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 entails evaluation of the gravity of two sets of threats, one at the doctrinal level and the other at the policy level. The doctrinal threats are exterior threats to corporate policy and effectiveness on which managers justify defensive tactics under Unocal v. Mesa Petroleum Co. Because some threats have greater justificatory salience under Unocal than do others, a question arises as to the nature and characterization of the threats allegedly held out by activist intervention. The policy threats implicate the new balance of power between managers and shareholders. The chapter appraises the threats. As regards Unocal, it demonstrates a serious problem of fit. The chapter goes on to conduct a thought experiment that reshapes and extends Unocal so that it does provide a robust basis for sustaining management defense against activist hedge funds, even shielding poison pills with 5 percent triggers. The extension amounts to radical reformulation of the conceptual framework of corporate law, thereby posing the policy threat. But the policy threat, on examination, proves uncompelling, today?s corporate managers being disinclined to traverse shareholder preferences by promulgating standing poison pills. Given that, the chapter asks whether 5 percent poison pills could hold out policy benefits in the form of company-by-company shareholder-manager engagement on the question of suitability for activist intervention.
This paper studies how managers react to shareholder empowerment vis-à-vis governance provisions. We show that a staggered legislative change that increases noncompliance costs in the implementation of shareholder-initiated majority voting...Read more
Shareholder activism by hedge funds has taken hold in Germany in spite of large ownership concentration. This essay uses the example of Stada Arzneimittel AG to highlight features of activism, German style. It goes on to discuss the legal issues...Read more
Index funds and indexed ETFs managed by the “Big Three” – BlackRock, Vanguard and State Street – have grown to be the largest investors in the capital markets and have become the presumptive “deciders” of corporate law controversies. With this...Read more
This paper analyzes the conduct of mutual funds in shareholder litigation. We begin by reviewing the basic forms of shareholder litigation and the benefits such claims might offer mutual fund investors. We then investigate, though an in-...Read more