The evolution of hostile takeover regimes in developed and emerging markets: An analytical framework

Harvard International Law Journal

Volumn 52, Issue 1, 2011, Pages 219-285

  Armour, John ^a   Jacobs, Jack B ^b   Milhaupt, Curtis J ^b  

^a UNIVERSITY OF OXFORD   (United Kingdom)

^b The Earth Institute at Columbia University   (United States)

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EID: 79955799372     PISSN: 00178063     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (432)

1. See PEPPER D. CULPEPPER, QUIET POLITICS AND BUSINESS POWER: CORPORATE CONTROL IN EUROPE AND JAPAN 33, Table 2.3 (2011) (showing median of two completed hostile takeovers and six attempted hostile takeovers in nineteen countries from 1990-2007, as compared to a median of 321 completed friendly mergers).
2. See, e.g., Rafael la Porta et al., Corporate Ownership Around the World, 54 J. FIN. 471, 471(1999).
3. See id. at 491, 493;
4. cf. Clifford G. Holderness, The Myth of Diffuse Ownership in the United States, 22 REV. FIN. STUD. 1377, 1395(2009) (finding that ninety-six percent of US public firms have blockholders who own an average of thirty-nine percent of these firms' common stock).
5. For a compilation of diverse perspectives, see CONVERGENCE AND PERSISTENCE IN CORPORATE GOVERNANCE (Jeffrey N. Gordon & Mark J. Roe eds., 2004).
6. See MANCUR OLSON, THE LOGIC OF COLLECTIVE ACTION: PUBLIC GOODS AND THE THEORY OF GROUPS 6-7 (1965).
7. See, e.g., Mark J. Roe, POLITICAL DETERMINANTS OF CORPORATE GOVERNANCE 5(2003).
8. See generally Lucian A. Bebchuk & Zvika Neeman, Investor Protection and Interest Group Politics, 23 REV. FIN. STUD. 1089(2010) (identifying the effect that lobbying by entrepreneurs of private companies, insiders, and institutional investors has on the protection of investors);
9. Marco Pagano & Paolo F. Volpin, The Political Economy of Corporate Governance, 95 AM. ECON. REV. 1005(2005) (finding that proportional election systems protect investors less and protect employees more than majoritarian election systems).
10. See generally Wendy L. Hansen & Neil J. Mitchell, Disaggregating and Explaining Corporate Political Activity: Domestic and Foreign Corporations in National Politics, 94 AM. POL. SCI. REV. 891(2000).
11. See PETER A. GOUREVITCH & JAMES J. SHINN, POLITICAL POWER AND CORPORATE CONTROL: THE NEW GLOBAL POLITICS OF CORPORATE GOVERNANCE 284(2005).
12. See John Armour & David A. Skeel, Jr., Who Writes the Rules for Hostile Takeovers, and Why?-The Peculiar Divergence of U. S. and U. K. Takeover Regulation, 95 GEO. L. J. 1727, 1767-76 (2007).
13. A policy issue is politically "salient" if it causes the media, and (as a consequence) the voting public, to focus attention on it. Where an issue achieves high political salience, the likelihood increases that elected officials will focus on it, and, given enough political pressure, seek to regulate it. Where an issue has low political salience, the reverse is true.
14. See, e.g., CURTIS J. MILHAUPT & KATHARINA PISTOR, LAW AND CAPITALISM: WHAT CORPORATE CRISES REVEAL ABOUT LEGAL SYSTEMS AND ECONOMIC DEVELOPMENT AROUND THE WORLD (2008) (discussing political responses to corporate scandals in the United States, Germany, Japan, South Korea, China, Singapore, and Russia);
15. MARK J. ROE, STRONG MANAGERS, WEAK OWNERS: THE POLITICAL ROOTS OF AMERICAN CORPORATE FINANCE 152-53 (1994) (discussing voters' hostility to hostile takeovers in the 1980s);
16. DAVID A. SKEEL, JR., ICARUS IN THE BOARDROOM: THE FUNDAMENTAL FLAWS IN CORPORATE AMERICA AND WHERE THEY CAME FROM 144-74 (2005) (discussing the failure of shareholders to monitor Enron and World Com).
17. See Roe, supra note 12, at 94-96 (discussing Congress's motives in passing the Banking Act of 1933 and the Glass-Steagall Act); see also JOEL SELIGMAN, THE TRANSFORMATION OF WALL STREET 1-212 (3d ed. 2003) (narrating the history of the U. S. Securities and Exchange Commission ("SEC") from its creation in 1934 through the end of the 1930s).
18. See Roberta Romano, The Sarbanes-Oxley Act and the Making of Quack Corporate Governance, 114 YALE L. J. 1521, 1591-94 (2005).
19. See generally Wall Street Reform and Consumer Protection Act of 2010, H. R. 4173, 111th Cong. (2010).
20. See generally JAMES M. BUCHANAN & GORDON TULLOCK, THE CALCULUS OF CONSENT (1962) (arguing that politicians' behavior can best be understood by applying economic models of utility maximization);
21. ANTHONY DOWNS, AN ECONOMIC THEORY OF DEMOCRACY (1957) (arguing that economic theories of rationality and utility maximization can be used to analyze and understand politicians' behavior).
22. For a classical statement of this model, see James L. Barr & Otto A. Davis, An Elementary Political and Economic Theory of the Expenditures of Local Governments, 33 SO. ECON. J. 149, 154(1966). For a more recent review
23. see Roger D. Congleton, The Median Voter Model, in THE ENCYCLOPEDIA OF PUBLIC CHOICE 382, 384 (Charles K. Rowley & Friedrich Schneider eds., 2003).
24. CULPEPPER, supra note 1, at 1-8.
25. It is assumed for the purposes of this discussion that any contemplated business law rules are consistent with governing constitutional ordinances, with the consequence that all other potential lawmakers-including the judiciary-are hence "subordinate" to the legislature.
26. See generally Re Spectrum Plus Ltd. [2005] UKHL 41, [2005], [31]-[38] (appeal taken from EWCA Civ) (arguing that the common law in the United Kingdom is judge-made law);
27. BENJAMIN CARDOZO, THE NATURE OF THE JUDICIAL PROCESS 113-15 (1921) (discussing the processes and philosophy of judge-made law in the United States);
28. SIR BASIL MARKESINIS, COMPARATIVE LAW IN THE COURTROOM AND CLASSROOM (2003) (arguing that judge-made law is a cornerstone of most civil law systems). On distinguishing precedents as a source of lawmaking
29. see generally Nicola Gennaioli & Andrei Shleifer, The Evolution of Common Law, 115 J. POL. ECON. 43(2007).
30. Gillian K. Hadfield, The Levers of Legal Design: Institutional Determinants of the Quality of Law, 36 J. COMP. ECON. 43, 50-56 (2008);
31. see also Simeon Djankov et al., Courts, 118 Q. J. ECON. 453, 510-11 (2003).
32. Cf. GORDON TULLOCK, THE POLITICS OF BUREAUCRACY 134-36 (1965) (discussing bureaucrats' incentives to maximize the number of subordinates under their control). This propensity may intensify where the issue in question is potentially subject to the jurisdiction of more than one agency: the opportunity cost of failure to act may be increased by the possibility that the other agency may act first, thereby taking for itself any associated allocation of resources.
33. See, e.g., Dan Awrey, The Dynamics of OTC Derivatives Regulation: Bridging the Public-Private Divide, 11 EUR. BUS. ORG. L. REV. 155, 164(2010).
34. See, e.g., John C. Coates IV, Explaining Variation in Takeover Defenses: Blame the Lawyers, 89 CAL. L. REV. 1301, 1307(2001); (Pubitemid 33649656)
35. Michael J. Powell, Professional Innovation: Corporate Lawyers and Private Lawmaking, 18 L. & SOC. INQUIRY 423, 434-35 (1993). (Pubitemid 24771762)
36. See, e.g., Marcel Kahan & Michael Klausner, Standardization and Innovation in Corporate Contracting (Or "The Economics of Boilerplate"), 83 VA. L. REV. 713, 718(1997).
37. ROBERT C. ELLICKSON, ORDER WITHOUT LAW 139(1991);
38. see also John Armour & Simon Deakin, Norms in Private Insolvency: The "London Approach" to the Resolution of Financial Distress, 1 J. CORP. L. STUD. 21(2001) (discussing how financial distress is resolved among creditors of large U. K. firms);
39. Lisa Bernstein, Private Commercial Law in the Cotton Industry: Creating Cooperation Through Rules, Norms, and Institutions, 99 MICH. L. REV. 1724(2001) (discussing the development of a private commercial law system in the cotton industry);
40. Avner Greif, Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders, 44 J. ECON. HIST. 857(1989) (discussing the reputational mechanism used by eleventh-century Mediterranean traders);
41. Gillian K. Hadfield, Delivering Legality on the Internet: Developing Principles for the Private Provision of Commercial Law, 6 AM. L. & ECON. REV. 154(2004) (discussing the development of a reputational mechanism on the Internet, in the form of digital certificates and digital seals).
