alienation of investor empowerment regulations in voluntary delisting into an obstructive delisting system, while efficiency-oriented regulations in mandatory delisting makes investors the undertaker of the delisting loss. In order to build a market-oriented, legalized and normalized delisting system under the background of the registration-based system, the concept and path of legal regulations for the delisting in the STAR Market need to be shifted and upgraded. In terms of voluntary delisting, the investor compensation concept can balance the interest conflicts between company autonomy and investor protection as well as satisfy investors’ requirements for being protected in an individually targeted manner. So, a shift from the investor empowerment mode to the investor compensation mode is needed. As for system construction, it is advisable to learn from the experience of Germen law, which paves a specific regulatory path with the mandatory bid rule (MBR). In terms of mandatory delisting, consideration of the fairness concept can handle the relationship between efficiency interests, public interests and private interests. Therefore, it is necessary to promote the transformation of regulatory concept from efficiency-oriented to fairness-oriented. In terms of system construction, it is appropriate to build a conventional and efficient relief system for the damage of delisting investors, which is mainly based on non-litigation procedures such as compensation in advance and order to buy back, supplemented by litigation procedures such as representative litigation. The China Securities Regulatory Commission (CSRC) is expected to take the STAR Market as a pilot to formulate the delisting reform and introduce the reformed regulatory concept and path of the STAR Market in relevant regulations. Accordingly, the SSE should adjust the delisting regime in Rules Governing the Listing of Stocks on the Science and Technology Innovation Board of Shanghai Stock Exchange (Rules). After the transformation of the delisting regulation mode of the STAR Market, the experience should be extended as soon as possible to other sectors of the capital market including the main board.

Mandatory Bids in China: You Can Lead a Horse to Water, but You Can’t Make It Drink

This paper studies mandatory bids in China against an institutional backdrop of restrictive IPO requisites. We find that virtually no shares held by external shareholders are tendered in mandatory bids for all the remaining shares. Mandatory bidders’ tactics to avoid tendering by public investors include pressing down their bid prices, and the potential manipulation of target stock prices. In relation to the economic impacts of mandatory bids, we document that the market responds favourably to their announcements, and that targets’ operational performance improves in their wake, consistent with the theoretical prediction that mandatory bids induce efficient transfers of corporate control. Our research is among the earliest empirical works on the mandatory bid rule in a particular jurisdiction. It not only yields interesting results pertaining to the unique Chinese regulatory environment, but also generates useful insights into mandatory bids beyond China.

The Divergent Designs of Mandatory Takeovers in Asia

Optimal takeover regulation aims to promote efficient changes of corporate control while curbing inefficient takeovers. Viewed from a comparative perspective, the Anglo-American prototypes spearhead not only the discourse but also the dissemination of takeover regulation globally. At the one end of the spectrum, the law in the United States (U.S.) follows the “market rule,” whereby transfers of corporate control benefit from a regulatory freehand. At the other end of the spectrum lies the “mandatory bid rule” (MBR), epitomized by takeover regulation in the United Kingdom (U.K.). Under the U.K.’s version of the MBR, an acquirer who acquires de facto control over a target must make a general offer to the remaining shareholders to acquire all of their shares at the same price it paid to acquire the controlling block. In this article, we aim to analyze how and why six significant Asian jurisdictions adopted the MBR and its variants. This is puzzling given that the jurisdictions display considerable divergence in terms of structural, legal, and institutional foundations, not only with their Anglo-American counterparts but also even among themselves. In this article, we challenge the prevailing notion that the binary Anglo-American approach constitutes the framework for the dissemination of takeover regulation worldwide. We claim that because of the political economy of takeover regulation in the Asian jurisdictions, the choice to adopt various intermediate positions is by design and not by default. Considering the market rule provides suboptimal protection to minority shareholders and the MBR curbs the market for corporate control, the intermediate positions aim to balance these somewhat conflicting objectives. Our study contributes to the wider debate surrounding the appropriate takeover regulation and, more specifically, the claims made by the proponents of the market rule on the one hand and the MBR on the other.

