FTC Staff Comment Before the Massachusetts Executive Office of Economic Affairs Concerning Review of the Massachusetts Anti-Takeover Laws

09/02/1988 	14::>4
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r- I '- OU;::' I UI ~
UMTEU STAlt:S OF A..\iERICA
FEDERAL TRADE COMMISSION
BOSTON kt:GIONAL OFFICE
COMMISSION AUTHORIZED
September 	2, 	1988
...... ',1
The 	Honorable 	Joseph 	D. 	Alviani
Secretary
Executive 	Office 	of 	Economic 	Affairs
One 	Ashburton 	Place--Room 	2101
Boston, 	MA 	02108
Dear 	Mr. 	Secretary:
The 	staff 	of 	the 	Federal 	Trade 	Commission 	is 	pleased to
respond 	to 	your 	letter 	of 	invitation 	of 	August 	2, 	1988, 	to
provide 	comments 	to 	the 	Commission 	to 	Review 	the 	Massachusetts
Anti-Takeover 	Laws 	on 	the 	role 	of 	the 	state 	in 	regulating,
corporate 	takeovers.!/ 	Chapters 	llOe, 	llOD~ 	and 	110E 	of 	the
Massachusetts 	General 	Laws 	currently regulate 	corporate
takeovers. 	The 	principal 	provisions 	of 	Chapter 	llOC 	contain
disclosure 	requirements 	with 	which 	offerors 	in 	takeover 	bids 	must
comply, 	prescribe 	a 	minimum 	period 	for 	which 	such 	bids 	must
remain 	open, 	and require 	that 	all 	shareholders 	who 	tender 	their
shares 	receive 	the 	benefit 	of 	any increases 	in 	the 	offer 	price
for 	the 	target 	firm's 	shares. 	Chapter 	1100 	regulates 	"control
share" 	acquisitions 	of 	certain companies 	incorporated 	in
Massachusetts 	by prohibiting 	bidders 	for 	corporate 	control 	from
voting 	"control 	shares" 	unless 	a 	majority of 	"disinterested"
shareholders 	has 	voted 	to 	authorize 	the 	exercise 	of 	that
right. 	~/ 	Chapter 	llOE 	regulates 	control 	share 	acquisitions 	of
certain 	companies 	incorporated 	outside 	of 	Massachusetts. 	2/
~/ 	These 	comments 	are 	the 	views 	of 	the 	staffs 	of 	the 	Bureau 	of
Competition 	and of 	the 	Boston Regional 	Office 	of 	the 	Federal
Trade 	Commission. 	Th~y are 	not 	necessarily 	the 	views 	of 	the
Commission 	or 	any 	individual 	Commissioner.
~/ 	Chapter 	1100 	is 	similar 	to 	an 	Indiana 	"control 	share"
statute 	whose 	constitutionality was 	recently 	upheld 	by 	the
Supreme 	Court 	in CTS 	Corp. 	v. 	Dynamics 	Corp., 	107 	S. 	Ct. 	1637
(1987). 	The 	Court 	held 	that 	the 	Indiana 	law was 	not 	preempted by
the 	federal 	Williams 	Act, 	15 	U.S.C. 	S 	78m(d)-(e), 	78n(d)-(f), 	or
Securities 	and 	Exchange 	Commission regulations 	promulgated
thereunder, 	and did 	not 	unconstitutionally 	interfere 	with
interstate 	commerce.
2/ 	Chapter 	110E 	differs 	from 	the 	Indiana 	statute 	that 	was
upheld 	by 	the 	supreme 	Court 	in 	that 	it 	also 	applies 	to
(continued ..• )

The 	Honorable 	Joseph 	D. 	Alviani
P4qe 	2
We 	believe 	that 	Chapters 	1100 and 	110£ 	are 	likely 	to 	deter
takeovers 	that 	may 	increase 	economic welfare. 	If 	the 	Commission
nevertheless 	decides 	to 	recommend 	that 	those 	provisions 	be
retained, 	we 	suggest 	that 	it 	consider 	recommending 	that 	Chapters
1100 	and 	110E 	be 	made 	applicable 	Holely 	to 	corporations 	that
affirmatively 	elect 	to 	be 	covered by 	them 	throuQh 	amendments 	to
the 	corporations t 	articles 	of 	organization. 	1/ 	An 	affirmative
·opting-inn 	provision 	would 	enable 	the 	shareholders 	of 	each
corporation 	to 	determine 	whether 	restraints 	on 	the 	transfer 	of
corporate 	control 	are 	in 	the 	interests 	of 	the 	corporation. 	With
respect 	to 	Chapter 	110C, 	we 	believe 	that 	certain 	waitiny 	periods
imposed 	by 	that 	chapter 	have 	the 	potential 	of 	delaying 	takeover
bids 	beyond 	the 	waiting 	period 	already mandated 	by 	federal 	law.
The 	result 	may 	be 	to 	deter 	takeovers.
A. 	Intereat 	and 	Experience 	of 	the 	Federal 	Trade 	Commission
The 	Federal 	Trade 	Commission 	is 	charged by 	statute 	with
preventing 	unfair 	methods 	of 	competition 	and 	unfair 	or 	deceptive
practices 	in 	or 	affecting commerce. 	15 	U.S.C. 	S 	45. 	Pursuant 	to
this 	mandate, 	the 	Commission 	seeks 	to 	identify 	restrictions 	that
impede 	competition 	or 	increase 	costs 	without 	offering 	counter-
vailing 	benefits 	to 	consumers. 	Our 	efforts 	have 	included 	pro-
viding 	comments 	to 	federal, 	state, 	and 	local 	legislatures 	and
administrative 	agencies 	on 	matters 	that 	raise 	issues 	of 	competi-
tion 	or consumer 	protection 	policy.
The 	Commission 	hae 	substantial 	experience 	in 	the 	area 	of
mergers 	and 	acquisitions. 	The 	Commission enforces 	section 	7 	of
the 	Clayton Act, 	15 	U.S.C. 	S 	la, 	which prohibits 	acquisitions 	of
corporate 	assets 	or 	securities 	that may 	substantially 	lessen
competition or 	tend 	to 	create 	a 	monopoly. 	Under 	the 	Hart-Scott-
Rodino 	Antitrust 	Improvements 	Act 	of 	1976, 	15 	U.S.C. 	S 	l8a, 	the
Commission reviews 	proposed 	acquisitions 	of 	corporate 	securities,
including tender 	offers, 	to 	determine whether 	they 	violate 	the
antitrust 	laws. •
The 	Commissionts 	staff 	has 	addressed 	issues 	related 	to 	the
market 	for 	corporate 	control 	through 	scholarly 	5tudies 	and 	com-
z/( •.. continued)
nonresident 	corporations. 	We 	do 	not 	address 	here 	the
constitutional 	issues 	raised by that 	feature 	of 	the 	chapter.
see CTS Corp. 	v. 	Dynamics 	Corp., 	107 	5. 	Ct. 	at 	1651-52;
Edgar v. 	Mite, 	457 	U.S. 	624, 	645-46 	(1982).
