Regulating post-bid embedded defenses

Robert J. Jackson

"This article argues that courts should not adopt a rule of strict shareholder choice that requires managers to obtain shareholder consent for any defensive action taken after a hostile bid has been made because even ostensibly non-coercive bids can threaten the target's value unless managers have the ability to take quick unilateral action. A hostile bid is particularly likely to threaten the target's value when it undermines the target's ability to enter into value-enhancing long-run implicit contracts with third parties in the shadow of the bid. This threat is well-illustrated by the Oracle-PeopleSoft contest in which Oracle's bid threatened PeopleSoft's ability to enter into long-run relational contracts with new customers who were worried that Oracle would breach PeopleSoft's implicit contract regarding the quality of long-run product support and customer service. PeopleSoft's...