Is Delaware’s Antitakeover Statute Unconstitutional? Further Findings and Reply to Commentators

In an Article published in the May 2010 issue of the Business Lawyer (discussed on the Forum here, and available for download here) Steven Herscovici, Brian Barbetta, and I make three straightforward points:

• 1. 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.
• 2. These three courts upheld Section 203 because the empirical evidence available at the time appeared to show that bidders were able to achieve an 85% tender on a hostile basis reasonably often, but these courts left open the possibility that future empirical evidence could change this constitutional conclusion.
• 3. 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that: “[T]he empirical claim that the federal courts have relied upon to uphold Section 203’s constitutionality is no longer valid.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 Business Lawyer is publishing five commentaries on our Article in the same issue, all from well-known and well-respected practitioners and academics, as well as our Reply, which is available here. Among other points, we re-examine the sample that supported the constitutionality of Section 203 back in 1988 (n=17) to find that not a single bid that the federal district courts relied upon to conclude that the 85% out gives bidders a “meaningful opportunity for success” on a hostile basis actually stands for that proposition. Taken together, these further findings confirm our view that Section 203 is vulnerable to constitutional attack.