A Study Of Anti-Takeover Strategies For Public Companies To Counter Hostile Foreign Acquisitions

This dissertation examines the hostile acquisition of local Chinese public companies by global international enterprises. Its starting point is the legal basis of companies'self-governance. By analysing the challenge to modern companies from the global tide of takeovers and the legislation and practice of international organisations with respect to takeovers, and by investigating and drawing lessons from the property policies and economic development policies of countries and areas representative of the two great systems of law in the world, this study attempts to offer some suggestions for further improvement in the current Chinese laws relating to acquisitions by foreign investors; it also tries to contribute some ideas for countermeasures to be used by Chinese public companies facing the threat of hostile takeover by foreign investors, and seeks out a more solid defence in law.The main text is in 5 chapters preceded by an introduction. The conclusion is presented in the final section of chapter 5, and not in a separate part. The key sections of the main text are three in number: 1) the value analysis of foreign takeovers in developing countries (in chapter 2 section 3); 2) the discussion of China's current law on foreign acquisitions (in chapter 4 section 3); 3) ways of improving China's anti-takeover law (in chapter 5 section 3). The contents of each chapter are summarised as follows:Chapter 1,'Public Companies'Resistance to Takeover and their Principles of Governance– a Microcosmic Analysis', is a thorough exposition of the balance of rights and duties of the various bodies inside a public company facing takeover. In order to establish a basis in legal principle for the managers'right to resist takeover, the chapter takes as its starting point the value of the distinction between'ownership rights'and'operational rights'; from the perspective of company governance it explores deeply the relationship between takeovers and company governance and in particular the effect of public company governance principles on takeover resistance, demonstrating the basis in legal principle of the right to resist takeover of the managers of a public company. The argument establishes that when a Chinese public company is facing a takeover its core managers, the company board, have a legal right to resist an external takeover, and this furnishes a yet more authoritative basis for defensive measures taken by a public company against a hostile bid. There are three sections: section 1'a value analysis of the distinction between"operational rights"and"ownership rights"in a public company'(some governance issues relating to this distinction); section 2'the legal basis of"operational rights"'(showing the rights and duties of the Board); section 3'the governance basis of takeover resistance by public companies'(the central arguments of the theoretical debate on takeover resistance, and the basis of the right to resist). The conclusion of this chapter, that'anti-takeover measures are not in breach of principles of company governance', finds that when the Board of a public company resists a takeover, its decision is grounded on the proper exercise of'operational rights', and anti-takeover measures can be seen as the highest expression of operational management.Chapter 2,'On the Motives and Risks of Resistance to Cross-Border Hostile Acquisitions and the Values of the Host Country'. This chapter provides the central theory of the economic aspects of the dissertation. It deals with a number of theories concerned with market economies'pursuit of effective competition, including Classical Competitive AdvantageTheory, Factor Eendowment Ttheory, the concept of Pareto Efficiency, and the Diamond Model of International Competition. The aim is to achieve a basic understanding of what drives modern companies to engage in cross-border acquisitions. In order to attain a complete insight into the value of external growth for companies and the dilemma of developing countries, this chapter gives a comparatively full account, from the perspective of economic and management theory, of why acquisitions are inevitable and why it is necessary to resist them; it sets out why developing countries, balanced between the need for foreign capital and the safe development of their national economy, must be careful in formulating the rules for resisting foreign acquisitions. There are three sections: section 1'a theoretical approach to cross-border hostile acquisitions'; section 2'the risk structure of anti-take-over measures'; section 3'a value analysis of foreign takeovers in developing countries'. It is evident from the title of the dissertation,'A Study of Anti-Takeover Strategies for Public Companies to Counter Hostile Foreign Acquisitions - from the Perspective of Sustainable Development in Developing Countries', that the value choices of developing countries are at the heart of this dissertation, and this section will flag what the dissertation finally wishes to communicate: that the value choices countries make about using foreign investment, whatever they are, entail certain economic policies and also certain legislation on foreign investment (naturally including legislation on foreign take-overs). The chapter arrives at the final conclusion that'for developing countries the law on resisting take-overs must be judicious and forthright', suggesting that policy thinking on foreign investment must be circumspect but also firm and resolute.Chapter 3,'A Comparative Analysis of International Competition Rules for Cross-Border Acquisitions'. This chapter addresses legal principles, substantive regulations and real case analyses relating to acquisitions internationally. Six example countries and regions are chosen for description, namely USA, Germany, the EU, Japan, India, and Taiwan, the criteria for their selection being representativeness in the history of national acquisition law of the two main types of legal system, relevance to China's competition law, representativeness of the most developed acquisition and competition law in Asia, similarity to China's social conditions, and closeness to the state of the Chinese nation. It investigates how, in the wake of a succession of global waves of acquisitions, acquisition and anti-acquisition rules developed in a number of countries and regions representing the two great systems of law, and it looks into the practice and experience of competition law in these places. The purpose is, within the context of the globalisation of acquisitions, to provide a comparative analysis of the overall development of competition policy and rules in the various countries, regions and indeed