Tuesday, April 23, 2013

The Board of Directors vs. Activist Shareholders

Most major public companies have built elaborate defenses against being taken over.  The argument for such defenses is that the directors are more concerned with the long term value of the company than shareholders trying to make short term killing.  Thus, the directors should pay little attention to these shareholders.  Lucian Bebchuk has published an interesting paper that blows this argument to shreds.

Bebchuk's basic point is that 'informed market participants' actually favor situations where shareholders are active in takeover issues.  The participants act as though this activism is good for the long term health of the company.  And it can pressure management not to act for its own selfish benefit (such as a big payout to management by the acquirer, rather than that of the company

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