Takeover bids vs. Proxy Fights in Contests for Corporate Control

Lucian A. Bebchuk · Oliver Hart

64 citations0/0 files storedNational Bureau of Economic Research

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Corporate Finance and Governance Merger and Competition Analysis Corporate Governance and Law

Abstract

This paper evaluates the primary mechanisms for changing management or obtaining control in publicly traded corporations with dispersed ownership.Specifically, we analyze and compare three mechanisms: (1) proxy fights (voting only); (2) takeover bids (buying shares only); and (3) a combination of proxy fights and takeover bids in which shareholders vote on acquisition offers.We first show how proxy fights unaccompanied by an acquisition offer suffer from substantial shortcomings that limit the use of such contests in practice.We then argue that combining voting with acquisition offers is superior not only to proxy fights alone but also to takeover bids alone.Finally, we show that, when acquisition offers are in the form of cash or the acquirer's existing securities, voting shareholders can infer from the pre-vote market trading which outcome would be best in light of all the available public information.Our analysis has implications for the ongoing debates in the US over poison pills and in Europe over the new EEC directive on takeovers.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1986Large Shareholders and Corporate Control 1995Firms, Contracts, and Financial Structure 1996Theory of the firm; managerial Behavior, Agency Costs, and Ownership Structure 1980Takeover Bids, The Free-Rider Problem, and the Theory of the Corporation 1989Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior 1988Managerial control of voting rights 1965Mergers and the Market for Corporate Control

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