42. See Bentley W. MacLeod, Reputations, Relationships, and Contract Enforcement, 54 J. ECON. LIT. 595, 608-15 (2007).
43. See Randal C. Picker, Simple Games in a Complex World: A Generative Approach to the Adoption of Norms, 64 U. CHI. L. REV. 1225(1997) (discussing collective action problems in the adoption of social norms). (Pubitemid 127445780)
44. See, e.g., Armour & Skeel, supra note 10, at 1760-61 (U. K. Takeover Panel);
45. Bernstein, supra note 26, at 1225 (cotton industry trade association). The American Law Institute's production of Restatements of case law is an additional example.
46. See Alan Schwartz & Robert E. Scott, The Political Economy of Private Legislatures, 143 U. PA. L. REV. 595, 596(1995).
47. Our case studies, discussed in Parts II and III, provide a number of examples of such overlap.
48. See, e.g., Kathleen Bawn, Choosing Strategies to Control the Bureaucracy: Statutory Constraints, Oversight, and the Committee System, 13 J. LAW, ECON. & ORG. 101(1997) (discussing Congress's use of oversight and statute to exert control over administrative agencies);
49. Randall L. Calvert et al., A Theory of Political Control of Agency Discretion, 33 AM. J. POL. SCI. 588(1989) (discussing lawmakers' constitutional and electoral constraints);
50. B. Dan Wood & Richard W. Waterman, The Dynamics of Political Control of the Bureaucracy, 85 AM. POL. SCI. REV. 801(1991) (discussing the scope and mechanisms of political control of the bureaucracy).
51. Cf. MARTIN SHAPIRO, COURTS (1981) (critiquing the conventional idea of the judiciary as an institution independent from outside influence).
52. On the influence of judicial political preferences, see, for example, Nicola Gennaioli & Andrei Shleifer, Judicial Fact Discretion, 37 J. LEG. STUD. 1(2008) (judicial determination of questions of fact);
53. Tracey E. George & Lee Epstein, On the Nature of Supreme Court Decision Making, 86 AM. POL. SCI. REV. 323(1992) (voting by Supreme Court justices);
54. Jordi Blanesi Vidal & Clare Leaver, Pandering Judges (Suntory & Toyota Int'l Ctrs. for Econ. & Related Disciplines at London Sch. of Econ. & Political Sci., Research Paper No. EOPP002, 2008), available at http://ssrn.com/abstract=1546896 (judicial promotions).
55. See, e.g., Martin J. Bailey & Paul H. Rubin, A Positive Theory of Legal Change, 14 INT'L REV. L. & ECON. 467, 472-73 (1994) (discussing litigants' use of resources to establish favorable precedents);
56. Gillian K. Hadfield, Exploring Economic and Democratic Theories of Civil Litigation: Differences Between Individual and Organizational Litigants in the Disposition of Federal Civil Cases, 57 STAN. L. REV. 1275, 1285(2004) (noting the increasing disparity in resources between individual and organizational litigants);
57. Keith N. Hylton, Information, Litigation, and Common Law Evolution, 8 AM. L. & ECON. REV. 33, 44-46 (2006) (discussing the interaction of the differential stakes model and informational asymmetries in civil litigation);
58. Anthony Niblett et al., The Evolution of a Legal Rule (Nat'l Bureau of Econ. Research, Working Paper No. 13856, 2008) (surveying judicial application of the economic loss rule in the face of relative economic power differentials between plaintiffs and defendants), available at http://www.nber.org/papers/ w13856.pdf.
59. In some jurisdictions, standing rules are relaxed so as to permit parties without a stake in the outcome to bring claims. A notable example is "public interest litigation" before the Indian Supreme Court. The Indian rule engenders large amounts of interest group-led litigation, reinforcing the significance of standing rules in avoiding such actions in most jurisdictions. See John Armour & Priya Lele, Law, Finance, and Politics: The Case of India, 43 LAW & SOC'Y REV. 491, 512-14 (2009).
60. To be sure, in some circumstances particular types of litigation may tend to favor particular constituencies. Most notably, repeat players and defendants in representative actions may face lower freerider problems than their adversaries. See Marc Galanter, Why the "Haves" Come out Ahead: Speculations on the Limits of Legal Change, 9 LAW & SOC'Y REV. 95, 98-100 (1974).
61. See supra text accompanying notes 5-10, 16-18.
62. See sources cited supra notes 32-36.
63. See supra text accompanying notes 11-15.
64. See, e.g., Edward J. Kane, Regulatory Structure in Futures Markets: Jurisdictional Competition Between the SEC, the CFTC, and Other Agencies, 4 J. FUTURES MKTS 367, 369(1984).
65. There is a vast literature on regulatory competition in the production of business law in the United States and the European Union ("EU"). See, e.g., John Armour, Who Should Make Corporate Law? EC Legislation Versus Regulatory Competition, in 58 CURRENT LEGAL PROBS. 369, 370-71 (Jane Holder & Colm O'Cinneide eds., 2006) (arguing that member states rather than the European Commission should make European corporate law);
66. Mark J. Roe, Delaware's Competition, 117 HARV. L. REV. 588, 592(2003) (noting that the U. S. government helps to create competition for Delaware in corporate lawmaking).
67. On regulatory competition in less developed legal systems, see, for example, Erica Fung, Regulatory Competition in International Capital Markets: Evidence from China in 2004-2005, 3 N. Y. U. J. L. & BUS. 243, 251, 300-01 (2006).
68. See, e.g., Mergers Take Over, ECONOMIST, July 4, 1959, at 41.
69. Cf. Les Hannah, Takeover Bids in Britain Before 1950: An Exercise in Business "Pre-History, " 16 BUS. HIST. 65, 75-76 (1974) (suggesting that informational constraints existed under the 1948 Companies Act).
70. But see City Notes: The J. Sears Offer, Times (London), Feb. 5, 1953, at 10 (suggesting that properties were not in fact undervalued).
71. Cf. Brian R. Cheffins, Dividends as a Substitute for Corporate Law: The Separation of Ownership and Control in the United Kingdom, 63 WASH. & LEE L. REV. 1273, 1275-76 (2006) (suggesting that payment of dividends had a supplemental, rather than primary, role in the separation of ownership and control).
72. See, e.g., GEORGE BULL & ANTHONY VICE, BID FOR POWER 30 (3d ed. 1961).
73. See EDWARD STAMP & CHRISTOPHER MARLEY, ACCOUNTING PRINCIPLES AND THE CITY CODE: THE CASE FOR REFORM 5(1970);
74. The Shareholder Today, ECONOMIST, Dec. 19, 1953, at 903.
75. John Armour, Enforcement Strategies in U. K. Corporate Governance, in RATIONALITY IN COMPANY LAW: ESSAYS IN HONOUR OF DD PRENTICE 71, 112-15 (John Armour & Jennifer Payne eds., 2009).
76. See Companies Act, 1948, 11 & 12 Geo. 6, c. 38, § 165 (b) (Eng.) (granting Board power to intervene unilaterally);
77. R. D. Fraser, Administrative Powers of Investigation into Companies, 34 MOD. L. REV. 260, 260(1971).
78. The bidder intended to convert the company's Berkeley Hotel into commercial offices. The Savoy board arranged for the Berkeley to be sold and leased back to the company on terms that required it to be used as a hotel. Battle for the Savoy, ECONOMIST, Dec. 12, 1953, at 831;
79. Savoy Group's New Company, TIMES (London), Dec. 7, 1953, at 17.
80. See Battle for the Savoy, supra note 50, at 831.
81. E. MILNER HOLLAND, THE SAVOY HOTEL LIMITED AND THE BERKELEY HOTEL COMPANY LIMITED: INVESTIGATION UNDER SECTION 165 (B) OF THE COMPANIES ACT, 1948: REPORT OF MR. E. MILNER HOLLAND Q. C. 26(1954).
82. See infra Part II. A.0.
83. See Companies Act, 1948, 11 & 12 Geo. 6, c. 38, § 184 (Eng.) (adopting a mandatory rule that a company may remove a director by ordinary resolution).
84. BOARD OF TRADE, REPORT OF THE COMMITTEE ON COMPANY LAW AMENDMENT, 1962, Cmnd. 1749, ¶ 105 (U. K.)
85. (quoting BOARD OF TRADE, REPORT OF THE COMMITTEE ON COMPANY LAW AMENDMENT (THE COHEN REPORT), 1945, [Cmd.] 6659, ¶ 124 (U. K.)). Shortly afterward, the impact of post-war taxation led to a significant shift in share ownership away from individuals in favor of institutional investors.
86. See BRIAN R. CHEFFINS, CORPORATE OWNERSHIP AND CONTROL: BRITISH BUSINESS TRANSFORMED 325(2008).
87. See generally 4 DAVID KYNASTON, THE CITY OF LONDON (2001) (narrating the City of London's history from 1945-2000);
88. DAVID KYNASTON, THE CITY OF LONDON (1995) (narrating the City of London's history from 1890-1914).
89. See generally sources cited supra notes 26-29.
90. See supra text accompanying note 50.
91. Battle for British Aluminium, ECONOMIST, Dec. 6, 1958, at 913. Under British Aluminium's constitution, issuing new shares did not require shareholder approval.
