Law Commons^™

Appraisal Arbitrage And Shareholder Value, Scott Callahan, Darius Palia, Eric L. Talley

Faculty Scholarship

Post-merger appraisal rights have been the focus of heated controversy within mergers and acquisitions circles in recent years. Traditionally perceived as an arcane and cabalistic proceeding, the appraisal action has recently come to occupy center stage through the ascendancy of appraisal arbitrage — whereby investors purchase target-company shares shortly after an announcement principally to pursue appraisal. Such strategies became more feasible and profitable a decade ago, on the heels of two seemingly technocratic reforms in Delaware: (i) the statutory codification of pre-judgment interest, pegging a presumptive rate at five percent above the federal discount rate; and (ii) the Transkaryotic opinion, …

Hedge Fund Activism, Poison Pills, And The Jurisprudence Of Threat, William W. Bratton

All Faculty Scholarship

This chapter reviews the single high profile case in which twentieth century antitakeover law has come to bear on management defense against a twenty-first century activist challenge—the Delaware Court of Chancery’s decision to sustain a low-threshold poison pill deployed against an activist in Third Point LLC v. Ruprecht. The decision implicated an important policy question: whether a twentieth century doctrine keyed to hostile takeovers and control transfers appropriately can be brought to bear in a twenty-first century governance context in which the challenger eschews control transfer and instead makes aggressive use of the shareholder franchise. Resolution of the question …

On The Use And Misuse Of Stock Price, Ira M. Millstein Center For Global Markets And Corporate Ownership

Ira M. Millstein Center for Global Markets and Corporate Ownership

In 2013, in an effort to better understand the purpose, use, and potential misuse of stock prices in public equity markets, the Millstein Center and the Investor Responsibility Research Center Institute (IRRCi) issued a call for papers on the role prices play as a corporate governance mechanism. In lieu of completed projects, proposals were sought for new research that explored how equity prices affect the decision-making processes of corporate management, boards of directors, and investors. On September 19, 2014, the Millstein Center and the IRRCi hosted a gathering entitled the Conference on the Use and Misuse of Stock Price, …

Open Sesame: The Myth Of Alibaba's Extreme Corporate Governance And Control, Yu-Hsin Lin, Thomas Mehaffy

Brooklyn Journal of Corporate, Financial & Commercial Law

In September 2014, Alibaba Group Holding Limited (Alibaba) successfully launched a $25 billion initial public offering (IPO), the largest IPO ever, on New York Stock Exchange. Alibaba’s IPO success witnessed a wave among Chinese Internet companies to raise capital in U.S capital markets. A significant number of these companies have employed a novel, but poorly understood corporate ownership and control mechanism—the variable interest entity (VIE) structure and/or the disproportional control structure. The VIE structure was created in response to the Chinese restriction on foreign investments; however, it carries the risk of being declared illegal under Chinese law. The disproportional control …

Symbolic Corporate Governance Politics, Marcel Kahan, Edward B. Rock

All Faculty Scholarship

How are we to understand the persistent gap between rhetoric and reality that characterizes so much of corporate governance politics? In this Article, we show that the rhetoric around a variety of high profile corporate governance controversies (including shareholder proposals asking boards to redeem poison pills, proxy access, majority voting in director elections, and shareholder proposals to remove supermajority voting requirements) cannot be justified by the material interests at stake. At the same time, shareholder activists are oddly reluctant to pursue issues that may have a more material impact, such as anti-pill charter provisions or mandatory bylaw amendments. We consider …

Time To Amend The Delaware Takeover Law, Stephen M. Shapiro, Dorothy S. Lund

Faculty Scholarship

As Professor Subramanian demonstrates with cogent statistical evidence, now is the time for the courts to put Section 203 in the dock and examine its constitutional merits. Better still, the Delaware legislature should clean house and amend this provision's criteria. In practical effect, it forbids a competitive tender offer, injuring shareholders who benefit from tender offer premiums, and the national economy, which benefits from the gravitation of industrial resources to their highest-valued uses.