Breach of the Mandatory Bid Rule: Minority Shareholders’ Protection in the Public vs. Private Enforcement Debate

The mandatory takeover bid has been broadly investigated in the literature. The economics of such control acquisition and the pros and cons of the mandatory bid rule are nowadays well-established. Uncertainty still reigns with respect to the fundamental question whether private law remedies are available to minority shareholders in the case of a breach of the duty to make a takeover bid. Statutory law across Member States is essentially silent on this matter, and at a supranational level the CJEU’s case law does not offer valid precedents. European policymakers rely on public enforcement mechanisms, while an action for damages against the bidder is not made available or only reluctantly accepted by the courts. Italy is an outlier, allowing today – after the consolidation of the principles expressed in the leading case Fondiaria-SAI – the recourse to private enforcement remedies. This article shows that, for the purpose of good functioning and competitiveness of capital markets, private enforcement plays an important role against violations of the mandatory bid rules. Thus, public enforcement, which often proved to be ineffective or bypassed especially in cases of acting in concert, should be complemented by the recognition of civil liability of the bidder for breach of the duty to launch a takeover bid. Furthermore, the legal regime of such liability is outlined, thereby investigating the (contractual or tortious) nature of the bidder’s liability and the operativeness of such a regime (e. g., amount of damages, application of compensatio lucro cum damno rule).

The Chain Principle: Equilibrium Between a Regulatory Need and Its Effects

This article addresses the tension between the need to regulate takeovers activity through the chain principle, as to ensure minority shareholders protection and equal treatment of shareholders, and the adverse effects that may arise from that regulation. An explanation of how the chain principle is regulated in the United Kingdom and difficulties in applying the chain principle rules, particularly, to ascertain the chain price. Different possibilities Germany is offered and the Sky bid is presented as an example of the practical of how the chain principle could be designed are considered, namely regarding the most suitable method to ascertain the chain price and the most adequate entity to do it. The article ultimately concludes that the chain principle is a regulatory need because the mandatory bid rule could not be successfully achieved without the chain principle and that there is no perfect solution to find an equilibrium between the need to regulate the chain principle and its adverse effects, as rules enhancing the probability of an offer being made may have a negative impact on the premium value; while rules enhancing the premium value may have a negative impact on the probability of an offer being made. chain principle, mandatory bid, cascade offer, takeover regulation, minority shareholders protection, equal treatment of shareholders, market for corporate control, control, significance test, premium value

Panacea or Wisdom Tooth? Assessing the Misconstrued Mandatory Bid Rule

The Mandatory Bid Rule (MBR) requires a bidder who acquires control over a firm to make a general offer to all remaining shareholders to purchase their residual shares. It is the most powerful institution that requires controlling shareholders to share the control premium with other shareholders in a control transaction. The MBR is considered to be a key method of protection for minority shareholders but faces strong criticism over high implementation costs and on-going debate over its effectiveness in practice. From a utilitarianism perspective, the paper shows the relevance between the MBR and the effectiveness of minority shareholder protection mechanisms in a jurisdiction of legal transplantation. Using Mainland China as the test sample where the MBR was adopted, removed then re-introduced, the paper employs the empirical research methodology to highlight market reactions when the rule is removed. The paper analyzes the efficiency of the MBR and outlines the types of environments and jurisdictional specifications where the MBR can operate at an optimal level, and alternatively, where the MBR will not be value-maximizing. It offers ideal legislation suggestions for similar jurisdictions considering transplanting MBR.

