Interesting new paper by Andrew Baker, Do State Antitakeover Provisions Matter? (January 2, 2022). Available at SSRN: https://ssrn.com/abstract=3998607 or http://dx.doi.org/10.2139/ssrn.3998607
A longstanding debate over the impact of state antitakeover provisions has emerged among scholars in law and finance. Corporate law practitioners and researchers argue that the second generation of antitakeover statutes were made redundant by the affirmation of rights plans, while empirical scholars have found wide-ranging impacts from their adoption when used as an exogenous shocks to managerial entrenchment. This paper subjects the standard approach used in the empirical literature to a series of straightforward sensitivity analyses, consistent with the present best practice in panel data analysis. Contrary to the majority of published research, there is scant evidence for a consistent and reliable impact of antitakeover statute adoption on common firm outcome measures. These findings are consistent with the legal argument that takeover statutes provide little additional takeover deterrence in the presence of a “shadow pill.”
The number crunching aspects of the paper are outside my wheelhouse, of course, but the result makes a certain amount of intuitive sense. Most second generation state antitakeover legislation was designed to deter the sort of hostile, junk bond funded, leveraged buyouts that got so much press back in the 1980s and early 1990s. (I discuss the three generations of takeover statutes at 463-82 of my book Mergers and Acquisitions; see also my articles Redirecting State Takeover Laws at Proxy Contests State Takeover and Tender Offer Regulations Post-Mite: The Maryland, Ohio, and Pennsylvania Attempts).
In contrast, the poison pill is effective against a wide range of takeover structures and is an effective negotiating device even in more or less friendly deals.
Today, of course, hostile LBOs are very rare. Indeed, for that matter, hostile takeover bids are rare. In 1988 there were about 160 hostile takeover bids; in 2019, there were about 15. Granted, there was a slight (very) uptick in 2020, but the longterm trend has been towards negotiated takeovers.
It would thus be surprising indeed if state takeover laws mattered all that much.
Having said that, of course, it is true that you see state takeover statutes representations and warranties in most acquisitions of public corporations. The target will typically represent that there is no state antitakeover statute applicable to the deal or, if there is such a statute potentially applicable, that the target has taken all necessary steps in order to ensure that the statute will not impact the deal. But these are uncontroversial boilerplate provisions.
