Property rights in assets and resistance to tender offers

Abstract

The recent spate of highly publicized hostile tender offers has prompted questions about the proper reaction of target firm management to takeover bids. Traditionally, the law has not constrained management's ability to resist acquisition. To the contrary, courts recognize not just “a large reservoir of authority” in management to respond to takeover bids, but “an obligation to determine whether the offer is in the best interests of the corporation and its shareholders,” and to resist if it is not. Particularly since the publication of an important article on the issue by Frank Easterbrook and Daniel Fischel, however, the wisdom of allowing managerial resistance has been challenged. All else being equal, resistance by any target firm reduces the bidder's net expected returns. Consequently, it is argued, other potential targets would face a greater likelihood of an advantageous takeover, and all firms would receive greater monitoring, if resistance were impermissible. In addition, it is urged, managers could not be trusted to seek a proper level of monitoring even if it were attainable, as agency problems are apparently insurmountable when managers' jobs are on the line. The Easterbrook–Fischel school therefore would ban managerial resistance to tender offers. The opposition to managerial resistance is troubling. In the paradigm market, sellers (or their agents) are permitted to reject initial offers and bargain for higher ones. Sellers cannot bargain if they cannot reject an offer.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 22 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.