Effect of the Williams Act

The Williams Act established the basic procedural disclosure rules for tender offers in the US. The main objective of this legislation is to provide more opportunity for target shareholders to respond to the tender offer or consider other potential offers. According to

233 _{Armour and Jacobs and Milhaupt (n229) 243.}

White, the focus of the Williams Act is on maximising the information and freedom of target shareholders faced with tender offers and enabling them to make the best decisions with regard to the value of their shares.235

Under the Williams Act, a minimum period during which a tender offer must remain open it required. This gives target shareholders sufficient time to make decisions. However, ‘sufficient’ time might not be enough for target shareholders, who may need further information to help them make more informed decisions. Thus, procedure and disclosure requirements during the takeover process are stipulated under which target shareholders can use the disclosed information to make more enlightened decisions. Especially in the context of tender offers in exchanging shares, disclosure of information enables target shareholders to gain more complete knowledge of the bidder company to which the target shareholders would belong.

Although, the Williams Act governs the whole process of a tender offer, it displays a strong desire to preserve a fair balance in takeover contests so that all participants can fully address their rights. Because of the concerns that a statute would entrench incumbent and perhaps inefficient management, Congress adopted a neutral stance between the interests of incumbent managers and those of bidders,236 which is regarded as a key feature of the Williams Act by Tyson.237 _{Indeed, as Senator Harrison Williams} himself stated, extreme care had been taken in writing the legislation to ‘avoid tipping the balance of regulation in favor of target management or in favor of the person making the takeover bid. [The Bill] is designed solely to require full and fair disclosure for the benefit

235 _{White (n28) 173-174.}

236 _{Geoffrey Miller, ‘Special Symposium Issue: Political Structure and Corporate Governance: Some Points of Contrast}

Between the United States and England’ (1998) Columbia Business Law Review 51, 55.

237 _{William C. Tyson, ‘The Proper Relationship Between Federal and State Law in the Regulation of Tender Offers’}

of the investors. The Bill will at the same time provide the offeror and management equal opportunity to present their case’.238

The Williams Act is, therefore, designed to create a level playing field between target board and bidders, and to empower shareholders to make decisions without coercion, by a set of disclosure provisions, antifraud rules, and substantive rules governing the conduct of tender offers. As Ferrarini and Miller have argued, both bidders and target board are reasonably equally represented at the federal level under the Williams Act.239 However, it cannot be denied that the beneficiaries of the Williams Act are not only the target shareholders but also the target board when facing a tender offer.

From the target board’s perspective, because of the obligations on bidders for full disclosure and keeping the tender offer open for a minimum period of time, the Williams Act not only gives target shareholders but also the target board sufficient information and time to respond to the offer. Moreover, it is primarily disclosure legislation and does not deal directly with matters in connection with the ‘substantive fairness of corporate takeovers or defensive tactics’.240 It is the state laws that govern the target board’s defensive actions. As a result, as Amour and Skeel have argued, target directors clearly benefited from the passage of the Williams Act since they now had enough time to adopt defensive measures against a hostile bidder.241 _{In this respect, the Williams Act has} constrained bidders much more than the target board.

From the bidders’ perspective, under the Williams Act bidders are prohibited from using their former tactics, and are subject to a set of obligations once a tender offer has been

238 _{113 Cong. Rec. 24, 664 (1967) (quoted in Schreiber v Burlington Northern 472 US 1 (1985), 8).}

239 _{Guido Ferrarini and Geoffrey P. Miller, ‘A Simple Theory of Takeover Regulation in the United States and Europe’}

(2009) Cornell International Law Journal 301, 304.

240 _{Kenyon-Slade (n51) 56.}

launched. Even it were not the intention of the drafters of the Williams Act to promote an auction market in which bidders have to compete with other bidders to acquire control after announcing the offer, generally speaking the actual impact of the disclosure requirements under the Act could raise the offer price and make takeover more costly; bidders would make only insignificant gains on average, hence possibly reducing the number of tender offers in the future.242 Of course, it should be kept in mind that although the Williams Act does restrict the ability of the bidder to apply pressure on target shareholders to tender into the bid, it does not necessarily ‘limit the ability of a bidder to succeed in a tender offer if the offer is made at a fair price and on an even handed basis’.243