AND courts will preempt.
Bebchuk ’14 [Lucian and Robert Jackson; October 2014; William J. Friedman and Alicia Townsend Friedman Professor of Law, Economics, and Finance and Director of the Program on Corporate Governance, Harvard Law School; Professor of Law at Columbia Law School; Columbia Law Review, “Toward a Constitutional Review of the Poison Pill,” vol. 114]
We show that the cases in which the federal courts have evaluated the constitutionality of state antitakeover statutes raise serious questions about the validity of the state-law rules authorizing the use of the poison pill. The Essay presents a systematic analysis of the possibility that these rules are preempted by the Williams Act and provides a framework for assessing preemption challenges to those rules. Litigation over the validity of these rules, we show, could have profound implications for the governance of American corporations.
The literature on the constitutionality of state antitakeover laws is quite substantial. Indeed, more than one hundred law review articles have considered whether and how the Williams Act might preempt various state statutes that govern corporate takeovers. 4 Just four years ago, the Business Lawyer dedicated a symposium issue to analysis of whether the Williams Act preempts Delaware's business-combination statute. 5 Yet [*1552] this large literature has paid limited attention to the question whether the state-law rules with the most powerful antitakeover effect--the rules authorizing use of the poison pill-are preempted.
In this Essay, we systematically analyze this question and conclude that there is substantial doubt as to whether current state-law poison-pill rules are valid. As we explain, these rules provide incumbents with an even more powerful antitakeover defense--and impose an even lengthier delay on tender offerors--than the state statutes that the federal courts have held to be invalid. The validity of state-law poison-pill rules thus should not be taken for granted, and we provide a framework for analyzing preemption challenges to these rules.
Using this framework, we discuss three alternative approaches that the federal courts may follow when faced with preemption challenges to the validity of state-law rules governing poison pills. This analysis shows that the courts are likely to conclude that existing state-law poison-pill rules are preempted. This Essay also examines what changes in existing state-law rules might make them more likely to survive constitutional scrutiny. We show that state corporate law that substantially limits the length of time during which a poison pill can be used to delay tender offers would be significantly more likely to withstand a preemption challenge than current state-law rules in this area.