Missing the Point About State Takeover Statutes

In a recent article in this journal, Professor Richard Booth offers an extended appraisal of state legislation regulating hostile corporate takeovers. We think Booth’s article requires comment for two reasons. The first reason is perhaps more obvious, though less interesting from our point of view. To be blunt, “unfairness” to shareholders due to coercion arising out of two-tier or partial offers simply does not occur with enough frequency to warrant a sixty-seven-page article in a major law review. According to recent congressional testimony by SEC Commissioner Cox, from 1982 to 1986 the number of two-tier offers declined from 18% of all bids to only 3%; only six occurred in 1987. An earlier SEC empirical study indicates that these developments are part of a trend in favor of “any-or-all, all-cash” bids. The SEC found that the incidence of such bids relative to two-tier or partial offers increased steadily from 1981 to 1984; only seven of the eighty-two at least partially successful cash tender offers launched in 1984 were two-tier and only nine were partial. In Cox’s words, “the market appears to have corrected any problem that may have existed.” So, even if shareholder coercion were an explanation for state takeover statutes, given the practical insignificance of the problem, coercion would hardly seem a suitable justification for these laws.