II 	Chapter 	110E 	contains 	an 	opt-in provision which, 	because 	it
allows 	opting 	in 	through 	an 	amendment 	to 	corporate 	by-laws, 	does
not 	necessarily 	require 	a 	shareholder vote.

The 	Honorable 	Joseph 	D. 	Alviani
Page 	3
menta 	to 	state 	governmento. 	Loot 	year, 	the 	Commisoion'o 	Bureau
of 	Economic6 	published 	0 	study 	on 	the 	effects 	of 	takeover 	legis-
lation 	enacted by 	New 	York 	in 	1985. 	i/ 	In 	the 	past 	two years,
the 	Commi8sion'6 	staff 	provided 	comments 	on 	corporate 	control
legislation 	to 	the 	governor 	of 	New 	York 	and 	to 	the 	New 	Jersey,
Delaware, 	and Texas 	legislatures.
a. 	Effect 	af 	Takeav~~a QU 	ECQnQmic 	Welfare
The 	corporate 	takeover 	is 	a 	mechanism 	for 	transferring
control 	of 	corporate 	assets. 	The 	transfer 	of 	corporate 	control
can 	serve 	a 	number 	of 	economic 	functions, 	such 	as 	facilitating
the 	redeployment 	of 	corporate 	dssets 	to 	more 	efficient 	uses 	and
improving 	corporate 	management. 	Although 	not 	every 	takeover
ultimately 	produces 	such 	benefits, 	we 	believe 	that 	takeovers 	in
the 	aggregate 	are 	likely 	to 	enhance 	economic 	efficiency.
Some 	studies 	6uggeet 	that 	management-opposed 	corporate
acquisitions 	are 	most 	commonly 	carried 	out 	when 	outside 	bidders
have 	an opportunity 	to 	improve 	the 	performance 	ana 	thereby
increa5e 	the value 	of 	target 	corporations. 	~/ 	Such 	bidders 	pay
substantial 	premiums 	over 	the 	pre-offer market 	price 	of 	the
shares 	of 	target 	corporations 	because 	they 	believe 	that 	the
corporations 	will 	be 	worth more 	under 	their 	control. 	~I
There 	are 	a 	number of 	6ource5 	for 	the 	potential 	gain 	in 	an
acquired 	firm/s 	performance. 	In 	aome 	cases, 	bidders 	are 	able 	to
improve 	the 	management 	of 	the 	target 	firm. 	In 	other cases,
bidders 	may 	be 	able 	to combine 	firms 	with 	complementary
strength6, 	integrating 	production or 	distribution channels,
eliminating 	duplicative 	functions, 	or 	facilitating 	mutually
beneficial 	technology 	transfers. 	Takeovers 	may 	also 	permit 	firms
il 	L. 	Schumann, 	State Regulation 	of 	Takeoyers 	and 	Shareholder
Wealth: 	The 	Eff~~ts of,New York'~ 1965 	Takeover 	Statute~ (Federal
Trade 	Commission, 	Bureau 	of 	Economics, 	1987).
51 	~ 	Bradley, 	Desai 	& Kim, 	The 	Rationale Beb1nd 	Interfirm
Tender-Offersl 	lD~QrmatiQn Qr Syne~gy, 11 	J. 	Fin. 	Reon. 	183
(1983); 	Gilson, 	A Structural 	Approach 	to 	Co~~~tjQnst The 	Case
Aga1nst 	Defensive 	Toctics 	in Tender 	Qff~.A, 33 	Stan. 	L. 	Rev. 	819
(1981); 	Easterbrook 	& Fischel, 	The 	frQper 	Role 	of 	a 	Target's
Management 	in Responding 	to 	a 	~ender Offer, 	94 	Harv. 	L. 	Rev. 	1161
(1981).
il 	There 	is 	evidence 	that 	share 	prices 	of 	most 	target 	companies
significantly 	underperform 	the market 	in 	the 	pre-offer 	period.
see Gilson, 	supra 	note 	5, 	at 	852-53, 	and 	sources 	cited 	therein.

The 	Honorable 	Joseph 	D. 	Alvianl
Page 	4
to 	shift 	corporate 	a88ete 	to 	more 	efficient 	uses 	by 	eelling 	or
changing 	the 	use 	of 	underperforming 	facilities.
The 	transfer of 	corporate 	control 	in 	such circumstances 	is
likely 	to benefit 	shareholders, 	employee8, 	and 	the 	economy 	as 	a
whole, 	as 	well 	a8 	the 	successful 	bidder. 	Shareholders 	benefit 	in
two 	ways. 	First, 	because 	bidders 	for 	corporate 	control 	offer
substantial 	premiums 	over 	the 	pre-offer market 	price 	of 	corporate
shares, 	target 	company 	shareholders 	enjoy 	rapid 	appreciation 	of
the 	value 	of 	their 	shares. 	Second, 	the 	threat 	of 	takeovers 	may
motivate 	incumbent 	corporate 	managers 	to 	improve 	corporate
performance. 	Employees 	benefit 	from 	enhanced corporate
efficiency 	and 	the 	accompanying 	gains 	in corporate
competitiveneBB. 	2/ 	The 	economy 	can 	benefit 	both 	from 	the
transfer 	of 	corporate 	control 	to more 	efficient 	management 	and
from 	the 	incentives 	that 	takeovers 	create 	for 	improved managerial
performance.
Numerous 	scholarly 	studies 	have 	concluded 	that 	takeovers, 	on
average, 	lead 	to 	an 	increase 	in 	the 	stock market's 	valuation 	of
both 	the 	acquired 	and 	the 	acquiring 	firms. 	According 	to 	a
recent 	study, 	share 	prices 	of 	acquired 	firms 	increase 	by 	an
average 	of 	53.4 	percent. 	a/ 	Different 	Btudies 	report 	that 	the
share 	prices 	of 	acquiring 	firms 	have 	tended 	in 	the 	past 	to
increase 	by 	smaller 	amounts, 	ranging 	from 	2 	percent 	to 	approxi-
mately 	7 	percent, 	i/ 	although 	in 	this 	decade 	acquirers 	may 	have
experienced 	no 	gains 	at 	all. 	lfr/ 	Even 	if 	the 	acquiring 	company's
2/ 	Profitable 	firms 	provide 	the 	best 	opportunities 	for 	wage
growth, 	new employment, 	and 	the 	fulfillment 	of 	pension 	and 	other
contractual 	obligations 	to 	worker8.
