Advertisement

Some Thoughts on the Market for Corporate Control

  • Robert W. McGee

The merger mania of the 1980s put top corporate management on the defensive as predators sought takeover targets. Hostile takeover activity has dissipated in recent years, for a variety of reasons, but the ethical issues surrounding acquisitions and mergers and the ethically questionable conduct that is often involved remain as relevant as ever. Most ethical discussions of acquisitions and mergers focus on the ethical conduct of the predator. The ethical conduct of the target company's top management is often overlooked. This chapter reviews the ethical literature on hostile takeovers and applies ethical theory to some of the defensive tactics that have been used to thwart unwanted takeovers. The focus will be on the fiduciary duties of top management and ethical issues involved with poison pills, greenmail, golden parachutes and other defensive tactics. Both utilitarian and nonutilitarian approaches will be used as tools of analysis. It also reviews the attitude toward the market for corporate control that exists in 17 transition economies.

There is much evidence to suggest that most acquisitions and mergers result in a net benefit to the economy (Easterbrook and Fischel 1981; Ginsburg and Robinson 1986; Halpern 1973; Jensen and Ruback 1983, 1985, 1988). There are more winners than losers. Economists would say that it is a positive-sum game. Yet those who initiate such activity, the “predators,’ are commonly viewed as greedy, immoral, and uncaring.

