The Future of Hostile Takeovers: Legislation and Public Opinion

Abstract

Recent state takeover regulation has reinvigorated the debate over which level of government, state or federal, produces superior corporation laws. Management, which vigorously supports state legislation, has a conflict of interest concerning bids: successful takeovers can jeopardize its employment. Shareholders, however, are benefited by successful offers as they receive the bid premium, and they are benefited by the threat of offers, which keeps management on its toes. Most commentators, accordingly, consider state takeover laws to be troubling features in corporation codes because of the conflict of interest between managers and shareholders. The statutes make hostile takeovers more difficult, and any increase in a bidder's costs reduces the number of bids that will occur, which weakens the disciplining effect of the market for corporate control on managers. Consequently, as state legislatures have responded to management pleas to restrict hostile takeovers, there have been calls for federal legislation to preempt state takeover regulation. Partly due to lingering concern over the constitutionality of state takeover statutes, the supporters of restrictive legislation have, however, always worked on parallel fronts, advocating greater federal regulation of takeovers at the same time as they championed state takeover laws. The focus of this Article is on the wisdom of promoting further federal action on takeovers.