Tender Offer Regulation: The Need for Reform

Too frequently, courts and the Securities and Exchange Commission have presumed, in the tender offer context, that management acts principally for the benefit of the corporation's shareholders. This presumption has left such shareholders basically at the mercy of an unfettered management whose interests may conflict with the interests of the shareholders it allegedly serves. As a result of the increased popularity of hostile bids for corporate control, both offeror and target managements have relied on the ingenuity of securities attorneys and investment bankers to create new maneuvers for use in the takeover setting. The terms for some of these maneuvers, including golden parachutes, shark repellent provisions, lock-ups, poison pills, scorched earth tactics, white knights, and the Pac-Man defense, suggest that there is something fundamentally wrong with this process. The recurrence of this kind of irresponsible behavior, Congress' and the judiciary's reluctance to meaningfully address this subject, and provocative comments made by others on particular abuses associated with hostile tender offers prompt me to offer a few of my own thoughts on the subject. These thoughts are loosely grouped under four headings: application of the business judgment rule to target companies' managements, application of existing federal law to target management, abuses that ought to be the subject of additional federal legislation, and a tentative proposal for vesting primary jurisdiction over pending tender offers in the Securities and Exchange Commission (SEC).