AI 	Office 	of 	the Chief 	Economist, 	Securities 	and 	Exchange
Commission, 	The 	Economics 	of 	Aoy-Dr-All, 	2artja1, 	and 	TwQ-~ier
. Tend~r Off~~i, 	Table 	4A 	(1985).
~I 	Those 	findings 	are summarized 	in Jensen 	& Ruback, 	The 	Market
for 	Corporate 	Controll 	The 	Scientific 	Evidence, 	11 	J. 	Fin. 	Econ.
5, 	11 	(Table 	3), 	16-22 	(1983). 	~ ~ 	Jarrell 	& Bradley, 	~
Economic 	Effects 	of 	Federal 	and 	Stote 	Re~Ylot1Qna Qf 	Cash 	Tender
Offers, 	23 	J. 	La~ Econ. 	371, 	393-95 	(1980); 	Council 	of 	Economic
Advisers, 	Economic 	Report 	of 	the~e5ident 197 	(1985).
~I 	~ 	Jarrell, 	Brickley 	& Netter, 	The 	Market 	for 	Corporate
Control; 	The 	Empirical 	Eyidence 	Sinc~ l~BQ, 	2 	J. 	Econ. 	Persp. 	49
(1988). 	A recent 	study 	of 	the 	effects 	on 	the 	stock 	prices 	of
the 	acquiring 	firms 	in 	78 	hostile 	takeovers 	between 	1976 	and 	1981
concluded that 	those 	firms 	lost 	42 	percent 	of 	their value 	over
the 	three 	years 	following 	their 	acquisitions. 	Magenheim 	&
(continued ... )

~IL bU~IUN
The 	Honorable 	Joseph 	o. 	Alviani
Page 	5
shares 	experience 	no 	gains, 	these 	etudies 	8uqqest 	that 	the
market 	values 	the 	combination of 	the 	acquirer 	and 	the 	target
company 	more 	highly 	than 	the 	individual 	firms 	that 	would 	exist 	in
the 	absence 	of 	a 	takeover. 	11/
These 	studies 	measure 	the 	5tock 	market 	performance of 	the
companies 	involved 	during 	short 	periods 	of 	time 	surrounding
takeover 	bids. 	They may be viewed 	as 	offering 	the 	stock
market's 	long-term valuation of 	takeovers 	based 	on 	the
information 	available 	at 	the 	time 	the 	takeover 	is 	announced.
These 	valuations 	may 	change 	over 	time 	as 	more 	information 	is
gained 	about 	the 	likely effects 	of 	the 	takeover. 	Thus, 	these
studies 	serve 	only 	as 	indirect 	e6timates 	of 	long-term
performance. 	Economic 	8cholar5 	largely 	agree, 	however, 	that 	the
increases 	in 	company valuations 	reported 	by 	these 	studies
represent 	efficiency 	gains. 	~ 	note 	13, 	infrA. 	Of 	course,
sharp 	fluctuations 	in market 	values, 	such 	as 	those 	experienced
during 	last 	year's 	stock market 	cra5h t 	may 	require 	a 	cautious
approach 	to 	long 	term conclusionB. 	Some 	scholars 	have 	also
questioned 	the 	overall 	effect5 	of 	mergers 	and 	unsolicited
takeovers 	on 	economic 	efficiency. 	11/
A substantial 	body of 	economic 	and 	legal 	literature 	supports
the 	view 	that 	these 	increases 	in 	the 	stock market's 	valuation 	of
~/( ... continued)
Mueller, 	Are ACQ~i~ing-Firm sb~reholders Bettet Off 	After An
ACQ~isitiQn?, 	in 	KQight~, Raiders, 	and 	Targets 	171 	(J. 	Coffee, 	L.
Lowenstein 	& S. 	Rose-Ackerman ed. 	1998) •. 	That 	study 	has 	been
criticized 	for 	using 	methodology 	that 	significantly 	overstates
the 	losses 	of 	the 	acquiring 	firms' 	value. 	~ 	Bradley 	& Jarrell,
Comment, 	id. 	at 	254. 	Bradley 	and 	Jarrell, 	using 	the 	data 	from
the 	Magenheim-Mueller 	study 	and 	a 	different methodology,
conclUded 	that 	the 	acquiring 	firms' 	three 	year 	los see 	were
actually 	statistically 	insignificant. 	Significantly, 	they 	also
note 	that 	even when 	"afquiring 	firms 	Buffer capital 	losses, 	the
gains 	to 	targets 	outweigh these 	losses, 	and 	the 	net 	effect 	is 	a
significant 	increase 	in 	the value 	of 	the 	combined assets. ff 	~.
at 	256.
~/ 	Similarly, 	share 	prices 	of 	both 	bidding and 	target 	firma
usually 	decline 	after 	unsuccessful 	takeover bids 	to 	below 	the
pre-offer 	level. 	Bradley, 	Desai 	& Kim, 	SuprA note 	5, 	at 	189-204;
Jensen 	& Ruback, 	supra note 	9, 	at 	8.
12/ 	~ 	Ravenscraft 	& Scherer, 	Xhe 	Long-Run PQ~formance of
Mergers 	an~ TakeQye~2, in Public 	policy 	Tow§rd CorpQrate
Takeoyers 	34 	(H. 	Weidenbaum 	& K. 	Chilton 	ed. 	1988); 	Herman 	&
Lowenstein, 	The 	Efficiency Effects 	of 	H08t11e 	Takeovers, 	in
Knight~, Raiders, 	and 	Targets, 	supra 	nota 	10, 	at 	211.

09/02/1988 	14:58 	riC t:U=; I U' .
