The state of state antitakeover law

Virginia Law Review

Volumn 95, Issue 8, 2009, Pages 1973-2052

  Barzuza, Michal ^a  

^a UNIVERSITY OF VIRGINIA   (United States)

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EID: 77649307741     PISSN: 00426601     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (296)

1. See Frank H. Easterbrook & Daniel R. Fischel, The Proper Role of a Target's Management in Responding to a Tender Offer, 94 Harv. L. Rev. 1161, 1168-83 (1981) [hereinafter Easterbrook & Fischel, Proper Role];
2. Henry G. Manne, Mergers and the Market for Corporate Control, 73 J. Pol. Econ. 110, 112-13 (1965);
3. Henry G. Manne, Our Two Corporation Systems: Law and Economics, 53 Va. L. Rev. 259, 265-66 (1967).
4. For a detailed description of Delaware enhanced standards, see infra Section I.A.
5. See, e.g., Lucian Arye Bebchuk, Alma Cohen & Allen Ferrell, Does the Evidence Favor State Competition in Corporate Law?, 90 Cal. L. Rev. 1775, 1803 (2002) ("Delaware has a well developed body of case law, which makes the absence of some types of antitakeover statutes practically irrelevant.... Because of the large body of Delaware judge-made law upholding the indefinite use of poison pills, there is no need for an antitakeover statute explicitly authorizing the use of poison pills (a poison-pill-endorsement statute) or for an antitakeover constituency statute that provides managers with discretion to defend against bids.");
6. John C. Coates IV, Takeover Defenses in the Shadow of the Pill: A Critique of the Scientific Evidence, 79 Tex. L. Rev. 271, 323 & n.203 [hereinafter Coates, Takeover Defenses] (pointing out that antitakeover rules "were rendered vestigial by judicial approval and widespread adoption of the pill" since with either of them a bidder needs a shareholder vote to complete a takeover).
7. Cf. Roberta Romano, The States as a Laboratory: Legal Innovation and State Competition for Corporate Charters, 23 Yale J. on Reg. 209, 235 (2006) [hereinafter Romano, Laboratory] ("In Delaware, which has neither an other constituency nor a poison pill validation statute, the state supreme court has upheld poison pill defenses, rendering statutory validation unnecessary while it has rejected the broad discretion accorded directors under other constituency statutes, by requiring any consideration of non-shareholder interests to provide a benefit to the shareholders, and by rejecting the propriety of such considerations in a takeover auction.... [I]t is plausible to contend that Delaware's less restrictive approach to takeovers did not have a strong influence on other states. However, state courts still have considerable leeway to evaluate the discretion accorded boards under the statutes, and except for Connecticut, the statutes would appear to be little more than symbolic politics...."). Romano and other scholars have argued that Delaware's approach to antitakeover law is better than that of other states, but they point mainly to the fact that Delaware has lagged behind other states in legislating antitakeover rules. The few substantive differences to which they point are quite small and related mainly to one statute, Delaware's business combination statute.
8. See, e.g., Roberta Romano, The Need for Competition in International Securities Regulation, 2 Theoretical Inquiries L. 387, 530-33 (2001) [hereinafter Romano, The Need for Competition].
9. To find all available cases, I searched for the following terms in Westlaw and LexisNexis: "Unocal," "Revlon," "Blasius," "poison pill," "hostile takeover," "dead hand pill," "slow hand pill," and references for the cases Quickturn and Invacare. The search turned up 108 relevant cases (after eliminating the cases that were litigated in other states' courts but involved Delaware targets and therefore applied Delaware law).
10. Indeed, firms in other states receive fewer bids and are acquired less frequently than those incorporated in Delaware. See Robert Daines, Does Delaware Law Improve Firm Value?, 62 J. Fin. Econ. 525, 527-28 (2001) [hereinafter Daines, Firm Value].
11. See, e.g., Frank H. Easterbrook & Daniel R. Fischel, The Economic Structure of Corporate Law 5-6, 213-14 (1991);
12. Roberta Romano, The Advantage of Competitive Federalism for Securities Regulations 63-64 (2002);
13. Roberta Romano, Empowering Investors: A Market Approach to Securities Regulation, 107 Yale L.J. 2359, 2361 (1998) [hereinafter Romano, Empowering Investors];
14. Roberta Romano, Law as a Product: Some Pieces of the Incorporation Puzzle, 1 J.L. Econ. & Org. 225, 246 (1985) [hereinafter Romano, Law as a Product];
15. Romano, The Need for Competition, supra note 3, at 493-507.
16. See, e.g., Lucian Arye Bebchuk, Federalism and the Corporation: The Desirable Limits on State Competition in Corporate Law, 105 Harv. L. Rev. 1435, 1440-41 (1992) (finding "a race for the top with respect to some corporate issues but a race for the bottom with respect to others");
17. William L. Cary, Federalism and Corporate Law: Reflections Upon Delaware, 83 Yale L.J. 663, 705 (1974);
18. see also Michal Barzuza, Price Considerations in the Market for Corporate Law, 26 Cardozo L. Rev. 127, 168 (2004) [hereinafter Barzuza, Price Considerations] (arguing that Delaware's best strategy is to race to the middle, namely, to produce law that suffers from some bias in favor of managers but that is not as biased as the law in other states).
19. See, e.g., Lucian Arye Bebchuk & Assaf Hamdani, Vigorous Race or Leisurely Walk: Reconsidering the Competition over Corporate Charters, 112 Yale L.J. 553, 555 (2002);
20. Marcel Kahan & Ehud Kamar, The Myth of State Competition in Corporate Law, 55 Stan. L. Rev. 679, 748 (2002) [hereinafter Kahan & Kamar, The Myth];
21. see also Mark J. Roe, Delaware's Competition, 117 Harv. L. Rev. 588, 600 (2003) (arguing that Delaware's competition comes primarily from the federal government rather than from other states).
22. Reincorporation requires managers' initiation and shareholder approval. Thus, if managers want to reincorporate to another state with strong protection they would have to get shareholder support. In many cases, however, the home state offers stronger protection than Delaware and thus managers can achieve stronger protection than offered in Delaware by merely choosing to remain in their home state - a choice for which they do not need shareholder approval.
23. See, e.g., Roberta Romano, Competition for Corporate Charters and the Lesson of Takeover Statutes, 61 Fordham L. Rev. 843, 859-60 [hereinafter Romano, Corporate Charters] ("[I]t is arguable that Delaware would not have enacted any takeover legislation in the absence of state competition.").
24. Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955 (Del. 1985).
25. Moran v. Household Int'l, Inc., 500 A.2d 1346, 1348 (Del. 1985). The poison pill allows shareholders to buy additional shares of the firm at a significantly discounted price if a hostile bidder acquires more than a specified number of shares, with the threshold typically representing 10-15% of the firm. This right to acquire additional shares is not given to the bidder himself. Thus, with a poison pill in place, a hostile bid becomes unprofitable and often infeasible. If the bidder crosses the threshold ownership fraction and other shareholders exercise their poison pill rights, his share in the company is reduced back to approximately where it was.
26. The former limits the redemption of the pill only to continuing directors (or their approved successors) and the latter (which is sometimes referred to as the "no hand" pill) makes the pill non-redeemable and non-amendable for a certain period of time.
27. See infra Section III.D.
28. In a previous case, Interco, the Delaware Chancery Court interpreted Unocal to prohibit managers from using a poison pill in the face of a noncoercive takeover bid unless it is used for a limited period of time, to initiate an auction, negotiate a better price for shareholders, or pursue another plan that would maximize shareholder value. See City Capital Assocs. v. Interco, Inc., 551 A.2d 787, 798 (Del. Ch. 1988).
