Reconsidering the Merger Process: Approval Patterns, Timeline, and Shareholders' Role

Shareholder approval in mergers generally takes a long time, but is it necessary? This Article finds that in the context of mergers, the approval requirement is not nearly as valuable a procedure as we might expect. I analyze shareholder approval patterns (target side) in all domestic mergers with a Russell 3000 target company in the 2006-2015 period. By examining data on voting outcomes, I note shareholders rejected a very low number of mergers, which generally passed with significantly high approval percentages. Instead of concluding that voting is mere rubber-stamping by shareholders, voting positively affects mergers through the expectation that shareholders will turn down undesirable deals. The voting requirement signals a credible threat to corporate planners that such deals will be rejected; as a result, they are in fact rarely presented to shareholders in the first place (deal filtering effect of voting). The same dynamic contributes to higher premiums than we would have experienced if a threat of rejection were absent (premium effect of voting). However, the data also shows that voting comes with drawbacks, the most significant being the delay in deal completion, which can jeopardize a company's operations and put deal certainty at risk. If the beneficial role of shareholder voice in mergers stems from the pressure on corporate planners generated by the credible threat of rejection embedded in the vote, I suggest alternative ways to exert such pressure without incurring all the costs currently involved with voting. To that end, this Article sketches three possible policy solutions, ranging from impactful (vote-on-demand and randomized approval, both to be opted into by companies in lieu of the current voting regime) to more moderate (speeding up the timetable by revising the SEC review process of merger securities filings and state corporate laws).