Goldilocks (Control) and the Three Bears: Panel on Takeovers and Mergers v. King

The UK takeover regulatory landscape must be understood in the context of the interplay between enforcement of the rules and how investors behave in the face of those rules from a corporate governance perspective. From a legal standpoint, the courts have historically never been involved in the regulation of takeover transactions in the UK. However, section 955 of the Companies Act 2006 now enables the Panel on Takeovers and Mergers to seek court enforcement when a party fails to comply with the City Code on Takeovers and Mergers. Although a potentially useful mechanism to support the Panel in its administration of the Code, it was doubted whether the Panel would ever elect to rely on the provision as it involves exposing its regulatory monopoly to judicial scrutiny. The Scottish Court of Session decisions in Panel on Takeover and Mergers v. King mark the first time the Panel has chosen to rely on Section 955, in the context of enforcing the Mandatory Bid Rule. This paper analyses how this important rule is applied and enforced in practice, as well as the relationship between the Panel and the courts. The facts of the decisions also occasion consideration of an investment tactic that can be deployed to avoid triggering the Mandatory Bid Rule, namely what we define as ‘goldilocks control’.

Evaluating the Mandatory Bid Rule for Takeover Law in China: An Empirical and Comparative Analysis

Evaluating the Mandatory Bid Rule for Takeover Law in China: An Empirical and Comparative Analysis

Response to the European Commission's Report on the Application of the Takeover Bids Directive

This paper contains the European Company Law Experts' response to the report of the European Commission of 28 June 2012 on the application of the Takeover Bids Directive of 2004 and the reform initiatives announced. For evaluating these initiatives the rationale of the mandatory bid rule is relevant (exit rationale, control premium rationale and undistorted choice rationale). On this basis the paper discusses each of the concerns raised by the European Commission: 1) The concept of acting in concert: The ECLE are of the opinion that a uniform concept for the Takeover Bids Directive, the Transparency Directive and the Acquisition Directive is not useful because of the different objectives of these Directives. As to the Takeover Directive it should be made clear that joint engagement activities of investors should not trigger a mandatory offer. 2) National derogations to the mandatory offer rule differ widely, but there are different types of derogations that pose different concerns. The ECLE recommend that the Directive should provide for a review process with respect to national derogations. 3) The ECLE believe that there are good reasons to close the loopholes against the “creep in” and the “creep on” acquisitions. 4) As to board neutrality and the break-through rule the ECLE believe that the default rules should be changed. The option rights should be given to the shareholders, not to the member states. The reciprocity rule is flawed. 5) The protection of the rights of employees should be addressed in a wider context and should not be taken up specifically for one type of transaction such as takeover bids.

The Political Economy of Takeover Regulation: What Does the Mandatory Bid Rule in China Tell Us?

The Political Economy of Takeover Regulation: What Does the Mandatory Bid Rule in China Tell Us?

Breach of the Mandatory Bid Rule. Italy in the Public vs. Private Enforcement Debate

Breach of the Mandatory Bid Rule. Italy in the Public vs. Private Enforcement Debate

Mandatory Bids in China: You Can Lead a Horse to Water, But You Can't Make Him Drink

This paper studies mandatory bids in China against an institutional backdrop of restrictive IPO requisites. We find that virtually no shares held by external shareholders are tendered in mandatory bids for all the remaining shares. Mandatory bidders’ tactics to avoid tendering by public investors include pressing down their bid prices, and potential manipulation of target stock prices. In relation to economic impacts of mandatory bids, we document that market responds favorably to their announcements, and that targets’ operational performance improves in their wake, consistent with the theoretical prediction that mandatory bids induce efficient transfers of corporate control. Our research is among the earliest empirical works on the mandatory bid rule in a particular jurisdiction. It not only yields interesting results pertaining to the unique Chinese regulatory environment, but also generates useful insights about mandatory bids beyond China.

Does the Mandatory Bid Rule Add Value to Target Shareholders?

AbstractI investigate whether implementation of the mandatory bid rule—the rule that grants all shareholders the right to participate in a takeover transaction at equal terms—affects target announcement returns. I use a difference‐in‐differences approach and the staggered adoption of the rule across 15 European countries. I find that the rule change leads to higher target returns. In full transactions, better accounting standards and shareholder protection norms of the acquirer leads to higher target returns. In majority transactions, greater value transfer from acquirers with weak accounting standards leads to higher target returns. I find weak evidence of overpayment by acquirers.