Misreading the Williams Act

This Article examines the emerging controversy over preemption of the most potent of recent antitakeover laws, the so-called business combination statutes recently passed by Delaware, New York, and other states, and Pennsylvania’s director-approval statute. After examining the strategy employed by the states to shield these statutes from constitutional attack, we consider the issues raised by the preemption claim and the arguments currently being advanced by the SEC and others in favor of preemption. Resolving the preemption controversy requires inquiry into the original meaning and objectives of the Williams Act. We argue that this should involve attention not only to the statute’s linguistic context but also to certain critical assumptions about takeovers and corporation law that formed the back-drop against which Congress acted in 1968. We conclude that a proper understanding of the Williams Act offers no credible support for the preemption claim. Not only does a conventional analysis of statutory language and legislative history reveal that Congress did not seek to enact a general federal policy in favor of a robust market for corporate control, but appreciation of the historical context within which Congress acted demonstrates that such arguments are based on a mistaken equation of congressional assumptions with congressional intentions. In 1968 Congress made assumptions about certain core premises of state corporation law and about the macro-effects of takeovers. These assumptions, however, did not amount to intentions about how we ought to regulate takeovers in a markedly different economic and legal environment, an environment in which those assumptions no longer hold true. Congress did no more than address the takeover issue as it existed in 1968. It never addressed the important and distinctive policy questions that occupy us today. Accordingly, rather than claiming to find in the tea leaves of the Williams Act evidence of an intent that does not exist, judges and policymakers should take a fresh look at the costs and benefits of hostile takeovers and the appropriate role of the states in their regulation.