29. This moderate approach inspired Martin Lipton's famous memorandum recommending that his clients consider moving from Delaware to other states that offer better protection to managers. See Martin Lipton, To Our Clients: The Interco Case (Nov. 3, 1988), quoted in Roe, supra note 8, at 626. The Time court may have responded to this threat. In dicta the Time court disapproved of Interco's approach. The court has rejected the notion that the only conceivable threat from such a bid is inadequate value to shareholders.
30. Paramount Commc'ns v. Time, Inc., 571 A.2d 1140, 1142 (Del. 1989).
31. Time, 571 A.2d at 1154.
32. That is, the board can refuse to sell the company without having to show that it has a better offer or a better long-term plan.
33. See, e.g., Lucian Arye Bebchuk & Allen Ferrell, Federalism and Corporate Law: The Race to Protect Managers from Takeovers, 99 Colum. L. Rev. 1168, 1186-87 (1999);
34. Guhan Subramanian, Bargaining in the Shadow of Takeover Defenses, 113 Yale L.J. 621, 626-27 (2003).
35. Unitrin, Inc., v. Am. Gen. Corp., 651 A.2d 1361, 1387-88 (Del. 1995).
36. Barzuza, Price Considerations, supra note 7, at 193.
37. Time, 571 A.2d at 1142.
38. See, e.g., Leo E. Strine, Jr., The Professorial Bear Hug: The ESB Proposal as a Conscious Effort to Make the Delaware Courts Confront the Basic "Just Say No" Question, 55 Stan. L. Rev. 863, 873 (2002) [hereinafter Strine, Bear Hug];
39. see also Marcel Kahan, Paramount or Paradox: The Delaware Supreme Court's Takeover Jurisprudence, 19 J. Corp. L. 583, 605 (1994) (suggesting that under Delaware law "it matters whether, in light of a hostile offer, the board continues on its pre-existing business plan or whether it changes its plan and adopts a defensive alternative").
40. Stephen M. Bainbridge, Mergers and Acquisitions 227-28 (2d ed. 2009).
41. See, e.g., William T. Allen, Jack B. Jacobs & Leo E. Strine, Jr., The Great Takeover Debate: A Meditation on Bridging the Conceptual Divide, 69 U. Chi. L. Rev. 1067, 1079-80 (2002); Strine, Bear Hug, supra note 22, at 873 ("Nonetheless, the absence of any frontal attack on the poison pill's use in Time-Warner left the full extent of that view's legal force in the netherworld of dicta and, therefore, uncertain.").
42. Unitrin, Inc., v. Am. Gen. Corp., 651 A.2d 1361, 1383 (Del. 1995).
43. Unitrin also adopted a poison pill but the Chancery Court approval of the pill was not appealed. Jeffery N. Gordon, "Just Say Never?" Poison Pills, Deadhand Pills and Shareholder-Adopted Bylaws: An Essay for Warren Buffet, 19 Cardozo L. Rev. 511, 525 (1997).
44. Unitrin, 651 A.2d at 1383; Gordon, supra note 26, at 526 ("The chancery court conjectured that the purpose of the open market purchases was to raise the ownership percentage of this insider group to above 25%, which the chancery court at one point (incorrectly) thought would give the group a veto block under the target's charter.").
45. See Unitrin, 651 A.2d at 1383; Gordon, supra note 26, at 526 (suggesting that the court "failed to understand the significance of the insider group's financial interest").
46. See Strine, Bear Hug, supra note 22, at 864.
47. See Chesapeake Corp. v. Shore, 771 A.2d 293, 327-29 (Del. Ch. 2000);
48. Ronald J. Gilson & Reinier Kraakman, Delaware's Intermediate Standard for Defensive Tactics: Is There Substance to Proportionality Review?, 44 Bus. Law. 247, 268 (1989) ("To make such a claim requires more than the standard statement that a target's board and its advisers believe the hostile offer to be 'grossly inadequate.' In particular, demonstrating the existence of a threat of substantive coercion requires a showing of how - and when - management expects a target's shareholders to do better.").
49. Chesapeake, 771 A.2d at 327; see also Allen, Jacobs & Strine, supra note 24, at 1078 & n.30 (noting that "[t]he logical force of Interco still resonates in some later decisions," among them Chesapeake).
50. Chesapeake, 771 A.2d at 333.
51. Allen, Jacobs & Strine, supra note 24, at 1079-80. Interpreting Delaware law, a federal court allowed a staggered board to sustain the pill in the face of an all all-cash tender offer at a 27 percent premium. Moore Corp. Ltd. v. Wallace Computer Servs., 907 F. Supp. 1545, 1550-51 (D. Del. 1995). Yet this decision seems to deviate from Delaware law and is not expected to be followed by the Delaware courts. See Allen, Jacobs, & Strine, supra note 24, at 1080 & n.39. ("[T]hat decision is nonauthoritative, since the Delaware state judiciary has not yet spoken on the issue."); Gordon, supra note 26, at 530 ("[U]nder the approach employed by the Delaware Supreme Court in Unitrin, Wallace is an incorrectly decided case.").
52. See e.g., Marcel Kahan & Ehud Kamar, Price Discrimination in the Market for Corporate Law, 86 Cornell L. Rev. 1205, 1232-40 (2001). This approach, though it has been criticized, might be beneficial for shareholders to some extent since it also imposes uncertainty on managers with respect to the defensive tactics they are allowed to use.
53. If the offer is high and shareholders want to tender, the circumstances may not justify "just saying no" and doing so will not pass the Delaware courts' scrutiny, as explained supra, Subsection I.A.1. Moreover, even if managers are legally allowed to "just say no" shareholders may threaten to replace management in a proxy fight if they do not sell the company.
54. Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 182 (Del. 1986).
55. Paramount Commc'ns, Inc. v. Time, Inc., 571 A.2d 1140, 1142 (Del. 1989).
56. Id.; see also Kahan, Paramount, supra note 22, at 595-96 (suggesting that the existence of a pre-existing plan was one of the rationales for not triggering Revlon in this case).
57. See Kahan, supra note 22.
58. See Paramount Commc'ns Inc. v. QVC Network Inc., 637 A.2d 34, 44-45 (Del. 1994).
59. See Kahan, supra note 22, at 595 (arguing that Paramount is consistent with the "notion that Revlon duties are meant to protect shareholders' ability to override the board's decision to reject a tender offer"). Recently the Delaware Supreme Court has clarified three different points regarding Revlon: (1) Revlon is triggered only if the board decides to sell the company and not simply if a shareholder files a schedule 13D; (2) Revlon does not dictate a single process; and (3) to breach their Revlon duties, directors' conduct has to rise to bad faith; thus the relevant question is whether directors "utterly failed to attempt to obtain the best sale price," rather than whether they did "everything they (arguably) should have done to obtain the best price." Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 242-45 (Del. 2009). Though it is too early to know the exact implications of Ryan, it seems that Ryan does not significantly limit the case on which we are focused, where the board looks for a "white knight" to frustrate a hostile takeover.
60. Blasius Indus, Inc. v. Atlas Corp., 564 A.2d 651, 655-56 (Del. Ch. 1988).
61. In a later case the Delaware Supreme Court broadened the applicability of this test to cases in which shareholders are not completely blocked from exercising their voting rights. MM Cos., Inc. v. Liquid Audio Inc., 813 A.2d 1118 (Del. 2003); see also Subramanian, supra note 18, at 681-82.