92. See id. The board's choice was probably influenced by the fact that Alcoa, the board's preferred bidder, intended to permit them to remain in office. Alcoa Proposal for Representation, Times (London), Dec. 2, 1958, at 10;
93. Choice in British Aluminium, ECONOMIST, Dec. 13, 1958, at 1005.
94. British Aluminium Board's Statement, TIMES (London), Dec. 6, 1958, at 11;
95. British Aluminium Reveals Contract with Alcoa, TIMES (London), Nov. 29, 1958, at 12.
96. No Early Move on Aluminium, TIMES (London), Dec. 5, 1958, at 12;
97. No Early Official Decision on British Aluminium, TIMES (London), Dec. 5, 1958, at 19.
98. T. I. to Meet the Institutions, TIMES (London), Dec. 10, 1958, at 16.
99. War to What Purpose?, ECONOMIST, Jan. 10, 1959, at 145;
100. see also STAMP & MARLEY, supra note 47, at 7-8.
101. British Aluminium Reply, TIMES (London), Dec. 20, 1958, at 12.
102. See 606 PARL. DEB., H. C. (5th ser.) (1959) 21-22 (U. K.) (Mr. Sydney Irving MP calling for Parliamentary Committee to investigate takeover bids and create code of ethics);
103. A Problem of Communication: The City Starts to Explain Itself, TIMES (London), Oct. 19, 1959, at iii ("In the light of recent events it is clear that some official (or semi-official through the relevant trade association) regulation is needed if the public is to have the protection it ought to have.").
104. See Rules for Takeovers?, ECONOMIST, Oct. 17, 1959, at 270;
105. Takeover Study and Other Needed Reforms, TIMES (LONDON), Oct. 13, 1959, at 19.
106. See sources cited supra note 65.
107. Editorial, TAKE-OVER ETHICS, TIMES (London), Oct. 31, 1959, at 7.
108. The only "hard law" reform that impinged upon takeovers was the Board of Trade's introduction in 1960 of new rules for licensed securities dealers, which required bids to stay open for a minimum of twenty-one days and the disclosure of certain information about bidders. New Rules for Take-Overs, Times (London), May 10, 1960, at 20. Although the Jenkins Committee did make more extensive proposals in relation to takeovers, they were never implemented.
109. See generally BOARD OF TRADE, REPORT OF THE COMPANY LAW COMMITTEE, 1962, [Cmd.] 1749 (U. K.).
110. These included a battle for control of Metal. Industries Ltd. in 1967, where the tactics were similar to those used in the British Aluminium fight almost a decade earlier.
111. See, e.g., Sandy McLachlan & Philip Jacobson, Thorn Deal with MI Strips Control Away from Aberdare, TIMES (London), July 17, 1967, at 17;
112. All for the Lack of a Referee, TIMES (London), July 17, 1967, at 21;
113. Back to the Jungle, ECONOMIST, July 22, 1967, at 337. Contemporaneously, the board of International Distillers and Vintners used a similar tactic, staving off a hostile bid by persuading a friendly third party to buy a substantial stake in the market.
114. See Roy Mackie, Watney Mann was Mystery Buyer of IDV Shares, TIMES (London), July 25, 1967, at 17.
115. See, e.g., The Case for a British SEC, ECONOMIST, Jan. 7, 1967, at 49;
116. Time for a Tough Line in the City, TIMES (London), July 18, 1967, at 23.
117. See Roy Mackie, City Acts to Put its House in Order, TIMES (London), July 20, 1967, at 17;
118. Roy Mackie, City Panel to Oversee Takeovers, TIMES (London), Sept. 21, 1967, at 19;
119. Takeover Code: Enforceable, ECONOMIST, Sept. 23, 1967, at 1130.
120. THE PANEL ON TAKEOVERS AND MERGERS, REPORT ON THE YEAR ENDED 31st MARCH 1969, at 3, 7-8 (1969) (U. K.) [hereinafter PANEL ON TAKEOVERS AND MERGERS 1969 REPORT].
121. The Working Party for the City Code comprised the same institutions that had participated in the drafting of the Notes with the addition of representatives of the National Association of Pension Funds and the Confederation of British Industry. See PANEL ON TAKEOVERS AND MERGERS 1969 REPORT, supra note 73, at 2;
122. Issuing Houses Prepare Code, TIMES (London), July 22, 1967, at 15.
123. See Armour & Skeel, supra note 10, at 1767-76.
124. THE PANEL ON TAKEOVERS AND MERGERS, THE CITY CODE ON TAKEOVERS AND MERGERS APP. (1969) (U. K.);
125. see also Support Grows for the City's New Code, TIMES (London), June 30, 1969, at 19. The trade associations pledging to bind their members to observe the Code were the Council of the Stock Exchange (stockbrokers and jobbers), the Issuing Houses Association (merchant banks), the British Insurance Association, the Association of Unit Trust Managers and the Association of Investment Trust Companies. See id.
126. THE PANEL ON TAKEOVERS AND MERGERS, THE TAKEOVER CODE, R. 9.1 (2010) [hereinafter THE TAKEOVER CODE 2010]. On the history
127. see New Takeover Code Rule: Buyer Gaining 40pc Stake Must Bid for Remainder, TIMES (London), Jan. 19, 1972, at 17.
128. The "control" threshold was originally forty percent, and was lowered to thirty percent in 1974. Revised City Code Sets Out New Rules on Mandatory Bids, TIMES (London), June 6, 1974, at 19.
129. Directive 2004/25, of the European Parliament and of the Council of 21 April 2004 on Takeover Bids, 2004 O. J. (L 142) 12 [hereinafter EU Takeover Directive]. Certain parts of the Directive impose mandatory rules, whereas others are optional. See, e.g., id. arts. 5-8 (mandatory bid and promulgation of information relating to bids made applicable to all Member States);
130. id. arts. 9(2), 11, 12 (board neutrality and "breakthrough" rules made optional). Both the mandatory rules, and the United Kingdom's implementation of the optional rules, are largely consistent with the Takeover Code.
131. See PANEL ON TAKEOVERS AND MERGERS, THE IMPLEMENTATION OF THE TAKEOVERS DIRECTIVE: PROPOSALS RELATING TO AMENDMENTS TO BE MADE TO THE TAKEOVER CODE, Panel Consultation Paper 2005/5.
132. EU Takeover Directive, supra note 78, art. 4.
133. See Companies Act, 2006, c. 46, pt. 28 (Eng.).
134. See The Takeover Panel, Panel Membership, http://www.thetakeoverpanel. org.uk/structure/panelmembership (last visited Sept. 26, 2010).
135. See THE PANEL ON TAKEOVERS AND MERGERS, REPORT ON THE YEAR ENDED 31ST MARCH, 1975 and 1976 at 3-4 (1976) (U. K.).
136. Armour & Skeel, supra note 10, at 1768-69;
137. CHEFFINS, supra note 55, at 382-404.
138. Kraft pledged to keep open a British factory, only to announce one week after the transaction closed that this would not be possible. See, e.g., Michael Carolan, Kraft's Disregard for Cadbury Workers, WALL ST. J. (Mar. 8, 2010, 3:36 PM), http://blogs.wsj.com/source/2010/03/08/krafts-disregard-forcadbury- workers;
139. Elizabeth Rigby & Brooke Masters, Kraft is Censured on bid for Cadbury, FIN. TIMES (London), May 27, 2010, at 15.
140. See, e.g., Amy Wilson & Jonathan Russell, Kraft to Close Cadbury Plant It Suggested Keeping Open, DAILY TELEGRAPH (London), Feb. 10, 2010, at 5;
141. Kraft Deal Shows Buyout Rules Need Change, Says City Minister Lord Myners, EVENING STANDARD (London), Mar. 9, 2010.
142. TAKEOVER PANEL CODE COMM., REVIEW OF CERTAIN ASPECTS OF THE REGULATION OF TAKEOVER BIDS, PANEL CONSULTATION PAPER 2010/2, at 20-30 (2010), available at http://www.thetakeoverpanel.org.uk/wp-content/uploads/2008/11/PCP201002.pdf.
143. TAKEOVER PANEL CODE COMM., REVIEW OF CERTAIN ASPECTS OF THE REGULATION OF TAKEOVER BIDS, PANEL STATEMENT 2010/22, at 7(2010), available at http://www.thetakeoverpanel.org.uk/wp-content/uploads/2009/12/2010-221.pdf.
144. DEPARTMENT FOR BUSINESS, INNOVATION & SKILLS, A LONG-TERM FOCUS FOR CORPORATE BRITAIN, URN 10/1225, at 5 (Oct. 25, 2010), available at http://www.bis.gov.uk/assets/biscore/business-law/docs/l/10-1225-long-term- focus-corporate-britain.pdf.
145. In an interview given to the Sunday Telegraph newspaper, U. K. Business Secretary Vince Cable stated that it was his intention to "consult properly, not just as [the Takeover Panel] did predominantly amongst the people in the City who are in the takeover business but amongst business more widely."
146. Kamal Ahmed, Cable in 'Cadbury Law' Push; Government Inquiry into Takeover Speculators Coalition to Launch Drive for Private Sector Growth End to 'Short-Termism,' SUNDAY TELEGRAPH (London), Oct. 24, 2010, at B1.
