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Shareholder Activism

Benefits and Drawbacks

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Marion Hartmann

This book analyses and compares the benefits and drawbacks of shareholder activism in corporations under US American and German law, applying means of new institutional economics. The analysis concentrates on three fields of action of active shareholders in targeted corporations: nominations and elections, transaction decisions and financial decisions. The author evaluates and compares the effectiveness of the means which active shareholders use and of the limitations they face. She concludes that shareholder activism has benefits and drawbacks. Both require legal actions under the two jurisdictions, such as stronger nomination and election rights under US American law and more effective disclosure obligations under German law.
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D) Part II: Transaction activism

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I) Introduction

Shareholders do not only become active with the aim to enhance abstract rules-of-the-game of a corporation to increase the accountability of the administration. Some of them go beyond this abstract impact level and aim to influence specific important corporate decisions of the corporate management. Shareholders have demonstrated an elevated interest in corporate transaction decisions. Especially more active investors, like hedge funds, are not satisfied by low cost, small, systemic corporate governance amendments, as less active shareholders like mutual and public pension funds are.775 Rather, they direct their activism towards specific aspects of a company’s business or management leading often to significant changes in the concerned corporations.776 Most hedge fund activism relates to specific transactions or, more generally, to changes in corporate strategy.777 Less active shareholders, like mutual funds and public pension funds, tend to join the more active shareholders in impacting these specific corporate decisions.778

1) Definition of transaction activism

Transaction activism relates to the impact active shareholders exercise on specific corporate decisions concerning a transaction in the sense of business combinations between two constituent corporations. Their influence (officially) intends to prevent a corporate transaction decision led by opportunistic administrative interests. The most relevant types of corporate transactions are mergers, acquisitions, and divestitures, which will be the subjects of the following analysis. Mergers as fundamental corporate decisions often involve a direct shareholder vote as part of the corporate decision-making process. In practice, a tendency toward more acquisitions and two-step transactions...

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