Faculty Bibliography

Public companies have increasingly embraced environmental, social and governance (ESG) factors in the course of everyday business. However, these ESG considerations are virtually non-existent in merger and acquisition (M&A) transactions. Elon Musk’s recent acquisition of Twitter provides an illustration of this stark disconnect. Prior to the transaction, Twitter pursued numerous ESG goals. In contrast, Musk had taken a skeptical, if not hostile, stance toward ESG. In negotiating the sale, the Twitter board succumbed to “ESG amnesia”—overlooking its ESG commitments in favor of the high-premium all-cash offer from Musk. Twitter is not alone: ESG amnesia is a widespread phenomenon in M&A. We argue that corporate boards have the legal and practical ability to consider ESG in their dealmaking. We examine three of the most significant barriers that might prevent a corporate board from incorporating ESG objectives into transactions—fiduciary duties, negotiation leverage, and contractual feasibility—and demonstrate that, outside of the Revlon context, none of these barriers offers a compelling justification for ESG amnesia. Rather, boards that consider ESG objectives in their dealmaking can be acting entirely consistent with their fiduciary duties. Moreover, boards often have the negotiation leverage and capability to incorporate ESG protections into their contractual agreements. As a result, we argue that ESG considerations should pervade all aspects of managerial decision-making, including decisions about the sale of the company. We conclude with specific recommendations for corporate actors in M&A deals

We present the first evidence on the incidence of “trip wire” versus “last look” poison pills. Using a hand-collected data set of 130 poison pills implemented and/or amended between January 1, 2020 and March 31, 2023, we find that pills are almost evenly divided between trip wire and last look pills. We find that the main—if not exclusive—driver of the variance in this pill design feature is the law firm that installs the pill. We further find that top tier M&A firms (defined as ranked Band 1, 2 or 3 in Corporate/M&A by Chambers) are far more likely to put in a trip wire feature. Firms outside of this top tier are far more likely to put in a last look feature. We argue that a trip wire feature is consistent with a well-known strand of the bargaining literature, demonstrating that irrevocable commitment provides bargaining leverage. The fact that top-tier law firms put in trip wire pills is an implicit acknowledgement of that literature. Sophisticated practitioners understand the importance of irrevocable commitments in other areas of transactional practice as well (e.g., “don’t ask, don’t waive” standstill agreements). We further demonstrate that a last look provision is not required under Delaware corporate law. Our finding that top-tier firms are more likely to adopt best practices is consistent with other literature showing a slow dissemination of cutting-edge features in transactional practice (e.g., Coates 2001; Subramanian 2005). We apply our findings to examine the poison pill that Twitter’s board of directors installed in April 2022, in response to Elon Musk’s offer to buy the company. Consistent with our overall findings, the Twitter pill, which included a last look feature, was not put in by a law firm ranked Band 1–3 in Corporate/M&A by Chambers. We argue that this last look feature might have been disastrous for Twitter, if Elon Musk had actually triggered the pill. At least with hindsight, Musk might have been able to acquire Twitter for billions less if he had triggered the Twitter pill.

Easterbrook and Fischel’s The Economic Structure of Corporate Law advances their now famous passivity thesis, which posits that managers should remain passive in the face of an unsolicited tender offer for the company’s shares. Consistent with the broader Chicago-school economic belief, Easterbrook and Fischel argue that markets are generally efficient, and therefore restrictions on the market (like poison pills) are bad. In doing so, Easterbrook and Fischel also consider and reject externalities that might cause the market for corporate control to not function well. Thirty years have passed since Easterbrook and Fischel’s seminal work and the world has changed in meaningful ways, with the rise of stakeholder governance, ESG, and stockholder activism. We therefore propose some ground rules that would govern pills in today’s corporate world. These rules, we believe, would effectively balance the board’s interest in considering a broad set of constituencies and the challenges of facing increasingly sophisticated and coordinated shareholder activists against the rights of all shareholders, including activists, to solicit support for their ideas or attempt to gain control of the company.

