In Pennsylvania, Watch Out What You Try to Take Over

When it comes to takeover law, no state is tougher on corporate raiders than Pennsylvania.

State law says corporate boards must weigh the interests of a whole company--its employees, customers, the community and investors--when considering a takeover offer. That’s different from most states, where boards have a fiduciary duty to serve shareholders.

“Pennsylvania clearly has the toughest set of anti-takeover laws in the country,” said Simpson Thacher & Bartlett merger lawyer Lee Meyerson. “Pennsylvania has actually codified the ‘just say no’ defense,” which allows a company to reject bids without seeking higher offers or making other changes.

That’s good news for Mellon Bank Corp. The Pittsburgh-based company rejected an unsolicited $23.6-billion, $90-a-share offer from Bank of New York Co.

Frank Cahouet, Mellon’s chairman and chief executive, said, “We are not for sale.”

Mellon shares leaped $8.13 to $78 on Wednesday on the New York Stock Exchange. Bank of New York shares fell $2 to $62.06, also on the NYSE.

In most states, Bank of New York could begin a legal battle to try to force Mellon Bank to consider its offer. But Pennsylvania courts cannot require boards to take any special action in response to a bid, such as lowering takeover defenses.

Conrail used the Pennsylvania statute to initially fend off a hostile raid from Norfolk Southern Corp. in 1996. The law protected Philadelphia-based Conrail until it agreed to sell itself for $10.2 billion to Norfolk Southern and CSX Corp.