Is Delaware’s Antitakeover Statute Unconstitutional?

Steven Herscovici, Brian Barbetta, and I have a new article entitled Is Delaware’s Antitakeover Statute Unconstitutional? Evidence from 1998-2008. The working paper is available here. The article will be published in the Business Lawyer in May 2010, along with commentaries from academics, judges, and practitioners.

The article makes three simple points. First, three federal district courts held in 1988 that Delaware’s antitakeover statute must give bidders a “meaningful opportunity for success” in order to be valid under the Supremacy Clause of the U.S. Constitution. Second, these three courts upheld Section 203 because the empirical evidence available at the time showed that bidders were able to achieve an 85% tender in hostile offers reasonably often, but all three courts left open the possibility that future empirical evidence could change this constitutional conclusion. Third, no bidder in the past nineteen years has been able to achieve 85% in a hostile tender offer against a Delaware target. We conclude from these points that:

“[T]he empirical claim that the federal courts have relied upon to uphold Section 203’s constitutionality is no longer valid. It seems possible that the federal courts would uphold the constitutionality of Section 203 on different grounds. But at the very least the constitutionality of Section 203 would seem to be up for grabs.”

The Wall Street Journal and The Deal have written about our findings, and Wachtell, Lipton has issued a memorandum to clients criticizing our article. We respond to the Wachtell critique at pp. 47-48 and footnote 166 of the current draft, available above.

I am currently trying to collect data on practitioner perceptions about the viability of the 85% out. For any readers of this blog who are willing to fill out the very short poll available here, I will e-mail a synthesis of the findings to you in a few weeks. Thank you in advance for your help.