The equal opportunity principle in Australian takeover law and practice: time for review?

Abstract

Fairness, upon which the equal opportunity rule presently governing the distribution of the takeover premium is predicated, is not the most appropriate criterion for making policy choices for Australian takeover law and practice. Pursuit of equal treatment in every takeover transaction has the potential to reduce the incidence, or success, of hostile takeover bids. Given the important role that the hostile takeover process plays in ensuring the quality of corporate management and the efficient allocation of resources within industries, a reduction in takeover activity is likely to leave shareholders and society as a whole worse off. There is thus need to review the requirement of mandatory equal treatment. In undertaking this task, policy makers would serve the interests of investors in public companies and the economic order of society generally better if they adopted shareholder and social welfare enhancement as the criterion for developing the applicable rule in this area. That criterion is likely to facilitate more hostile takeover activity, thus leaving everyone better off. This article explores ways in which the law could be reformed to achieve this objective