No-shop, no-talk and break-up fee agreements in merger and takeover transactions: the case for a fresh regulatory approach

Article


Mayanja, James. 2002. "No-shop, no-talk and break-up fee agreements in merger and takeover transactions: the case for a fresh regulatory approach." Australian Journal of Corporate Law. 14 (1), pp. 1-25.
Article Title

No-shop, no-talk and break-up fee agreements in merger and takeover transactions: the case for a fresh regulatory approach

ERA Journal ID37186
Article CategoryArticle
Authors
AuthorMayanja, James
Journal TitleAustralian Journal of Corporate Law
Journal Citation14 (1), pp. 1-25
Number of Pages25
Year2002
Place of PublicationSydney, Australia
ISSN1037-4124
Web Address (URL)http://www.lexisnexis.com/au/legal/auth/checkbrowser.do?cookieState=0&rand=0.02956362793535472&bhcp=1
Abstract

Merger and takeover transactions have a profound impact of on the interests of shareholders and society in general. For this reason, it is essential that the legal system provide a reliable mechanism for determining the validity of practices that have the potential either to facilitate or inhibit such transactions. This article seeks to demonstrate that the rules currently governing the exercise of directors' powers are ineffective to protect the interests of shareholders and society in general in circumstances involving the use of exclusivity and break-up fee agreements, practices that are fairly new, but which are becoming increasingly common in Australia. The equitable doctrines of fiduciary law against which the validity of these arrangements is determined do not provide clear guidance as to when it is acceptable for directors of target companies to enter into such agreements. There is thus need for reform, so as to promote clarity and predictability of the law in this area. This will enable all interested parties to proceed on reasonable expectations in organizing their affairs whenever these arrangements are involved. In undertaking this reform, policy makers would serve investors and society generally better if they adopted shareholder welfare enhancement as the criterion for adopting the applicable rules in this area. Exclusivity and break-up fee agreements should be permitted where they are designed to maximise shareholder wealth but not otherwise. The article explores ways in which the law could be reformed to achieve this objective.

Keywordsdirectors' duties; mergers; takeovers; corporate control transactions; lock-ups; no-shop; no-talk; exclusivity agreements; break-up fees
ANZSRC Field of Research 2020480103. Corporations and associations law
500102. Business ethics
350710. Organisational behaviour
Public Notes

File reproduced in accordance with the copyright policy of the publisher/author.

Byline AffiliationsSchool of Law
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