Through a combination of organic growth and acquisitions, LKQ Corp. became the leading aftermarket auto parts distributor in the U.S. by the early 2000s. Beginning in 2012, the company began similarly consolidating the European marketplace. However, by 2017, the company still lacked a meaningful presence in Germany, which was the largest automotive market in Europe. Stahlgruber AG, the largest German distributor, became available as an acquisition opportunity. Senior LKQ management had to decide whether to participate in the sale process, and if so, how high to bid. Bain Capital, which was also making aggressive moves into the European marketplace, was likely to be the other significant bidder. On one hand, “Project Jigsaw” (named as such because Stahlgruber would be the jigsaw piece in the center of the European puzzle) represented a once-in-a-lifetime opportunity for LKQ. On the other hand, the competitive bidding process would force LKQ to stretch financially. The case presents the challenges and opportunities presented by the Stahlgruber acquisition.

The negotiation literature has extensively examined the topic of power and how it can be wielded. Numerous frameworks have been created and utilized in the various treatises on negotiations; analyzing the power differential in any given situation is a common teaching technique. However, despite this focus on the topic, discussions of power have been mainly focused on negotiations in the private sector. As a result, many of the most common frameworks are oriented toward this type of situation, resulting in a clumsy application to a public‐sector negotiation. Given the growing importance of negotiations to public‐sector leaders, we provide a new structure for analyzing power that can be utilized in such situations. For a municipal leader confronted with a complex public‐private partnership, it is important to have the right tools to use when examining the power dynamics at play. After examining several current models of power, as well as other writings on the topic in negotiation and strategy literature, we present a new model. This model divides power into different categories based on whether it stems from formal or informal mechanisms, and then offers several specific forms relevant to the public sector. We then use this new model to examine a case study involving the new mayor of Manchester, New Hampshire and her efforts to negotiate a better response to the opioid and homelessness crises. This case study illustrates the unique nature of public sector negotiations and provides a roadmap for negotiators looking to use our new framework.

This statutory supplement (fall 2020 edition) is for the Corporations casebooks by Holger Spamann and by Holger Spamann and Guhan Subramanian. It contains excerpts from the Delaware General Corporation Law, the Securities Exchange Act of 1934, Rules & Regulations promulgated by the Securities Exchange Commission pursuant to authority granted under the 1934 Act, as well as short excerpts from the Restatement of the Law Third (Agency) and the Uniform Partnership Act of 1914. It is current as of August 1, 2020.

This statutory supplement (fall 2019 edition) is for the Corporations casebook by Holger Spamann and Guhan Subramanian. It contains excerpts from the Delaware General Corporation Law, the Securities Exchange Act of 1934, Rules & Regulations promulgated by the Securities Exchange Commission pursuant to authority granted under the 1934 Act, as well as short excerpts from the Restatement of the Law Third (Agency) and the Uniform Partnership Act of 1914. It is current as of August 1, 2019.

This Essay examines the state of appraisal in Delaware after the Delaware Supreme Court’s decisions in DFC Global (July 2017) and Dell (December 2017). In these two cases, the Supreme Court reversed Chancery Court rulings that “fair value” exceeded the deal price. In doing so the Supreme Court strongly signaled that deal price should receive presumptive weight as long as the deal process is good. The question then becomes how good the deal process must be in order to gain deference to the deal price. In Dell, the Chancery Court found that the deal process was good enough to satisfy fiduciary duties but not good enough to warrant deference to the deal price. The Supreme Court revisited (and in some instances, mischaracterized) key facts from the record to conclude that the Chancery Court’s ruling constituted an “abuse of discretion.” This Essay concludes with implications for practitioners and courts. An earlier version of this Essay is titled Using the Deal Price for Determining "Fair Value" in Appraisal Proceedings.

