Takeover rules in the European Community: An economic analysis of proposed takeover guidelines and already issued disclosure rules

Amtsblatt der Europäischen Gemeinschaft Nr.L 348/62 v.17.12.1988 (88/627/EWG). Amtsblatt der Europäischen Gemeinschaft Nr.C 64/8 v. 14.3.1989 (89/C64/07). Herrhausen, 1988, Frankfurter Allesemeine Zeitung, 23.12 1988, Mergers & Acquisitions, 53 Lipton, 1979, Takeover Bids in the Target's Boardroom, Bus. Law., 35, 101 Lipton, 1981, Takeover Bids in the Target's Boardroom: An Update After One Year, Bus. Law., 36, 1017 Easterbrook/Fishel, 1981, Takeover Bids, Defensive Tactics, and Shareholders' Welfare, Bus. Law., 36, 1017 Easterbrook/Fishel, 1981, The Proper Role of Target's Management in Responding to a Tender Offer, Harv. L. Rev., 94, 1161, 10.2307/1340753 Coffee, 1984, Regulating The Market for Corporate Control: A Critical Assessment of The Tender Offer's Role in Corporate Governance, Col. L. Rev., 84, 1145, 10.2307/1122351 Coffee, 1984, Regulating The Market for Corporate Control: A Critical Assessment of The Tender Offer's Role in Corporate Governance, Col. L. Rev., 84, 1166, 10.2307/1122351 Gort/Hogarty, 1970, New Evidence on Mergers, J.L.E., 13, 167, 10.1086/466686 Mueller, 1984, Further Reflections of the Invisible Hand Theorem Ravenscraft, 1987, Life After Takeover, 36 Marris, 1963, A Model of the ‘Managerial’ Enterprise, Quart. Journ. Econ., 72, 185, 10.2307/1884399 Marris, 1964, The Economie Theory of the “Managerial” Capitalism Mueller, 1977, The Effects of Conglomerate Mergers, Journ. Bank. Fin., 315, 10.1016/0378-4266(77)90008-5 Amihud/Lev, 1981, Risk Reduction as Managerial Motive for Conglomerate Mergers, Bell. Journ. Econ., 12, 605, 10.2307/3003575 Link, 1988, Acquisitions as Sources of Technological Innovation, Mergers & Acquisitions, 23, 36 Manne, 1965, Mergers and the Market for Corporate Control, Journ. Pol. Econ., 110, 10.1086/259000 Fama, 1983, ldSeperation of Ownership and Control, J.L.E., 26, 301, 10.1086/467037 Jensen/Ruback, 1983, The Market for Corporate Control, Journ. Fin. Econ., 11, 5, 10.1016/0304-405X(83)90004-1 Easterbrook/Fishel supra at note 7. See supra at note 9. Jensen/Ruback supra at note 12. See H. Manne, supra at note 12. M. Lipton supra at note 6. Lowenstein L. 1983, Pruning Deadwood in Hostile Takeovers: A Proposal for Legislation, Col. L. Rev., 83, 249, 10.2307/1122101 L. Lowenstein, supra at note 16. L. Lowenstein, “Hostile Takeovers: A Remedy of First Resort or Last Resort,” ÖBankArch 9/88, p. 886. Drucker, 1986, Corporate Takeovers—What Is To Be Done, Pub. Interest, 82, 3 M. Lipton supra at note 6. Malkiel, 1985 Grossman/Stiglitz, 1980, On the Impossibility of Informational Efficient Markets, Am. Econ. Rev., 70, 393 Gilson/Kraakman, 1984, The Mechanisms of Market Efficiency, Virg. L. Rev., 70, 549 McConnell, 1985, Corporate Capital Expenditure Decisions and the Market Value of the Firm, Journ. Fin. Econ., 14, 399, 10.1016/0304-405X(85)90006-6 Jensen, 1986, Agency Costs of Free Cash Flow, Corporate Finance and Takeovers, Am. Econ. Rev., 70, 323 Jensen, 1988, Takeovers: Causes and Consequences, Journ. Econ. Persp., 2, 23 See infra at III. B.H. Hall, “The Effect of Takeover Activity On Corporate Research And Development,” NBER Working Paper No. 