The Prohibition on Target Company Defensive Tactics in Takeover Situations: A Critical Examination and Options for Change

Abstract

This paper examines the position of takeover defenses in the New Zealand context. Rule 38 of the Takeovers Code prohibits target company directors from deploying takeover defenses. An assessment of the origins of takeover law in New Zealand, drawing on overseas experience, indicates that there was little evidence that a prohibition on defensive tactics was necessary. The paper then examines the likely position of target company shareholders if there was no prohibition on defensive tactics, finding a combination of company law and the approach the courts are likely to take to the issue would leave few defensive tactics open to target company directors. Assessment of the relative merits of the general courts and the Takeovers Panel as the mode of regulation is undertaken, which concludes that the Panel would be the most appropriate place for takeover defenses to be considered. Taking this hypothetical situation a step further, the paper concludes that the Panel would likely use its guidance and determinative powers to effectively prohibit takeover defenses.