18.1 General Remarks 505Pre-bid and post-bid defences. Some types of takeover defences can be used both
before the making of the bid and after the bid has been made. For example, the
costs of the bid can be increased by reducing the amount of assets that can be used
to refinance the bid after the completion of the acquisition, and tactical litigation
can be used as a defence both before and after the making of the bid.
Main legal constraints. Regardless of the method, the availability of takeover
defences is constrained by mandatory provisions of company law (and may be
constrained by provisions of securities markets law). Pre-bid and post-bid de-
fences are basically subject to the same legal constraints. The main constraints are:
- the purpose of the company;
- the principle of equivalent treatment of shareholders;
- the European legal capital regime which restricts the making of distributions to
shareholders; - the fact that the existing regulations of the articles of association and their a-
mendment must not breach mandatory provisions of company law; and - the fact that the amendment of articles of association must be decided on by
shareholders at general meeting.
The most striking difference between the US and the EU is that the right of the
target’s board to decide on the issuing of shares and share buybacks is constrained
by the Second Company Law Directive and subject to shareholder consent.^7 Gen-
erally, large differences in the company law regulation of corporate governance
mean that different kinds of takeover defences will be used depending on the gov-
erning law.^8 Share ownership structure will also play a major role: “proxy fights”
are rarely relevant in the European takeover market.
The purpose of the company and the purpose of the transaction. Many takeover
defences are value-destroying in nature. This is one of the reasons why US-type
poison pills and the Pac-Man Defence are rare in Europe. The use of value-
destroying takeover defences is not in line with the prevailing shareholder value
culture.
In addition, transactions that are designed to be value-destroying are likely to
fall outside the purpose of the company and be “ultra vires” in many countries.
Their use will also be constrained by mandatory company law provisions under
which corporate actions must be taken for a proper purpose. Value-destroying
(^7) For a comparison of UK law and US law, see Barboutis GO, Takeover Defence Tactics:
Part 2 - Specific Defensive Devices, Comp Lawyer 20(2) (1999) pp 40–49.
(^8) For defences used under Delaware law, see Cole J Jr, Kirman I, Takeover Law and Prac-
tice. In: PLI, Doing Deals 2008: Understanding the Nuts & Bolts of Transactional Prac-
tice. New York City (2008) pp 96–122.