Hostile takeovers as corporate governance: a legal analysis of tender offer and proxy contest in China and Malaysia

This paper will specifically analyse from a legal perspective the applicability of tender offer and proxy contest as the most frequently used techniques in hostile takeovers in China and Malaysia. The purpose is to evaluate the adequacy of the related regulation and governance in place for companies in both jurisdictions. This paper unfortunately found that both China and Malaysia have not particularly adopted tender offer technique since in practice most hostile takeover cases were completed through mandatory offers triggered by negotiated purchases. Likewise, the existing Chinese and Malaysian laws are not supportive enough to supervise proxy contest exercises. As a result, they are losing the advantages that both techniques may offer to enhance corporate governance and promote fair competition. Both jurisdictions should consider putting on adequate laws and practices to better regulate hostile takeovers

Proxy Contests: The Evidence

This paper reviews the theoretical and empirical contributions to the proxy contest literature. Research to date suggest that: 1. The use of the proxy contest as a method of taking over a corporation depends on its cost relative to the tender offer; 2. The security voting structure and debt/equity ratio influence the outcome of the proxy contest; and 3. The value of a proxy contest can be estimated using the principles of option pricing theory.

Is there power behind the dead hand? An empirical investigation of dead hand poison pills

Dead hand poison pills prevent potential hostile acquirers from circumventing a poison pill with a proxy contest whereby newly elected directors could redeem the pill. Dead hand provisions only permit continuing directors to redeem. Shareholder rights advocates and legal scholars have criticized dead hand poison pills as an assault on shareholder governance, but economic theory suggests potential shareholder benefits. We provide the first empirical study of dead hand poison pills. We find that adoption of dead hand poison pills leads to gains for shareholders and losses for bondholders. This supports Schwert’s (2000) conjecture that poison pills provide shareholders with better premiums rather than entrench ineffective managers.