18.10 Tactical Litigation, Administrative Constraints 51318.10 Tactical Litigation, Administrative Constraints...................................
The existence of legal rules on takeovers and acquisitions means that tactical liti-
gation and appealing to competent authorities may be available as a takeover de-
fence. For example, the target’s board may appeal to the courts for an injunction to
restrain the offeror from proceeding with the offer, on the grounds that there has
been a breach of securities regulations, a breach of competition laws, or other im-
proper conduct.
Examples. Until the poison pill became the standard frustrating measure, tacti-
cal litigation was virtually automatic in the US, and it still is a common takeover
defence. For example, the takeover contest between E.ON AG (the German en-
ergy giant) and Acciona SA (a Spanish company in the renewable energies busi-
ness) for control of Endesa SA (Spain’s largest electrical utility) was fought in the
courtrooms of the Southern District of New York.^48
There are many examples of the use of tactical litigation even in Europe. In the
London market, the City Code makes appealing to national or Community compe-
tition authorities (the Competition Commission or the European Commission) a
takeover defence in hostile takeover bids. It must be a term of the offer that it will
lapse if there is a reference to competition authorities in some circumstances.^49 It
is easier to use tactical takeover litigation as a defence after the implementation of
the Directive on takeover bids in the UK. In the past, the City Code lacked statu-
tory force; the Takeover Panel now has statutory powers in relation to bids to
which the Directive relates.^50
The nature of tactical litigation. Takeover litigation may be pre-contest, con-
temporaneous with the contest, or post-contest.^51 It adds to the transaction costs of
takeovers. The costs are not limited to direct litigation costs and costs for compli-
ance. It is even more important that the offeror must raise funding for the offer,
and its funding costs depend on the length of time those funds must be employed.
The threat of tactical litigation increases legal risks.
Community law. The effect of Community law on tactical litigation is basically
indirect. As Community law requires statutory provisions on takeovers policed by
Member States’ competent supervisory authorities, it is easier for a party to appeal
to those authorities or the court.
In regulated industries such as banking and insurance, the existence of common
requirements can mean that the competent supervisory authorities are receptive to
arguments made by the target itself maintaining that the takeover would not be
consistent with those requirements and public policy.
As regards concentrations that have a Community dimension, the one-stop shop
principle (section 14.2) makes it more difficult to use cumulative competition law
(^48) Ogowewo TI, Tactical Litigation in Takeover Contests, JBL 2007 pp 589–590.
(^49) Rule 12 of the City Code on Takeovers and Mergers.
(^50) Sections 942 and 943 of the Companies Act 2006.
(^51) Generally, see Ogowewo TI, Tactical Litigation in Takeover Contests, JBL 2007 pp
589–619.