M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

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Tuesday, April 27, 2010

Michigan's New Anti-takeover Law

I thought we had moved beyond much of this silliness.  I guess I was wrong.  According to the Detroit News, the Michigan legislature is "rushing to pass a bill that would require two-thirds of a Michigan insurance company's shareholders to approve its hostile acquisition by another firm."  

 The bill (Senate Bill 1174) requires that any acquisition of a domestic (Michigan) insurer with less than 200 employees would require the "approval " of at least 66.67% of the shareholders if the proposed transaction is not approved by the board of directors.  Initial query - how is it that shareholders are supposed to "approve" an acquisition agreement that has not been approved by the board?  Unless the new law includes a requirement that board sign merger agreements that they don't approve of, the only way for shareholders to "approve" of a hostile transaction is by tendering their shares.  Oh ... and the bill purports to make it illegal for any person to make a tender offer for the shares of a domestic insurance company if such tender would result in a change of control!  Thanks always for the small things: the House version of this bill sunsets the legislation on May 1, 2012.

My problem with these kinds of efforts, other than them being vanity pieces, is that they are often touted as pro-employment/pro-community laws and supported by both labor and community leaders.  The truth is, though, they are not.  You know - the buyer will lay everyone off and give nothing back to the community - that kind of thing.  For example – here’s a letter to the editor of the Detroit News making just that argument with respect to this bill.  

But nothing in the law requires the board to do anything for labor or the community.  Indeed, I suspect that at the right price the board of a target Michigan firm subject to this law might be happy to do a deal.  But, there is no requirement in the law that the board in doing a transaction seek guarantees of employment for labor or seek commitments from the buyer that it remain in the community.  In effect, all these legislative efforts really do is give managers an additional lever to negotiate a better deal for shareholders.  

If legislators think they are passing these laws to protect local communities and jobs, they should guess again.  America’s Rust Belt is littered with efforts like these

 -bjmq

http://lawprofessors.typepad.com/mergers/2010/04/michigans-new-antitakeover-law.html

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