Investors' perceptions of the Delaware Supreme Court decision in Unocal v. Mesa

Kamma, Sreenivas; Weintrop, Joseph; Wier, Peggy

doi:10.1016/0304-405x(88)90052-9

Cited by 22 publications

(8 citation statements)

References 5 publications

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“…We use information technology and tools to increase productivity and facilitate new forms of scholarship. For details see Kamma et al (1988). Wiley and American Finance Association are collaborating with JSTOR to digitize, preserve and extend access ABSTRACT This paper shows that target shareholders can be made better off through the use of certain types of defensive strategies that reduce the value of the target by different amounts for different bidders.…”

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How Target Shareholders Benefit from Value-Reducing Defensive Strategies in Takeovers

Berkovitch¹,

Khanna²

1990

The Journal of Finance

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JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.. Wiley and American Finance Association are collaborating with JSTOR to digitize, preserve and extend access ABSTRACT This paper shows that target shareholders can be made better off through the use of certain types of defensive strategies that reduce the value of the target by different amounts for different bidders. In many cases, simply the threat of such strategies can make target shareholders better off. Therefore, empirical tests based on stock price reactions at the adoption of defensive strategies may be underestimating the effect of such strategies. The paper also identifies the necessary characteristics that make these strategies effective and shows that many observed defenses possess similar properties. , and the discussant, M. Fishman, at the Western Finance Meetings in Napa, the editor, R. Stulz, and two anonymous referees for their many helpful comments. The usual disclaimer applies. They also acknowledge partial financial support of the Michigan Business School.'These arguments have been raised by Easterbrook and Fischel (1981) and Gilson (1982). The former also argue that defensive strategies serve only to redistribute synergy gains between targets and bidders and, thus, do not affect social welfare. Another argument against defensive strategies is based upon concerns that managers can abuse them to remain entrenched. We discuss these issues in Sections III and IV. 2 A more detailed description of these strategies is given in Sections I and V. 137 This content downloaded from 128.235.251.160 on Sun, 14 Dec 2014 01:59:58 AM All use subject to JSTOR Terms and Conditions 138The Journal of Finance a particular target. The acquisition is carried out through a tender offer, and each acquirer has to incur both search and bidding costs before making its first bid for the target. If a target manager is unable to use VRDS, an opening bidder can reduce competition for the target with a "low" preemptive bid. However, when the target manager can use VRDS, the opening bidder is forced to preempt with a higher bid. This is because, with VRDS, the target manager can reduce the value of the target to this bidder by a greater amount than to other bidders. This discriminatory reduction makes it more profitable for potential bidders to enter and compete with the opening bidder as they now expect to outbid it. Thus, the opening bidder needs to bid higher to reduce the incentive of the target to use VRDS against it. As a result, target shareholders gain even when their manager does not actually employ VRDS. When VRDS do get employed, the target's stock price reaction can be either positive or negative depending on what additional information is released to the market. This reaction, tho...

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confidence: 99%

How Target Shareholders Benefit from Value-Reducing Defensive Strategies in Takeovers

Berkovitch¹,

Khanna²

1990

The Journal of Finance

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“…In our model, this would represent a movement from a more rule-oriented system to a more evidence-oriented system in the latter half of the twentieth century. 14…”

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Courts and Contractual Innovation: A Preliminary Analysis

Berlin

Leitner

2005

SSRN Journal

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We explore a model in which agents enter into a contract but are uncertain about how a judge will enforce it. The judge can consider a wide range of evidence, or instead, use a rule-based method of judgment that relies on limited information. We focus on the following tradeo¤: Considering a wide range of evidence increases the likelihood of a correct ruling in the case at hand but undermines the formation of precedents that resolve legal uncertainty for subsequent agents. In a model of contractual innovation, we show that the use of evidence increases the likelihood of innovation in any period, while rule-driven judgments increase the rate of di¤usion of the innovation. When courts can use a mixture of evidence and rules, the minimum amount of evidence that induces adoption is (weakly) decreasing over time. We also examine the breadth of precedents. Overlapping jurisdictions reduce the optimal breadth of precedents because broad precedents are more likely to introduce con ‡ict. Accordingly, overlapping jurisdictions increase the value of using evidence.

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“…Takeover activity may be relatively costly in Delaware since, for example, the state's case law allows boards of directors to cite the welfare of non-shareholder stakeholders in attempting to resist a hostile tender offer(Blair and Stout, 1999, p. 308). Stock market reaction to such case law is consistent with Delaware managers having an increased ability to resist takeovers even when they might disadvantage target shareholders(Kamma et al, 1988). While other states may have enacted antitakeover laws before Delaware, ''Delaware's case law precedent arguably has made hostile takeovers more difficult.…”

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confidence: 80%

Golden Parachutes: Credible Commitments or Evidence of Shirking?

Falaschetti

2002

SSRN Journal

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Investors' perceptions of the Delaware Supreme Court decision in Unocal v. Mesa

Cited by 22 publications

References 5 publications

How Target Shareholders Benefit from Value-Reducing Defensive Strategies in Takeovers

How Target Shareholders Benefit from Value-Reducing Defensive Strategies in Takeovers

Courts and Contractual Innovation: A Preliminary Analysis

Golden Parachutes: Credible Commitments or Evidence of Shirking?

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