fund an acquisition but is unlikely to come up with $20
billion.Thus,itshouldcomeasnosurprisethatthemanagers
oflargerfirmsinclosedcapitalmarketsoftenhaveavested
interest in keeping the markets closed.
State Restrictions
Many financial markets outside the United States impose
significant legal and institutional restrictions on takeover
activity.Whilefewmarketsforbidtakeoversaltogether,the
cumulative effect of the restrictions is to make hostile
takeoversjust aboutimpossible.EvenintheUnitedStates,
manystatesimposedrestrictionsontakeoversinthe1980sin
response to the public and political outcry against hostile
takeovers.One exampleofstate-imposedrestrictions isthe
Pennsylvania law passed in 1989, which contained three
provisions to make takeovers more difficult.First, bidders
whocrossedownershipthresholds of20,33,or 50 percent
without management approval were required to gain the
approvalofothershareholderstousetheirvotingrights.This
approval was made even more difficult to obtain because
votingwasrestrictedtoonlythoseshareholderswhohadheld
stockformorethan 12 months.Second,theboardofdirectors
was allowed to weigh the effect of the takeover on all
stakeholders, including customers, employees, and local
communitygroups,inacceptingorrejectingatakeover,thus
providingmembersoftheboardwithconsiderableleewayin
rejectinghostilebids.Third,bidderswereforcedtoreturnany
profitsmadefromanysaleofstockinthetargetcorporation
within 18 monthsofthetakeoverattempt,thusincreasingthe
cost ofan unsuccessful bid. Therearesimilar lawson the
books in many countries.