Following the U.S. Supreme Court's decision in Edgar v. MITE Corp., which invalidated an Illinois takeover statute, the federal district court in Delaware routinely enjoined application of …

When Europe Hits Home: How Europeanization Triggers The Conflict Of Capitalism In The German System Of Corporate Control, Alexander El Alaoui

Claremont-UC Undergraduate Research Conference on the European Union

No abstract provided.

Corporate Control And Credible Commitment, Ronald J. Gilson, Alan Schwartz

Faculty Scholarship

The separation of control and ownership – the ability of a small group effectively to control a company though holding a minority of its cash flow rights – is common throughout the world, but also is commonly decried. The control group, it is thought, will use its position to consume excessive amounts of project returns, and this injures minority shareholders in two ways: there is less money and the controllers are not maximizing firm value. To the contrary, we argue here that there is an optimal share of the firm that compensates the control group for monitoring managers and otherwise …

Corporate Control And The Need For Meaningful Board Accountability, Michelle M. Harner

Faculty Scholarship

Corporations are vulnerable to the greed, self-dealing and conflicts of those in control of the corporation. Courts historically have regulated this potential abuse by designating the board of directors and senior management as fiduciaries. In some instances, however, shareholders, creditors or others outside of corporate management may influence corporate decisions and, in the process, extract corporate value. Courts generally address this type of corporate damage in one of two ways: they designate controlling shareholders as corporate fiduciaries and they characterize creditors, customers and others as contract parties with no fiduciary duties. The traditional roles of corporate shareholders and creditors may …

Gatekeeper Failures: Why Important, What To Do, Merritt B. Fox

Faculty Scholarship

The United States was hit by a wave of corporate scandals that crested between late 2001 and the end of 2002. Some were traditional scandals involving insiders looting company assets – the most prominent being Tyco, HealthSouth, and Adelphia. But most were what might be called "financial scandals": attempts by an issuer to maximize the market price of its securities by creating misimpressions as to what its future cash flows were likely to be. Enron and WorldCom were the most spectacular examples of these financial scandals. In scores of additional cases, the companies involved and their executives were sued by …

Debt Investments In Competitors Under The Federal Antitrust Laws, Hanno F. Kaiser

Fordham Journal of Corporate & Financial Law

No abstract provided.

The Efficiency Of Controlling Corporate Self-Dealing: Theory Meets Reality, Zohar Goshen

Faculty Scholarship

Corporate self-dealing may be controlled either by legal rules or by the unconstrained forces of the market. The regulatory options include an absolute prohibition on self-dealing, a prohibition on voting with conflicting interests (the "majority of the minority" requirement), and an imposition of fairness duties (the 'fairness test"). Using an economic analysis, this Article presents a unique theoretical framework for evaluating the relative efficiency of the attempts to control self-dealing adopted by five countries: The United States (Delaware in particular), the United Kingdom, Canada, Germany, and Italy.

The Article's analysis of the self-dealing problem is based on the novel theory …

Unregulable Defenses And The Perils Of Shareholder Choice, Jennifer Arlen, Eric L. Talley

Faculty Scholarship

A significant debate rages within corporate law scholarship as to whether shareholders or managers should be granted authority over the tender offer process once a bid is imminent. Both sides generally agree that the issue depends on whether shareholders are capable of exercising informed choice over takeover bids. Supporters of managerial veto power contend that the arguments favoring professional management of publicly held firms carry over into the tender offer context. Proponents of shareholder choice, on the other hand, argue that shareholders can act on their own behalf in the special circumstances surrounding contests for corporate control.

This Article challenges …

Sales And Elections As Methods For Transferring Corporate Control, Ronald J. Gilson, Alan Schwartz

Faculty Scholarship

Delaware case law has rendered the tender offer obsolete as a method for purchasing a company whose directors oppose the acquisition. A potential acquirer facing target opposition today must run an insurgent director slate, in the expectation that its directors are more likely to sell. The Delaware courts have not justified their preference for elections over markets as the preferred vehicle for implementing changes in control. Informal scholarly analyses ask transaction cost questions, such as whether proxy contests are more costly than takeovers. This article attempts to break new ground by asking whether there are systematic differences in the performance …

Poison And Dead Hand Pills, Markets For Corporate Control, And Implications For An Emerging Market Like China, Shueiqing Zhou