2191. Hayes/Abernathy, 1980, ldManaging Our Way to Economic Decline, Harv. Bus. Rev., 67 Bloch, 1989 Scherer, 1988, Corporate Takeovers: The Efficiency Arguments, Journ. Econ. Persp., 2 Bernanke/Campbell, 1988, Is There a Corporate Debt Crisis, Brook. Pap. Econ. Act., 1, 83, 10.2307/2534425 J. Corbett, “International Perspectives on Financing: Evidence from Japan,” 3 Oxf. Rev. Econ. Pol. No. 4, p. 30. M. Jensen, “Active Investors, LBOs, and the Privatization of Bankruptcy,” Harvard Working Paper 89-060. M. Jensen supra at note 22. Coffee, 1986, Shareholders Versus Managers: The Strain in the Corporate Web, Mich. L. Rev., 85, 16, 10.2307/1288884 M. Jensen, supra at note 22 and 23. M. Jensen, supra at note 23 and note 30. M. Jensen, supra at note 23. Kaplan, 1988 See J.C. Coffee supra at note 32, pp. 49, 69 (1986). ShIeiffer/Summers, “Breach Of Trust In Hostile Takeovers,” NBER Working Paper No. 2342. J.C. Coffee supra at note 32, p. 70. Denis, 1986, Corporate Mergers and Security Returns, Journ. Fin. Econ., 16, 143, 10.1016/0304-405X(86)90059-0 40 Lehn/Poulsen, “Sources of Value in Leveraged Buyouts,” in Public Policy Towards Corporate Takeovers. 2741989, Metropolitan's Bond Covenants, New York Times, D2 For the extent of these gains, see Jensen/Ruback, supra at note 12. Jarrell, 1988, The Market for Corporate Control: The Scientific Evidence Since 1980, Journ. Econ. Persp., 2, 49, 10.1257/jep.2.1.49 1989, Brüssel will mehr Klarheit bei Übernahmeangeboten, Frankfurter Allgemeine Zeitung, 25.2, 14 If not indicated otherwise, reference is to the proposed guideline 89/C 64/07 supra at note 1. Guideline 88/627/EWG (supra at unf. note) mandates disclosure at 10%, 20%, 1/3, 50% and 2/3 of voting rights. Jarrell, 1986, Economic Effects of Federal and State Regulations of Cash Tender Offers, J.L.E., 23, 371, 10.1086/466965 Carney, 1983, Shareholder Coordination Costs, Shark Repellents, and Takeout Mergers: The Case Against Fiduciary Duties, Am. Bar Found. Res. Journ., 341, 10.1111/j.1747-4469.1983.tb00485.x Grossman, 1980, Takeover Bids, Free Rider Problem, Theory of the Corporation, Bell Journ. Econ., 11, 42, 10.2307/3003400 Carney, 1984, Toward a More Perfect Market for Corporate Control, Del. Journ. Corp. L., 9, 593 Easterbrook, 1981, The Proper Role of Target Managements in Responding to Tender Offers, Harv. L. Rev., 94, 1161, 10.2307/1340753 Bebchuk, 1982, The Case for Facilitating Tender Offers, Harv. L. Rev., 95, 1028, 10.2307/1340571 Bebchuk, 1982, The Case for Facilitating Competing Tender Offers: A Reply and Extension, Stanf. L. Rev., 35, 23, 10.2307/1228379 Bradley, 1980, Intel-firm Tender Offers and the Market for Corporate Control, Journ. Bus., 53, 345, 10.1086/296114 Gilson, 1988, Seeking Competitive Bids Versus Pure Passivity in Tender Offer Defense, Stanf. L. Rev., 35, 51, 10.2307/1228380 L. Bebchuk, supra at note 50. See supra at note 32. Schwartz, 1988, The Fairness of Tender Offer Prices in Utilitarian Theory, Journ. Leg. Stud., 17, 165, 10.1086/468126 Easterbrook, 1982, Auctions and Sunk Costs in Tender Offers, Stanf. L. Rev., 35, 1, 10.2307/1228378 Easterbrook, 1981, The Proper Role of Target Managements in Responding to Tender Offers, Harv. L. Rev., 94, 1161, 10.2307/1340753 See Jarrell/Bradley supra at note 45. Easterbrook, 