659. Lucian Bebchuk and Ehud Kamar, Bundling and Entrenchment, 1/10; subsequently published in Harvard Law Review, Vol. 123, No. 7, May 2010, 1549-1595.
Abstract: Because corporate charters can be amended only with shareholder approval, it is widely believed that new charter provisions appear in midstream only if shareholders favor them. However, the approval requirement may fail to prevent the adoption of charter provisions disfavored by shareholders if management bundles them with measures enjoying shareholder support. This Article provides the first systematic evidence that managements have been using bundling to introduce antitakeover defenses that shareholders would likely reject if they were to vote on them separately. We study a hand-collected dataset of 393 public mergers during 1995–2007. While shareholders were opposed to staggered boards during this period due to their antitakeover effects, the planners of these mergers often bundled them with a move to a staggered board. In mergers in which the combined firm was one of the parties, a party’s odds of being chosen to survive as the combined firm were higher if it had a staggered board while the other party did not. Similarly, in mergers that combined the parties into a new firm, the new firm was more likely to have a staggered board than the merging parties. Overall, we demonstrate that management has the practical ability to obtain management-favoring charter provisions by bundling them with value-increasing measures. We discuss the significant implications our findings have for corporate law theory and policy.
Forthcoming, Harvard Law Review, Vol. 123 (2010)