147. See RANDALL S. THOMAS & CATHERINE T. DIXON, ARANOW & EINHORN ON PROXY CONTESTS FOR CORPORATE CONTROL § 1. 01[A], 1-6-1-8 (3d ed. Supp. 2001) [hereinafter " ARANOW & EINHORN"]. Another frequently used technique was to engage in a "street sweep, " attempting to acquire a controlling block through rapid and coordinated buying in the market.
148. See John Armour & Brian Cheffins, Offensive Shareholder Activism in U. S. Public Companies, 1900-49, 39-44 (Univ. of Cambridge/Univ. of Oxford, Working Paper, 2009).
149. See 15 U. S. C. §§ 78a-78n (2010);
150. C. F. R. § 240. 14a (2010).
151. See, e.g., Schnell v. Chris Craft Indus., Inc., 285 A.2d 437, 438 (Del. 1971) (invalidating, as inequitable board conduct, a by-law amendment advancing the annual stockholders meeting date and thereby unfairly shortening the dissident shareholders' ability to wage a proxy contest to replace the board);
152. see also Blasius Indus. v. Atlas Corp., 564 A.2d 651, 652 (Del. Ch. 1988) (invalidating board action expanding the board by two directorships and then filling the two vacancies, thereby making it impossible for dissident slates in proxy contest to gain majority board control);
153. Lerman v. Diagnostic Data, Inc., 421 A.2d 907, 914 (Del. Ch. 1980) (invalidating an advance notice by-law that no dissident slate could comply with in a timely way to become eligible to wage a proxy contest for board control).
154. Samuel L. Hayes III & Russell A. Taussig, Tactics of Cash Takeover Bids, 45 HARV. BUS. REV. 135, 136-37 (1967).
155. ARANOW & EINHORN, supra note 90, at § 1.01[B], 1-9.
156. Id. at § 1.01[B], 1-9 n. 23 ("As the costs of proxy contests escalated in the 1950s and 1960s, the cash tender offer began to supplant the proxy contest as the preferred takeover vehicle because substantial influence could be purchased with relatively low transaction costs.") (internal citations omitted) (internal quotation marks omitted).
157. Id. at § 1.01[A], 1-7.
158. Id. at § 1.01[C], 1-13.
159. WILLIAM J. CARNEY, MERGERS AND ACQUISITIONS 4 (2d ed. 2000).
160. See also Martin Lipton, Takeover Bids in the Target's Boardroom, 35 BUS. LAW. 101, 106-09 (1979).
161. Similar economic conditions in the United Kingdom were a major contributing factor driving the emergence of takeovers in the United Kingdom.
162. See Section II. A.1, supra, at 19-20.
163. After the collapse of the junk bond market in the early 1990s, due primarily to the demise of Drexel Burnham Lambert, the form of acquisition currency changed, and became the acquirer's own equity and debt securities. This was attributable, in large part, to the significant increase in overall stock market prices between 1995 and 2008.
164. See ARANOW & EINHORN, supra note 90, at § 1.01[B], 1-11.
165. 15 U. S. C. §§ 78m-78n (2006).
166. See also STEPHEN M. BAINBRIDGE, MERGERS AND ACQUISITIONS 288-89 (1st ed. 2003);
167. CARNEY, supra note 98, at 927-29.
168. See THE TAKEOVER CODE 2010, supra note 77, § F, at 1.
169. As Chancellor William Chandler of the Delaware Court of Chancery has observed: With minor exceptions, the United States Congress had shown no interest in adopting a statutory framework to regulate corporate decisionmaking. The [SEC] also expressed no interest in regulating takeover defenses such as the poison pill. Moreover, the United States Supreme Court had essentially sidelined federal judges and state legislatures with respect to such corporate governance matters. Almost by default, state courts were left to fill this void and create dependable ground rules governing when corporate boards... might employ takeover defenses... to deter, thwart, slow down or even stifle an ever-increasing wave of hostile acquisitions.... as the state of incorporation of a substantial majority of United States corporations, Delaware was thrust into the forefront to develop these ground rules.
170. William B. Chandler III, Hostile M&A and the Poison Pill in Japan: A Judicial Perspective, 2004 COLUM. BUS. L. REV. 45, 49-50 (2004).
171. Delaware, like over thirty other states, adopted a so-called "antitakeover statute, " Del. Code Ann. tit. 8, § 203(2010), but this statute neither regulated takeover defenses in any comprehensive way nor filled the regulatory vacuum that the state courts would soon occupy. Nor did any Delaware administrative agency have the jurisdiction to regulate, or manifest any interest in regulating, target board responses to hostile takeover bids. See generally BAINBRIDGE, supra note 100, at 252.
172. One possible explanation for why fiduciary duty judicial review ended up as the default regulatory mechanism in the United States is the absence of any detailed federal or state regulatory regime at that time. More specifically, if there were in place a federal (or state) statute requiring tender offers to be structured for all outstanding shares and for a fair price, that would have precluded the two-tier, coercive offers that were prevalent in the mid-1980s, and might well have resulted in an entirely different takeover jurisprudence. Because no such statutory requirements existed, target company boards had a reasonable basis for taking defensive actions in response to the original wave of coercively structured offers. That, in turn, generated the need for a decisionmaker to perform a contextual review of whether or not the defensive board action was proper. In this highly idiosyncratic environment, the Delaware courts were ideally suited to perform that role.
173. See DEL. CODE ANN. tit. 8, § 251(2010) (requiring that the board recommend a merger or consolidation to shareholders before shareholders are entitled to vote).
174. The debate in the United States was driven by two interest groups having diametrically opposite views. Takeover defense lawyers (and some academics) argued that board decisions with respect to tender offers should be treated like any other board decision concerning an acquisition proposal and that the business judgment rule should locate the power to deploy defensive tactics with the board. See Lipton, supra note 98, at 103-04;
175. see also Stephen M. Bainbridge, Director Primacy in Corporate Takeovers: Preliminary Reflections, 55 STAN. L. REV. 791, 818(2002). The plaintiff's bar, and many academics, took the position that shareholders should ultimately decide whether a hostile bid will succeed, and that the target board should take a passive role.
176. 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, 1164(1981);
177. Ronald J. Gilson, A Structural Approach to Corporations: The Case Against Defensive Tactics in Tender Offers, 33 STAN. L. REV. 819, 875-76 (1981).
178. Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985).
179. Id. at 955-57.
180. THE TAKEOVER CODE 2010, supra note 77, R. 9.1, 21.1, 25.1.
181. Jack B. Jacobs, Implementing Japan's New Anti-Takeover Defense Guidelines, Part I: Some Lessons from Delaware's Experience in Crafting "Fair" Takeover Rules, 2 N. Y. U. J. L. & BUS. 323, 328-29 (2006) [hereinafter Japan's Anti-Takeover Defense Guidelines, Part 1].
182. Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984).
183. Weinberger v. UOP, Inc., 457 A.2d 701, 711 (Del. 1983).
184. Japan's Anti-Takeover Defense Guidelines, Part 1, supra note 110, at 329. The business judgment standard "presupposes that the board is making a 'business judgment' that involves the business or assets of the corporation. "
185. Id. But, as earlier noted, in form a tender offer is a transaction solely between the offeror and the target company stockholders. Under the DGCL a tender offer does not require the board's approval, and arguably does not even involve the corporation's "business" at all. Nor was the entire fairness standard-applied to self dealing transactions with a majority stockholder or to transactions approved by a board having a financial conflict of interest-a good fit for the hostile takeover fact pattern. "Many corporate boards that approved defensive measures against hostile tender offers had a majority of independent directors whose livelihoods (unlike those of 'inside' directors) would not be affected by the outcome of the hostile offer. In such cases, no self-dealing in the classic sense was involved."
186. Id.
187. Id. For example, "reviewing a takeover defense under the entire fairness standard created a significant risk of being over-inclusive, " meaning that the defense would be invalidated simply because the defensive measure would prevent the shareholders from accepting an offer at a premium above the current market price of the target company stock.
188. Id. at 329-30. Fairness review would thus create a high risk of depriving target boards of their ability to protect shareholders against coercive, two-tiered offers of the kind involved in Unocal. On the other hand, "reviewing a takeover defense under the business judgment standard would almost invariably guarantee its validity, thereby creating the risk of underinclusion. "
189. Id. at 330. The concern was that courts would "give undue deference to defensive decisions by a compliant board that, even though disinterested and acting in good faith and having no personal financial interest in the matter, was servile to the views of senior managers who did have a career-based selfinterest in opposing an offer that would benefit the shareholders."
190. Id.
191. See Unocal, 493 A.2d at 953-54.
192. See Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 175-79 (Del. 1986).
193. Blasius Indus. v. Atlas Corp., 564 A.2d 651, 662-63 (Del. Ch. 1988).
194. See infra Part II. C.
195. Unocal, 493 A.2d at 954.
196. Unocal's reasonableness standard was later rearticulated in Unitrin, Inc. v. American General Corp., 651 A.2d 1361, 1373-89 (Del. 1995).
197. See generally Revlon, 506 A.2d 173.
198. This summary actually conflates the review standard as articulated in Revlon and the amplification of that standard a decade later in Paramount Corp. v. QVC Network, 637 A.2d 34, 51 (Del. 1994).
