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Better answers often await better questions. In the wake of a recent series of provocative articles dealing with contested tender offers, several questions have been vigorously debated:

(1) Should management of the target company be allowed to resist a hostile tender offer in order to remain an independent company? Which, if any, of the various "shark repellent" measures by which a potential target can make itself unattractive to a bidder are justified?;

(2) If defensive tactics were generally forbidden, should the target company's management still be permitted to encourage competing bids thereby creating an auction?; and

(3) Do hostile takeovers in the aggregate promote economic efficiency or only a preoccupation with short-run profit maximization at the expense of strategic planning, research, and innovation?

Significant as these issues sound, it is nonetheless the thesis of this Article that these are the wrong questions from which to undertake a public policy analysis of the hostile takeover. Put bluntly, these are questions of secondary (albeit substantial) significance, because they either presuppose the answers to more fundamental questions or assume that the hostile takeover is a monolithic phenomenon, which, depending on the commentator, is either efficiency enhancing or inhibiting and which therefore should either be encouraged or discouraged in the aggregate. The fallacy in this over-aggregated perspective is that it ignores the possibility that takeovers may have varied and even offsetting effects. Some takeovers may promote economic efficiency, some may result in a misallocation of economic resources, and some may be neutral in terms of economic efficiency, but involve substantial wealth transfers between the participating classes that arguably are involuntary.


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