A mandatory bid rule for Australia: an idea whose time has come

In devising rules governing the conduct of takeover transactions, policy makers would serve the interests of investors and the economic order of society generally better by adopting regulations that maximise shareholder and social welfare. A mandatory bid rule can assist to achieve this objective. By significantly enhancing the chances of a takeover succeeding, that rule potentially encourages bidders to attempt more hostile acquisitions. An increase in search for potential takeover targets is likely to create some insecurity among directors and induce them to perform to their best level. Further, as takeovers facilitate the re-allocation of scarce societal resources to the parties to whom they have the highest valued uses, greater efficiency in the allocation of resources within industries is likely to be achieved as the incidence of hostile takeover transactions increases. Also, given that hostile takeovers are invariably made at a premium, an increase in that activity is likely to enhance shareholder wealth. These are matters of significant public importance. For this reason, it is advisable to reform the law governing takeover activity to introduce a mandatory bid rule in Australia