This Essay examines the state of appraisal in Delaware after the Delaware Supreme Court’s decisions in DFC Global (July 2017) and Dell (December 2017). In these two cases, the Supreme Court reversed Chancery Court rulings that “fair value” exceeded the deal price. In doing so the Supreme Court strongly signaled that deal price should receive presumptive weight as long as the deal process is good. The question then becomes how good the deal process must be in order to gain deference to the deal price. In Dell, the Chancery Court found that the deal process was good enough to satisfy fiduciary duties but not good enough to warrant deference to the deal price. The Supreme Court revisited (and in some instances, mischaracterized) key facts from the record to conclude that the Chancery Court’s ruling constituted an “abuse of discretion.” This Essay concludes with implications for practitioners and courts. An earlier version of this Essay is titled Using the Deal Price for Determining "Fair Value" in Appraisal Proceedings.

This book provides cases, commentaries, case studies, and discussion questions on corporate law. It is intended for use in the introductory course in corporate law at U.S. law schools. Emphasis is placed on Delaware corporate law, though comparative perspectives are developed as well. Teaching slides and teaching notes are available from the authors. The book has a Statutory Supplement.

Since 2011, the United Kingdom has prohibited all deal protections—including termination fees—in mergers and acquisitions (M&A) deals. We examine the effect of this regulatory change on deal volumes, the incidence of competing offers, deal-jumping rates, deal premiums, and completion rates in the United Kingdom relative to the other European Group of 10 (G-10) countries. We find that M&A deal volumes in the United Kingdom declined significantly in the aftermath of the 2011 reform (in absolute terms and relative to deal volumes in other European G-10 countries). We find no countervailing benefits to targets’ shareholders in the form of higher deal premiums or more competing bids. Completion rates and deal-jumping rates also remained unchanged. Our results suggest that deal protections provide an important social welfare benefit by facilitating the initiation of M&A deals.

Management buyouts (MBOs) are an economically and legally significant class of transaction: not only do they account for more than $10 billion in deal volume per year, on average, but they also play an important role in defining the relationship between inside and outside shareholders in every public company. Delaware courts and lawyers in transactional practice rely heavily on “market-check” processes to ensure that exiting shareholders receive fair value in MBOs. This Article identifies four factors that create an unlevel playing field in that market check: information asymmetries, valuable management, management financial incentives to discourage overbids, and the “ticking-clock” problem. This taxonomy of four factors allows special committees and their advisors to assess the degree to which the playing field is level in an MBO, and (by extension) the extent to which a market canvass can provide a meaningful check on the buyout price. This Article then identifies more potent deal process tools that special committees can use to level the playing field: for example, contractual commitments from management that allow the board to run the process; pre-signing rather than post-signing market checks; information rights rather than match rights; ex ante inducement fees; and approval from a majority of the disinterested shares. This Article also identifies ways that the Delaware courts can encourage the use of these more potent devices when appropriate: through the threat of entire fairness review, the application of Revlon duties, and the weight given to the deal price in appraisal proceedings. The result would be improved deal process design in MBOs and improved capital formation in the economy overall.

Corporate Governance 2.0 is not quite a clean-sheet redesign of the current system, but a back-to-basics reconceptualization of what sound corporate governance means. It is based on three core principles: 1. Boards should have the right to manage the company for the long term. 2. Boards should install mechanisms to ensure the best possible people in the boardroom. 3. Boards should give shareholders an orderly voice. The shift is vital in the United States, where the power of shareholders has increased over the past ten years and the natural instinct of boards is to cave to activist demands. Over the long term, a Corporate Governance 2.0 perspective would transform corporate governance from a never-ending conflict between boards and shareholders to a source of competitive advantage in the marketplace.

