Tender Offers and the Sale of Control: An Analogue to Determine the Validity of Target Management Defense Measures

The hostile tender offer phenomenon has spawned wholesale defensive measures adopted by target company management. In recent years, confrontations like those of Occidental Petroleum-Mead Corporation and American Express-McGraw-Hill have resulted in target management causing the eventual withdrawal of the tender offer by employing a variety of defensive measures known colloquially as “scorched earth” tactics. The “urge to merge” among major corporations will continue to produce unsolicited, nonnegotiated tender offers at varying scales of size. Consequently, strategies and techniques have been created at a pace faster than the process of litigation, causing a discernible lag between the ingenuity of corporate management and counsel to devise defensive measures and the ability of courts to develop legal standards effectively addressed to this expanding and novel area. The predictable result of reliance upon expansive, ill-defined, and perhaps indefinable concepts is a lack of cohesive standards by which defensive measures undertaken by target management are judged. The pattern of case law to date is consistent with the lack of definitive standards. More specifically, courts have been reluctant to find target management liability or to enjoin certain measures except in egregious circumstances. Until standards for control battles are more sharply delineated, one cannot expect courts, with occasional exception, to be other than inadequate arbiters of competing interests and perpetuating the confusing maze of contradictory rationales. It is vital that an appropriate formula is created for according priorities and limitations among the competing rights, obligations, and interests of management, shareholders, and the corporate entity. Standards developed to protect the corporation and minority shareholders from the potential dangers of an ill-advised sale of control by a dominant shareholder may be equally appropriate. After briefly outlining principal defensive measures, Part I of this Article will examine each of the fiduciary, statutory, and economic perspectives generally advanced in tender offer struggles, focusing upon the difficulties of employing such perspectives as a basis for evaluating defensive measures. Part II will posit an alternative approach, analogizing the collective action of tendering shareholders to a sale of control by a single, dominant shareholder. Specific defensive measures by target management to impede the tender offer will be analyzed in the context of the sale of control analogue