By: Umakanth Varottil & Wai Yee Wan
PDF: Divergent Designs
Optimal takeover regulation aims to promote efficient changes of corporate control while curbing inefficient takeovers. Viewed from a comparative perspective, the Anglo-American prototypes of takeover regulation spearhead not only the discourse but also the dissemination of takeover regulation globally. At one end of the spectrum, the law in the United States follows the “market rule,” whereby transfers of corporate control benefit from a regulatory free hand. At the other end of the spectrum lies the “mandatory bid rule” (MBR), epitomized by takeover regulation in the United Kingdom. Under the United Kingdom’s version of the MBR, an acquirer who acquires de facto control over a target must make a general offer to the remaining shareholders to acquire all of their shares at the same price it paid to acquire the controlling block.
This Article aims to analyze how and why six significant Asian jurisdictions adopted the MBR and its variants. This is puzzling given that the jurisdictions display considerable divergence in terms of structural, legal, and institutional foundations, not only with their Anglo-American counterparts but also among themselves. This Article challenges the prevailing notion that the binary Anglo-American approach constitutes the framework for the dissemination of takeover regulation worldwide.
The Article claims that because of the political economy of takeover regulation in the Asian jurisdictions, the choice to adopt various intermediate positions is by design and not by accident. Considering that the market rule provides suboptimal protection to minority shareholders and the MBR curbs the market for corporate control, the intermediate positions aim to balance these somewhat conflicting objectives. This study contributes to the wider debate surrounding the appropriate takeover regulation and, more specifically, the claims made by the proponents of the market rule on the one hand and the MBR on the other.