This Article first documents the shift to annual elections of all directors at most U.S. corporations,and argues that the alternative of “ineffective” staggered boards would have been more desirable, as a policy matter, but is now a missed opportunity. Using this experience on staggered boards as a motivating case study, the Article then examines a policy choice regarding Section 203 of the Delaware General Corporation Law. Four facts are uncontested: (1) in the 1980s, federal courts established the principle that Section 203 must give bidders a “meaningful opportunity for success” in order to withstand scrutiny under the Supremacy Clause of the U.S. Constitution; (2) federal courts upheld Section 203 at the time, based on empirical evidence from 1985- 1988 purporting to show that Section 203 did in fact give bidders a meaningful opportunity for success; (3) between 1990 and 2010, not a single bidder was able to achieve the 85% threshold required by Section 203, thereby calling into question whether Section 203 has in fact given bidders a meaningful opportunity for success; and (4) perhaps most damning, the original evidence that the courts relied upon to conclude that Section 203 gave bidders a meaningful opportunity for success was seriously flawed-so flawed, in fact, that even this original evidence supports the opposite conclusion: that Section 203 did not give bidders a meaningful opportunity for success. The constitutionality of Section 203 is therefore “in play,” and, with the decline of the poison pill, a new constitutional challenge against Section 203 will eventually come. Delaware could avoid this showdown by lowering Section 203’s 85% threshold to 70%. Like the middle-ground approach on staggered boards, this amendment-to a single number-would also represent good policy: facilitating high-premium offers that attract a supermajority.

We use the Business Roundtable’s challenge to the Securities and Exchange Commission’s (SEC’s) 2010 proxy access rule as a natural experiment to measure the value of shareholder proxy access. We find that firms that would have been most vulnerable to proxy access, as measured by institutional ownership and activist institutional ownership, lost value on October 4, 2010, when the SEC unexpectedly announced that it would delay implementation of the rule in response to the Business Roundtable’s challenge. We examine intraday returns and find that the loss of value occurred just after the SEC’s announcement on October 4. We find similar results for July 22, 2011, when the U.S. Court of Appeals for the District of Columbia Circuit ruled in favor of the Business Roundtable. These findings are consistent with the view that financial markets placed a positive value on shareholder access, as implemented in the SEC’s 2010 rule.

It is well known that U.S. director elections are largely a formality: incumbents typically nominate themselves, for elections that are almost always uncontested, and are re-elected with virtual certainty. The result, as illustrated by the recent debacle at J.P. Morgan Chase, is what one might expect: directors who are elected not for their qualifications but rather because shareholders simply have no other choice. In the aftermath of the 2008/2009 financial crisis, efforts were made to improve corporate democracy. The introduction of majority voting, the introduction of eProxy rules, and elimination of broker voting of uninstructed shares were predicted to dramatically improve the vibrancy of the director election process. Our analysis, based primarily on data from the 2007–2011 proxy seasons, indicates that these reforms have been ineffective in achieving their stated goals. Specifically, we find that: (1) only two incumbent directors who did not receive a majority of the votes cast have actually left their boards; (2) not a single insurgent candidate has made use of eProxy; and (3) only one director election outcome has changed due to the elimination of broker voting of uninstructed shares. We also find no evidence that these reforms have influenced the “shadow” negotiation between the board and major shareholders in favor of shareholders. In contrast to these reforms, our research suggests that a properly designed proxy access regime has the potential to meaningfully improve the director election process at U.S. corporations.

From the authors of Commentaries and Cases on the Law of Business Organization, this comprehensive yet concise Statutory Supplement provides relevant excerpts from state and federal statutes, SEC rules and regulations, restatements and ...

The article presents information on corporate methods of preventing hostile takeovers by corporate raiders, such as the poison pill strategy. It is noted that some of these techniques have become less popular and effective. An argument is presented that Section 203 of the corporate code of Delaware, which has been in force since 1988, could be overturned, which would further reduce antitakeover protections for the majority of U.S. firms.