62. There are three common statutes that limit the bidders: Control Share Acquisition Statutes typically allow a bidder to exercise his voting rights only after getting approval from the shareholders; Fair Price Statutes typically require the bidder to pay a certain price for the remaining shares to prevent the construction of a two-tier acquisition with a low back-end; and Business Combination Statutes typically prevent a bidder's whole acquisition of the firm (a freeze-out merger) for a certain amount of time. The last type was adopted by Delaware. Delaware adopted a relatively mild version of this statute (other states typically have a five-year limitation and the Delaware statute does not apply to a bidder that purchased 85% of the shares). See Romano, The Need for Competition, supra note 3, at 531-33.
63. Massachusetts in 1990 adopted a staggered board statute, which makes staggered boards the default arrangement for all Massachusetts firms. Mass. Gen. Laws Ann. ch. 156B, § 50A(a) (West 2005). Firms can opt out of the staggered board default either by a vote of the majority of the board or by a vote of two-thirds of the shareholders. Mass. Gen. Laws Ann. ch. 156B, § 50A(b)(i) (West 2005). Pennsylvania and Ohio have adopted disgorgement statutes that require a hostile bidder who acquires control to pay back to shareholders any profits he makes by selling the company's shares less than eighteen months after the hostile bid takes place. 15 Pa. Cons. Stat. Ann. §§ 2571-75 (West 2009); Ohio Rev. Code Ann. § 1707.043(a)(West 2004).
64. Another reason to focus on these statutes was that the other antitakeover statutes did not have a significant role in the courts' decision. When these statutes seemed to have an important role, it was noted in the cases analysis below.
65. See, e.g., Marcel Kahan & Edward B. Rock, How I Learned to Stop Worrying and Love the Pill: Adaptive Responses to Takeover Law, 69 U. Chi. L. Rev. 871, 900-01 [hereinafter Kahan & Rock, Stop Worrying].
66. See generally William Carney, The Production of Corporate Law, 71 S. Cal. L. Rev. 715 (1998);
67. Romano, Corporate Charters, supra note 10, at 854;
68. Roberta Romano, The Future of Hostile Takeovers: Legislation and Public Opinion, 57 U. Cin. L. Rev. 457, 461-62 (1988);
69. Roberta Romano, The Political Economy of Takeover Statutes, 73 Va. L. Rev. 111, 114-15 (1987).
70. See, e.g., Henry Butler, Corporation-Specific Anti-takeover Statutes and the Market for Corporate Charters, 1988 Wis. L. Rev. 365, 375-76 (1988) (describing how the antitakeover statutes in Minnesota and Indiana were passed to protect local firms from a pending takeover); Romano, supra note 48, at 461-62 & n.11 (listing over a dozen examples in which antitakeover statutes were passed to protect local firms).
71. Moran v. Household Int'l Inc., 500 A.2d 1346, 1350 (Del. 1985).
72. See Bebchuk, Cohen & Ferrell, supra note 3; Coates, Takeover Defenses, supra note 3; Romano, Laboratory, supra note 3;
73. Romano, The Need for Competition, supra note 3.
74. Only to the extent that they provide benefits to shareholders, and not if a sale of the firm is inevitable. See Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 182 (Del. 1986) ("[S]uch concern for non-stockholder interests is inappropriate when an auction among active bidders is in progress, and the object no longer is to protect or maintain the corporate enterprise but to sell it to the highest bidder.").
75. See, e.g., Bebchuk, Cohen & Ferrell, supra note 3, at 1803. One potential effect of these statutes is the possibility that other constituency statutes will lead courts to provide more protection to employees. Scholars, however, were skeptical about even this potential effect. See, e.g., Romano, Laboratory, supra note 3, at 235 ("[S]tate courts still have considerable leeway to evaluate the discretion accorded boards under the statutes, and except for Connecticut, the statutes would appear to be little more than symbolic politics because they have no enforcement mechanism: Non-shareholder constituents have no standing to sue boards to require their interests to be considered in responding to a bid.").
76. Statutes that regulate the bidder's behavior are also believed to have little bite because mere board or shareholder approval usually satisfies their requirements, which, given the pill, is a necessary condition for a takeover anyway. See, e.g., Coates, Takeover Defenses, supra note 3, at 323 & n.203. Moreover, requiring shareholder approval has positive effects since it works to prevent pressure to tender.
77. See, e.g., Roberta Romano, The Need for Competition, supra note 3, at 530-33.
78. Id.
79. See Invacare Corp. v. Healthdyne Techs., Inc., 968 F. Supp. 1578, 1580-81 (N.D. Ga. 1997).
80. See discussion infra Section II.F.
81. See, e.g., Romano, supra note 48 (describing lobbying for antitakeover rule in Connecticut); see also Romano, Laboratory, supra note 3, at 231 (describing how the Pennsylvania redemption rights statute was passed to aid Scott Paper Corporation to prevent a hostile takeover by Brascan Ltd.).
82. See Barzuza, Price Considerations, supra note 7, at 132 (2004).
83. It is difficult to know what proportion of takeover cases is decided by federal judges. The proportion of federal cases decided by federal judges in this Article's sample is probably higher than the real proportion since federal cases are more available than state cases. Email from Kent Olson, Director of Reference, University of Virginia School of Law, to Michal Barzuza, Professor of Law, University of Virginia School of Law (Oct. 14, 2008) (on file with author).
84. See, e.g., IBS Fin. Corp. v. Seidman & Assocs., 136 F.3d 940, 950 (3d Cir. 1998);
85. Dynamics Corp. of Am. v. WHX Corp., 967 F. Supp. 59 (D. Conn. 1997). No federal case in the sample has explicitly deviated from a state interpretation.
86. "We are not aware of any reason that should lead to a bias regarding the cases that Westlaw or Lexis report." Email from Kent Olson, Director of Reference, University of Virginia School of Law, to Michal Barzuza, Professor of Law, University of Virginia School of Law (Oct. 14, 2008) (on file with author).
87. One possible omitted variable is state politics - it is possible, if not likely, that state politics drives the statutes and also elected judges' opinions.
88. Maryland Unsolicited Takeovers Act (MUTA) of 1999, Md. Code Ann., [Corps. & Ass'ns] § 2405.1(d)(1), (f) (LexisNexis 2007) (applying the BJR to acts related to acquisition attempts).
89. Ind. Code Ann. § 23-1-35-1(f) (LexisNexis 1999) (determining that the heightened scrutiny applied by Delaware to transactions that might result in a change-of-control is inconsistent with Indiana law that applies the BJR to such acts).
90. N.C. Gen. Stat. Ann. § 55-8-30(d) (West 2000) (determining that the fiduciary duties standard would not be higher in a change-of-control situation).
91. Ohio Rev. Code Ann. § 1701.59(C) (LexisNexis 2004) (applying the BJR to actions that include a change in control).
92. 15 Pa. Cons. Stat. Ann. § 1715(d) (West 1995) (determining that "there shall not be any greater obligation to justify, or higher burden of proof with respect to, any act ... relating to ... proposed acquisition of control of the corporation than is applied to any other act as a board of directors....").
