5
Whither hostility?
William W. Bratton
Abstract
The hostile takeover and the regulatory barriers impeding it have for decades held
a central place in policy discussions respecting U.S. corporate law. The hostile
takeover’s proponents assume that it belongs to an identifiable class of disciplinary
mergers that create value by separating poor managers from valuable assets. The
opponents question the productivity assertion even as they simultaneously assert
that hostile takeovers amount to a threat necessitating regulatory barriers.
Hostility lost its salient role in the U.S. merger market due to the recovery of stock
market prices and constraints on the availability of debt capital. In the changed
environment, cooperation made better cost sense. Antitakeover regulation cannot
be dismissed as irrelevant, for it raises the cost of hostility. But results yielded by
studies of target characteristics and merger motivation suggest that any negative
consequences for economic welfare are modest. Meanwhile, hostility recently has
returned in the form of hedge fund shareholder activism. Now governance and the
boardroom are the venues, rather than the market for corporate control.
5.1 Introduction
The hostile takeover has for decades held a central place in policy discussions
respecting U.S. corporate law. Its proponents make it the lynchpin of an effi-
cient, market-driven governance framework (Bebchuk, 2002). Opponents see
a destabilizing force that impairs the operation of corporate institutions (Blair,
2004; Stout, 2003). Their debate devolves on legally sanctioned antitakeover
barriers like poison pills and staggered boards, which make hostile takeovers
more expensive and thereby reduce their incidence. Remove the barriers, say the
proponents, and market discipline finally will make the corporate governance
system work. Leave them in place, say the opponents, to prevent rapacious
raiders from tearing asunder productive firms.
This chapter intervenes in the debate to suggest that the participants consider
the implications of a line of empirical studies. The proponents assume that hostile
takeovers belong to an identifiable class of mergers that create value by separat-
ing poor managers from valuable assets. The opponents question the productivity
assertion even as they simultaneously assert that hostile takeovers amount to a
threat necessitating regulatory barriers. Meanwhile, economists have been testing
merger and governance data for a quarter century to verify that mergers actually

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