Takeovers remain the most controversial corporate governance mechanism. According to pro-takeover commentators, takeovers are generally beneficial for corporate governance. Takeovers can displace poorly performing managers and facilitate corporate restructuring. From this perspective, regulation should encourage takeovers. On the opposite side of the debate, those who oppose hostile takeovers argue that they can disrupt well-functioning companies and encourage short-termism. From this point of view, policies that hamper takeovers are favored.
In our paper The Case for an Unbiased Takeover Law (with an Application to the European Union), we reject a categorical pro- or anti-takeover position. While hostile and friendly takeovers may be efficient in the aggregate, individual takeovers and individual companies’ exposure thereto are efficient or inefficient depending on a variety of factors. These factors include the production functions of companies, the conditions in the relevant industry, the problems confronting the corporation and the best response to those problems. Because these all may differ from company to company and over time, so also may the appropriate stance to takeovers differ. Consequently, we posit that takeover regulation should sanction the efforts by individual companies to devise a takeover regime appropriate to their own, mutable circumstances. In other words, takeover regulation should be limited to a set of optional rules.