Delaware’s antitakeover statute, codified at Section 203 of the Delaware corporate code, is by far the most important antitakeover statute in the United States. When it was enacted in 1988, three bidders challenged its constitutionality under the Commerce Clause and the Supremacy Clause of the U.S. Constitution. All three federal district court decisions upheld the constitutionality of Section 203 at the time, relying on evidence indicating that Section 203 gave bidders a “meaningful opportunity for success,” but leaving open the possibility that future evidence might change this constitutional conclusion. This Article presents the first systematic empirical evidence since 1988 on whether Section 203 gives bidders a meaningful opportunity for success. The question has become more important in recent years because Section 203’s substantive bite has increased, as Exelon’s recent hostile bid for NRG illustrates. Using a new sample of all hostile takeover bids against Delaware targets that were announced between 1988 and 2008 that were subject to Section 203 (n=60), we find that no hostile bidder in the past nineteen years has been able to avoid the restrictions imposed by Section 203 by going from less than 15% to more than 85% in its tender offer. At the very least, this finding indicates that the empirical proposition that the federal courts relied upon to uphold Section 203’s constitutionality is no longer valid. While it remains possible that courts would nevertheless uphold Section 203’s constitutionality on different grounds, the evidence would seem to suggest that the constitutionality of Section 203 is up for grabs. This Article offers specific changes to the Delaware statute that would preempt the constitutional challenge. If instead Section 203 were to fall on constitutional grounds, as Delaware’s prior antitakeover statute did in 1986, it would also have implications for similar antitakeover statutes in thirty-two other U.S. states, which along with Delaware collectively cover 92% of all U.S. corporations.

Today's increasingly competitive marketplace is filled with business transactions that include elements of both negotiations and auctions, yet the received wisdom on deal-making treats these two mechanisms separately. Leading dealmaking scholar Guhan Subramanian explores the ubiquitous situation in which negotiators are "fighting on two fronts"--Across the table, of course, but also on the same side of the table with known, unknown, or possible competitors. Delving into case studies as diverse as buying a house, haggling over the rights to the television show Frasier, and selling "toxic" assets into the U.S. government's bailout fund, Subramanian combines meticulous research, field experience, and classroom-tested strategies to create an indispensable guide for anyone involved in buying or selling everything from cars to corporations. (From the Publisher)

What's the best way to buy or sell an asset? Should you hold an auction and accept the most attractive offer? Or should you identify the most likely prospects and negotiate with them privately? Auctions became increasingly popular after the internet opened wide the universe of potential bidders. The wrinkle is, auctions often set up win-lose relationships between buyers and sellers, says Subramanian, a professor at Harvard's schools of business and law. In many situations, negotiations lead to better results. Before you decide on a process, carefully consider the nature of the buyers, the characteristics of the asset in question, and your own priorities. If you can get enough of the right buyers to participate, an auction generally makes sense -- unless you expect a wide range of valuations. In that case, an auction could leave a lot of money on the table -- as it did in the sale of Cable & Wireless America. CWA's assets were uniquely strategic to the winner, but because it had to beat the second-highest bidder by only a little bit, the company got them at a price far below the value the deal actually generated. Can you write exact specifications for an asset? Then you probably won't go wrong with an auction. But specification can discourage creative collaboration between buyer and seller. If that will add value to your deal, or if a relationship is important, pursue a negotiation. Finally, examine your priorities. When discretion is critical, a negotiation will work better, but when you need a transparent, speedy process, an auction is the more sensible choice.

Introduction to the law of enterprise organization -- Acting through others : the law of agency -- The problem of joint ownership : the law of partnership -- The corporate form -- Debt, equity, and economic value -- The protection of creditors -- Normal governance : the voting system -- Normal governance : the duty of care -- Conflict transactions : the duty of loyalty -- Shareholder lawsuits -- Transactions in control -- Fundamental transactions : mergers and acquisitions -- Public contests for corporate control -- Trading in the corporation's securities.

Go-shop provisions have changed the way in which private equity firms execute public-company buyouts. While there has been considerable practitioner commentary on go-shops in the three years since they first appeared, this paper presents the first systematic empirical evidence on this new dealmaking technology. Contrary to the claims of prior commentators, I find that: (1) go-shops yield more search in aggregate (pre- and post-signing) than the traditional no-shop route; (2) pure go-shop deals, in which there is no pre-signing canvass of the marketplace, yield a higher bidder 17% of the time; and (3) target shareholders receive approximately 5% higher returns through the pure go-shop process relative to the no-shop route. I also find no post-signing competition in go-shop management buyouts (MBOs), consistent with practitioner wisdom that MBO's give incumbent managers a significant advantage over other potential buyers. Taken as a whole, these findings suggest that the Delaware courts should generally permit go-shops as a means of satisfying a sell-side board's Revlon duties, but should pay close attention to their precise structure, particularly in the context of go-shop MBOs.

