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20 DePaul Bus. & Comm. L.J. 1 (2021-2022)

handle is hein.journals/depbcl20 and id is 1 raw text is: The Dark Triad: Private Benefits of Control, Voting Caps and the Mandatory Takeover Rule Jorge Brito Pereira ABSTRACT: This paper takes as an example the intertwined relations between Grupo Espfrito Santo and Portugal Telecom and the events surround- ing the unpaid Rioforte loan to describe minority blockholders' strong incentives to protect the extraction of private benefits of control when a third party threatens a company takeover. This paper argues that the combination of the extraction of private benefits of control, the take- over protection granted by a statutory voting rights ceiling provision and the existence of a mandatory takeover rule create a vicious circle with an unintended outcome. Although a mandatory takeover rule should protect minority shareholders, it instead works in favour of the blockholder extracting private benefits of control, which is the exact opposite of its original intent. KEYWORDS: private benefits of control, control-enhancement mechanisms, voting ceilings, voting caps, takeover regulation, mandatory bid 1. INTRODUCTION: In listed companies with highly concentrated voting rights, the mar- ket for corporate control naturally functions rather ineffectively.' If more than 50% of the voting shares are in one shareholder's hands, a transfer of control can only take place if the incumbent controller agrees to sell the shares in a private bilateral negotiation. This is typi- cally the case for companies listed in continental Europe,2 and with 1. Henry G Manne, Mergers and the market for corporate control, 73 JOURNAL OF POLrTICAL ECONOMY 110, 112 (1965). (The market for corporate control was first described by Henry G Manne. The market for corporate control is often referred to as the takeover market). 2. Julian Franks & Colin Mayer, Hostile takeovers and the correction of managerial failure, 40 Journal of Financial Economics, 163, 165 (1996) (defining European 'insider' systems, featuring a smaller number of listed companies, concentrated voting rights, particularly in the hands of fami- lies and other companies, and lower levels of takeover pressure); Rafael La Porta, Florencio Lo- 1

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