Developments in State Takeover Regulation : Mite and its Aftermath

By the 1960’s, use of the cash tender offer had become the predominant method for acquisition and control of publicly held companies, a method then virtually free of government regulation. However, in the absence of regulation, abuses emerged, underscoring the need for federal and state protection of investors in corporations targeted by an acquiring company’s management. Governmental regulation of this type of takeover transaction originated at the state level with Virginia’s enactment of the first state takeover statute in 1968, with thirty-six other states following suit. Several months after passage of the Virginia statute, Congress adopted the Williams Act, which amended the Securities Exchange Act of 1934 to provide for regulation of cash tender offers. The extraterritorial reach of most state takeover statutes, together with the substantive differences between the state and federal scheme, led to the invalidation of numerous state takeover statutes under the commerce and supremacy clauses of the Constitution. This controversy between state and federal power was addressed, but not completely resolved by the now-familiar case Edgar v. MITE Corp. This decision and its aftermath are the primary focus of this article. The subsequent judicial efforts to interpret and apply the MITE precedent to takeover statutes of other states generally have been disastrous for the state regulatory schemes challenged. Ohio, Maryland, and Wisconsin developed new approaches in their efforts to revitalize their respective regulatory schemes through a perceived “window” left open by the MITE decision. After a discussion of this development, the article concludes with a summary of certain controversial proposals set forth in the final report of the SEC Advisory Committee on Tender Offers, issued approximately one year after MITE was decided. These recommendations presented important questions not only as to the future role of the states in the field of tender offer regulation, but also as to the vulnerability of state corporate law generally. Although opposition to those recommendations was extensive, the issues that they raise should be of particular concern to practitioners in virtually every area of corporate law