414 12 Acquisition of Shares in a Privately-owned Company for Cash
ability and enforceability of takeover defences. All these questions will be dis-
cussed in detail below.
12.4.3 Ensuring Exclusivity v Company Law
Second bidders often prevail in competitive bidding contests. Even if the initial
bidder prevails, the ultimate acquisition price is likely to be substantially higher
than the initial bid.^29 One of the key issues in the negotiated acquisition context is
whether the target or the vendor is permitted or even obliged to seek out compet-
ing offers. This is usually addressed in the acquisition agreement or separate side
agreements.^30
Internal distribution of power and protecting the deal. The use of deal protec-
tion devices is constrained by the internal distribution of power in the company.
While the agreement may have been negotiated by one corporate body, it may
have to be authorised by another corporate body.
According to EU company law, the terms of mergers and cross-border mergers
must be authorised by the general meeting (section 5.11.4). Depending on the
governing law and the articles of association of the target or vendor, even other
transactions may have to be authorised by the general meeting. The company may
also have a two-tier board or two-tier board structures, and the transaction may re-
quire the consent of its supervisory board or another controlling body.
Community law. The question is, therefore, can the board accept deal protection
mechanisms, if the transaction must be decided on by the general meeting accord-
ing to provisions of Community law?^31
Now, a transaction that under Community law must be decided on or authorised
by the general meeting is a transaction which is legitimate in itself. It is a general
technique used by the ECJ that ancillary restrictions which are objectively neces-
sary to achieve legitimate objectives under Community law are permitted provided
that they are proportionate to achieving their objectives.
As far as EU company law directives are concerned, it can therefore be as-
sumed that deal protection devices might be compatible with Community law pro-
vided that they they are objectively necessary, proportionate, and do not have the
effect of frustrating the powers of the general meeting.
Member States’ laws. Similar problems can arise under Member States’ na-
tional laws. For example, if a company has a statutory two-tier board structure,
important transactions will typically be authorised by the controlling body (such
as the supervisory board in a German AG) unless they have to be decided on by
the general meeting.
(^29) Ibid, p 179, citing Bruback RS, Assessing Competition in the Market for Corporate Ac-
quisition, J Fin Econ 11 (1983) pp 141 and, 147. Bruback found that second bidders
prevailed in 75% of the 48 cases examined.
(^30) Bainbridge SM, op cit, p 174.
(^31) The topic of this book is limited to Community law.