publication . Article . Report . Other literature type . Preprint . 2002

The Powerful Antitakeover Force of Staggered Boards: Theory, Evidence, and Policy

Lucian Arye Bebchuk; John C. Coates IV; Guhan Subramanian;
Open Access
  • Published: 01 May 2002 Journal: Stanford Law Review, volume 54, page 887 (issn: 0038-9765, Copyright policy)
  • Publisher: JSTOR
Abstract
Staggered boards, which a majority of public companies now have, provide a powerful antitakeover defense, stronger than is commonly recognized. They provide antitakeover protection both by (i) forcing any hostile bidder, no matter when it emerges, to wait at least one year to gain control of the board and (ii) requiring such a bidder to win two elections far apart in time rather than a one-time referendum on its offer. Using a new data set of hostile bids in the five-year period 1996-2000, we find that not a single hostile bid won a ballot box victory against an 'effective' staggered board (ESB). We also find that an ESB nearly doubled the odds of remaining inde...
Subjects
free text keywords: Law, General Medicine, Shareholder, Mergers and acquisitions, Economics, Corporate governance, Referendum, Tender offer, Ballot, Odds, Finance, business.industry, business, jel:G30, jel:G34
26 references, page 1 of 2

BACKGROUND ...............................................................................................5 The Law of Staggered Boards .....................................................................5 The Proliferation of Staggered Boards .....................................................7 Justifications for Staggered Boards ..........................................................8 Nontakeover justifications. .....................................................................8 Antitakeover justifications....................................................................11 The Growing Opposition to Staggered Boards ......................................12 Conventional Wisdom on Staggered Boards..........................................14

V. DID SHAREHOLDERS CONSENT?...................................................................57 A. A Brief History of Takeovers and Staggered Boards:...............................57 From Inco to Moran to Time ...........................................................................57 B. Assessing the Degree of Shareholder Consent .......................................60

VI. IMPLICATIONS FOR TAKEOVER LAW...........................................................62 A. Redeeming Pills Following Defeat in One Election...............................62 1. Consistency with fundamental principles of Delaware case law..........63 2. Legislative intervention not required. ..................................................65 3. Substantial consequences with minimal disruption.............................65 B. The Permissibility of Opt-Out ...............................................................66

Figure 1: Staggered Board Incidence by Industry............................................7

Figure 2: SB Incidence by Firm Size ...................................................................8

Figure 3: Bid Outcomes in the Short-run.........................................................46

Figure 4: Bid Outcomes in the Long-run.........................................................49

Figure 5: Staggered Board Incidence by Era...................................................59

Table 1: Delay Imposed by Various Target Defenses (In Years)..................33

Table 2: Summary Data on Hostile Bid and Target Characteristics ............42

Table 3: Shareholder Returns by Bid Outcome and Target Defenses .........51

Table 4: Overall Effect of ESBs on Target Shareholder Value ......................55

6. Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955 (Del. 1985). 7. See, e.g., DEL. CODE ANN. tit. 8, § 211(b) (2000); MODEL BUS. CORP. ACT § 8.03(d)

(1999). Moreover, if the corporation does not hold an annual shareholder meeting

8, § 211(c) (2000); MODEL BUS. CORP. ACT § 7.03(a)(1) (1999). 8. See GRANT A. GARTMAN & JACK D. ISAACS, INVESTOR RESPONSIBILITY RESEARCH

26 references, page 1 of 2
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