international organisations, and to use this as a touchstone for the corresponding system now in force in China. There are four sections: section 1,'competition law and anti-acquisition rules in common law countries– a practical analysis'; section 2,'competition law and anti-acquisition rules in continental law countries– a practical analysis'; section 3,'the EU, an example of competition rules in a regional organisation'; section 4,'international organisations and their regulations on investment competition– the current state of play'. This chapter concludes that'convergence in reality is not necessarily ideal'.Chapter 4,'An Analysis of the Chinese Law on Acquisitions by Foreign Investment', is a general appraisal of the legal concepts and practices current in China concerning take-overs and resistance to take-overs and the deficiencies of those concepts and practices. This chapter is the turning-point of the study, where after scrutinising international legislation on competition and foreign investment we turn back to the present realities of China's current legislation and practice on the acquisition of public companies. Altogether we sort through nearly 30 important laws and regulations with which China currently seeks to regulate acquisitions, and draw some general conclusions about the growing space of the whole acquisition system. To ensure that the rules are described as faithfully as possible, the chapter adopts a straightforward descriptive style, with no fear of plainness, in the hope that in this way the pros and cons of China's current acquisition law can be understood with some degree of accuracy. There are three sections: section 1,'the basic law on acquisitions now current in China'; section 2,'China's law on acquisitions specifically related to foreign investment'; section 3,'a discussion of China's current law and practice on foreign acquisitions'. The conclusion is'new value choices for new times', China's current policies and ideas on legislation concerning foreign investment display a value choice in favour of continuing resolutely along the road of sustainable development.Chapter 5,'Further Improvement of Legal Strategies for Chinese Public Companies when Resisting Takeover– Some Suggestions'. This chapter, being the target towards which the whole study is directed and its conclusion, takes the current law on acquisitions as it has evolved in China and attempts to draw out from the measures available to public companies resisting takeover what is in accordance with the law and what lacks the support of laws and regulations, and through an analysis of anti-takeover measures which are currently unavailable tries to find a way forward towards solutions. The chapter's final and most important task is to suggest some measures and amendments which would improve further the law on resisting acquisitions for Chinese public companies, in the hope of providing some constructive ideas for a future handbook to the rules and the system of company takeovers in China. There are three sections: section 1,'a practical analysis of anti-takeover measures under China's current law'; section 2,'China's current law is a bottle-neck in resistance to acquisitions'; section 3,'some measures to improve China's anti-takeover law'.Chapter 5 is the conclusion of the whole dissertation and its final words'standing on the shoulders of giants to see into the distance'express the main spirit of the study. On 2nd April 2009, at the closing press conference of the G20 global economic summit in London, Gordon Brown, the Prime Minister of the UK, said'The old Washington consensus is over.'In truth what the end of the age of the Washington consensus brought to light was that a certain ideology, American neo-liberal economics, had in the long course of history come to a point of exhaustion brought about by excessive consumption. Human rationality is valued for its power of choice, and the driving force of this rationality has given rise to a world of diversity in which Europe's social market economy, USA's free market and China's socialist market economy with Chinese characteristics are all possible choices. Societies make their own choices, and to force any single set of values on everybody else is indeed a kind of ideological overconsumption. This kind of arrogance is counter-rational if anything is. For this reason, given the pluralism and complexity of the global economic fabric, in any sustainable theory of economic development'continuous micro adjustment of the macro economy'is an inevitable principle of policy that does not stand in the way of the legal system. The European social market economy and the American free market economy each make their own claims, but a comparison of the two makes it clear that the hand of government as it comes down on the market varies in effectiveness according to the weight of its interventions. The 1997 South East Asia economic crisis showed up for the first time the flaws in free market economics taken to extremes, and the global financial crisis triggered by the sub-prime loan turmoil in the USA demonstrated clearly that the hand of macroeconomic intervention as evidenced in social market economies is by no means to be put to one side. This dissertation sees the'hand'of national macroeconomic adjustment as the'shoulders of the giant'which support a free competitive market; it also sees the incorporation into law of measures used to resist take-overs as the'shoulders of the giant'on which targeted companies can stand; this incorporation into law is at the least the gift of the greatest real significance that can be given to public companies by the government departments responsible for ensuring the healthy growth of the market, and at the most is a more rational way for the government to support free market competition. Our hope is that the law will become the true vehicle for government economic planning and policy, and that the legal system will not only act as a firewall in the country's resolute defence against the forces of social destruction, but that it will furthermore be the fortress that law-enforcement agencies and law-abiding individuals and organisations all look to as a refuge. The edifice of economic and social order at both high levels and low, and take-over moves made with foreign and domestic capital alike must rely on the same legal system; and the incorporation of regulations into law will ensure that foreign investors need be no more concerned about the plans and policies of the host country than domestic investors are, and need only focus their attention on the laws governing the introduction of foreign capital. Such an act would be the strongest indicator of an intention to keep government intervention in the market to a minimum.