States of Grace

The state with the toughest antitakeover statutes? It's not Delaware.

AIT’s defenses don’t rest entirely on the strong Ohio law, points out Jorgenson, who counts the company as a client. In fact, as part of a plan to increase its takeover defenses, AIT “opted out” of Ohio’s control-share provision , she notes. As strong as the current state law is, “in the statute there’s no remedy if a hostile bidder abuses the control-share provision,” she explains. After opting out, AIT wrote the original statute provision into its own articles of incorporation, then established that a hostile bidder can lose its voting rights if it acts improperly. Further, AIT’s articles require potential acquirers to promise that they intend to complete an acquisition, and have the capacity to do so.

“Many states have protective provisions,” says Jorgenson, “and they can be tailored in the way we’ve tailored these.” Companies may also opt out of particular state statutes to avoid what they see as harsher elements of various state provisions. Some companies, for example, may exclude themselves from laws they believe go too far in inhibiting shareholder voting rights, or that they fear could discourage interest from potential acquirers, friendly or unfriendly. After Massachusetts passed a law requiring firms to have staggered boards, a number of companies opted out of that provision.

In general, a company like AIT designs its blend of defensive measures to make sure that its corporate directors have the final say in sorting the good deals from the bad, according to Jorgenson. “When somebody just throws an offer over the transom with a 50 percent premium,” she says, it is the board alone that should be able to determine if that’s “not a significant number.”

Roy Harris ( is a senior editor at CFO.

Discouraging Hostilities

Some state-based defenses to make unfriendly bids less tempting.

Control-Share Laws (25 states)*

Let other holders vote on whether they want hostile acquirers in control. In Massachusetts, acquirers seeking more than a 20% holding must win a majority approval before they can vote their shares. Ohio requires acquirers to win the majority vote before they can purchase shares beyond 20%.

Merger-Moratorium Laws (25 states)*

Prevent acquirers from completing a merger quickly. Some provide “exception levels,” granting earlier mergers if a tender offer wins certain degrees of shareholder support. Delaware’s is 3 years, unless 85% of shares are tendered. Georgia provides for 5 years and 90%, and Wisconsin 3 years, with no exception level.

Expanded Fiduciary Laws (30 states)*

Use language to say corporate boards “may” or, in some cases, “must” consider constituencies, including communities, customers, employees, and shareholders. In Pennsylvania, directors need not consider any one constituency as dominant.


Source: Prof. Donald Margotta


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