1982, Auctions and Sunk Costs in Tender Offers, Stanf. L. Rev., 35, 1, 10.2307/1228378 A. Schwartz, supra at note 56. Easterbrook, 1981, Takeover Bids, Defensive Tactics, and Shareholder Welfare, Bus Law., 36, 1732 See A. Schwartz supra at note 56. supra at note 51. Schwartz supra at note 56. If shareholders, on the other hand, play minimax regret—that is to limit their losses in the worst case scenario— Schwartz, 1988, The Sole Owner Standard Reviewed, Journ. Les. Stud., 17, 231, 10.1086/468128 A. Schwartz supra at note 56;for the opposite view see R. Gilson, supra at 53. Disclosed Fees, in fact, average about 1% of Transaction value. Source: 23 Mergers & Acquisitions No. 3, p. 13. Schwartz, 1986, Search Theory and The Tender Offer Auction, Journ. L. Econ. Org., 2, 229 Jarrel, 1987, Two-Tier and Negotiated Tender Offers, Journ. Fin. Econ., 19, 283, 10.1016/0304-405X(87)90006-7 A. Schwartz, supra at note 56, p. 181. See supra at II.c. Malkiel supra at 20, p. 174. Grossman/Stiglitz supra at note 21. Coffee, 1984, Market Failure and the Economic Case fora Mandatory Disclosure System, Virg. L. Rev., 70, 717, 10.2307/1073083 L. Bebchuk supra at note 51. Search theory may suggest that the higher value buyer will be the first bidder anyway, but this is far from certain and has only limited value for the target shareholder; see A. Schwartz supra at note 56. See Grossman/Hart supra at note 47. Art.4 in guideline 88/627/EWG supra at note 1. US experience with a 5% reporting threshold suggest, that bidders may accumulate an average of about 13% of target stock. See M. Jensen supra at See Carney supra at note 46. For the opposite view see Easterbrook/Fishel supra at note 56. Bebchuk, 1982, The Case for Facilitating Tender Offers: A Reply and Extension, Stanf. L. Rev., 35, 23, 10.2307/1228379 W. Carney supra at note 47. Williams Act, Sect.14(d)(6). Rule 34.(4) “City Code on Take-overs and Mergers” requires a bidder to offer the highest price he has paid in any purchase 12 months prior to th L. Lowenstein supra at note 16, p. 307. See Carney supra at note 46. Again, we can describe the game situation in a matrix: D. DeMott, “Current Issues in Tender Offer Regulation: Lessons from the British,” 58 N.Y.U.L. Rev. 945, at p. 992. See Grossman/Hart supra at 47. See Grossman/Hart supra at note 47. See supra at III.b)cc). See supra III.b)ccc). D. DeMott supra at note 86, p. 992. Tender Offer Advisory Committee, 1983, Fed. Sec. Law Rep., 86, 675 W. Carney supra at note 46. W. Carney supra at note 46. Gilson, 1982, The Case against Shark Repellents: Structural Limitations on the Enabling Concept, Stanf. L. Rev., 34, 775, 10.2307/1228386 Gilson, 1551989, Honeywell Inc's Antitakeover Moves Defeated, Wall Street Journal, A5 Gilson, 1551989, Public Pension Funds Are Playing a Bigger Role in the Companies in Which They Invest, Wall Street Journal, B6 Jensen, 1985, When Unocal Won over Pickens, Shareholders and Society Lost, Financier, 50 See Lowenstein supra at note 16; M. Lipton supra at note 6. M. Lipton supra at note 6. L. Lowenstein supra at note 16. See supra III.b)ccc). M. Jensen supra at note 23. J.C. Coffee supra at note 32, p. 75. 1131989, Wall Street Journal, 5 Supra at III.d)ccc). D. DeMott supra at note 86. D. DeMott supra at note 86.