93. Va. Code Ann. § 13.1-727.1 (West 2007).
94. N.C. Gen. Stat. Ann. § 55-8-30(d) (West 2000).
95. Ind. Code Ann. § 23-1-35-1(f) (LexisNexis 1999).
96. See, e.g., 15 Pa. Cons. Stat. Ann. § 1715.
97. See, e.g., section (b) to the Connecticut pill endorsement statute: (b) The terms and conditions of such rights, options or warrants, including those outstanding on October 1, 2003, may include, but are not limited to, restrictions or conditions that: (1) Preclude or limit the exercise, transfer or receipt of such rights, options or warrants by any person or persons owning or offering to acquire a specified number or percentage of the outstanding shares or other securities of the corporation or by any transferee or transferees of any such person or persons[.] Conn. Gen. Stat. Ann. § 33-675(b)(1) (West 2005).
98. See discussion infra Section II.D.
99. Heith Rodman offers a somewhat similar classification. See Heith D. Rodman, Death Toll for the Dead Hand?: The Survivability of the Dead Hand Provision in Corporate America, 48 Emory L.J. 991, 1017-18 (1999). He classifies statutes that give the board the sole discretion to adopt a pill as strong; statutes that refer to the board but do not give it exclusive power over the pill as intermediate; and statutes that do not include any reference to the board and statutes that subject the issuance of the pill to judicial review as weak.
100. See WLR Foods, Inc. v. Tyson Foods, Inc., 65 F.3d 1172, 1182-83 (4th Cir. 1995) (rejecting Unocal under Virginia law);
101. AMP Inc. v. Allied Signal Inc., 1998 U.S. Dist. LEXIS 15617, at *13 (E.D. Pa. Oct. 8, 1998) (noting that in Pennsylvania, Business Corporate Law "protects the actions of a majority board of disinterested directors in resisting unsolicited takeovers by retaining the ordinary BJR with respect to the adoption of defensive measures"), rev'd on other grounds, 168 F.3d 649 (3d Cir. 1999);
102. Ipalco Enters. v. PSI Res., 1993 U.S. Dist. LEXIS 19805, at *13 (S.D. Ind. June 18, 1993) (noting that "the court is aware that, unlike under Delaware law, Indiana corporate directors are not held to a particularly higher level of scrutiny in the context of corporate takeovers") (citing Ind. Code § 23-1-35-1(f));
103. Hudson v. Prime Retail, Inc., No. 24-C-03-5806, 2004 WL 1982383, at *11 (Md. Cir. Ct. Apr. 1, 2004) (quoting Maryland corporate law treatise that said, "Unocal... should not be applied in Maryland");
104. cf. First Union Corp. v. SunTrust Banks, Inc., No. 01-CVS-10075, 2001 WL 1885686, at *20 (N.C. Super. Ct. Aug. 10, 2001) (interpreting North Carolina statute to reject explicitly Revlon duties but not Unocal, although Unocal duties would apply only if shareholders proved that directors have breached their duty of care).
105. 2003 WL 21528509, at *9-10 (Mass. Super. Ct. June 30, 2003).
106. See id. at 7 ("The Legislature spoke clearly and without ambiguity in Sec. 32A. Thus, a review of the SRA [poison pill] ... reveals that there can be no doubt that it was adopted, and contains provisions, wholly consistent with this statute.... What does require explication, however, is the extent to which G.L.c. 156B, Sec. 65 [other constituency statute] affects the actions of directors taken pursuant to a properly created Sec. 32A shareholder rights agreement [poison pill].").
107. See id.
108. "[These statutes] are specifically intended by the Legislature to give protection to Massachusetts corporations from abusive takeovers which challenge the long-term growth of the Commonwealth's economy, the creation of new jobs and the long-term interests of shareholders." Id. at 8. And therefore the court should not "cause the Legislative language chosen to be modified or altered by imposing thereon common-law concepts or the law of other jurisdictions." Id. at 9.
109. Id. at 10 ("The judge, even when he is free, still is not wholly free. He is not to innovate at pleasure. He is not a knight-errant, roaming at will in pursuit of his own ideal of beauty or of goodness. He is to draw inspiration from consecrated principles. He is not to yield to spasmodic sentiment, to vague and unregulated benevolence. He is to exercise discretion informed by tradition, methodized by analogy, disciplined by system, and subordinated to 'the primordial necessity of order in the social life.'") (quoting Justice Cardozo).
110. IBS Fin. Corp. v. Seidman & Assocs., 136 F.3d 940, 949-50 (3d Cir. 1998). The case involved intervention in shareholder franchise, but no hostile takeover. Thus, Unocal appeared only in dicta. Regarding the intervention in shareholder franchise, the court determined that the Delaware high standard from Blasius applied.
111. 967 F. Supp. 59, 64-65 (D. Conn. 1997).
112. See id. at 64.
113. Id. at 63.
114. Id. at 64. The court had the option to reject Revlon but apply Unocal, a weaker standard, instead of the BJR.
115. Id.
116. Id.
117. Steiner v. Losyniak et al., No. 601661/97 (N.Y. App. Div. June 11, 1997).
118. Even though the statute remained weak after the amendment, it is possible that the act of amending had some role in the court's decision not to follow Revlon. See id. at 63 ("[W]e are not convinced, particularly in light of the 1988 amendments to the New York statute, that Delaware cases should be controlling.").
119. Id. at 62. To be sure, the board was staggered in the bylaws and therefore could be de-staggered in a shareholder vote. Yet the Dynamics board also "raised the threshold for a written request for special meetings by shareholders from 25% to 66.6% of the issued and outstanding shares." Id. at 61-62.
120. Invacare Corp. v. Healthdyne Techs., 968 F. Supp. 1578, 1581 (N.D. Ga. 1997).
121. 708 F. Supp. 1070, 1081-82 (W.D. Mo. 1988).
122. Wieboldt Stores, Inc. v. Schottenstein, 94 B.R. 488, 509-10 (N.D. Ill. 1988) (applying Unocal under Illinois law prior to weak statute's amendment in 1989).
123. Amanda Acquisition Corp. v. Universal Foods Corp., 708 F. Supp. 984, 1008-16 (E.D. Wis. 1989) (applying Unocal under Wisconsin law).
124. See Hall v. Staha, 858 S.W.2d 672, 676 (Ark. 1993) (applying Unocal under Arkansas law).
125. See Int'l Ins. Co. v. Johns, 874 F.2d 1447, 1458-59 (11th Cir. 1989) (applying Unocal under Florida law before the passage of its other constituency statute).
126. Dynamics Corp. of Am. v. CTS Corp., 805 F.2d 705, 708 (7th Cir. 1986) (applying Unocal under Indiana law before the passage of its other constituency statute).
127. Burcham v. Unison Bancorp, Inc., 77 P.3d 130, 147-50 (Kan. 2003) (applying Unocal under Kansas law).
128. See Bayberry Assocs. v. Jones, No. 87-261-II, 1988 WL 137181, at *6-7 (Tenn. Ct. App. Nov. 9, 1988) (applying Unocal under Maryland law before the passage of its other constituency statute).
129. See Gelco Corp. v. Coniston Partners, 652 F. Supp. 829, 845-50 (D. Minn. 1986) (applying Unocal and Revlon under Minnesota law before the passage of its other constituency statute).
130. Referring to Unocal, the U.S. Court of Appeals for the Second Circuit, applying New York law, said that "[a]lthough in other jurisdictions, directors may not enjoy the same presumptions per the business judgment rule, at least in a takeover context, under New York law, the initial burden of proving directors' breach of fiduciary duty rests with the plaintiff." See Hanson Trust PLC v. ML SCM Acquisition, Inc. 781 F.2d 264, 273 (2d Cir. 1986) (internal citation omitted). Yet the case eventually applied Revlon and found directors liable for approving a lock-up option in an LBO transaction. Id. at 277-83.
