500 17 Duties of the Board in the Context of Takeovers
tions designed to increase share price regardless of whether they are in the long-
term interests of the firm). Because of the effect of takeover bids on share price
(see above), the ECJ thus left room for a competing ideology.
Competing ideology. The supporters of a competing ideology argue that there
are several economic and legal reasons to limit the use of defensive tactics. Legal
rules should maximise the wealth of the target’s shareholders. Defensive tactics
are said to distort the market for corporate control, which according to many writ-
ers should be “free”. For example, Easterbrook and Fischel have said that target
management should refrain from defensive tactics and leave the decision of
whether to sell solely to the shareholders.^57 According to Bebchuk^58 and Gilson,^59
the target directors should be allowed to solicit rival bids as well as engage in
propaganda but do nothing more.
German law. Such views have been expressed even in Germany. Many German
writers say that the management board should be “neutral”.^60
On the other hand, there are other views^61 and judgments that are clearly based
on the assumption that the management board does not have a general duty of neu-
trality. In the Mannesmann/Vodafone case,^62 the Düsseldorf appeals court
(Landgericht) held that marketing actions such as roadshows belonged to custom-
ary management actions which did not breach any duty to be neutral in the context
of a takeover bid. Under German law, the management board is generally permit-
ted to convince shareholders of what shareholders according to the board’s opin-
ion should do, and to build a shareholder coalition against the bid.^63
English law. As far as listed companies are concerned, the position of English
laws is much more restrictive than the position of Community law and the position
of German or US law. Whereas the business judgment rule gives management a
nearly unfettered ability to implement defensive action under Delaware law, de-
fensive action is tightly restrained for companies listed in London.
The Takeover Code reflects the dominance of institutional shareholders who
dislike the adoption of defensive devices by the management of potential takeover
(^57) Easterbrook FH, Fischel DR, The Proper Role of Target Management in Responding to
a Tender Offer, Harv L R 94 (1981) pp 1161–1208. See also Auctions and Sunk Costs in
Tender Offers, Stanf L R 35 (1982) pp 1–21.
(^58) Bebchuk LA, The Case for Facilitating Competing Tender Offers, Harv L R 95 (1982)
pp 1028–1056.
(^59) Gilson RJ, A Structural Approach to Corporations: The Case Against Defensive Tactics
in Tender Offers, Stanf L R 33 (1981) pp 819–891.
(^60) See in particular Hopt KJ, Aktionärskreis und Vorstandsneutralität, ZGR 1993 pp 534–
- See also Merkt H, Verhaltenspflichten des Vorstands der Zielgesellschaft bei
feindlichen Übernahmen, ZHR 165 (2001) pp 234 and 256.
(^61) Paefgen WP, Unternehmerische Entscheidungen und Rechtsbindung der Organe in der
AG. Verlag Dr. Otto Schmidt, Köln (2002) p 339: “Maßgeblich kann vielmehr allein der
Gesichtspunkt der Optimierung des Einsatzes der ökonomischen Ressourcen des von der
Gesellschaft betriebenen Unternehmens sein.”
(^62) LG Düsseldorf, judgment of 14.12.1999 (10 O 495/99 Q).
(^63) See Merkt H, Verhaltenspflichten des Vorstands der Zielgesellschaft bei feindlichen
Übernahmen, ZHR 165 (2001) p 248; Maier-Reimer G, Verhaltenspflichten des Vor-
stands der Zielgesellschaft bei feindlichen Übernahmen, ZHR 165 (2001) pp 263–264.