17 Duties of the Board in the Context of Takeovers
Takeovers
17.1 General Remarks
Business acquisitions raise questions about board members’ duties. For example,
in whose interests should board members act according to general company law
rules? Do members of the target’s board have a duty to be “neutral” in the context
of acquisitions? Do members of the target’s board have a right or duty to use take-
over defences, or are takeover defences prohibited?
Generally, there can be different views about the nature of directors’ duties (a
duty to act or a right to act), the party whose interests board members should fur-
ther (for example, a duty to act in the interests of shareholders, the company, or
the firm), and the content of those duties.^1
17.2 In Whose Interests Shall Board Members Act?
According to general company law rules, members of the board have a duty to act
in the interests of the company. While this question can be problematic in all
companies (see Volume I), it is even more problematic in the target company es-
pecially where the target company’s shares have been admitted to trading on a
regulated market.
Effect of takeover bid on share price. The price that investors are prepared to
pay for shares in a company with dispersed ownership is adversely affected by
agency costs as well as on legal constraints on distributions. The market pricing of
shares can change when someone tries to acquire all shares in the company. Be-
cause of the legal and de facto powers of a sole shareholder, the buyer of all shares
in the company can pay a higher price per share. For this reason, an expected
takeover bid for all shares can trigger a “quantum leap” of the share price. The
failure of a bid can cause the share price to sink to previous levels immediately.
The failed takeover bid for Yahoo! (see Volume I) is an example of such a price change. In
2008, Microsoft made a hostile takeover bid for this Californian corporation. Microsoft’s
(^1) It is therefore not just a question of the extent of those duties. Compare Merkt H, Ver-
haltenspflichten des Vorstands der Zielgesellschaft bei feindlichen Übernahmen, ZHR
165 (2001) p 225.
P. Mäntysaari, The Law of Corporate Finance: General Principles and EU Law,
DOI 10.1007/ 978-3-642-03058-1_17, © Springer-Verlag Berlin Heidelberg 2010