131. Compare NCR Corp. v. Am. Tel. and Tel. Co., 761 F. Supp. 475, 499-500 (S.D. Ohio 1991) (applying Unocal under Maryland law before the passage of the statute),
132. with Hudson v. Prime Retail, Inc., No. 24-C-03-5806, 2004 WL 1982383, at *11 (Md. Cir. Ct. Apr. 1, 2004) ("Unocal... should not be applied in Maryland" after passage of the statute)
133. (quoting James J. Hanks, Jr., Maryland Corporation Law § 6.6[b], at 176.1 (Supp. 2003)).
134. In New Jersey, the use of the pill was prohibited before the pill endorsement statute was adopted, see Minstar Acquiring Corp. v. AMF Inc., 621 F. Supp. 1252, 1257-59 (S.D.N.Y. 1985),
135. and allowed afterwards, see Vestcom Int'l v. Chopra, 114 F. Supp. 2d 292, 300 (D.N.J. 2000). Since these decisions focused on the pill however, they do not necessarily have implications for fiduciary duties (Vestcom did not discuss the fiduciary duties that apply to the use of the poison pill).
136. Dynamics Corp. of Am. v. WHX Corp., 967 F. Supp. 59, 64 (D. Conn. 1997).
137. See Hanson Trust, 781 F.2d at 273. The court however applied Revlon. See discussion infra note 138 and accompanying text.
138. See Dynamics, 967 F. Supp. at 63 ("As Judge Oakes noted in his concurring opinion in Hanson Trust, (which was decided before New York passed the 'poison pill' legislation), Delaware law favors bidders more than even the pre-existing New York law.") (internal citation omitted).
139. 978 F. Supp. 1342, 1347 (D. Nev. 1997).
140. Id. at 1344. By splitting the company, the managers circumvented the need for shareholder approval since ITT became the shareholder of ITT Destinations.
141. Indeed, in the earlier case of Horwitz v. Southwest Forest Industries, 604 F. Supp. 1130, 1134-35 (D. Nev. 1985), the court applied the BJR to the decision to adopt a poison pill.
142. Nev. Rev. Stat. Ann. § 78.139(2) (LexisNexis 2004).
143. Memorandum from John P. Fowler, Chair, Executive Comm., Bus. Law Section, State Bar of Nev., on Recommendations for Legislation regarding business law statutes for the 1999 Nevada Legislature - Senate Bill 61 to the Senate Judiciary Committee, at *5 (Feb. 3, 1999), http://www.leg.state.nv.us/lcb/ research/library/1999/SB061,1999pt1.pdf.
144. Ariz. Rev. Stat. Ann. § 10-2702 (2004); Conn. Gen. Stat. Ann. § 33-756(d) (West 2005).
145. See Revlon, Inc. v. MacAndrews & Forbes Holdings, 506 A.2d 173, 182 (Del. 1986).
146. See, e.g., Romano, Laboratory, supra note 3, at 235 ("[I]t is plausible to contend that Delaware's less restrictive approach to takeovers did not have a strong influence on other states. However, state courts still have considerable leeway to evaluate the discretion accorded boards under the statutes...").
147. Recall that weak statutes do not explicitly say that the board could consider the interests of other constituencies at the expense of shareholders. Alternatively, if the courts wanted to provide directors with more discretion, they could apply this requirement only to Revlon circumstances.
148. Shepard v. Meridian Ins. Group, 137 F. Supp. 2d 1096, 1113 (S.D. Ind. 2001) (rejecting Revlon duties under Indiana law);
149. Keyser v. Commonwealth Nat'l Fin. Corp., 675 F. Supp. 238, 265-66 (M.D. Pa. 1987) (rejecting Revlon duties under Pennsylvania law);
150. Foster v. Town & Country Trust, No. 24-C-06-001442, 2006 WL 991000 (Md. Cir. Ct. Feb. 24, 2006) (rejecting Revlon under Maryland law);
151. Jasinover v. Rouse Co., No. 13-C-04-59594, 2004 WL 3135516, at *8-9 (Md. Cir. Ct. Nov. 4, 2004) (rejecting Revlon under Maryland law);
152. First Union Corp. v. Suntrust Banks, Inc., No. 01-CVS-10075, 01-CVS-8036, CIV. A. 01-CVS-4486, 2001 WL 1885686 (N.C. Super. Aug. 10, 2001) (rejecting Revlon under North Carolina law);
153. Stepak v. Schey, 553 N.E.2d 1072, 1075 (Ohio 1990) (rejecting Revlon duties under Ohio law);
154. Lewis v. Celina Fin. Corp., 655 N.E.2d 1333, 1340 (Ohio Ct. App. 1995) (rejecting Revlon duties under Ohio law);
155. Willard ex rel. v. Moneta Bldg. Supply, 515 S.E.2d 277, 283-85 (Va. 1999) (rejecting Revlon duties under Virginia law).
156. See N.Y. Bus. Corp. Law § 505(a)(2)(ii) (McKinney 2003); Wis. Stat. Ann. § 180.0827 (West 2002).
157. See Dynamics Corp. of Am. v. WHX Corp., 967 F. Supp. 59, 64-65 (D. Conn. 1997).
158. See N.Y. Bus. Corp. Law § 505(a)(2)(ii) (McKinney 2003) (providing that the use of the pill "shall be subject to judicial review in an appropriate proceeding in which the courts formulate or apply appropriate standards in order to insure that such limitations or conditions are imposed, enforced or waived in the best long-term interests and short-term interests of the corporation and its shareholders considering, without limitation, the prospects for potential growth, development, productivity and profitability of the corporation").
159. Id. at 63.
160. Id. at 64, 66.
161. Id. at 65-67.
162. Thus, the offer was not clearly noncoercive, as was Pantry Pride's all-cash offer for Revlon.
163. Indeed, in response to the deal with CTS, Dynamics' shares closed at $44,375, significantly less than the cash offer ($55) and its pre-deal value. CTS shares, on the other hand, rose 75 cents to $61.75. CTS to Acquire Dynamics Corp. of America for 1.35 Times Revenue in Bid to Thwart WHX, 945 Wkly. Corp. Growth Rep. 9031 (May 19, 1997), available at http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN= 9707076106&site=ehost-live.
164. Dynamics Corp. of America v. WHX Corp., 967 F. Supp. 59, 64 (D. Conn. 1997).
165. Id.
166. See supra note 90 and accompanying text.
167. No. 97 C 8003, 1999 WL 601039, at *12 (N.D. Ill. Feb. 4, 1998).
168. Id. ("[W]hile Laidlaw is correct that Safety-Kleen exacted no binding promises from Philip respecting other constituency, the Board was not unreasonable in findings that Philip's stated intention to keep Safety-Kleen's headquarters in operation and continue Safety-Kleen's charitable commitments and community involvement was preferable to Laidlaw's plans to move to company to South Carolina.").
169. 55 F. Supp. 2d 1196 (D. Kan. 1999).
170. Id. at 1214.
171. Wieboldt Stores, Inc. v. Schottenstein, 94 B.R. 488, 510 (N.D. Ill. 1988).
172. S. Union Co. v. Sw. Gas Corp., 180 F. Supp. 2d 1021, 1036 (D. Ariz. 2002).
173. Plaza Secs. Co. v. Fruehauf Corp., 643 F. Supp. 1535, 1543 (E.D. Mich. 1986).
174. O'Neill v. Church's Fried Chicken, Inc., 910 F.2d 263, 267 (5th Cir. 1990) (applying Revlon under Texas law before the passage of its other constituency statute).
