A Review and Comparison of Takeover Defenses in the U.S. and U.K.

Antitakeover tactics are employed by Target corporations as a form of defense, from unwanted hostile tender offers made by potential bidders. Whilst some of these defenses are deployed as pre-emptive defenses; that is, in anticipation of potential bids, a wide range of responsive defenses are also available to firms which find themselves prospective targets post-bidding. Furthermore, the types of defense tactics and the manner by which they may be employed vary greatly between the US; particularly under Delaware law, and the United Kingdom. Under Delaware law, where a Target company’s directors defend against a hostile bid, the ‘business judgment rule’ applies, requiring directors to demonstrate that after a “good faith and reasonable investigation,” they perceived a danger to corporate policy. Further, under Unocal Corp v Mesa Petroleum Co, judicial review of defensive tactics looks to whether (i) this threat was reasonably perceived, and (ii) whether the defensive measures used were reasonable in relation to the threat posed. In contrast to this approach, the use of antitakeover defenses in the UK is not only to a great extent restricted by the City Code on Takeovers and Mergers (“the Code”), but also requires shareholder approval prior to being exercised, under Rule 21.1. This essay proposes to compare the differences in defenses between these two jurisdictions, in addition to exploring the types of defenses used by them.