The 	Honorable 	Joseph 	D. 	Alviani
Page 	6
firms 	following 	a 	takeover 	represent 	efficiency 	gains, 	and 	the
creation 	of 	new wealth, 	attributable 	solely 	to 	the 	takeover. 	~/
Participants 	in 	the 	stock market 	are 	not 	likely 	to 	bid 	up 	the
price 	of 	equity 	securities 	involved 	in 	takeover8 	unless 	prior
takeovers, 	on 	average, 	produced 	such 	gains. 	Other 	studies
quarrel 	with 	these 	conclusions, 	but 	many 	of 	these 	studies
contain 	methodological 	error8. 	11/ 	A major 	scholarly 	study 	that
relied 	on 	accounting 	data 	took 	issue with 	the 	conclusions 	of 	the
stock market 	studies 	and 	concluded 	that 	takeovers 	neither
improved 	nor 	degraded 	the 	performance 	of 	the 	target 	firms. 	13/
lJ/ 	saa, 	~.q., 	~coDQm1Q 	Report 	of the Pre5ident, 	aU~~A note 	9,
at 	187-216; 	Jensen 	& Ruback, 	supra 	note 	9; 	Jarrell, 	Brickley 	&
Netter, 	supra 	note 	10; 	Bradley, 	Desai 	& Kim, 	supra 	note 	5;
Gilson, 	supra 	note 	5; 	Easterbrook 	& Fischel, 	supra 	note 	5;
Easterbrook 	& Jarrell, 	DQ ~rgets 	Benefit-from 	Defe~t1ng Tender
Offers, 	59 	N.Y.U. 	L. 	Rev. 	277 	(1984); 	Pound, 	Lehn 	& Jarrell, 	~
TakeQY~r8 HQatile 	to 	Economic 	Performance?, 	Regulation, 	Sept.-
Oc t . 	19 8 6, 	25 .
l!/ 	For 	example, 	Weidenbaum 	, 	Vogt, 	Takeoyers 	and 	Stockholders:
Wioners 	and Lose~~, 	19 	Cal. 	Mgmt. 	Rev. 	157 	(1987), 	incorrectly
relied 	on 	evidence 	concerning neQotiated 	mergers 	to 	conclude 	that
management-opposed 	takeovers 	reduce 	efficiency. 	When 	the 	e~i
dence 	of 	management-opposed 	takeovers 	reviewed by 	the 	authors 	is
examined 	separately, 	it 	supports 	the 	conclusion 	that 	takeovers
enhance 	efficiency. 	Similarly, 	Lipton, 	T~t~Qyer Bids 	in 	the
~arget'8 BQarg~QQm, 35 	Bus. 	Law. 	101 	(1979), 	offered 	evidence
purporting 	to 	show 	that 	stockholders 	benefited 	from 	manaqement
resistance 	that 	resulted 	in 	the 	defeat 	of 	takeover 	bids. 	Lip-
ton's 	evidence 	showed 	that 	the 	share 	prices 	of 	some 	firms 	that
had 	defeated 	takeover 	bids 	increased 	above 	the 	tender 	offer 	price
a 	number 	of 	years 	later. 	His 	study did 	not 	compare 	these 	share
price 	movements 	to 	the 	overall 	market's 	movement 	during 	the 	same
period. 	More 	systematic 	studies, 	which examine 	abnormal 	returns
on 	shares 	of 	takeover 	targets 	compared 	to 	overall 	market 	trends,
show 	that 	stockholders 	incur 	significant 	losses 	from 	the 	defeat
of 	takeover 	bids. 	~ generally 	Easterbrook 	& Jarrell, 	supra
note 	12, 	at 	282-84.
~/ 	D. 	Ravenscraft 	& F. 	Scherer, 	Merger~ Sell-Offs, 	Bod 	EconQ-
m~c 	Efficien~Y 101-03 	(1987). 	The 	authors 	used 	accounting 	data
to 	measure 	economic 	rates 	of 	return. 	This 	methodology 	is 	con-
troversial 	because 	profit8 	revealed by 	such 	data 	are 	subject 	to
wide 	variations 	resulting 	from 	the 	use 	of 	divergent 	accounting
conventions 	by 	different 	firm6. 	~ generally Benston, 	~
YOlidlty 	of 	profits-Structure 	Studies 	with 	Particular 	Reference
to 	the 	PTC's 	Line 	of 	ausiness 	Data, 	75 	Am. 	Econ. 	Rev. 	37 	(1985)~
Fisher 	& McGowan, 	On 	the 	MiBu~e of 	Accounting 	Rates 	of 	Return 	to
(continued .•• )

r I '_ t:iU:::' I Uf'4
The 	Honorable 	Joseph 	D. 	Alviani
Paqe 	7
Accordingly, 	no 	scholarly 	consensuS 	on 	the 	economic 	effects
of 	takeo~er8 supports 	changes 	in 	the 	law 	to 	make 	manaqement-
opposed 	takeovers 	more 	costly 	and 	difficult. 	On 	the 	contrary,
we 	believe 	that 	the 	preponderance 	of 	scholarly 	opinion on 	the·
subject 	supports 	the 	conclusion 	that 	management-opposed 	takeovers
produce 	economic 	benefits, 	and 	that 	new 	restrictions 	on
takeovers 	are 	likely 	to 	undermine 	economic 	efficiency.
C. 	Asserted 	Disadyantages 	of 	Takeover 	Activity
Purported 	di6advantages 	of 	takeover 	activity 	are 	often
a5serted 	to 	justify 	restraining 	corporate 	acquisitions.
Although we 	know 	of 	no 	empirical 	research 	to 	substantiate 	these
disadvantages, 	they 	are 	often cited 	by 	incumbent 	managers 	and
other 	takeover 	critics 	in 	testimony 	before 	Congressional
committees 	and 	in 	articles 	in 	the 	general 	press. 	In 	the 	absence
of 	persuasive 	substantiating evidence, 	these 	claims 	do 	not
support 	the 	enactment 	of 	curbs 	on 	takeover 	activity.
Some 	takeover 	critics 	claim, 	for 	example, 	that 	acquirers
often 	take 	over 	well-managed corporations, 	oust 	good 	management,
and 	reduce 	corporate 	efficiency by 	installing 	less 	capable
management 	teams. 	This, 	indeed, 	may 	happen 	in 	some 	cases.
Corporate 	acquirers, 	like 	all 	other bu~ine65per50n5, may 	make
mistakes. 	This 	possibility, 	however, 	does 	not 	justify controls
on 	takeover 	activity 	any more 	than 	the 	p066ibility 	of 	poor
investments 	in 	plant 	or 	equipment 	justifies 	government 	controls
on 	investment 	decisions 	made 	by 	corporate 	managers. 	In 	a 	market
economy, 	investment 	decisions 	generally are 	best 	left 	to
investors, 	who 	stand 	to 	profit 	from 	correct 	decisions 	and 	lose
from 	poor 	ones. 	The 	critical 	fact 	is 	that 	takeover 	actiVity, 	in
the 	aggregate, 	has 	not 	been demonstrated 	to 	have 	adverse 	effects
and 	in 	fact 	appears 	to 	benefit 	society. 	Because 	the 	evidence
suggests 	that 	the 	benefits 	of 	takeovers 	outweigh 	their 	costs,
restricting 	takeovers 	in 	the 	hope 	of 	preventing 	unwise
investments 	is 	likely ~o harm societal 	welfare.