175. Compare Dynamics Corp. of Am. v. CTS Corp., 805 F.2d 705, 716-17 (7th Cir. 1986) (approving application of Revlon under Indiana law before the implementation of the statute),
176. with Shepard v. Meridian Ins. Group, 137 F. Supp. 2d 1096, 1113 (S.D. Ind. 2001) (rejecting Revlon under Indiana law after the implementation of the statute).
177. Compare Hanson Trust PLC v. ML SCM Acquisition Inc., 781 F.2d 264, 277-83 (2d Cir. 1986) (applying Revlon under New York law before implementation of the statute),
178. with Dynamics Corp. of Am. v. WHX Corp., 967 F. Supp. 59, 64 (D. Conn. 1997) (applying the BJR instead of Revlon under New York law after implementation of the statute).
179. Before the implementation of the statute: Dynamics Corp. of Am. v. CTS Corp., 805 F.2d 705 (7th Cir. 1986) (approving application of Revlon);
180. after the implementation of the statute: Shepard v. Meridian Ins. Group, Inc., 137 F. Supp. 2d 1096 (S.D. Ind. 2001) (rejecting Revlon under Indiana law).
181. Before implementation of the statute: Hanson Trust, 781 F.2d 264 (applying Revlon); after implementation of the statute: Dynamics Corp., 967 F. Supp. 59 (applying the BJR instead of Revlon).
182. Simon Prop. Group, Inc. v. Taubman Ctrs., Inc., 261 F. Supp. 2d 919 (E.D. Mich. 2003).
183. The Nevada statute's amendment, however, seems to apply a weaker standard - the Unocal test - to intervention in shareholder voting rights. See Hilton Hotels Corp. v. ITT Corp., 978 F. Supp. 1342 (D. Nev. 1997);
184. Shoen v. Amerco, 885 F. Supp. 1332, 1340-41 & n.22 (D. Nev. 1994). There are no Nevada cases, or cases citing Nevada law, clarifying whether the amendment adopts a more lenient Unocal standard or whether the amendment was using Unocal to describe heightened fiduciary duties, and thus might apply a "compelling justification" standard for Blasius situations. It is thus possible that Nevada courts would interpret the statute's proportionality test to require managers to meet Blasius' "compelling justification" requirement.
185. Int'l Banknote Co., Inc. v. Muller, 713 F. Supp. 612 (S.D.N.Y. 1989) (applying Unocal proportionality test to intervention in shareholder voting).
186. ER Holdings, Inc. v. Norton Co., 735 F. Supp. 1094 (D. Mass. 1990).
187. In addition, the Court of Appeals for the Third Circuit applied Blasius under New Jersey law, but only because it was not a change-of-control situation. IBS Fin. Corp. v. Seidman & Assocs., 136 F.3d 940, 949-51 (3d Cir. 1998).
188. 60 Pa. D. & C. 4th 391 (2002).
189. 15 Pa. Cons. Stat. Ann. § 1715 (West 1995).
190. Warehime v. Warehime, 777 A.2d 469, 478-80 (Pa. Super. Ct. 2001).
191. Ipalco Enters., Inc. v. PSI Res., Inc., No. IP 93-325-C, 1993 U.S. Dist. LEXIS 19805 (S.D. Ind. June 18, 1993).
192. Id. at *13 n.9.
193. Invacare Corp. v. Healthdyne Techs., Inc., 968 F. Supp. 1578, 1581 (N.D. Ga. 1997). Similarly, the Court of Appeals of North Carolina has "decline[d] to adopt the Delaware common law standard of 'enhanced judicial scrutiny'" for its evaluation of a board's election procedures.
194. Hammonds v. Lumbee River Elec. Membership Corp., 631 S.E. 2d 1, 14 (N.C. Ct. App. 2006). Yet the firm - Lumbee River Electric Membership Corporation - was subject to the "Electric Membership Corporation Act." Id. at 4. In deciding to reject the enhanced standards test, the court referred to "N.C. Gen.Stat. § 117-14 (a rural electric cooperative board of directors 'shall have power to do all things necessary or convenient in conducting the business of a corporation[]')." Id. at 14.
195. The application of Blasius by courts in other states could have been important if the plaintiffs managed to include acts that in Delaware trigger Unocal or Revlon but not Blasius. Yet all of the available cases deal with acts that are typical examples of intervention in shareholder franchise. See IBS Fin. Corp. v. Seidman & Assocs., 136 F.3d 940, 949-51 (3rd Cir. 1998) (citing Blasius and rejecting a board's attempt to reduce the number of seats because it was designed to thwart shareholder voting rights);
196. Simon Prop. Group, Inc. v. Taubman Ctrs., Inc., 261 F. Supp. 2d 919 (E.D. Mich. 2003) (involving a corporate bylaws amendment designed to limit ability of shareholders to call special meetings);
197. Int'l Specialty Prods., Inc. v. Dexter Corp., No. 3:00-CV-157 JBA, 2000 WL 35453111 (D. Conn. July 27, 2000) (involving an attempt by board to circumvent voting rights by selling a corporation through piecemeal sales, which thus avoided Connecticut's statutory requirement of having a shareholder vote when "substantially all" of the company's assets were for sale);
198. Hilton Hotels Corp. v. ITT Corp., 978 F. Supp. 1342 (D. Nev. 1997) (involving an attempt to stagger the board and split into three new companies as a response to a tender offer);
199. Invacare, 968 F. Supp. 1578 (involving an attempt to invalidate a "continuing directors" provision);
200. ER Holdings, Inc. v. Norton Co., 735 F. Supp. 1094 (D. Mass. 1990) (involving an attempt to delay a shareholder meeting);
201. Warehime v. Warehime, 777 A.2d 469, 478-80 (Pa. Super. Ct. 2001) (citing Blasius to reject a board's attempt to reclassify shares' voting rights). I thank Eric Talley for this point.
202. Before the amendment to its other constituency statute.
203. Before the passage of its other constituency statute.
204. Before the amendment to its other constituency statute.
205. Before the passage of its other constituency statute.
206. See Rodman, supra note 76, at 993, 1014-18 ("[V]arious states' corporate codes likely will be battlegrounds over the survivability of dead hand provisions in the future."). Rodman's classification of statutes is somewhat different from the classifications this Article adopts. See supra note 76. Also, this Section conducts a closer analysis of the cases to show the role that the statutes had in approving the extreme pills.
207. Carmody v. Toll Bros., Inc., 723 A.2d 1180, 1193-95 (Del. Ch. 1998).
208. Id. at 1190-92.
209. The court ruled that the claim that the dead hand pill "'disenfranchises shareholders by forcing them to vote for incumbent directors or their designees'" is sufficient to claim coerciveness. Id. at 1195 (quoting plaintiffs complaint).
210. Id.
211. Id. at 1194.
212. 721 A.2d 1281, 1289 (Del. 1998).
213. Id. at 1290-92. The decision has been criticized for impeding the board's ability to create valuable pre-commitments. See Stephen Bainbridge, Dead Hand and No Hand Pills: Precommitment Strategies in Corporate Law (Oct. 30, 2002) (unpublished manuscript, available at http://ssrn.com/abstract=347089).
214. See Rodman, supra note 76, at 1016 ("The variations between the Delaware and New York statutes, on one hand, and the Georgia statute, on the other, played an important role in determining the outcomes of the three cases discussed in the Introduction to this Comment. Specifically, differences between the Georgia statute endorsing poison pills and the New York and Delaware equivalents largely explain the decisions in each case.").