199. Paramount, 637 A.2d at 45.
200. See Moran v. Household Int'l Inc., 500 A.2d 1346, 1348-49 (Del. 1985);
201. Carmody v. Toll Bros. Inc., 723 A.2d 1180, 1186-87 (Del Ch. 1998).
202. Built into the design of every "rights plan" was a safety valve: it authorized the target company board to exempt any potential acquirer from the operation of the pill, and, if the pill were triggered, the board could redeem the rights at a nominal cost of (say) one cent per share. The clear intent of the poison pill defense was to give potential acquirors every economic incentive to negotiate an acquisition with the board, rather than to "go hostile."
203. See Moran, 500 A.2d at 1354.
204. 500 A.2d at 1348.
205. For a more complete exposition of the post-Moran history of the poison pill defense, see Carmody, 723 A.2d at 1185-87.
206. See, e.g., Blasius Indus. v. Atlas Corp., 564 A.2d 651, 652 (Del. Ch. 1988) (invalidating target board amendment of by-laws to expand the size of the board and appointment of two directors to fill the newly created directorships so that the incumbents retained control irrespective of the outcome of the proxy contest);
207. Aprahamian v. HBO & Co., 531 A.2d 1203, 1205 (Del. Ch. 1987) (invalidating board rescheduling of shareholders' annual meeting to a later date, to enable the board to solicit revocations of proxies to defeat the otherwise victorious dissident group).
208. The Blasius review standard was upheld by the Delaware Supreme Court in MM Cos. v. Liquid Audio, Inc., 813 A.2d 1118, 1120 (Del. 2003).
209. Blasius, 564 A.2d at 661.
210. See id. at 659, 663.
211. Merger and acquisition activity in general was extremely low for an economy of Japan's size. See Curtis J. Milhaupt & Mark D. West, Institutional Change and M&A in Japan: Diversity Through Deals, in GLOBAL MARKETS, DOMESTIC INSTITUTIONS: CORPORATE LAW AND GOVERNANCE IN A NEW ERA OF CROSS-BORDER DEALS 295, 296 (Curtis J. Milhaupt ed., 2003) (providing comparative data).
212. See Milhaupt & Pistor, supra note 12, at 90.
213. See infra notes 231-32 and accompanying text.
214. See Curtis J. Milhaupt, In the Shadow of Delaware? The Rise of Hostile Takeovers in Japan, 105 COLUM. L. REV. 2171, 2184-89 (2005) [hereinafter In the Shadow of Delaware?].
215. On a value basis, the long-term shareholding ratio declined by twenty percent from the late 1980s to the early 2000s, while the cross-shareholding ratio declined by about ten percent over the same period. See FUMIO KUROKI, THE RELATIONSHIP OF COMPANIES AND BANKS as CROSS-SHAREHOLDINGS UNWIND-FISCAL 2002
216. CROSS-SHAREHOLDING SURVEY, Figure 3(2003), available at http://www.nliresearch.co.jp/english/economics/2003/eco031118.pdf.
217. By market capitalization, stock ownership by financial institutions declined to thirty-one percent in 2007, from forty-one percent in 1996. The decline was particularly pronounced for banks, whose ownership over the same period declined to less than five percent from fifteen percent. See TOKYO STOCK EXCH., FACT BOOK 2008 65(2008), available at http://www.tse.or.jp/english/ market/data/factbook/index.html.
218. See id.
219. See Naohika Baba, Increased Presence of Foreign Investors and Dividend Policy of Japanese Firms, 17 PAC. BASIN FIN. J. 163, 164(2009).
220. The number of shareholder derivative suits against Japanese firms increased markedly after a change to procedural law in 1993 which fixed the plaintiff's filing fee (which is forfeited if the suit is unsuccessful) at a nominal level. See Mark D. West, Why Shareholders Sue: The Evidence from Japan, 30 J. LEGAL STUD. 351, 352(2001). Previously, the courts had ruled that the filing fee in derivative suits must be scaled to the amount of damages sought by plaintiffs, often resulting in prohibitively high costs to initiate a suit. (Pubitemid 33648828)
221. Id. at 351-53.
222. See Curtis J. Milhaupt, Creative Norm Destruction: The Evolution of Nonlegal Rules in Japanese Corporate Governance, 149 U. PA. L. REV. 2083, 2105(2001) [hereinafter Creative Norm Destruction].
223. See Kenichi Osugi, Recent Reforms of Japan's Corporate Law in an International Context: Who Have Participated in the Reforms, and How? 26(2010) (unpublished working paper) (on file with authors).
224. See id.
225. As a result of this rule, a large blockholder seeking liquidity often accepted a below-market price for the shares, in order to dissuade other shareholders from tendering into the offer. See Milhaupt & West, supra note 132, at 305.
226. See In the Shadow of Delaware?, supra note 135, at 2192-93.
227. SHŌHŌ [SHŌHŌ] [COMM. C.] art. 280-10 (Japan), translated in COMMERCIAL CODE OF JAPAN (Nishimura & Partners, trans., Shōji hōmu 2d ed. 2004).
228. See, e.g., Tōkyō Chihō Saibansho [Tokyo Dist. Ct.] July 25, 1989, Hei 1 (yo) no. 2068, 1317 HANREI JIHŌ [HANJI] 28, 35 (Japan). Doctrinally, this rule is similar to U. K.common law.
229. Kenichi Osugi, Transplanting Poison Pills in Foreign Soil: Japan's Experiment, in TRANSFORMING CORPORATE GOVERNANCE IN EAST ASIA 36, 38 (Hideki Kanda, Kon-Sik Kim & Curtis J. Milhaupt eds., 2008).
230. The brash young entrepreneur, Masafumi Horie, was subsequently convicted of securities and accounting fraud in connection with several of Livedoor's prior acquisitions. MILHAUPT & PISTOR, supra note 12, at 89.
231. Although NBS was clearly a subsidiary member of a media group led by Fuji Television, NBS held 22.5 percent of Fuji, while Fuji held only 12.4 percent of NBS.
232. Id. at 88. Fuji was in the midst of a friendly all-cash offer for all of remaining shares of NBS when Livedoor launched its competing bid for the NBS shares.
233. Id.
234. For more on the bid, see In the Shadow of Delaware?, supra note 135, at 2178-80.
235. Tōkyō Kōtō Saibansho [TOKYO HIGH CT.] Mar. 23, 2005, Hei 17 (ra) no. 429, 1173 HANREI TAIMUZU [HANTA] 125, 125 (Japan).
236. Id. at 132-33 (author's translation).
237. Id.
238. In the Shadow of Delaware?, supra note 135, at 2194.
239. KIGYŌ KACHI KENKYŪ KAI [CORPORATE VALUE STUDY GROUP], TEKITAITEKI BAISHŪ BŌEISAKU (KIGYŌ KACHI BŌEISAKU) NO SEIBI [PREPARING DEFENSIVE MEASURES TOWARD HOSTILE TAKEOVERS (MEASURES TO DEFEND CORPORATE VALUE)] 2(2005) [hereinafter CVSG 2005 Report], available at http://www.meti.go.jp/committee/materials/downloadfiles/g50307a11j.pdf.
240. An English summary is available at http://meti.go.jp/policy/economic- oganization/pdf/shishin-hontai.pdf. (All citations are to the original report in Japanese).
241. In the Shadow of Delaware?, supra note 135, at 2195-98.
242. CVSG 2005 REPORT, supra note 156, at 18.
243. Id. at 19.
244. Id. at 14-17.
245. Id. at 24-29.
246. Osugi, supra note 148, at 51.
247. As a formal matter, Japanese corporate law is shareholder-oriented. In fact, Japanese shareholders have more extensive legal rights vis-a-vis the board than their U. S. counterparts. For example, under Japanese corporate law shareholders must approve dividends (Art. 453, 454(1)) and director compensation (Art. 361(1)). KAISHA HŌ [KAISHA HŌ] [COMPANIES ACT], Act No. 109 of 2006, arts. 361, 453-54 (Japan). An English translation is available at http://www.japaneselawtranslation.go.jp/law/detail/?ft=1&re=02&dn= 1&co=01&x=17&y=11&ky=company+law&page=3.
248. KEIZAI SANGYŌSHŌ [MINISTRY OF ECONOMY, TRADE AND INDUSTRY (METI)] & HŌMUSHŌ [MINISTRY OF JUSTICE], KIGYŌ KACHI, KABUNUSHI KYŌDŌ NO RIEKI NO KAKUHO MATA WA KŌJŌ NO TAME NO BAISHŌ BŌEISAKU NI KANSURU SHISHIN [TAKEOVER DEFENSE GUIDELINES FOR PROTECTING AND ENHANCING CORPORATE VALUE AND THE COMMON INTERESTS OF SHAREHOLDERS] (May 2005) [hereinafter JAPANESE TAKEOVER GUIDELINES], available at http://www.meti.go.jp/press/20050527005/3-shishinn-honntai-set.pdf.
249. An English translation is available at http://www.meti.go.jp/policy/ economy/keiei-innovation/keizaihousei/pdf/shishinn-honntai.pdf.
