17.4 Takeover Defences and the Interests of the Firm 501targets. The Code is strongly weighted toward protecting the interests of share-
holders. Unless shareholders consent, the Code strictly prohibits management
from employing any defensive tactics that would have the effect of frustrating an
actual or anticipated bid. In contrast, management in the US has a good deal more
flexibility to engage in defensive tactics, provided that these can be justified in ac-
cordance with their fiduciary duties.^64
The detailed restrictions are based on the City Code on Takeovers and Mergers (for its
scope, see section 19.1) rather than case-law. The case-law is still unclear.
The case of Cayne v Global Natural Resources plc might suggest that the “just say no”
defense could be available under English law.^65
In the case of Criterion Props. plc v Stratford U.K. Props. LLC,^66 Lord Justice Carnwath
suggested that a lock-up might be justifiable in the face of a hostile acquirer who threatened
the company’s existing business, but felt that the arrangement in question was dispropor-
tionate in its response to the perceived threat. This formulation is strikingly similar to the
proportionality test employed by Delaware courts in reviewing directors' conduct under
Unocal.
In Howard Smith Ltd v Ampol Petroleum Ltd, Lord Wilberforce said: “... it must be un-
constitutional for directors to use their fiduciary powers over the shares in the company
purely for the purpose of destroying an existing majority, or creating a new majority which
did not previously exist ... Directors are of course entitled to offer advice, and bound to
supply information, relevant to the making of such a decision, but to use their fiduciary
power solely for the purpose of shifting the power to decide to whom and at what price
shares are to be sold cannot be related to any purpose for which the power over the share
capital was conferred upon them.”
In Heron International Ltd v Lord Grade,^67 the Court of Appeal declared in a dictum
that: “Where directors have decided that it is in the best interests of a company that the
company should be taken over and there are two or more bidders the only duty of the direc-
tors ... is to obtain the best price.”^68 This view resembles the position of Delaware law un-
der which with the business judgment rule is combined with the Revlon test.
In Re a Company,^69 Hoffmann J however refused to accept “the proposition that the
board must inevitably be under a positive duty to recommend and take all stepts within
their power to facilitate whichever is the highest offer”.
(^64) Davies PL, Gower and Davies’ Principles of Modern Company Law, Seventh Edition.
Sweet & Maxwell, London (2003) p 750; Armour J, Skeel DA Jr, Who Writes the Rules
for Hostile Takeovers, and Why? – The Peculiar Divergence of U.S. and U.K. Takeover
Regulation, Georgetown L J 95 (2007) pp 1727–1794; Ogowewo TI, The Underlying
Themes of Tender Offer Regulation in the United Kingdom and the United States of
America, JBL 1996 pp 479–481.
(^65) Criterion Props. plc v. Stratford U.K. Props. LLC, [2002] EWCA (Civ) 1783, [2003] 1
WLR p 2108 quoting Cayne v. Global Res. plc (unreported decision of Sir Robert
Megarry, V.C., 12 August 1982). See Armour J, Skeel DA Jr, ibid, pp 1783–1784, foot-
note 267.
(^66) Criterion Props. plc v. Stratford U.K. Props. LLC, [2002] EWCA (Civ) 1783, [2003] 1
WLR 2108.
(^67) Heron International Ltd v Lord Grade [1983] BCLC 244 (Court of Appeals).
(^68) See Davies PL, Gower and Davies’ Principles of Modern Company Law, Seventh Edi-
tion. Sweet & Maxwell, London (2003) p 719.
(^69) Re a Company [1986] BCLC 382.