Document Type

Working Paper

Publication Date



Center for Law and Economic Studies


Center for Contract and Economic Organization


Three themes animate Martin Lipton and Paul Rowe's thoughtful response to my critical evaluation of Unocal's fifteen-year history. First, they maintain that affording shareholders a primary role in the governance of takeovers depends on a commitment to the stock market's informational efficiency. Second, they claim that allowing shareholders to amend or repeal a poison pill ignores empirical evidence that the existence of a poison pill is associated with higher takeover premiums. Third, they assert that the Delaware General Corporation Law (DGCL) reflects an implicit mega-principle that assigns control over takeovers to managers. This short reply corrects Lipton and Rowe's misunderstanding of the importance of market efficiency in assessing the efficiency of a primary role for shareholders in takeover decision making; suggests that the impact of a poison pill on takeover premiums depends entirely on what a court will allow a target company to do with its pill; and, finally, complicates Lipton and Rowe's argument that the structure of the DGCL implies a primary takeover role for the board.