250. Id. at 3.
251. Id.
252. Id.
253. Id. at 6-7 n. 4.
254. Id. at 5-6.
255. Id. at 2.
256. In the Shadow of Delaware?, supra note 135, at 2211.
257. CORPORATE VALUE STUDY GROUP, CORPORATE VALUE REPORT: TOWARD THE FIRM ESTABLISHMENT OF FAIR RULES IN THE CORPORATE COMMUNITY 59(2006), available at http://www.meti.go.jp/policy/economy/keiei-innovation/keizaihousei/pdf/ houkoku06-eng.pdf
258. Amane Fujimoto et al., Tekitaiteki baishū bōeisaku no dōnyū jōkyō [The Status of Adoption of Hostile Takeover Defense Measures], 1877 SHŌJI HŌMU 12, 13(2009).
259. TOKYO STOCK EXCHANGE, M&A WO TORIMAKU GENJŌ NI KANSURU TŌSHIKA IKEN NO GAIYŌ: BAISHYŪ BŌEISAKU WO CHŪSHIN NI [OUTLINE OF INVESTOR OPINIONS CONCERNING THE CURRENT STATE SURROUNDING M&A: FOCUSING ON TAKEOVER DEFENSIVE MEASURES] 7 n. 13(2008), available at http://www.tse.or.jp/rules/seibi/b7gje60000005zf1-att/2008ma.pdf [hereinafter TSE OUTLINE].
260. An unofficial English translation is available at http://www.tse.or.jp/ english/rules/ls-improvements/ma-investors.pdf.
261. There are several variations in the process for triggering the issuance of warrants. In some plans, warrant issuance is triggered by simple board resolution; others upon board resolution acting at the recommendation of an independent committee; and in others, upon vote of the shareholders. A second type of shareholder rights plan using a trust structure is also available under Japanese law. Under a trusttype plan, warrants are placed in trust with a trustee, along with instructions to issue warrants to shareholders of record upon the occurrence of specified events, such as the acquisition of a specified percentage of the company's shares by an acquirer. But as of July 2008, the trust-type plan had been adopted by only seven firms, all of which implemented their plans immediately after the promulgation of the Takeover Guidelines. Id. at 7.
262. See, e.g., TOKYO STOCK EXCHANGE, LISTING RULE REVISION WITH REGARD TO THE ADOPTION OF TAKEOVER DEFENSIVE MEASURES (Jan. 24, 2006), available at http://www.tse.or.jp/english/news/200603/060324-a.pdf;
263. TSE OUTLINE, supra note 174, at 10 (reviewing the TSE's prescriptions of corporate conduct and its delisting criteria).
264. See TSE OUTLINE, supra note 174, at 9.
265. Id. at 9-10.
266. See id. at 7.
267. See Tōkyō Kōtō Saibansho [Tokyo High Ct.] June. 15, 2005, Hei 17 (ra) no. 942, 1900 HANREI JIHŌ [HANJI] 156, 156 (Japan). The rights plan contained a rather clumsy feature in which nontransferable warrants were vested with shareholders of record as of a specific date. Even if the shares were subsequently sold, the warrants would remain with the seller. If the pill were triggered, investors who purchased shares after the record date would suffer dilution when new shares were issued to former investors who owned shares as of the record date.
268. See id. at 163-64. The Tokyo High Court upheld the lower court's grant of an injunction, on the ground that this feature adversely affected pricing and trading of the stock and was unfair to shareholders.
269. See id. at 164-65.
270. CORPORATE VALUE STUDY GROUP, TAKEOVER DEFENSIVE MEASURES IN LIGHT OF RECENT ENVIRONMENTAL CHANGES 6 (June 30, 2008) [hereinafter CVSG 2008 REPORT], available at http://www.meti.go.jp/english/report/data/ 080630TakeoverDefenseMeasures.pdf ("[T]akeover defense measures that are adopted after the commencement of a takeover are not the subject of the examination in the Guidelines.").
271. See Saikō Saibansho [Sup. Ct.] Aug. 7, 2007, Hei 19 (kyo) no. 30, 1809 SAIKŌ SAIBANSHO HANREISHŪ [SAIBANREI JŌHŌ] 16, 16 (Japan).
272. Id. at 16-17.
273. Id. at 17.
274. Id. at 17-18.
275. Id. at 17.
276. See id.
277. See id. at 17-18.
278. Id. at 18-19.
279. See KIGYŌ KACHI KENKYŪ KAI [CORPORATE VALUE STUDY GROUP], DAI 23 KAI KIGYŌ GIJI YŌSHI [SUMMARY OF 23 MEETING] (2007), available at http://www.meti.go.jp/policy/economic-industrial/gather/eig0000050/index23. html.
280. See, e.g., David Makman, Japanese Market Reform Sputters, 31 NAT'L L. J. at 13 (Sept. 1, 2008) (highlighting the Bull-Dog Sauce ruling in arguing that Japan permits "arbitrary or discriminatory" dilution of shareholders).
281. CVSG 2008 REPORT, supra note 181, at 6.
282. Id. at 3.
283. One exception: the tender offer rules were revised in 2006 to close loopholes in the mandatory tender offer rule for share purchases that cross the one-third level, and to impose a mandatory bid rule for share acquisitions that cross the two-thirds level. JAPANESE FINANCIAL SERVICES AGENCY, NEW LEGISLATIVE FRAMEWORK FOR INVESTOR PROTECTION 12-14 (2006) http://www.fsa.go.jp/en/policy/ fiel/20061010.pdf.
284. That latter subject was addressed politically at the state level, however, in at least thirty-three states whose legislatures adopted anti-takeover statutes. This legislation, however, was designed to augment, rather than to restrict, target company boards' power to interpose hostile takeover defenses. 1 ARTHUR FLEISCHER, JR. & ALEXANDER R. SUSSMAN, TAKEOVER DEFENSE, MERGERS AND ACQUISITIONS 4-24 (2010).
285. See CULPEPPER, supra note 1, at 1-8.
286. See Back to the Jungle, supra note 70, at 337.
287. To reiterate, the federal courts had no role in this development, because the only legislation addressing hostile takeovers (including tender offers) was the Securities Exchange Act of 1934, which did not regulate the substantive legality of board-adopted defenses to hostile takeovers.
288. See CVSG 2005 REPORT, supra note 156, at 1-8.
289. See CULPEPPER, supra note 1, at 117-18.
290. Id.
291. See In the Shadow of Delaware?, supra note 135, at 2211.
292. Keidanren, the primary management organization, is represented on the legislative council of the MOJ, which is the central administrative authority charged with reforming corporate law. Keidanren is also represented on deliberative councils formed by ministries interested in corporate and economic reform, including METI and the Financial Services Agency ("FSA"). Thus, management interests were fully represented in each prominent administrative forum where takeover policy could be vetted. CULPEPPER, supra note 1, at 124.
293. CVSG 2005 REPORT, supra note 156, at 3 (listing members of CVSG).
294. METI had a bureaucratic incentive to favor the Delaware approach because adopting the U. K. standard would have required a change in takeover bid rules, which fell under the jurisdiction of a different regulator, the FSA. For the elite Japanese corporate bar, many of whom had received graduate education in U. S. law schools, the Delaware approach was familiar and U. S.-style takeover defenses represented a potentially large new business opportunity.
295. See In the Shadow of Delaware?, supra note 135, at 2206. As it has turned out, however, the form of poison pill defense adopted overwhelmingly by Japanese firms has not generated significant fee income for Japanese lawyers.
296. 430 U. S. 462, 478(1977);
297. see also Business Roundtable v. U. S. Sec. & Exch. Comm'n, 905 F.2d 406, 407 (D. C. Cir. 1990) (invalidating SEC Rule 19c-4, which imposed a "one share, one vote" requirement as a listing condition for NYSE- and Nasdaq-traded companies, because it exceeded the SEC's authority under § 19 (c) of the Securities Exchange Act of 1934, which was essentially limited to rules seeking to create a national market system, rather than rules regulating basic corporate governance).
298. John Armour et al., Private Enforcement of Corporate Law: An Empirical Comparison of the United Kingdom and the United States, 6 J. EMPIRICAL LEGAL STUD. 687, 690(2009).
299. Id. at 692.
300. Id. The authors point out several important areas where the U. K. regulatory scheme affords more important protections than litigation, including the Takeover Panel process for "real time" takeover dispute resolution, the greater power of U. K. shareholders to vote on key issues and dismiss directors who do not perform up to expected standards, and the availability of schemes for obtaining advance clearance for fundamental corporate restructuring.
301. Id. at 715-21. While these differences are undoubtedly important, they merely underscore the greater role played by litigation as a corporate dispute resolution mechanism in the United States than in the United Kingdom.
302. See id. at 690-92.
303. See HOLLAND, supra note 52, at 3.
304. See Howard Smith Ltd. v. Ampol Petroleum Ltd., [1974] A. C. 82, 834-38 (P. C.);
305. Bamford v. Bamford, [1970] Ch. 212, 242-43;
306. Hogg v. Cramphorn Ltd., [1967] Ch. 254, 269.
307. Milhaupt, supra note 141, at 2104.
308. A key reason for the lack of shareholder suits is that, until the Daiwa Bank decision in the late 1990s, the Japanese courts had discouraged shareholder litigation against corporate managers by requiring the plaintiff to pay a sizeable security-for-costs bond. This shareholder-unfriendly landscape changed in 1993, however, with legislation fixing a modest filing fee for derivative suits. A true turning point came in the Daiwa Bank case, where a Japanese court held liable the directors of a Japanese bank for $775 million in damages.