~/( ... continued)
Infer 	HonopQly Profits, 	73 	Am. 	Econ. 	Rev. 	82 	(1983). 	In 	addL-
tion, 	because 	of 	constraints 	on 	the 	availability of 	data, 	the
study 	focuses 	largely 	on conglomerate 	mergers, 	and 	not
management-opposed 	takeovers. 	~ Ravenscraft 	& Scherer, 	supra,
at 	22. 	As 	the 	authors 	observe, 	however, 	the 	incidence 	of
horizontal 	merger 	activity has 	increased markedly 	in 	this 	decade,
and 	"[t]he 	shift 	toward 	large 	horizontal 	mergers 	is 	more
difficult 	to 	evaluate 	solely on 	the 	basis 	of 	our 	research." 	~.
at 	219.

r- I '_ t:u=. I UfO;
The 	Honorable 	Joeeph 	O. 	Alviani
Page 	8
It 	a~so has 	been 	arqued 	that management-opposed 	takeovers
result 	disproportionately 	in 	facility 	closings 	and 	lay-offs,
which 	impose 	great 	social 	costs 	on 	individuals 	and 	communities 	in
which 	plants 	are 	located. 	Sut 	factual 	support 	for 	the 	position
that 	takeovers 	in 	fact 	lead 	to 	plant 	cl06ings 	and 	lay-offs 	that
would 	not 	have 	occurred 	otherwise 	is, 	at 	best, 	scanty. 	li/
Indeed, 	it 	is 	difficult 	to 	assess 	whether 	or 	not 	closings 	or
lay-offs 	that 	occur 	after 	takeovers 	would 	have 	been 	carried 	out
by 	the 	target's 	management 	in 	any 	event 	to 	keep 	the 	firm
competitive. 	Moreover, 	most 	economic 	changes 	that 	increase
efficiency--- 	and 	thereby 	increase 	aggregate 	societal 	wealth 	--
create 	dislocations 	that 	reduce 	the 	welfare 	of 	some
individuals. 	11/ 	Virtually every 	major 	technological 	advance
renders 	an 	earlier 	technology 	obsolete 	and 	thu8 	may harm 	firms
and 	individuals 	dependent 	on 	the 	earlier 	technologies.
Finally, 	it 	is 	argued 	that 	takeovera 	force 	corporate 	man-
agers 	to 	focus 	on 	short 	term 	profits 	and 	forego 	long 	term
investments. 	The 	e~idence shows, 	however, 	that 	foregoing 	long
term 	investment 	makes 	companies 	more, 	not 	less, 	vulnerable 	to
takeovers. 	Takeover 	targets 	tend 	to 	have 	below-average 	research
1£/ 	~ 	Jensen, 	Takeoyers; 	FolklQre 	and Science, 	Harv. 	Bus. 	Rev.
Nov.-Dec. 	1984, 	at 	114 	; 	k£. 	American 	Enterprise 	Institute,
PropQsals Affecting 	C04Porate 	1akeovers 	31 	(1985) 	(citing 	finding
that 	"very 	few 	jobs 	were 	affected" 	by 	6,000 	corporate 	acquisi-
tions 	in 	19708). 	The 	AFL"CIO estimates 	that 	a 	total 	of 	80,000
jobs 	of 	members 	of. its 	affiliated 	unions 	have 	been 	lost 	as 	a
"result 	of 	corporate 	restructuring" 	in 	recent 	years. 	Hostil~
Takeovers, 	Hearings 	Before 	the 	Senate Committee on 	Banking,
Housing, 	and 	Urban 	Affairs, 	lOOth 	Cong., 	1st 	Sess. 	262 	(19B7)
(statement 	of 	Thomas 	R. 	Donahue) 	(hereinafter 	hHearings 	on
Hostile 	Takeovers"). 	Even 	assuming 	that 	this 	estimate, 	for 	which
the 	time 	frame 	is 	unspecified 	but 	presumably 	spans 	a 	number 	of
years, 	is 	correct, 	it 	is 	difficult 	to 	assess 	how 	many of 	those
jobs 	would 	have 	been 	abolished 	in 	any event 	to 	improve 	the
competitiveness 	of 	the 	affected 	companies. 	To put 	the 	figure 	in
perspective, 	a 	total 	of 	5.1 	million workers 	lost 	their 	jobs
because 	of 	plant 	closings 	or 	efficiency measures 	in 	the 	years
1979-1983. 	Bureau 	of 	Labor 	Statistics, 	Montbly 	Labor 	ReY1e~
(June 	1985).
11/ 	It 	would 	seem 	preferable 	for 	government 	to 	respond 	to 	these
inevitable 	economic 	dislocations 	by 	initiating effective 	remedial
measures 	to 	assist 	displaced 	individuals 	rather 	than 	severely
reatrictinq economic 	activity 	that 	benefits 	society. 	Such
measures 	may 	include, 	for 	example, 	program5 	to 	retrain workers
displaced 	from 	declining 	industries.

09/02/1988 	15:00 	FTC EO'::.TJ'.
The 	Honorable 	Joseph 	o. 	Alviani
Page 	9
and 	development 	bUdgets, 	ehowing 	a 	lesaer 	commitment 	to 	long 	term
investments 	than 	the 	average 	firm. 	!AI
D. 	EffectB 	of 	the 	MAS8ochus~tts TAkeove. 	Statutes
Chapters 	1100 and 	l10E 	of 	the 	Massachusetts 	General 	Laws
regulate 	"control 	share 	acquisitions", 	which 	they 	define 	as 	the
acquisition of 	shares 	that, 	but 	for 	the 	statutes' 	requirements,
when 	added 	to 	the 	acquiring 	person's 	preexisting 	shares, 	would
entitle 	the 	acquirer 	to 	exercise 	voting 	power within one of 	three
ranges I 	one-fifth 	to 	one-third, 	one-third 	to 	one-half,' or 	a
majority 	of 	all 	voting 	power. 	lit 	Chapter 	110D applies 	to
control 	share 	acquisitions 	of 	certain companies 	incorporated 	in
Massachusetts, 	while 	Chapter 	110E 	applies 	to 	control 	share
acquisitions 	of 	certain companies 	incorporated 	outside 	of
Massachusetts. 	Both 	chapters 	provide 	tha~ a 	person who 	acquires
"control 	shares" 	may 	exercise 	the 	right 	to 	vote 	those 	shares 	only
if 	the 	holders 	of 	a 	majority 	of 	the 	corporation's 	voting 	shares,
other 	than 	"interested shares," 	vote 	to 	grant 	the 	acquirer 	that
right. 	The 	term 	"interested 	shares" 	is 	defined as 	shares 	owned
or 	controlled by 	the 	acquirer, 	by 	the 	target 	corporation's
officers, 	or 	by 	the 	target 	corporation's 	inside 	directors
(corporate 	directors 	who 	are 	employed by 	the 	corporation).
