Abstract:
Federal and state regulation of the cash tender offer makes it difficult for outsiders to win control of a corporation whose securities have been doing poorly in the capital market. Mr. Fischel argues that efficient capital market theory undermines the reasons usually given for these regulatory barriers, and concludes that without these barriers the efficiency of the related market for corporate control would improve. His discussion also examines the courts’ use of the business judgment rule in cases charging that managers have improperly dedicated corporate funds to measures that discourage tender offers, and extols instead the recently devised compelling business purpose test, which shifts the burden of justification to defendant managers.