215. Invacare Corp. v. Healthdyne Techs., Inc., 968 F. Supp. 1578, 1580-81 (N.D. Ga. 1997).
216. Ga. Code Ann. § 14-2-801 (2003).
217. Invacare, 968 F. Supp. at 1580.
218. Ga. Code Ann. § 14-2-624C (Supp. 2009).
219. Ga. Code Ann. § 14-2-624, cmt. (2003).
220. Invacare, 968 F. Supp at 1582. The Georgia statute was later amended to replace the "sole discretion" term with an explicit dead hand provision. See Ga. Code Ann. § 14-2-624, cmt. (2003).
221. Invacare, 968 F. Supp. at 1580. The Invacare court made no reference to Georgia's other constituency statute, perhaps because its other constituency statute was weak and there was sufficient support in other statutes.
222. 15 Pa. Cons. Stat. Ann. §§ 1715(c), 2513(a) (1995).
223. Nos. 984405, 98-4058, 98-4109, 1998 U.S. Dist. LEXIS 15617 (E.D. Pa. Oct. 8, 1998). AMP's board replaced its dead hand provision with a no hand proposal providing that the pill would become non-redeemable and non-amendable until the pill expired, which was in approximately 14 months. See id. at *5-6.
224. Id. at *11.
225. Id. at *13-14.
226. Id. at *14.
227. 528 N.Y.S.2d 482 (N.Y. Sup. Ct. 1988).
228. The court noted that the Georgia statute does not have the same requirement as in New York that a restriction on the board's power to manage the business of the corporation must be authorized by all of the shareholders on the certificate of incorporation. 968 F. Supp. at 1580.
229. Invacare Corp. v. Healthdyne Techs., Inc., 968 F. Supp. 1578, 1580 (N.D. Ga. 1997).
230. See also Katherine I. Gleason & Mark S. Klock, Is There Power Behind the Dead Hand?: An Empirical Investigation of Dead Hand Poison Pills (April 2008) (unpublished manuscript, available at http://ssrn.com/abstract=1136784) ("Published opinions from trial court cases involving dead hand pills exist in just four states: Delaware, New York, Pennsylvania, and Georgia.").
231. See also Rodman, supra note 76, at 1020-21 ("Those states with both strong-form poison pill endorsements and other-constituency statutes are particularly likely to uphold a dead hand provision.... Other states, such as Pennsylvania, Rhode Island and Ohio, with historically pro-management corporate codes, also are likely to follow Georgia in upholding the provision.") (internal citation omitted).
232. See, e.g., Lucian A. Bebchuk & Alma Cohen, Firms' Decisions Where to Incorporate, 46 J.L. & Econ. 383, 420 (2003) [hereinafter Bebchuk & Cohen, Firms' Decisions];
233. Robert Daines, The Incorporation Choices of IPO Firms, 77 N.Y.U. L. Rev. 1559, 1562 (2002) [hereinafter Daines, IPO Firms].
234. It is still possible, however, that a selection bias of a different kind, which I have not anticipated, is driving these results.
235. See SharkRepellent.net, https://www.sharkrepellent.net ("[The database] currently offers comprehensive defense profiles for companies in the following universes: S&P 1500, Fortune 500, Nasdaq-100, Dow Jones Industrials, initial public offerings (IPOs) from January 1, 1999 to present, high profile targets of M&A deals announced January 1, 2001 to present, all companies with a poison pill in force and additional companies with poison pills adopted or amended from January 1, 2001 to present. The database does not include companies incorporated outside the United States (e.g., Foster Wheeler Ltd, Tyco International Ltd), companies that are not public (e.g., State Farm Insurance Companies), companies that are exempt from SEC filing requirements (e.g., Fannie Mae), companies that have been acquired or merged into another company (e.g., Willamette Industries, Inc.) and companies that are no longer trading publicly (e.g., MotherNature.com Inc). SharkRepellent.net also does not track charter/bylaw provisions and state statutes for limited partnerships. However, SharkRepellent.net will include details of a poison pill, if any, for limited partnerships.").
236. See Coates, supra note 3, at 287 (explaining that a pill can be adopted "in a single business day").
237. There is at least no selection bias of the type previously discussed, where the state has a high ratio of extreme pills, since the state attracts firms that need more protection. It is more likely that the state has a high ratio of extreme pills because they are valid under state law.
238. Delaware has a relatively significant absolute number of firms with extreme pills, but only because of the large number of firms incorporated there. One could ask why Delaware has firms with extreme pills at all. Presumably, some firms may choose to adopt extreme pills despite their illegality assuming that they may create some deterrence effect, especially if the costs of litigation are expected to be high relative to the potential benefits. This is another reason why the relative number is more important than the absolute one.
239. Allen, Jacobs & Strine, supra note 24, at 1094.
240. To be sure, the BJR is usually described as a standard rather than a bright-line rule. But since it provides managers protection from liability as long as they do not have any self-interest (the conflict of interests inherent in hostile takeover is not considered self-interest for that purpose) and were adequately informed, it functions as a quite clear bright-line rule.
241. 65 F.3d 1172, 1175 (4th Cir. 1995).
242. Id. at 1182.
243. See discussion supra Subsection I.A.2.
244. Taking into account the interests of other constituencies may be superior under some circumstances to focusing solely on shareholders' value. For instance, sometimes taking the interests of other constituencies would lead to better maximization of aggregate value. See, e.g., Douglas G. Baird & M. Todd Henderson, Other People's Money, 60 Stan. L. Rev. 1309, 1327-33 (2008) (proposing two alternatives to current law - a fiduciary duty to the firm as a whole or a contract-based approach to fiduciary duties). Yet, the specific context of hostile takeovers raises the concern that managers will abuse these considerations to defend against an efficient hostile acquisition.
245. At least two cases explicitly suggest that, as a result, managers would not have to sell to a higher bidder as long as they have been adequately informed. See First Union Corp. v. Suntrust Banks, Inc., No. 01-CVS-10075, 01-CVS-8036, CIV. A. 01-CVS-4486, 2001 WL 1885686 (N.C. Super. Ct. Aug. 10, 2001);
246. Willard ex rel. v. Moneta Bldg. Supply, 515 S.E.2d 277, 284 (Va. 1999) (finding that § 13.1-690 does not require a director to maximize profits by accepting the highest bid when selling the assets of a corporation, but instead need only "act in accordance with 'his good faith business judgment of the best interests of the corporation'").
247. See Dynamics Corp. of Am. v. WHX Corp., 967 F. Supp. 59, 64 (D.Conn. 1997).
248. See, e.g., Lucian Arye Bebchuk, The Case Against Board Veto in Corporate Takeovers, 69 U. Chi. L. Rev. 973, 975 (2002) [hereinafter Bebchuk, Board Veto] (arguing against board veto power in hostile takeovers);
249. Easterbrook & Fischel, Proper Role, supra note 1, at 1164 (arguing for a rule of managers' passivity in the face of a hostile takeover);
250. Ronald J. Gilson, A Structural Approach to Corporations: The Case Against Defensive Tactics in Tender Offers, 33 Stan. L. Rev. 819, 865-69 (1981) (arguing that managers should provide information and propose alternatives but only shareholders should have the power to decide to reject a bid).
251. See Bebchuk, Board Veto, supra note 197, at 978.
252. See Jennifer Arlen & Eric Talley, Unregulable Defenses and the Perils of Shareholder Choice, 152 U. Pa. L. Rev. 577 (2003) (showing that giving shareholders absolute power may lead managers to look for alternative defensive measures that will most likely be more costly for shareholders).