LLM Theses and Essays

In the past twenty years, the Chinese government has been adopting open door and economic reform policies. Because of historical, economic, legal, and cultural traditions, a modern corporation system is far from being established in China. There are lots of things that need to do to establish a perfect corporate system. This thesis reviews diverse interpretations of the function of poison pills in light of recent judicial decisions and underlying empirical evidence. It also reviews recent judicial decisions regarding the new version of poison and dead hand pill. The author discusses the recent trend of by-law restrictions in an attempt …

Controlling Corporate Agency Costs: A United States-Israeli Comparative Law, Zohar Goshen

Faculty Scholarship

The "Corporation" assumes a central position in modem economic life. This is due mainly to the fact that major portions of our economic activities are performed by corporations. Numerous authors have pondered the essence of the corporate phenomenon, proposing various theories for the uniqueness of the corporation as opposed to other possible structures for operating a business. The main line of analysis focuses on the central characteristic of the modem corporation: the separation of ownership and control. Managing a business through the means of a corporation allows one to exploit the advantages of specialization. On one hand, shareholders benefit from …

Shareholder Enforced Market Discipline: How Much Is Too Much?, Eric J. Gouvin

Faculty Scholarship

This Article considers the federal banking regulation regime implemented in response to the widespread bank failures of the 1980s and early 1990s. The first section of the Article examines the moral hazard problem created by the presence of the deposit insurance scheme and the market discipline debate that has attempted to correct the moral hazard problem. The Author argues that the law has evolved to make bank holding companies the primary enforcers of market discipline. The Article’s second section examines the specific regulatory changes that have been designed to create an incentive for bank holding companies to impose discipline on …

Rethinking Disclosure Liability In The Modern Era, Merritt B. Fox

Faculty Scholarship

The state of issuer disclosure in 1997 is like the proverbial half-filled glass. On one hand, as Dean Seligman has amply demonstrated in his contribution to this symposium, the glass is half empty in the sense that the legal incentives for established issuers to engage in high quality disclosure at the time that they sell new securities have decreased in recent decades. Due to the more liberal exemptions available under Regulation S, Rule 144A, Regulation D and Regulation A, a much smaller portion of such sales is even subject to the formal disclosure oriented registration process under Section 5 of …

Toward An Auction Market For Corporate Control And The Demise Of The Business Judgment Rule, Mark J. Loewenstein

Publications

No abstract provided.

A Structural Approach To Corporations: The Case Against Defensive Tactics In Tender Offers, Ronald J. Gilson

Faculty Scholarship

Tender offers present an obvious and inherent conflict of interest between management and shareholders. On the one hand, an offer provides shareholders with the opportunity to sell their shares for a substantial premium over market price. On the other hand, the tender offer is the principal mechanism by which management can be forcibly unseated from control. It should thus come as no surprise that management often resists outsiders' efforts to direct tender offers at its shareholders. The form of that resistance, however, is somewhat surprising. Because the tender offer is the only form of corporate acquisition addressed directly to the …

Corporations--Voting Trusts--Non-Compliance With Statute As Basis For Judicial Termination, Robert K. Eifler S.Ed.

Michigan Law Review

Common stockholders of a corporation which had on December 15, 1938 made a valid five year extension of a voting trust agreement originally entered into on January 22, 1929 attempted on May 27, 1939, to extend further the agreement for an additional five years. Following a dispute over the election of corporate directors almost two years after the termination of the first extension, certain holders of voting trust certificates brought bills in chancery to compel redelivery of the common stock registered in the names of the voting trustees and to declare the invalidity of the election. Held, the instrument …

Corporations - Close Corporations - Methods Of Retaining Ownership Of Stock In Surviving Stockholders When One Stockholder Dies, Reid J. Hatfield

Michigan Law Review

The close corporation is generally formed by a small group who take an active part in the business and whose participation is essential to the successful operation of the venture. Thus, a partnership may decide that the corporate form will more effectively protect the interests of its members, or a small number of people interested in the same enterprise may incorporate in order to limit their individual liability in the common endeavor. Whatever the reason for the use of the corporate entity, the active participation of each stockholder is probably of vital importance to the financial welfare of all. To …