How should courts regulate contract terms with nonshareholder constituencies that have an antitakeover effect? On one hand, contracts formed in the ordinary course of business would seem to be at the very core of operational decisionmaking, over which courts have traditionally exercised deferential business judgment review. On the other hand, contracts can have antitakeover effects, and takeover defenses have long been subject to heightened “intermediate” scrutiny under Delaware corporate law due to the “omnipresent specter” that boards may be acting to entrench themselves. Despite the seemingly fundamental nature of the question, it has, to my knowledge, been addressed only once in U.S. corporate law. The case was ♦Air Line Pilots Ass'n, International v. UAL Corp.♦, which involved the short-lived business strategy of UAL, the parent of United Airlines, in the mid-1980s. Fortunately, the judge was Richard Posner, writing for a Seventh Circuit panel. Judge Posner affirmed a district court ruling that certain contractual provisions in a United Airlines collective bargaining agreement with its machinists' union violated Delaware corporate law. In doing so, Judge Posner suggested an approach toward “embedded defenses” that was not Delaware corporate law at the time but has increasingly become Delaware law over the past fifteen years. Like many great judges, Judge Posner was ahead of his time. This Commentary proposes a general approach toward embedded defenses that draws heavily from Judge Posner's approach in ♦UAL♦. Such an approach will be important as boards increasingly engage in “defense substitution” away from the most important takeover defense of the past twenty years, the poison pill.

This Commentary is part of a dealmaking symposium on the Oracle-PeopleSoft contest from 2003-2004. The facts of the case are described in Millstone & Subramanian (2005). This Commentary examines Oracle's alternatives and PeopleSoft's potential responses in the fall of 2004. I demonstrate that certain defects in the design of PeopleSoft's poison pill made a deliberate pill trigger a plausible course of action for Oracle at this critical juncture. This radical maneuver becomes even more attractive because Oracle had made the negotiated acquisition route extremely expensive for itself by revealing that it had $26 per share in its pocket nine months earlier. Even if Oracle had not actually triggered PeopleSoft's poison pill, threatening this maneuver would have given Oracle bargaining power that it could have used to pay a lower price in its negotiated acquisition. The Commentary closes with implications of this analysis for practitioners, boards of directors, and the Delaware courts.

Introduction to the law of enterprise organization -- Acting through others: the law of agency -- The problem of joint ownership: the law of partnership -- The corporate form -- Debt, equity, and economic value -- The protection of creditors -- Normal governance: the voting system -- Normal governance: the duty of care -- Conflict transactions: the duty of loyalty -- Shareholder lawsuits -- Transactions in control -- Fundamental transactions: mergers and acquisitions -- Public contests for corporate control -- Trading in the corporation's securities.

This case describes Oracle's hostile takeover bid to acquire PeopleSoft, which began with an unsolicited cash tender offer at $16.00 per share in June 2003 and ended with a negotiated deal at $26.50 per share in December 2004. Novel questions of corporate law are raised by the prolonged use of a poison pill against a structurally non-coercive, all-cash, fully-financed offer; as well as PeopleSoft's unprecedented Customer Assurance Program (CAP), which promised PeopleSoft customers between two and five times their money back if Oracle acquired PeopleSoft and then reduced support for PeopleSoft products. This case study will be published as part of a dealmaking symposium in the Harvard Negotiation Law Review, followed by commentaries from practitioners involved in the deal, judges, and academics.

At approximately the same time that the Sarbanes‐Oxley Act increased the costs associated with being a public company, important Delaware case law created a difference in the standard of judicial review for the two basic methods of freezing out minority shareholders. While a freeze‐out executed as a statutory merger is subject to stringent “entire‐fairness” review, the Delaware Chancery Court held in In re Siliconix Shareholders Litigation that a freeze‐out executed as a tender offer is not. This paper presents the first systematic empirical evidence on post‐Siliconix freeze‐outs. Using a new database of all Delaware freeze‐outs executed in the 4 years after Siliconix was decided, I find that minority shareholders achieve significantly lower abnormal returns, on average, in tender‐offer freeze‐outs relative to merger freeze‐outs. I discuss the doctrinal and policy implications of these findings in a companion paper.