253. Marcel Kahan & Edward B. Rock, Corporate Constitutionalism: Antitakeover Charter Provisions as Precommitment, 152 U. Pa. L. Rev. 473, 484-89 (2003) [hereinafter Kahan & Rock, Precommitment] (arguing that shareholders may opt for board entrenchment in hostile takeovers to allow the board to design a value-maximizing selling strategy for their firm).
254. See Arlen & Talley, supra note 199, at 654-58 (arguing that managers' choice may be superior to a regime of categorical shareholder choice but not to regimes of intermediate or hybrid shareholder choice); Kahan & Rock, Precommitment, supra note 200, at 484-89 (arguing that shareholders should have the choice whether to give the board a veto power to defend against hostile takeovers).
255. See Daines, Firm Value, supra note 5, at 527.
256. See, e.g., Bebchuk & Ferrell, supra note 18, at 1188-89; Romano, Corporate Charters, supra note 10, at 854-55.
257. See, e.g., Jennifer Arlen & Eric Talley, Unregulable Defenses and the Perils of Shareholder Choice, 152 U. Pa. L. Rev. 577, 658 n.174 (2003) ("Yet our results do not suggest that a stronger managerial choice regime than Delaware's would enhance firm value. To the contrary, the analysis above suggests that weakening Delaware's regime by making managerial authority less certain could increase firm value."); Bebchuk & Ferrell, supra note 18, at 1185 ("[T]he Delaware courts have left the reasoning of all these commentators, even those sympathetic to some types of defensive tactics, far behind by endorsing a much more expansive license for managerial use of poison pills and 'just say no.'"); Kahan, supra note 22, at 592 (suggesting that Delaware law achieves a "reasonable middle-ground between fear of director self-entrenchment on one side, fear of court intrusion on the other side, and fear of ignorant and rushed shareholder decisions on the third side - a middle ground");
258. Marcel Kahan & Edward B. Rock, Corporate Constitutionalism: Antitakeover Charter Provisions as Precommitment, 152 U. Pa. L. Rev. 473, 484-89 (2003) [hereinafter Kahan & Rock, Precommitment] (arguing that Delaware law rightfully allows shareholders to divest their power to the board to defend against a hostile bid);
259. Kahan & Rock, Stop Worrying, supra note 47, at 901-03 (arguing that Delaware law encourages bilateral decision making which is likely to be welfare enhancing).
260. See Martin Lipton, Takeover Bids in the Target's Boardroom, 35 Bus. Law. 101, 115-16 (1979).
261. See Martin Lipton, Pills, Polls, and Professor Redux, 69 U. Chi. L. Rev. 1037, 1046 (2002) ("Put to the practical test during the half-decade of intense hostile takeover activity that ensued, the new Delaware paradigm has worked well.").
262. See generally Roberta Romano, The Genius of American Corporate Law 59-60 (1993).
263. Daines, Firm Value, supra note 5;
264. Easterbrook & Fischel, Economic Structure, supra note 6, at 6;
265. Frank H. Easterbrook & Daniel R. Fischel, Voting in Corporate Law, 26 J.L. & Econ. 395 (1983);
266. Daniel R. Fischel, The "Race to the Bottom" Revisited: Reflections on Recent Developments in Delaware's Corporation Law, 76 Nw. U. L. Rev. 913 (1982);
267. Romano, Empowering Investors, supra note 6;
268. Romano, Law as a Product, supra note 6;
269. Romano, The Need for Competition, supra note 3, at 493-544;
270. Ralph K. Winter, Jr., State Law, Shareholder Protection, and the Theory of the Corporation, 6 J. Legal Stud. 251 (1977) [hereinafter Winter, Shareholder Protection];
271. Ralph K. Winter, Jr., The "Race for the Top" Revisited: A Comment on Eisenberg, 89 Colum. L. Rev. 1526 (1989) [hereinafter Winter, Race for the Top Revisited].
272. See generally Oren Bar-Gill, Michal Barzuza & Lucian Bebchuk, The Market for Corporate Law, 162 J. Institutional & Theoretical Econ. 134 (2006);
273. Bebchuk, Desirable Limits, supra note 7;
274. Lucian A. Bebchuk & Allen Ferrell, A New Approach to Takeover Law and Regulatory Competition, 87 Va. L. Rev. III (2001) [hereinafter Bebchuk & Ferrell, New Approach]; Bebchuk & Ferrell, supra note 18.
275. See generally Bebchuk & Hamdani, supra note 8; Marcel Kahan & Ehud Kamar, Price Discrimination in the Market for Corporate Law, 86 Cornell L. Rev. 1205 (2001);
276. Kahan & Kamar, The Myth, supra note 8.
277. See, e.g., Bebchuk & Ferrell, supra note 18, at 1197-99.
278. See, e.g., id., at 1193-94.
279. See, e.g., id., at 1196-97; Romano, Empowering Investors, supra note 6, at 2383-88;
280. Romano, The Need for Competition, supra note 3, at 532-35.
281. See, e.g., Easterbrook & Fischel, Economic Structure, supra note 6, at 219;
282. Romano, The Need for Competition, supra note 3, at 531 ("[I]n contrast to its position as an innovator of corporation code provisions, Delaware has persistently been a laggard behind other states in the takeover statute context.").
283. See Winter, Shareholder Protection, supra note 207, at 288.
284. See Bebchuk & Hamdani, supra note 8, at 585-86; Kahan & Kamar, The Myth, supra note 8, at 724-25.
285. See Bebchuk, Desirable Limits, supra note 7, at 1510 (arguing for federal rules, or at least federal minimum standards, with respect to self-dealing transactions, taking of corporate opportunities, freeze-out mergers, all aspects of takeover bids and proxy contests, and limitations on dividends); Cary, supra note 7, at 701 (proposing that Congress adopt federal standards for corporate responsibility);
286. see also Bebchuk & Ferrell, New Approach, supra note 208, at 162-63 (advocating a middle ground between federal nonintervention and mandatory federal regulation, including a federal process rule that would establish a process by which companies could switch from one state to another).
287. See, e.g., Fischel, supra note 207, at 923.
288. See, e.g., Winter, Shareholder Protection, supra note 207, at 291 ("Because federal legislation does not face direct competition with other legal systems, the behavior of investors under differing rules cannot be observed and we can only theorize about which rules optimize the underlying economic relationships.").
289. See Fischel, supra note 207, at 922; Winter, Shareholder Protection, supra note 207, at 291.
290. Others have proposed to adopt federal minimum standards, but no one has proposed to adopt Delaware standards for that purpose. See, e.g., Bebchuk, Desirable Limits, supra note 7, at 1510 (proposing to adopt federal rules, or at least federal minimum standards, with respect to, among other things, takeover law); Cary, supra note 7, at 701 (proposing to adopt minimum federal standard).
291. See Romano, Corporate Charters, supra note 10, at 855.
292. See Kahan & Kamar, The Myth, supra note 8, at 740 n.229.
293. See, e.g., Roe, Delaware's Competition, supra note 8, at 631-32.
294. See, e.g., Bebchuk & Cohen, Firms' Decisions, supra note 183, at 389 (finding that Delaware attracts 58% of all publicly traded incorporation).
295. Indeed, the companies at the center of two major corporate scandals that transformed our economy and legislative environment - Enron and WorldCom - were not incorporated in Delaware (Enron was incorporated in Oregon and WorldCom in Georgia).
296. See, e.g., Romano, Corporate Charters, supra note 10, at 859-60 ("[I]t is arguable that Delaware would not have enacted any takeover legislation in the absence of state competition.").