Share Ownership, Takeover Law and the Contestability of Corporate Control

Abstract

In this paper, I focus on corporate control contestability as a policy objective for company law reform. In part I, I consider the impact of large shareholdings disclosure on the market for corporate control. I suggest that a policy maker should fix the shareholdings' threshold and the delay for disclosure by taking into account the need for both transparency and corporate control contestability. In part II, I examine the technical barriers to takeovers which have been expressly regulated by national rules. I argue that these rules have a limited impact on the contestability of corporate control and that their practical effect might simply be to re-orient defensive actions towards different techniques. In any case, regulation could hardly cover all takeover barriers. In part III, I consider U.S. takeover defences, asking whether and to what extent they should be admitted in Europe. I examine both pre-bid and post-bid defences and compare their different handling under U.S. and E.U. law. I suggest that the rule providing that post-bid defences should be authorised by the shareholders' meeting appears to be preferable, despite the shareholders' collective action problems, to a rule leaving wide discretion to the board of directors. I also argue that market rules, such as those included in the City Code, may function as substitutes for defensive measures in view of shareholder value enhancement. In part IV, I analyse the mandatory bid rule (MBR). A trend is emerging in legislation which is directed at mitigating the impact of mandatory bids on transfers of corporate control. I examine this trend and conclude that, presumably, a lower number of efficient transfers of control will be deterred by these rules, but a higher number of inefficient transfers will be allowed if the bid's price is lower than that paid for the controlling block.