Lessons from America
Edited by Jürgen G. Backhaus, Alberto Cassone and Giovanni B. Ramello
Chapter 14: The Enforcement of Management Passivity Duty in Take-over Law: Class Action or Government Action?
* Fernando Gomez and María Isabel Saez 1. INTRODUCTION The behaviour of managers (in a broad sense, encompassing also the Directors) towards a tender offer for the acquisition of a company is crucial for the likelihood of success of the offer, and thus for shareholders’ welfare. The European Directive on Takeover Bids contains, following English Law on this matter, a passivity rule – or duty of abstention – forcing managers to abstain from actions that may influence the outcome of the tender offer, exempting only those that can lead to higher-price offers. The rule, however, does not appear to be straightforwardly desirable for many commentators, and for many legal systems as well. For instance, US Law does not contain such a rule, and among the European countries implementing the Directive, several have made use of the opting-out provisions allowed in the Directive. We think, however, that there are good reasons, both at the theoretical and at the empirical level, supporting the efficiency of the passivity rule. In fact, Section II of this chapter, besides characterizing the duty, provides several economic rationales for the optimality of the passivity rule in Takeover Law, particularly in the European context of mandatory and competitive bids. Our main focus, nevertheless, does not lie in the substantive efficiency properties of the issue of enforcement. We think that a central point missing in the debate on the passivity rule is precisely a crucial one: how the rule is enforced. Without appropriate enforcement, the rule would be * We are grateful...
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