For decades, academics have claimed that even friendly acquisitions are negotiated in the “shadow” of a hostile takeover bid. But interviews with senior M&A investment bankers provide a different picture of negotiated acquisitions. Determining which version is more representative of most deals is important because the academic assumption has been a main pillar of attempts to justify poison pills and other takeover defenses as ways of increasing the bargaining power of target companies' managements and the premiums received by their shareholders. This article shows that takeover defenses can be justified as a value-maximizing control device in a simplified model with one buyer and one seller. But after taking account of four realities that are present in many if not most corporate M&A deals—alternatives away from the negotiating table (i.e., other potential targets), high costs of launching a hostile bid, information disparities, and managers with divided loyalties—the author demonstrates that only a fraction of friendly acquisitions are in fact negotiated in the shadow of a hostile takeover threat. This conclusion is reinforced by both empirical evidence and the commentary of M&A practitioners presented in the article.

Freezeout transactions, in which a controlling shareholder buys out the minority shareholders, have occurred more frequently since the stock market downturn of 2000 and the Sarbanes-Oxley Act of 2002. While freezeouts were historically executed as statutory mergers, recent Delaware case law facilitates a new mechanism--freezeout via tender offer--by eliminating entire fairness review for these transactions. This Article identifies two social welfare costs of the current doctrinal regime. First, the tender-offer-freezeout mechanism facilitates some inefficient (value-destroying) transactions by allowing the controller to exploit asymmetric information against the minority. Second, the merger-freezeout mechanism deters some efficient (value-increasing) transactions because of the special committee's veto power against the deal. These negative wealth effects are unlikely to be resolved through private contracting between the controller and the minority in the corporate charter. Rather than advocating patchwork reforms to correct these problems, this Article proposes a return to first principles of corporate law in the freezeout context. The result of this re-grounding would be a convergence in judicial standards of review for freezeouts and the elimination of the efficiency loss that is inherent in the existing doctrine.

Refining and extending the methodology introduced by Daines (2001), I present evidence that small Delaware firms were worth more than small non-Delaware firms during the period 1991–1996 but not afterwards. I also present evidence that larger firms, which comprise 98% of my sample by size, exhibit no Delaware effect for any year during the period 1991–2002. Thus the Delaware effect “disappears” when examined over time and when examined for firms that are economically meaningful. These new contours of the Delaware effect suggest that the benefit associated with Delaware incorporation was an order of magnitude smaller than estimated by Daines (2001) during the early 1990s, and nonexistent by the late 1990s. The trajectory of the Delaware effect further suggests that it cannot provide support for the “race to the top” view of regulatory competition, as some commentators have argued, and may in fact provide support for the “race to the bottom” view. Finally, the findings presented here identify two puzzles: (1) Why did small Delaware firms exhibit a positive Delaware effect during the early 1990s but larger firms did not? (2) Why did this effect disappear in the late 1990s? I identify doctrinal changes in Delaware corporate law in the mid-1990s, increased managerial incentives to sell during this period, and a cohort selection effect during the 1980s as potential explanations.

The bargaining power hypothesis has been voiced more frequently over the past few years as other shareholder-focused arguments in favor of takeover defenses, such as protection against "structural coercion" and protection against "substantive coercion," have been rendered less important through federal and state intervention or challenged by recent empirical evidence. Yet despite its venerable heritage and recent revitalization, the bargaining power hypothesis has generally been asserted by defense proponents and conceded by defense opponents, never subjected to a careful theoretical analysis or a comprehensive empirical test. This Essay attempts to fill this gap. I use negotiation-analytic tools to construct a model of bargaining in the "shadow" of takeover defenses. This model identifies the conditions that must exist in order for the bargaining power hypothesis to hold in a particular negotiated acquisition. I demonstrate that the bargaining power hypothesis only applies unambiguously to negotiations in which there is a bilateral monopoly between buyer and seller, no incremental costs to making a hostile bid, symmetric information, and loyal sell-side agents. These conditions suggest that the bargaining power hypothesis is only true in a subset of all deals, contrary to the claim of some defense proponents that the hypothesis applies to all negotiated acquisitions.