Keywords

Corporate Governance Transition Economy Corporate Control Shareholder Wealth Fiduciary Duty 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Armentano, D.T. (1986). Antitrust Policy: The Case for Repeal. Washington, DC: Cato InstituteGoogle Scholar
  2. Asarco Inc. v. M.R.H. (1985). Holmes a Court, 611 F.Supp. 468 (DCNJ)Google Scholar
  3. Asquith, P., Bruner, R.F. and Mullins, D.W. Jr. (1983). The Gains to Bidding Firms from Merger. Journal of Financial Economics, 11(1–4), 121–139CrossRefGoogle Scholar
  4. Bandow, D. (1988). Delaware's Takeover Law: Curbing Raiders Is Bad for Business. The New York Times, 7 FebruaryGoogle Scholar
  5. Bentham, J. (1962). A Fragment on Government. The Works of Jeremy Bentham, Vol. 1, p. 227, quoted in William H. Shaw. (1999). Contemporary Ethics: Taking Account of Utilitarianism. Malden, MA and Oxford: Blackwell, p. 8Google Scholar
  6. Block, W. (1994). Total Repeal of Antitrust Legislation: A Critique of Bork, Brozen, and Posner.Review of Austrian Economics, 8, 35–70CrossRefGoogle Scholar
  7. Boudreaux, D.J. and DiLorenzo, T.J. (1993). The Protectionist Roots of Antitrust. Review of Austrian Economics, 6, 81–96CrossRefGoogle Scholar
  8. Bradley, M., Desai, A. and Kim, E. (1983). The Rationale Behind Interfirm Tender Offers: Information or Synergy? Journal of Financial Economics, 11, 183–206CrossRefGoogle Scholar
  9. Braendel, A.D. (2000). Defeating Poison Pills Through Enactment of a State Shareholder Protection Statute. Delaware Journal of Corporate Law, 25, 651–682Google Scholar
  10. Brown, C. and Medoff, J.L. (1987). The Impact of Firm Acquisitions on Labor. Washington, DC: National Bureau of Economic ResearchGoogle Scholar
  11. Dostoevsky, F. (1952). The Brothers Karamazov. Great Books of the Western World, Vol. 52. Chicago: Encyclopedia BritannicaGoogle Scholar
  12. Downes, J. and Goodman, J.E. (1998). Dictionary of Finance and Investment Terms. Hauppauge, NY: Barrons Educational SeriesGoogle Scholar
  13. Dynamics Corp. of America v. CTS Corp., et al., (1986). U.S.D.C., N.D.Ill., Eastern Division, No. 86 C 1624 (17 April), aff'd. CA-7, Nos. 86–1601, 86–1608, and Dynamics Corp. of America v. CTS Corp., et al. May 3Google Scholar
  14. Easterbrook, F.H. and Fischel, D.R. (1981). The Proper Role of a Target's Management in Responding to a Tender Offer. Harvard Law Review, 94, 1161–1204CrossRefGoogle Scholar
  15. Easterbrook, F.H. and Jarrell, G.A. (1984). Do Targets Gain From Defeating Tender Offers? New York University Law Review, 59, 277, cited in Richard A. Posner. (1998). Economic Analysis of Law, 5th edn. New York: Aspen, p. 455Google Scholar
  16. Ginsburg, D.H. and Robinson, J.F. (1986). The Case Against Federal Intervention in the Market for Corporate Control. Brookings Review, Winter/Spring, 9–14Google Scholar
  17. Halpern, P.J. (1973). Empirical Estimates of the Amount and Distribution of Gains to Companies in Mergers. Journal of Business, 46, 554–575CrossRefGoogle Scholar
  18. Holderness, C. and Sheehan, D. (1985). Raiders or Saviors? The Evidence of Six Controversial Investors. Journal of Financial Economics, 14, 555–579CrossRefGoogle Scholar
  19. Jarrell, G.A. and Bradley, M. (1980). The Economic Effects of Federal and State Regulations on Cash Tender Offers. Journal of Law & Economics, 23, 371, as cited in Richard A. Posner. (1998). Economic Analysis of Law, 5th edn. New York: Aspen, p. 454Google Scholar
  20. Jensen, M.C. (1985). The Efficiency of Takeovers. The Corporate Board, pp. 16–22Google Scholar
  21. Jensen, M.C. (1988). Takeovers: Their Causes and Consequences. Journal of Economic Perspectives, 2, 21–48. Jensen, M.C. and Ruback, R.S. (1983). The Market for Corporate Control: The Scientific Evidence. Journal of Financial Economics, 11, 5–50Google Scholar
  22. Jensen, M.C. and Ruback, R.S. (1983). The Market for Corporate Control: The Scientific Evidence. Journal of Financial Economics, 11, 5–50CrossRefGoogle Scholar
  23. Labaton, S. (1988). A Debate over the Impact of Delaware Takeover Law. The New York Times, 1 February, D1Google Scholar
  24. Lambert, R. and Larcker, D. (1985). Golden Parachutes, Executive Decision-Making, and Shareholder Wealth. Journal of Accounting and Economics, 7, 179–204CrossRefGoogle Scholar
  25. Malatesta, P. and Walkling, R. (1989). The Impact of Poison Pill Securities on Shareholder Wealth. Journal of Financial Economics, 20, 347–376CrossRefGoogle Scholar
  26. McGee, R.W. (1997). The Fatal Flaw in the Methodology of Law & Economics. Commentaries on Law & Economics, 1, 209–223Google Scholar
  27. McGee, R.W. (1994). The Fatal Flaw in NAFTA, GATT and All Other Trade Agreements. Northwestern Journal of International Law & Business, 14, 549–565Google Scholar
  28. McGee, R.W. (1989). The Economics of Mergers and Acquisitions. Mid-Atlantic Journal of Business, 25, 45–55Google Scholar
  29. Mikkelson, W. and Ruback, R. (1985). An Empirical Analysis of the Interfirm Equity Investment Process. Journal of Financial Economics, 14, 523–553CrossRefGoogle Scholar
  30. Mill, J.S. and Utilitarianism, G.S. (1999). Indianapolis: Hackett, 1979, as quoted in William H. Shaw, Contemporary Ethics: Taking Account of Utilitarianism. Malden, MA/Oxford: Blackwell, p. 9Google Scholar
  31. Ministar Acquiring Corp. v. AMF, Inc., 621 F.Supp. 1252 (NY, (1985)Google Scholar
  32. Moran v. Household International, Inc., 490 A.2d 1059, aff'd. 500 A.2d 1346 (1985)Google Scholar
  33. OECD. (2004). OECD Principles of Corporate Governance. Paris: OECDGoogle Scholar
  34. Office of the Chief Economist. (1986). The Economics of Poison Pills. Securities and Exchange Commission, 5 MarchGoogle Scholar
  35. Office of the Chief Economist. (1987). Shareholder Wealth Effects of Ohio Legislation Affecting Takeovers. Securities and Exchange Commission, 18 MayGoogle Scholar
  36. Office of Economic Policy. (1987). New Jersey Shareholders Protection Act: An Economic Evaluation. Trenton: State of New Jersey, AugustGoogle Scholar