309. Id. at 2115-16. This case led to a series of corporate governance reforms and to an increased role by Japanese courts in policing the conduct of Japanese fiduciaries, as evidenced (in part) by a large increase in the number of derivative suits subsequently filed in Japan.
310. See id. at 2116. Even so, this change occurred only a short time before the hostile takeover movement gained momentum in Japan, suggesting that even at that time court involvement in hostile takeovers was far from a foregone conclusion.
311. See In the Shadow of Delaware?, supra note 135, at 2196 ("The report is remarkable for its approval of Delaware takeover jurisprudence.").
312. Id. at 2195-96.
313. Id. at 2210-11.
314. See JAPANESE TAKEOVER GUIDELINES, supra note 164, at 4 n. 1, 4 cmt.4 (listing the various abusive takeover motives provided by the Livedoor High Court as the kind of takeover bids that would justify defensive measures).
315. See KRAAKMAN ET AL., THE ANATOMY OF CORPORATE LAW 200 (2d ed. 2009)
316. (citing TSE Listing Rules, Art. 417(8) e, which requires a third party to analyze whether a proposed merger is "fair" to shareholders).
317. See CULPEPPER, supra note 1, at 6 (emphasizing that autonomy is the primary criterion in establishing the political preferences for managers over regimes of corporate control).
318. See generally Armour & Skeel, supra note 10 (describing the differences between the U. K. selfregulation system, which has resulted in institutional investors being highly influential, and the U. S. system, which has primarily benefitted managers).
319. Id. at 1767-68.
320. Id. at 1776-81.
321. See id. at 1768-70. On the story of how they rose to prominence, see generally LESLIE HANNAH, THE RISE OF THE CORPORATE ECONOMY: THE BRITISH EXPERIENCE (1976) (attributing the emergence of institutional investors as a dominant class to the effects of the U. K. industry's transformation into a structure of large, monopolistic firms);
322. CHEFFINS, supra note 55 (explaining that tax rules immediately following World War II deterred ownership by individuals, favoring institutional shareholders instead).
323. See No Early Move on Aluminium, supra note 61.
324. KRAAKMAN et AL., supra note 219, at 83;
325. see also Armour & Skeel, supra note 10, at 1771-72.
326. KRAAKMAN et AL., supra note 219, at 269 n. 200.
327. Roe, supra note 6, at 104-05;
328. See Bernard S. Black, Shareholder Passivity Reexamined, 89 MICH. L. REV. 520, 526-29 (1990).
329. See Bonnie Buchanan et al., Are Shareholder Proposals an Important Corporate Governance Device? Evidence from US and UK Shareholder Proposals, 45-46 (last updated May 30, 2010) (unpublished manuscript) available at http://papers.ssrn.com/sol3/papers.cfm?abstract-id=1572016 (Eighty percent of U. K. shareholder proposals are concerned with removing or electing specific directors; only thirty percent of U. S. shareholder proposals relate to board issues, and none seek appointment of a particular director).
330. See Armour & Skeel, supra note 10, at 1776-78.
331. KRAAKMAN et AL., supra note 219, at 83.
332. DEL. CODE. ANN. tit. 8, § 216(2010) (authorizing by-laws specifying the vote, other than the default plurality vote, required to elect directors);
333. § 112 (authorizing by-laws providing for shareholder access to management proxy materials in specified circumstances);
334. § 113 (authorizing by-laws providing for proxy expense reimbursement). The first provision was adopted in 2007; the latter two were accomplished by amendments to the DGCL adopted in early 2009.
335. Id. §§ 112-13, 216.
336. See Bruce E. Aronson, A Japanese CalPERS or a New Model for Institutional Investor Activism? Japan's Pension Fund Association and the Emergence of Shareholder Activism in Japan 8(2010) (unpublished manuscript) (available at http://works.bepress.com/bruce-aronson/1/).
337. See Norimitsu Onishi, Livedoor Tycoon Gets Jail Term for Fraud, N. Y. TIMES, Mar. 16, 2007 (describing Horie's sentence);
338. Murakami Gets Two Years in Jail in Livedoor Scandal, N. Y. TIMES, July 19, 2007 (detailing Murakami's sentence).
339. CalPERS is the largest public pension fund in the United States. It has an active corporate governance agenda. CalPERS, CalPERS Investments, CALPERS, http://www.calpers.ca.gov/index.jsp?bc=/investments/home.xml (last visited Nov. 6, 2010). It works with, and sometimes publicly criticizes, management of companies in which it has invested, and takes public positions on corporate governance issues.
340. CalPERS, Facts at a Glance: Corporate Governance, CALPERS, 3-7 (Nov. 2010), http://www.calpers.ca.gov/eip-docs/about/facts/corpgov.pdf.
341. The PFA is an umbrella organization for corporate pension funds in Japan. For a thorough analysis of the PFA, see Aronson, supra note 233, at 36-38.
342. CULPEPPER, supra note 1, at 135-36.
343. See KRAAKMAN et AL., supra note 219, at 242 (pointing out that "guidelines and court decisions anticipate that defensive action by target management will be lawful only where it enhances 'corporate value' and promotes the shareholders' interests").
344. JAPANESE TAKEOVER GUIDELINES, supra note 164, at 3. For a discussion of the Guidelines
345. see Jacobs, supra note 110, at 325-28.
346. JAPANESE TAKEOVER GUIDELINES, supra note 164, at 6, 9.
347. Id. at 11.
348. Id. at 13.
349. This puzzling feature of the Japanese corporate landscape is not unique to takeovers. Japanese boards remain largely dominated by inside directors and nominal outsiders affiliated with creditors or companies within the same group. Employee interests are typically far better represented on the board (and receive a higher priority in managerial decisionmaking) than investor interests. This leads to the question, "[h]ow can Japanese corporate law empower shareholders while its governance practice does not?"
350. KRAAKMAN et AL., supra note 219, at 85-86.
351. Aronson, supra note 233, at 8.
352. PENSION FUND ASSOCIATION, GUIDELINES FOR THE EXERCISE OF SHAREHOLDER VOTING RIGHTS ON ANTI-TAKEOVER MEASURES, 1-3 (Mar. 24, 2008), available at http://www.pfa.or.jp/jigyo.shisan/gava-giketsuken/files/gov-e20080324.pdf.
353. Id. at 1-2.
354. See JUSTICE SYSTEM REFORM COUNCIL, RECOMMENDATIONS OF THE JUSTICE SYSTEM REFORM COUNCIL: FOR A JUSTICE SYSTEM TO SUPPORT JAPAN IN THE 21ST CENTURY, ch. 2-4 (June 12, 2001), http://www.kantei.go.jp/foreign/judiciary/2001/0612report. html. Many of the reforms have now been enacted. such as changing the system of legal education, increasing the size of the bar, introducing a jury system in certain criminal trials, streamlining trial procedure, and enhancing transparency in the selection process for the judiciary.
355. Id. ch. 2, pt. 2, ch. 3, pt. 5, ch. 4, pt. 1.
356. Id. ch. 1, pt. 1.
357. See id. ch. 1.
358. See KRAAKMAN et AL., supra note 219, at 273 (observing that "Japan is still making up its mind in this area").
359. WORLD BANK, WORLD DEVELOPMENT INDICATORS: GDP (2009), available at http://data.worldbank.org/indicator/NY.GDP.MKTP.CD/countries/latest?display= default. Russia, ranked eighth in the same tables, is the other of the four largest emerging markets.
360. Id.
361. Thompson Reuters, India Brazil China All Hostile Unsolicited, (last accessed May 14, 2010) (SDC Platinum) [hereinafter SDC Database] (spreadsheet of results on file with authors).
362. See MILHAUPT & PISTOR, supra note 12, at 130.
363. See Franklin Allen ET AL., Law, Finance and Economic Growth in China, 77 J. FIN. ECON. 57, 84-86 (2005);
364. Lee Branstetter, China's Financial Markets: An Overview, in CHINA'S FINANCIAL TRANSITION AT A CROSSROADS 23, 52-56 (Charles Calomiris ed., 2007);
365. Joseph P. H. Fan et al., Politically Connected CEOs, Corporate Governance, and Post-IPO Performance of China's Newly Partially Privatized Firms, 84 J. FIN. ECON. 330, 332-33 (2007).
366. Hui Huang, The New Takeover Regulation in China: Evolution and Enhancement, 42 INT'L LAW. 153, 156-58 (2008).
367. Shangshi Gongsi Shougou Guanli Banfa [Measures for the Administration of the Takeover of Listed Companies] (promulgated by the China Sec. Regulatory Comm'n, Aug. 27, 2008, effective Sept. 1, 2006), art. 4 [hereinafter CSRC Rules], available at http://www.lawinfochina.com/law/display.asp?ID=7043&DB= 1. An English translation is available at the same URL.
