Principles of Takeover Regulation (OUP, 2016) explores the nature and optimality of the regulation of the UK’s market for corporate control through the Takeover Code, which is maintained and enforced by the Takeover Panel.
To provide context within which to evaluate UK takeover regulation, the book commences with a consideration of the theory and empirical data on the value effects of the market for corporate control, as well of as its implications for corporate governance, board decision making and stakeholders. It then proceeds to investigate the origins of the UK’s self-regulation of the market for corporate control through the Takeover Code and Panel and explores the drivers of its considerable success. It analyses the key takeover events that created public, political and shareholder consternation in the mid- and late-1950s and the early- and late-1960s, interrogates the multifaceted reactions to these events, and traces how these reactions were translated into regulatory action. Through this analysis the book explores how the City of London’s merchant banking community took control over takeover regulation; fashioning the mode and substance of regulation in its interests, and thereby ensuring its success.
The book then proceeds to provide a detailed account of the substantive rules and principles that make up the Code, critically evaluates the standard justifications for these rules and principles, and considers their effects on market activity and the structure and behaviour of UK companies. The book also investigates the nature, effects and optimality of this regulatory system. In particular, it considers whether the mode of regulation and the regulatory identity of the Takeover Panel – as an independent “self-” or “market-controlled-” regulator – distorts and limits the rule making process. In this regard, the book considers whether the substance and mandatory form of several of the Code’s most well-known rules - including the mandatory bid rule, the non-frustration rule, its rules on bid conditionality, and the prohibition on deal protections – are, inter alia, the product of the maintenance and protection of this sui generis approach to takeover regulation. The book argues that it is the mode of regulation that renders the Panel and the Code overly protective of its “keystone rules” - the rules including the non-frustration rule and the mandatory bid rule which demarcate the Code’s regulatory space - and contributes to the effective closure of this regulatory system in relation to contemporary market conditions and events that raise question marks about the suitability of these rules. At times this results in incongruent regulatory responses to these events which deflect political and public attention from doubts about these rules. Given the uncertain policy and principled case for these rules, which the book also explores, the book submits that there is real doubt as to whether the substance and mode of UK takeover regulation is optimal for UK companies and the UK economy.
David Kershaw is Professor of Law at the London School of Economics and Political Science.