Shares 	owned by 	outside 	directors 	are 	not 	considered
"interested."
under 	the 	provisions 	of 	Chapters 	110D 	and 	110E, 	an acquirer
of 	"control 	shares" 	may demand a 	special 	shareholder meeting 	"for
the 	purpose 	of 	considering 	whether 	voting 	rights 	shall 	be
authorized 	for 	the 	shares 	acquired 	or 	to 	be 	acquired 	in 	the
control 	share 	acquisition." 	If 	the 	request 	is 	accompanied 	by 	"an
undertaking 	to 	pay 	the 	corporation's 	reasonable 	expenses 	in
connection with 	the 	special 	meeting", 	the 	corporation must 	hold
such 	a 	meeting 	within 	50 	days 	of 	the 	date 	of 	the 	demand .. If no
such 	demand 	is 	made, 	voting 	rights 	of 	control 	shares 	must 	be
~/ 	Thi5 	proposition 	is 	supported by 	a 	recent 	empirical 	study 	of
the 	investment 	patterns 	of 	takeover 	targets. 	The 	study, 	which
examined 	all 	217 	takeover targets 	that 	were 	acquired 	between 	1980
and 	1984, 	found 	that 	takeover 	targets 	had 	below 	average 	ratios 	of
(i) 	research 	and 	development 	expenditures 	to 	total 	expenditures
and 	(ii) 	capital 	investment 	to 	earnings. 	Office 	of 	the Chief
Economist, 	Securities 	and 	Exchange 	Commission, 	Institutional
OWnership, 	Tenger Offers, 	And 	Long-Term 	Investment 	8-10 	(1985).
~/ 	rn 	practical 	terms, 	for 	mos~ purposes 	of 	Chapters 	lion 	and
1lDE, 	any 	shares 	whose 	acquisition 	would 	give 	the 	acquirer more
than 	20 	percent 	of 	the 	corporation's 	voting 	power are 	"control
shares."

':...... I 	I ...:..._li_._'....,. ......_,,_"_' .....'~t....._ .. _.
The 	Honorable 	Joseph 	D. 	Alviani
Page 	10
considered 	at 	the 	next 	annual 	Or 	8pecial 	meeting 	of 	the
corporation. 	Section 	7 of 	Chapter 	1100 provides 	that 	if
Ndisinterested" 	shareholders 	vote 	to 	confer voting 	rights 	upon
"control 	shares," 	dissenting 	shareholders, 	unless 	otherwise
provided 	in 	the 	corporation's 	by-laws 	or articles 	of
organization, 	gain 	the 	right 	to 	demand 	payment 	for 	their 	5hares
and 	an 	appraisal 	of 	their value. 	~he amount 	received 	by
dissenting 	shareholders 	may 	not 	be 	less 	than 	the 	highest 	price
per 	share 	paid 	by 	the 	person who 	made 	the 	control 	share
acquisition.
Chapters 	110D and 	110E 	impose 	a 	number of 	restrictions 	on
the 	ability 	of 	potential 	acquirers 	to 	obtain control 	of 	target
companies. 	First, 	a 	potential 	acquirer 	who 	has 	purchased 	a
majority 	of 	a 	corporation's 	voting 	shares 	is 	not 	assured 	of
obtaining actual 	control 	of 	the 	firm. 	Rather, 	the 	acquirer 	15
required 	to 	wager 	that 	the 	50-called 	"disinterested"
shareholders 	will 	agree 	to 	grant 	it 	the 	voting 	power 	that
ordinarily 	pa6ses 	with 	the 	ownership 	of 	shares. 	In 	the 	event
that 	the 	"disinterested" 	6hareholders 	do 	not 	so 	agree, 	the 	value
of 	the 	acquired 	shares 	is 	likely 	to 	decline 	significantly. 	This
restriction 	may 	discourage 	many 	potential 	acquirers 	from 	even
attempting 	takeover 	bids. 	Moreover, 	the 	statutes 	likely exact
from 	acquirers 	a 	penalty 	that 	increases 	directly 	with 	the 	size 	of
their 	investment 	in 	the 	target 	firm; 	the 	larger 	the 	acquirerrs
investment 	in 	a 	firm, 	the 	less 	likely 	it would 	be 	to 	gain
control, 	aince 	the 	remaining 	"disinterested" 	shares 	may 	be 	in 	the
hands 	of 	entities 	friendly 	to 	management, 	such 	as 	outside
directors 	and 	employee 	stock 	ownership 	plans.
Second, 	although 	an 	acquirer 	may 	demand 	a 	special 	sharehold-
er 	meeting 	to 	consider 	the 	voting 	rights 	to 	be 	accorded 	"control
shares," 	the 	special 	meeting can 	be 	delayed 	for 	as 	much 	as 	50
days 	after 	it 	is 	requested. 	At 	a 	minimum, 	this 	requirement 	will
add 	three 	weeks 	to 	the 	20-business 	day 	minimum 	tender 	offer
period 	that 	bidder5now 	face 	under 	federal 	law. 	see 	17 	C.F.R.
S 	240.14(e)(1). 	During 	that 	additional 	period, 	potential 	ac-
quirers 	must 	bear 	a 	significant 	financial 	burden. 	To 	avoid 	the
risk 	of 	paying 	a 	premium 	price 	for 	what 	ultimately will 	be 	non-
votinq 	shares, 	bidders 	will 	have 	to 	extend 	the 	duration 	of 	tender
offers 	to 	at 	least 	the 	SO-day 	waiting period 	imposed 	by 	the
statute. 	During that 	period, 	they must 	bear 	the 	cost 	of 	capital
for 	financing 	the 	acquisition, 	though 	they 	have 	no 	assurance 	that
the 	acquisition will 	ultimately 	be made. 	By 	so 	increasing 	the
costs 	of 	acquisition 	efforts, 	the 	provisions 	of 	Chapters 	110D and
110E 	likely 	reduce 	their 	frequency. 	2fr/
2fr/ 	Alternatively, 	bidders 	could 	make 	conditional 	tender 	offers,
purSudfit 	to 	which 	acceptance 	of 	tendered 	shares 	is 	contingent 	on
( continued. , . )

r i.... bU.=. I U r '.
