17.3 Duty to Obtain Advice or to Give Advice 497valuation of a company (flexibility of law, Volume II). For statements by the
board, the business judgment rule applies.^40
In the target company, the board is a competent information intermediary only
in matters that relate to the target firm itself. The target’s board can say something
about the target firm’s own future prospects and about the industrial logic behind
the offer. The target’s board may have information about how much debt the tar-
get company can be expected to bear. However, the target’s board is not an expert
on the future valuation of the target company’s shares (or the future valuation of
the acquirer’s shares).
In the offeror company, the board is a competent information intermediary in
matters that relate to the offeror firm itself and its plans for the combined firm.
The offeror’s board knows about the offeror firm’s own future prospects and can
say something about the industrial logic behind the offer. However, the offeror’s
board is not an expert on the future valuation of the acquirer’s shares (or the future
valuation of the target company’s shares should the target company remain inde-
pendent).
This can help to explain why, under the Directive on takeover bids, the offeror
and the board of the target company, in effect, have a duty to give their views
about the industrial logic of the proposed takeover but no duty to say whether the
takeover would be in the interests of shareholders.
This is understandable also in the light of the fact that real shareholders have
different interests, their real interests may conflict with those of the firm, and fic-
tive shareholders do not exist. A real shareholder may or may not benefit from
what is in the “interests of the company as a whole”^41 or what makes industrial
sense for the target firm. Whether fictive shareholders benefit from those decisions
depends on what interests those fictive shareholders are supposed to have.
In any case, as shareholders are free to sell their shares, the target company re-
lies on its shareholders as agents to decide on the valuation of its shares, the ac-
ceptance of the offer, and changes in its ownership structure.^42 It should belong to
the tasks of the target’s board to try to convince shareholders to act according to
what can benefit the firm.
Advice on whether the bid is in the interests of shareholders can better be given
by an independent adviser rather than the target’s board.
This is also the position of the City Code which regulates public takeovers in England. The
English position is nevertheless influenced by the dominance of institutional investors as
regulators, the dominance of a different ideology which focuses on the maximisation of the
wealth of those institutional shareholders, and therefore also the dominance a different
principal-agency relationship. According to that ideology, there is a fundamental conflict
between the target’s shareholders whose wealth should be maximised (the shareholder
(^40) For Delaware law, see Cole J Jr, Kirman I, Takeover Law and Practice. In: PLI, Doing
Deals 2008: Understanding the Nuts & Bolts of Transactional Practice. New York City
(2008) pp 82–85.
(^41) Article 3(1)(c) of Directive 2004/25/EC (Directive on takeover bids).
(^42) Article 3(1)(b) and (c) of Directive 2004/25/EC (Directive on takeover bids).