The Legality and Utility of the Shareholder Rights Bylaw

Abstract

The vitality of the takeover market is approaching a critical juncture. Certain incumbent management teams and their lawyers and lobbyists have convinced a passel of state legislatures and state judges to try to kill the market for corporate control. With the rise of the poison pill and the "just say no" defense, the outlook has not looked so bleak for takeovers since the collapse of Drexel Burnham in the 1980s killed the junk bond market and with it the ability to finance major league acquisitions. Delaware courts, for example, have validated the poison pill and seem to be reluctant to restrain its use even in the most egregious circumstances nevertheless, after a brief respite, takeovers have made a modest comeback in the early 1990s. Just as lawyers almost killed the takeover market with the invention of the poison pill, lawyers are about to revive it with another legal invention. The invention is the "shareholder rights bylaw" and it promises to be the next major legal battleground in the market for corporate control.