The 	Honorable 	Joseph 	O. 	Alviani
PagQ 	11
Chapter 	110C 	contains 	several 	provisions 	regulating
takeover bids 	that 	are 	similar 	to 	those 	in 	the 	federal 	williams
Act 	and 	the 	regulations 	promulgated 	thereunder. 	Sections 	6 	and 	7
of 	that 	chapter, 	however, 	also 	contain certain provisions 	that,
like 	Chapters 	1100 and 	110E, 	have 	the 	potential 	for 	extendinq 	the
minimum 	time 	period 	for 	which 	offers 	must 	remain 	open
significantly beyond 	the 	20 	days 	required by 	federal 	law. 	11/
Section 	6 provides 	that 	the 	state 	secretary 	may 	take 	as 	long 	as
45 	days 	from 	the 	commencement 	of 	an offer 	to 	adjudicate 	whether
the 	takeover 	bid 	is 	in 	compliance with 	the 	disclosure 	and 	other
requirements 	of 	Chapter 	l10e. 	Section' 	requires 	that 	a
takeover bid 	remain 	open 	for 	at 	least 	15 	days 	after 	it 	is 	deemed
to 	be 	in compliance with 	the 	chapter. 	Thus, 	the 	effect 	of
sections 	6 	and 	7 	is 	that 	an 	offeror 	faces 	the 	possibility 	of
having 	to 	keep 	the 	offer 	open 	for 	up 	to 	60 	days, 	which 	is 	more
than 	four 	weeks 	longer 	than 	the 	20-business 	day 	requirement 	of
the 	Williams Act. 	The 	result, 	like 	that 	of 	the 	50-day 	waiting
periods 	imposed 	by 	Chapters 	1100 	and 	110E, 	will 	likely 	be 	to
inorease 	the 	costs 	and 	uncertainty of 	acquisition 	efforts.
The 	overall 	effect 	of 	statutes 	that 	increase 	both 	the 	cost
and 	uncertainty 	of 	takeover 	bid6 	is 	likely 	to 	be 	a 	reduction 	in
2U/( .•• continued)
the 	subsequent 	approval 	of 	voting 	rights 	for 	those 	shares.
Because 	the 	50-day waiting 	period 	in 	the 	proposed 	legislation
exceeds 	the 	minimum 	offering 	period 	under 	federal 	law 	by 	three
weeks, 	however, 	incumbent 	management would 	gain 	an 	additional
three 	week 	period between the 	conditional 	acceptance 	and 	the
shareholder vote 	in which 	to 	adopt 	defensive 	measures 	to 	thwart
the 	tender 	offer, 	such 	as 	the 	sale 	of 	corporate 	assets 	to 	another
firm. 	Under 	the 	"business 	judgment 	rule,tI 	such 	actions 	may be
insulated 	from 	judicial 	scrutiny. 	~ 	3A W. 	Fletcher, 	Fletcher
Cyclopedia of 	the 	Law 	of 	Private 	Corporat1ons 	S 	1041.1 	(rev.
perm. 	ed. 	1986). 	In 	addition, 	a 	conditional 	offer 	is 	less 	likely
to 	be 	successful 	than an unconditional 	one, 	since 	some 	share-
holders 	will 	not 	wish 	to 	tie 	up 	their 	shares 	for 	the 	period
during 	which 	the 	voting 	right 	issue 	remains 	unsettled.
21/ 	Section 	3 of 	Chapter 	l10C 	provides 	that 	prospective 	takeover
bid 	acquirers 	who 	fail 	to 	diaclose 	their 	intent 	to 	gain 	control
of 	the 	target 	company 	before 	acquiring 	five 	percent 	of 	its 	stock
may 	not 	make 	a 	takeover bid 	for 	that 	target 	until 	one year 	after
the 	failure 	to 	disclose. 	Since 	the 	United 	States 	Court 	of
Appeals 	for 	the 	First 	Circuit 	recently upheld 	a 	lower court
injunction 	against 	the 	enforcement 	of 	that 	section on 	the 	grounds
that 	it 	likely 	is 	both 	unconstitutional 	and preempted 	by the
Williams 	Act, 	we 	do 	not 	discuss 	it 	here. 	Hyde 	Park 	Partners,
L.P. 	v. 	Connolly, 	839 	F.2d 	837 	(1st 	Cir. 	19BB).

The 	Honorable 	Joseph 	D. 	Alviani
Pa<;Je 	12
the 	number of 	tender 	offers 	and 	the 	diminution of 	tho 	ability 	of
shareholders 	to 	exercise 	their 	rights 	as 	owners 	to 	transfer
control 	of 	corporations. 	22/
F. 	Empirical 	Evidence 	00 	Effect 	of 	Anti-Takeover 	Legislation
Three 	recent 	empirical 	etudie8 	concerning 	the 	effect 	of
anti-takeover 	legislation 	have 	concluded 	that anti-takeover 	laws
harm 	shareholders 	and 	undermine 	economic 	efficiency. 	A recent
empirical 	study 	by 	the 	Commission's 	Bureau 	of 	Economics 	analyzed
the 	extent 	of 	the 	economic 	harm caused by 	a 	New York 	statute 	2J/
restricting 	I/business 	combinations." 	ll/ 	The 	study 	found 	that
the 	announcement 	by 	New 	York's 	governor 	of 	the 	propoeed
legislation 	that 	ultimately became 	the 	New 	York 	law 	resulted 	in 	a
statistically 	significant 	decline 	in 	the 	average 	value 	of 	shares
of 	New 	York corporations .. 	The 	decline 	was 	equal 	to 	approximately
one 	percent 	of 	the 	value 	of 	the 	shares, 	or 	$1.2 	billion. 	~/ 	As
the 	study noted 	in conclusion:
[DJe5pite 	the 	political 	rhetoric 	advocating 	the
regulation 	of 	takeovers 	on 	behalf 	of 	shareholders,
the 	evidence 	. 	• 	. 	indicates 	that 	this 	very 	strong
statute 	does 	not 	protect 	shareholders; 	rather, 	the
law 	protects 	managers 	at 	the 	expense of 	sharehold-
ers. 	• 	•. 	[In 	addition, 	the 	statute) 	may 	promote
the 	inefficient 	management of 	society's 	assets 	by
lessening 	the 	ability 	of 	capital 	markets 	to
efficiently 	reallocate 	assets. 	Consequently, 	the
real 	cost 	of 	the 	goods 	and 	services 	produced 	by
the 	firms 	affected 	by 	[the 	statute] 	may 	increase,
injuring 	consumers 	as 	well 	as 	shareholders. 	~/
22/ 	sea generall~ 	Easterbrook 	& Fischel, 	SllP~ note 	5.
