Del. Bill to Curb Hostile Takeovers Draws Heavy Fire

Delaware legislation aimed at curbing hostile corporate takeovers faces challenges in the courts and possibly in Congress if signed into law as expected.

Waiting to attack the law are companies and investors that see it as a hindrance to their takeover strategies and law makers who want the federal government to be the nation’s lead takeover regulator.

A number of states have enacted anti-takeover laws in recent years, but Delaware’s is regarded as especially significant because most of the nation’s biggest companies are incorporated there. Some 45% of the New York Stock Exchange-listed companies are incorporated in the state, including 56% of the Fortune 500, to take advantage of its liberal corporate and tax laws.

Many merger and acquisition professionals believe that the measure will not be a major hindrance to takeovers, but that its applicability to so many major companies could make it a battleground for the issue of state takeover regulation.

Campeau Corp. indicated Thursday that it would challenge the measure as unconstitutional once it became law. The Canadian developer has an outstanding, potentially hostile $4.2-billion buyout offer for Federated Department Stores Inc., which has its headquarters in Cincinnati but is incorporated in Delaware.

Black & Decker Corp., which made an unsolicited $1.8-billion offer for American Standard Inc., has reserved the right to withdraw the bid if the measure hinders its buyout.

Even before the bill was passed, regulators such as David S. Ruder, chairman of the Securities and Exchange Commission, and opponents in Congress were calling for federal action to preempt state curbs.

The measure raises in a significant fashion the issue of proliferating state anti-takeover laws since the Supreme Court upheld Indiana’s anti-takeover statute last year. Some 27 states now have laws to curb hostile takeovers of domestic companies and several others are considering similar action.

Critics contend that the state laws amount to an unhealthy “Balkanization” of takeover regulation that sets differing standards from one jurisdiction to another. Such a trend not only hinders constructive corporate activity but also infringes on existing federal takeover law, they say.

A Senate bill that originally supported state authority in takeover legislation has been toned down, although House legislation to preempt the state laws has been sitting in a subcommittee for months.