On US's Anti-takeover Regulation

As a classical model of the common law system, also the most developed country in the economic area, the US has its economy accelerate the evolution of its law, and the law plays an important role in its development of economy. In the corporation law area, trends of takeover transactions give the US corporation law many chances to practice. And now the US has built up a more perfect anti-takeover regulation system. In contrast, China, both as an investment attracting oriented and an abroad investing country, is in the first step in regulating anti-takeover actions. The legislation of anti-takeover law has not been promulgated and study on substantial law is not enough.Correspondingly, the application of statutes is in a vague way. The first part of this article is an analysis on the reasons of US's regulation of anti-takeover actions and a discussion on the potential detriment may be made by the defensive measures. Anti-takeover and the hostile tender offer are counterparts of each other. The hostile tender offer emerged in the 1950s, and the anti-takeover had not been developed until the enactment of Williams Act in 1968 and the development of common law. It has been developed since 1980s, but it also has some deficits. They are the misuse of managing power by managements, decreasing the benefits of shareholders and the impairment of positive aspect of the takeover function. In the second part, the article analyses the defensive measures that the target company may take: publicity and propaganda attack, changes in capital structure and distribution of stock, poison pills, lock-ups, shark repellents, defensive merger and acquisition, golden parachutes, recapitalizations and leveraged buy-outs, the"pac-man"defense and other miscellaneous tactics. The analysis of the defensive measures illustrates the concept of anti-takeover. On the other hand, it provides reference for the analysis of regulations on the anti-takeover actions.The third part of this article is the analysis of regulating the anti-takeover actions in the US. Because according to the lawmaking system of the United States, the corporation law belongs to the category of the state law, federal law plays the regulation role in the aspect of security exchange and antitrust law, this article analyses the regulation of anti-takeover actions by studying both the federal law system and state law system. When security law applies to the area of regulation anti-takeover actions, the target company's management burdens the duty of disclosure: the target company has the duty to disclose its position regarding any tender offer within 10 business days of the commencement of the offer and the management's actions must comport with its announced position and reasons disclosed. In the research of the self-tender offer, this article instructs that there are 3 reporting duties and the pre-transaction requirements. In the analysis of the anti-fraud requirements we discussed the 3-element-test: long-form publication in a newspaper; dissemination by mail to all shareholders through the use of shareholder lists and a security position listing; or short-form summary publication in a newspaper. After the research of the regulation on antitrust law, the article demonstrates the requirements of applying the antitrust law. As to the substantial law in state corporation law, the article discusses the Unocal test, Revlon test. The Unocal test contains the enhanced business judgment rule and the proportionality requirement. The Unirin case refined the Unocal test, asking for the judicial scrutiny of the draconian standard. Once the board made the decision to sell the corporation, its duty changed from the duty to preserve the company as a corporation to the duty to maximize the price that a bidder would pay for the corporation's stock. It is called the Revlon test. The article makes a full discussion on the formation of the Revlon test and its development. Additionally, the article discusses the poison pill strategy and its evolved edition: dead-hand pill and no-hand pill. The continuous status of fiduciary duty requires the management to abbey the fiduciary out rule. The article discusses it with concrete analysis.The fourth part is the comment on regulating anti-takeover actions in China for the reason that research on US's corporation law can provide us a reference on legislation on anti-takeover regulation. Through a research on China's anti-takeover regulation and the insufficiency of it, the article demonstrates the suggestions on how to improve the regulation system. First, legislation on security law area, requires the target company's management to disclose: including the position the management may take when the company faces a tender offer, and it has the duty to disclose the reason on which they take the position, and also, the management's actions must comport with its announced position and reasons disclosed. Second, the 6th chapter of the China's Corporation Law regulates the duties of the management. But on the aspect that it is difficult to distinguish the negative result of a business risk from the lack of fiduciary duty, we should make substantial legislations on the anti-takeover law. Third, according to the development of the takeover transaction and the mature of the market, there must be a problem of antitrust and restrictions on the competition. Legislation on antitrust law will run a practicing function on regulating the takeover transaction and the chance of making a negative influence by the anti-takeover actions will be most minimized.