  37. Posner, R.A. (1998). Economic Analysis of Law, 5th edition. New York: Aspen, pp. 284–285Google Scholar
  38. Rothbard, M.N. (1970). Man, Economy and State. Los Angeles: Nash, pp. 260–268Google Scholar
  39. Ryngaert, M. (1988). The Effect of Poison Pill Securities on Shareholder Wealth. Journal of Financial Economics, 20, 377–417CrossRefGoogle Scholar
  40. Schumann, L. (1987). State Regulation of Takeovers and Shareholder Wealth: The Effects of New York's 1985 Takeover Statutes, Bureau of Economics Staff Report to the Federal Trade Commission, MarchGoogle Scholar
  41. Shaw, W.H. (1999). Contemporary Ethics: Taking Account of Utilitarianism. Malden, MA/ Oxford: BlackwellGoogle Scholar
  42. Shughart, W.F. II. (1987). Don't Revise the Clayton Act, Scrap It!. Cato Journal, 6, 925–932Google Scholar
  43. Sidgwick, H. (1999). The Methods of Ethics, New York: Dover, 1966, as quoted in William H. Shaw, Contemporary Ethics: Taking Account of Utilitarianism. Malden, MA and Oxford: Blackwell, pp. 9–10Google Scholar
  44. Smiley, R. (1975). The Effect of the Williams Amendment and Other Factors on Transactions Costs in Tender Offers. Industrial Organization Review, 3, 138–145Google Scholar
  45. Unilever Acquisition Corp. v. Richardson-Vicks, Inc., 618 F.Supp. 407 (SDNY (1985)Google Scholar
  46. Velasco, J. (2002). The Enduring Illegitimacy of the Poison Pill. Iowa Journal of Corporation Law, 27, 381–423Google Scholar
  47. Velasco, J. (2003). Just Do It: An Antidote to the Poison Pill. Emory Law Journal, 52, 849–908Google Scholar
  48. Williams Act, (1968) 15 U.S.C. §§78m(d)–(e), 78n(d)(f)Google Scholar
  49. Woodward, S.E. (1988). How Much Indiana's Anti-Takeover Law Cost Shareholders. Wall Street JournalGoogle Scholar
  50. World Bank. (2001). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Arab Republic of Egypt, September. Washington, DC: World Bank. http://www.worldbank.orgGoogle Scholar
  51. World Bank. (2001). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Republic of Croatia, September. Washington, DC: World Bank. http://www.worldbank.orgGoogle Scholar
  52. World Bank. (2001). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Republic of the Philippines, September. Washington, DC: World Bank. http://www.worldbank.orgGoogle Scholar
  53. World Bank. (2002). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Georgia, March. Washington, DC: World Bank. http://www.worldbank.org.
  54. World Bank. (2002). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Czech Republic, July. Washington, DC: World Bank. http://www.worldbank.org.
  55. World Bank. (2002). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Republic of Lithuania, July. Washington, DC: World Bank. http://www.worldbank.org.
  56. World Bank. (2002). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Bulgaria, September. Washington, DC: World Bank. http://www.worldbank.org.
  57. World Bank. (2002). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Mauritius, October. Washington, DC: World Bank. http://www.worldbank.org.
  58. World Bank. (2002). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Latvia, December. Washington, DC: World Bank.http://www.worldbank.org
  59. World Bank. (2003). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Hungary, February. Washington, DC: World Bank. http://www.worldbank.org.
  60. World Bank. (2003). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Chile, May. Washington, DC: World Bank. http://www. worldbank.org.
  61. World Bank. (2003). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Republic of South Africa, July. Washington, DC: World Bank. http://www.worldbank.org.
  62. World Bank. (2003). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Colombia, August. Washington, DC: World Bank. http://www.worldbank.org.
  63. World Bank. (2003). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Republic of Korea, September. Washington, DC: World Bank. http://www.worldbank.org.
  64. World Bank. (2003). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Mexico, September. Washington, DC: World Bank.http://www.worldbank.org.
  65. World Bank. (2003). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Slovak Republic, October. Washington, DC: World Bank. http://www.worldbank.org.
  66. World Bank. (2004). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Romania, April. Washington, DC: World Bank. http://www.worldbank.orgGoogle Scholar
  67. World Bank. (2004). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Moldova, May. Washington, DC: World Bank. http://www.worldbank.org.
  68. World Bank. (2004). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Slovenia, May. Washington, DC: World Bank. http://www.worldbank.org.
  69. World Bank. (2005). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Armenia, April. Washington, DC: World Bank. http://www.worldbank.org.
  70. World Bank. (2005). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Macedonia, June. Washington, DC: World Bank.http://www.worldbank.org.
  71. World Bank. (2005). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Poland, June. Washington, DC: World Bank. http://www.worldbank.org.
  72. World Bank. (2005). Report on the Observance of Standards and Codes (ROSC), CorporateGoogle Scholar
  73. Governance Country Assessment, Azerbaijan, July. Washington, DC: World Bank. http://www.worldbank.orgGoogle Scholar
  74. World Bank. (2006). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Bosnia and Herzegovina, June. Washington, DC: World Bank. http://www.worldbank.org.
  75. World Bank. (2006). Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, Ukraine, October. Washington, DC: World Bank. http://www.worldbank.org.

Copyright information

© Springer Science + Business Media, LLC 2008

Authors and Affiliations

  • Robert W. McGee

    There are no affiliations available

    Personalised recommendations