State Anti-Takeover Laws and the Efficient Allocation of Corporate Control: An Economic Analysis of Edgar v. Mite Corp.

Abstract

The Supreme Court struck down the Illinois Business Take-Over Act on June 23, 1982, ruling that it was pre-empted by the Williams Act and overly burdensome to interstate commerce. With this decision the Court removed important obstacles to the market for corporate control. This essay generally applauds the decision and the opinion by Justice White, that unencumbered public takeovers provide an important mechanism for disciplining corporate management, but it parts company with the opinion's approval of the Williams Act as being socially desirable. Federal regulation of tender offers creates potentially large social costs and provides very questionable social benefits, even though the Williams Act demonstrably benefits some takeover targets and their managements. The same healthy respect for a market for corporate control that the majority showed in rejecting state anti-takeover laws would compel (congressional) reductions in the scope of federal regulations of tender offers.