368. Zhonghua Renmin Gongheguo Zhengquan Fa [Securities Law of the People's Republic of China], (promulgated by the Standing Comm. Nat'l People's Cong., Dec. 29, 1998, effective July 1, 1999, amended Aug. 28, 2004 and Oct. 27, 2005), art. 88 [hereinafter China Securities Law], available at http://www.csrc.gov. cn/n575458/n776436/n804965/n3300690/n3300780/3300919.html;
369. CSRC Rules, supra note 256, art. 24.
370. China Securities Law, supra note 257, art. 96;
371. CSRC Rules, supra note 256, art. 47.
372. For information on the SASAC, see its official website, http://www.sasac.gov.cn/n2963340/2964236.html.
373. CSRC Rules, supra note 256, art. 25.
374. See Erik Berglof & Mike Burkart, European Takeover Regulation, 18 ECON. POL'Y. 171, 196-98 (2003).
375. See CSRC Rules, supra note 256, art. 33. A small number of listed companies have amended their Articles of Association to insert defenses such as staggered boards or supermajority provisions. E-mail from Professor Li Guo, Peking University, to Curtis J. Milhaupt, Parker Professor of Comparative Corporate Law and Fuyo Professor of Japanese Law at Columbia Law School (Apr. 1, 2010, 21:07 EST) (on file with authors).
376. CSRC Rules, supra note 256, art. 8;
377. see also E-mail from Professor Li Guo, supra note 262.
378. CSRC Rules, supra note 256, art. 8.
379. Huang, supra note 255, at 173-74.
380. See id. at 173;
381. see also CSRC Rules, supra note 256, art. 10 (calling on the CSRC to establish a special expert committee that will provide "consultancy opinions, " and stating that "the CSRC shall make a decision according to law") (emphasis added).
382. In other areas of corporate and securities law, such as derivative suits and securities fraud litigation, many Chinese courts have been reluctant to accept suits without specific authorization from the Supreme People's Court. Benjamin L. Liebman & Curtis J. Milhaupt, Reputational Sanctions in China's Securities Market, 108 COLUM. L. REV. 929, 940-41 (2008). The Supreme People's Court at one time specifically instructed lower courts not to hear certain types of securities cases.
383. Id.
384. Cyril Shroff, You Need a Defence Strategy, 27 INT'L FIN. L. REV. 40, 40(2008) ("The history of hostile acquisitions in India has been fraught with unsuccessful bids.").
385. See Tarun Khanna & Krishna G. Palepu, The Evolution of Concentrated Ownership in India, in A HISTORY OF CORPORATE GOVERNANCE AROUND THE WORLD 283, 283-89 (Randall Morck ed., 2005) (describing the persistence of concentrated family ownership of Indian corporations throughout the last century despite the market being governed by very different regimes over that time period).
386. See generally Radhakrishnan Gopalan et al., Affiliated Firms and Financial Support: Evidence from Indian Business Groups, 86 J. FIN. ECON. 759(2007) (describing the operation of internal capital markets in Indian businesses).
387. Until recently, a foreign acquisition that triggered an "open offer" under the SEBI Takeover Code had to be approved by the Foreign Investment Promotion Board of India, a process requiring a noobjection certificate from the target's board of directors. Even today, various required approvals by the Reserve Bank of India and the Foreign Investment Promotion Board leave an opening for protectionist sentiment to influence cross-border acquisitions of Indian firms.
388. While commonalities with the United Kingdom are greater in number than those with the United States, the Indian regime was not modelled overtly on that of the United Kingdom. The Bhagwati Committee, whose report prescribed the contours of the Indian regime, noted that its members had considered the takeover regimes of fourteen other countries. JUSTICE P. N. BHAGWATI COMMITTEE REPORT ON TAKEOVERS, Preface, para. 13(1997), available at http://www. takeovercode.com/committee-reports/pnb-preface.php.
389. Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, Gazette of India, section II (3) (ii) (Feb. 20, 1997) [hereinafter Indian Takeover Code], available at http://www.sebi.gov. in/acts/taknotifi.html. In the bill's amended, current version, 1997's section II (3) (ii) has been moved to section (III) (4).
390. Id. Rule 23(1).
391. Id. Rules 10, 20. In the original 1997 version of the bill, the trigger threshold was set at ten percent.
392. Id. Rule 10 n. 2.
393. See generally Armour & Lele, supra note 35 (describing the development of investor protection regulations in India).
394. Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000, ch.13.1.2 (Aug. 20, 2009), available at http://www.sebi.gov.in/guide/sebidipguideaug09.pdf.
395. Indian Takeover Code, supra note 273, Rule 2(1) (h).
396. Id. Rule 21(1).
397. See Berglöf & Burkart, supra note 261, at 179.
398. Indian Takeover Code, supra note 273, Rule 11. The creeping acquisition has been the mechanism used by Tata group in protecting against hostile acquisition. Shaun J. Mathew, Hostile Takeovers in India: New Prospects, Challenges, and Regulatory Opportunities, 2007 COLUM. BUS. L. REV. 800, 808(2007).
399. Indian Takeover Code, supra note 273, Rule 11.
400. Id. Rule 3(1) (c), repealed by Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) (Second Amendment) Regulations, 2002, Gazette of India, section II (3) (ii) 3 (a) (i) (Sept. 9, 2002).
401. Id. Rule 3(1) (e).
402. See Jairus Banaji, Thwarting the Market for Corporate Control: Takeover Regulation in India 4(2005) (unpublished manuscript) available at http://www.qeh.ox.ac.uk/dissemination/conference-papers/banaji.pdf.
403. Erica Gorga, Changing the Paradigm of Stock Ownership from Concentrated Towards Dispersed Ownership? Evidence from Brazil and Consequences for Emerging Countries, 29 NW. J. INT'L L. & BUS. 439, 445(2009);
404. cf. Karl V. Lins, Equity Ownership and Firm Value in Emerging Markets, 38 J. FIN. & QUANT. ANAL. 159, 166-67, 181(2003) (investigating equity ownership in emerging markets and finding significant concentrated ownership and use of non-voting equity structures in much of Latin America).
405. See Bruno M. Salama & Viviane Muller Prado, Legal Protection of Minority Shareholders of Listed Corporations in Brazil: Brief History, Legal
406. Id. at 2-3.
407. Id. at 5.
408. Id. as in India, this compromise reflects the prevalence of controlling blockholder ownership structures in Brazil. In the presence of controlling blockholders, a mandatory bid rule serves to deter bids by requiring that any control premium paid to the blockholder be shared with the minority shareholders. A partial mandatory bid rule limits the extent of required sharing.
409. See Berglöf & Burkart, supra note 261, at 196.
410. See Gorga, supra note 286, at 459 (describing a hostile bid in 2006 as "the first modern hostile takeover attempt in the Brazilian capital markets"). The SDC Platinum database identifies five " unsolicited" and no "hostile" transactions in Brazil.
411. See SDC Database, supra note 252.
412. See Gorga, supra note 286, at 450.
413. Id. at 451.
414. See id. at 452-63;
415. Salama & Prado, supra note 287, at 4.
416. See Gorga, supra note 286, at 480;
417. See also E-mail from Bruno Salama of Getulio Vargas, Professor of Law, Fundação Getúlio Vargas Law School, to Curtis J. Milhaupt, Parker Professor of Comparative Corporate Law and Fuyo Professor of Japanese Law at Columbia Law School (May 22, 2010, 12:27 EST) (on file with authors).
418. E-mail from Bruno Salama, supra note 295.
419. Mathew, supra note 281, at 832-39.
420. Shroff, supra note 268, at 41.
421. In countries having a representative form of government-that is, all of the countries discussed thus far except China-these predictions can be made with far more confidence than in the case of China. Two characteristics significantly differentiate China from the others and arguably render it a sui generis case. First, its form of government is highly authoritarian. Second, China is currently the largest creditor nation in the world. The first distinguishing factor may make Chinese firms less vulnerable to capital market pressures exerted by foreign and other investors, since the state controls the extent to which corporate shareholdings of most publicly traded firms will (or will not) be dispersed. The second factor may to some degree alleviate concerns about attracting capital from foreign investors.
422. To be sure, in the case of China, the channels for this demand would be much less clear-cut than the democratic process in India and Brazil.
423. Indeed, the EU Takeover Directive, supra note 78, displays a similar tension: the Directive articulates a neutrality principle as a default rule
424. id. art. 9(2) at 19, but permits member states to enact legislation allowing shareholders to put in place, or authorize management to put in place, defensive measures, id. art 12. Thus, an ostensible EU legislative nod to openness is circumscribed by more detailed rules at the national level.
425. Indeed, this fact may be one major reason that the U. K. approach was adopted.
426. See In the Shadow of Delaware?, supra note 135, at 2212-13. One commentator has recently suggested that the Delaware approach is suitable for India.
427. See Mathew, supra note 281, at 843.
428. See supra text accompanying notes 18-20.
429. Again, a caveat may be needed in the case of China. Regulatory competition at lower governmental and agency levels does exist in China. But it occurs only with the acquiescence of central governmental and party authorities. For a discussion of the devolution of regulatory authority in the Chinese context
430. see Liebman & Milhaupt, supra note 267, at 982.
431. See Paul G. Mahoney, The Exchange as Regulator, 83 VA. L. REV. 1453, 1453-64 (1997). (Pubitemid 127445648)
432. See, e.g., John C. Coffee, Jr., Racing toward the Top: The Impact of Cross-Listings and Stock Market Competition on International Corporate Governance, 102 COLUM. L. REV. 1757, 1800-17 (2002).