21/ 	New York 	BUB. 	corp. 	Law 	S 912.
ll/ 	Schumann, 	oupra 	note 	4. 	"Business 	combination" 	statutes
restrict 	the 	ability 	of 	acquiring 	firms 	to 	merge 	or 	engage 	in
other 	specified 	business 	activity 	with 	unsolicited 	takeover
targets 	for 	a 	specified 	period 	of 	time 	following 	the 	acquisition
of 	target 	company 	shares.
25/ 	~. 	at 	41, 	46-47. 	Continuing 	research 	by the 	same 	author
suggests 	that 	the 	decline 	in 	the 	value 	of 	New York corporations
caused 	by 	the 	enactment 	of 	the 	legislation may have 	been 	signi-
ficantly 	greater 	than 	reported 	in 	his 	original 	paper. 	Measured
over 	the 	entire 	205-day 	course 	of 	the 	legislative 	process, 	the
decline was 	9.7 	percent, 	net 	of 	market. 	L. 	Schumann, 	State
Regulation of 	Takeovers 	And 	Shareholder Wealth; 	The 	Case 	of 	Ne~
York'i 	19B5 	Takeover 	Statute& 	(mirneo 	April 	1988).
~/ 	Schumann, 	eupra 	note 	4, 	at 	47.

89.·'02 1988 	15:04
~he Honorable 	Joseph 	D. 	A1viani
Page 	13
Another 	study, 	conducted 	by 	the 	Office 	of 	the 	Chief 	Econo-
mist 	of 	the 	Securities 	and !xchange 	Commission, 	also 	concludes
that 	anti-takeover 	legislation 	is 	harmful 	to 	the 	interests 	of
shareholders. 	The 	study 	examined 	the 	effects 	of 	a 	recent 	Ohio
law 	that, 	among 	other things, 	authorized 	corporate 	directors 	to
consider 	the 	interests 	of 	persons 	other 	than 	the 	shareholders 	in
assessing 	takeover bids. 	21/ 	The 	SEC 	study 	found 	that 	the 	enact-
ment 	of 	the 	Ohio 	la~ caused 	an 	immediate 	two 	percent 	decline 	in
the 	equity value 	of 	corporations 	insulated 	from 	takeovers 	by 	the
Ohio 	la~. 	Finally, 	a 	recent 	study 	on 	the 	effects 	of 	Indiana's
anti-takeover 	statute, 	which 	contains 	a 	"control 	share"
provision 	similar 	to 	those 	in 	Chapters 	110D 	and 	110E, 	found 	that
the 	enactment 	of 	Indiana's 	law 	caused a 	4.2 	to 	6.1 	percent
decline 	in 	the 	value 	of 	shares 	of 	Indiana corporations. 	lal
G. 	CQnsideration 	of 	an 	"Qpting--In" 	MeGhaniem
If 	the 	Commission decides 	to 	recommend 	the 	retention 	of .
Chapters 	1100 and 	110E despite 	the 	concerns 	discussed 	above, 	we
suggest 	that 	those 	control 	share 	provisions 	be modified 	to 	make
them 	applicable 	only 	to corporations 	whose 	Shareholders
affirmatively 	elect 	to be covered by 	them 	through 	amendments 	to
the 	corporations' 	articles 	of 	organization. 	Chapter 	1100
currently applies 	to 	certain 	domestic 	corporations 	that 	do 	not
"opt 	out" 	by 	an 	amendment 	to 	their 	articles 	of 	organization 	or
by-laws. 	Chapter 	llOE 	applies 	to 	certain 	nonresident
corporations 	that 	opt 	into 	its 	provisions 	by 	amendments 	to 	their
by-laws 	or 	charters. 	To 	the 	extent 	that 	Chapters 	1100 and 	IIOE
are 	motivated 	by A concern 	for 	shareholders, 	their purposes 	would
be 	batter 	served by a 	requirement 	that 	shareholders 	approve 	a
decision 	to 	opt 	into 	any 	coverage 	by 	them. 	Corporate 	by-laws
generally may 	be 	amended 	by 	the 	board of 	directors 	without 	the
approval 	of 	the 	shareholders. 	~/ 	The 	votes 	of 	directors 	to
amend 	the 	by-laws 	to 	opt 	into 	coverage 	by 	control 	share
restrictions 	may 	be 	influenced by 	the 	directors' 	loyalty 	to
22/ 	Office 	of 	the 	Chief 	Economist, 	Securities 	and 	Exchange
Commission, 	Shareholder Wealth 	EffeGts 	of 	Ohio Legislation
Affecting- 	TakeQye~~ (1987). 	The 	Ohio 	law 	is 	codified 	in Ohio
Rev. 	Code Ann. 	S 1701.01 	~~. 	(Page 	1986 	supp.).
2a/ 	Sidak 	& Woodward, 	CQrporate 	TakeQyers, 	The 	Commerce 	Clouse,
and 	the 	Efficient 	Anonymity 	of 	Shareholdera 	(mimeo Karch 	19B7).
The 	4.2 	percent 	decline represents 	a 	portfolio 	in which equal
weight 	is 	given 	to 	all 	Indiana 	firms. 	The 	6.1 	decline 	represents
a 	value-weighted portfolio.
2i/ 	~ 	M.G.L. 	c. 	156B S 	17.

The 	Honorable 	Joseph 	D. 	Alviani
PAge 	14
existing management, 	whoee 	jobe 	may 	be 	threatened by 	a
takeover. 	lQ/ 	The 	result may be 	to 	discourage 	takeovers 	that
would 	benefit 	the 	shareholders. 	Therefore, 	we 	recommend 	that 	a
corporation's 	decision 	to 	opt 	into 	the 	statutory 	schemes 	of
Chapters 	1100 and 	llOE 	be made 	solely 	through 	a 	shareholder 	vote
amendinq 	the 	articles 	of 	or9anization.
Conclusion
On 	the 	whole, 	we 	believe 	that 	vigorous 	takeover 	activity
enhances 	economic 	efficiency 	and 	thus 	benefits 	consumers,
workers, 	and 	shareholders. 	We 	believe 	that 	the 	state's 	takeover
5tatutes 	are 	likely 	to 	impede many 	of 	the 	beneficial 	consequences
of 	takeovers 	without 	offering 	countervailing benefits. 	The
Commission 	therefore 	may wish 	to 	consider whether 	those 	statutes
unduly 	interfere 	with 	the market 	for 	corporate 	control 	to 	the
detriment 	of 	the 	economy 	and consumer 	welfare 	generally.
Sincerely,
Phoebe 	O. 	Horse
Regional 	Director
3D/ 	Indeed, 	the 	senior managers 	whose 	jobs 	may 	be 	most
threatened 	by 	a 	takeover 	often 	sit 	on 	their corporation's 	board
of 	directors.