This Chapter explores the nature, the origins and optimality of the mandatory bid rule. It first provides an account of “voluntary” nature of the mandatory bid rule as well as the evolution of the rule from on obligation imposed on selling target directors and major shareholders to an obligation placed upon shareholders following the crossing of ownership thresholds. The Chapter outlines the contemporary mandatory bid rules, including the trigger points, the Code’s policing of the trigger points, and the distinctive and more onerous terms of a mandatory bid. The final part of the Chapter considers the justifications for, and the effects and optimality of, the rule. It concludes that the traditional rationales given in support of the rule are weak and that the theoretical case that the rule is more likely to prevent efficient or inefficient transactions is inconclusive and there are is supportive empirical evidence on either side of the debate. It seems probable that the rule affects ownership structure by deterring the formation of control blocks but whether this is a net welfare gain or loss is unclear, particularly in the UK which benefits from strong minority protection rules. Given weak rationales and this uncertainty about the effects of the rule the Chapter argues that the rule should be retained in the Code and enforced by the Panel but it should be optional for companies. Whether it applies to any particular target company should depend on whether the company has opted out of the rule through its constitution.
The Non-Frustration Rule and the Mandatory Bid Rule Cornerstones of European Takeover Law?