In this Commentary I present evidence from our seventeen years of experience with Revlon that is consistent with the view that incentives to search have remained strong in the U.S. market for corporate control (MCC), despite this potential “Revlon Problem.” I then identify three potential explanations for this finding: small net first-bidder costs, preemptive bidding, and heterogeneous buyers. These three “drivers” might explain how value-creating transactions were achieved in the 1990s MCC despite the potentially onerous requirements of Revlon.

In recent work, we presented evidence indicating that staggered boards have adverse effects on target shareholders. John Wilcox, the Vice-Chair of Georgeson, recently published a critique of our work, urging shareholders to support staggered boards. We respond in this article to Wilcox's critique and explain why it does not weaken in any way our analysis of staggered boards. The study criticized by Wilcox, "The Powerful Antitakeover Force of Staggered Boards: Theory, Evidence, and Policy," 54 Stanford Law Review 887-951 (2002), is available at http://ssrn.com/abstract=304388. In a separate reply, "The Powerful Antitakeover Force of Staggered Boards: Further Findings and a Reply to Symposium Participants," 55 Stanford Law Review 885-917 (2002), which is available at http://ssrn.com/abstract=360840, we respond to several other responses to our original study and present additional evidence that confirms its conclusions.

This paper develops and defends our earlier analysis of the powerful antitakeover force of staggered boards. We reply to five responses to our work, by Stephen Bainbridge, Mark Gordon, Patrick McGurn, Leo Strine, and Lynn Stout, which are to be published in a Stanford Law Review Symposium. We present new empirical evidence that extends our earlier findings, confirms our conclusions, and demonstrates that the alternative theories put forward by some commentators do not adequately explain the evidence. Among other things, we find that having a majority of independent directors does not address the concern that defensive tactics might be abused. We also find that effective staggered boards do not appear to have a significant beneficial effect on premia in negotiated transactions. Finally, we show that, unlike our approach, the approach that our critics advocate for Delaware takeover jurisprudence to follow is both inconsistent with its established principles and takes an extreme position in the overall debate on takeover defenses. Our analysis and new findings further strengthen the case for limiting the ability of incumbents armed with a staggered board to continue saying no after losing an election conducted over an acquisition offer.

Commentators have long debated whether competition among states for corporate charters represents a race to the top or a race to the bottom. Race-to-the-top advocates have recently gained ground in this debate on the basis of the general migration to Delaware in the 1990s and empirical evidence suggesting that Delaware incorporation increases shareholder wealth. This article uses second-generation state antitakeover statutes to shed additional light on this debate. I use a new database of reincorporations from the 1990s to show that managers generally migrate to (and fail to migrate away from) typical antitakeover statutes Given the robust econometric evidence that these statutes increase managerial agency costs and reduce shareholder wealth, my results generally support the race-to-the-bottom view. However, I also find that managers migrate away from the more severe antitakeover statutes in Massachusetts, Ohio, and Pennsylvania. This finding introduces the possibility for "overreaching" in the corporate charter marketplace and suggests important limits on the race to the bottom. The results have implications for recent developments in corporate charter competition in both the United States and the European Union.

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 independent for an average target in our data set, from 34% to 61%, halved the odds that a first bidder would be successful, from 34% to 14%, and reduced the odds of a sale to a white knight, from 32% to 25%. Furthermore, we find that the shareholders of targets that remained independent were made worse off compared with accepting the bid and that ESBs did not provide sufficient countervailing benefits in terms of increased premiums to offset the costs of remaining independent. Overall, we estimate that, in the period studied, ESBs reduced the returns of shareholders of hostile bid targets on the order of 8-10%. Finally, we show that most staggered boards were adopted before the developments in takeover doctrine that made ESBs such a potent defense. Selected by academics as one of the “top ten” articles in corporate/securities law for 2002, out of 350 articles published in that year.