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1988 Wis. L. Rev. 435 (1988)
The Uncertain Case for Takeover Reform: An Essay on Stockholders, Stakeholders and Bust-Ups

handle is hein.journals/wlr1988 and id is 445 raw text is: THE UNCERTAIN CASE FOR TAKEOVER REFORM:
In this Article, Professor John Coffee considers under what circumstances
there could be a legitimate role for state regulation of tender offers. Professor Coffee
suggests that state anti-takeover laws could (but do not) function to protect other
stakeholders, including corporate management, in the target corporation where the
implicit contract between the corporation and these stakeholders has broken down.
He advances a model of corporate directors as mediators between shareholders and
stakeholders in order to protect the expectations embodied in a web of implicit and
explicit contracts.
Professor Coffee suggests that takeovers would be more palatable if the inter-
ests of stakeholders were taken into account. Compensation formulas could be de-
signed that would give managers a share in takeover gains. State takeover control
legislation could have a legitimate role if it encouraged a more equitable sharing of
takeover gains with stakeholders, such as employees and contractors, who are unable
to contract with shareholders. Although Professor Coffee does not believe that take-
overs should be prohibited or chilled, he believes that it is a valid legislative goal to
seek to protect the expectations of these other stakeholders through a policy of shar-
ing the control premium.
Finally, Professor Coffee concludes that judicial scrutiny of corporate govern-
ance laws will ultimately continue to incorporate a balancing test, even if courts do
not explicitly acknowledge the use of such criteria. Courts will continue to weigh the
intrastate justifications and the results of the legislation against any resulting re-
straints on interstate commerce in deciding whether the laws pass constitutional
This is an argumentative essay, longer on speculation than sub-
stantiation. It considers under what circumstances and premises there
could be a legitimate role for state regulation of tender offers. In so
doing, it assumes that existing justifications for such legislation are
largely meritless or disingenuous, and often both. Nonetheless, the phe-
nomenon of state takeover regulation is becoming a pervasive fact,
which is likely to alter significantly the balance of advantage between
bidder and target. Between late April 1987 and February 1988-
roughly the time period between the United States Supreme Court's
decision in CTS Corp. v. Dynamics Corp. of America' and the date of
*   Adolf A. Berle Professor of Law, Columbia Law School. The author wishes to
acknowledge the helpful assistance of Professor Henry Monaghan, but is alone responsible for any
errors that remain.
I. 107 S. Ct. 1637 (1987) (upholding Indiana Control Share Acquisitions Chapter, IND.
CODE §§ 23-1-42-I to -I1 (Supp. 1987), against claims that it impermissibly burdened interstate
commerce and was preempted by the federal securities laws).

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