Kenju Watanabe: “Control Transaction Governance: Collective Action and Asymmetric Information – Problems and ex Post Policing”

Collective action and asymmetric information problems resulting from
dispersed ownership necessitate the use of agents. These twin problems and relatedagency problems induce control transactions as a solution. These problems, however,also cause dilemmas relating to the governance of control transactions. An ex postjudicial intervention may be employed as a solution for the dilemmas.

The problems,however, magnify before the ex post judicial intervention. Further, the judicialproceeding is not immune to the twin problems and thus may not work as a safeguardagainst the issues the twin problems present. This paper systematically analyzes thetwin problems at the initiation and prosecution of lawsuits and the implementation ofremedies and then identifies strategies to address them.

The strategies so identified, including the frequent use of anticipatory
adjudication, largely coincide with those the Delaware judiciary has adopted. Widelyshared favorable perceptions of the speed, expertise, and flexibility of the Delawarejudiciary have normative foundations and are revealed to be crucial to anticipatoryadjudication, while the “indeterminacy” of its judgments is largely inconsequential oreven beneficial.

Other US judiciaries do not have the complete set of speed, expertise,
and flexibility. Worse, many non‐US judiciaries also lack other key tools required to implement the suggested strategies. These non‐US judiciaries at minimum need toexamine whether they have alternative tools to address the identified problems.

The foregoing, however, is predicated on the assumption that corporate
fiduciaries are empowered to gatekeep control transactions for dispersed
shareholders. When this is not the case, judiciaries’ policing roles become markedlyless crucial and less challenging, and the disadvantages of non‐Delaware US judiciarieswane. Further, the reduction of the gatekeeping allows nonjudicial organs, such as theTakeover Panel in the United Kingdom, to engage in ex ante policing.

Full Working Paper

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2539181 

http://bdti.mastertree.jp/f/s4j3kh60

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