Barbarians at the gate, the poison pill, multibillion-dollar proxy fights — the vocabulary of the hostile takeover still conjures the 1980s and investment bankers in pinstripes. The reality is quieter. Hostile deals made up 20 to 30 percent of public-company takeovers in the '80s; by 2014 they were about 7 percent. What did the law do to tame the corporate raider, and what does a company actually have in its arsenal when an unwanted buyer shows up?
In this TalksOnLaw interview, Joel Cohen sits down with John Morley of Yale Law School, who teaches business organizations and now co-hosts the New Law Order podcast with him. Morley walks through how a hostile takeover actually happens, then through the colorfully named defenses — and the doctrine behind them — that boards use to stop one.
Two Steps to Control
A hostile deal, Morley explains, is simply one the target's board neither invited nor cooperates with. The classic route is the two-step takeover: a tender offer for a controlling stake, say 51 percent, followed by a squeeze-out merger in which the new controller uses that majority to force out the remaining shareholders at a price it sets. The old trick was coercion — offer $100 a share up front while signaling the holdouts would get $85 — and a series of 1980s judicial and statutory doctrines grew up to curb it. The other route runs through the ballot: a proxy fight, in which an insurgent solicits the voting authority of dispersed shareholders to seat its own directors, complete with the absurdity of rival camps mailing competing cards to the same confused investor, where the last one signed wins.
The Poison Pill and the Staggered Board
The poison pill, invented by Marty Lipton at Wachtell Lipton, works by dilution: cross a trigger — 15 percent, say — and every other shareholder gets the right to buy new shares at a steep discount, or for nothing, cutting the raider's stake and its value at a stroke. It is so effective, Morley notes, that no one has ever really triggered one twice, and every American company has one implicitly, because a board can adopt one in the time it takes to call its lawyers. Its single weakness is that a board can remove it — so the path to a hostile takeover runs exclusively through winning the board first, before pulling the trigger. That is what makes the staggered board the more important defense. Modeled on the Senate, it puts only a third of directors up each year, so even a majority holder needs two elections to take control, giving the incumbents time to act. The only real counter, Morley says, is shame: bid high, call the Wall Street Journal, and let the pressure do the work.
Parachutes, Greenmail, and Pac-Man
Morley moves through the rest of the menagerie. Golden parachutes deter a buyer by making a change of control expensive, yet can also grease one by giving the CEO a reason not to fight — "the Switzerland of the hostile takeover," as Cohen puts it. Greenmail is paying a troublesome shareholder to go away, a pattern long associated with Carl Icahn. The macaroni defense loads debt that swells on a change of control; the Pac-Man defense has the hunted turn and swallow the hunter. State statutes like Maryland's Control Share Acquisition Act add a legislative layer. Most of it, Morley is candid, is not law at all but lawyers being inventive — subject only to Delaware's requirement that a defense answer a real threat proportionately, a limit he regarded as having lost most of its bite.
Who Should Control a Company?
The conversation ends on the harder question. Defenders of these tools argue they give boards leverage to extract a better price and protect employees from raiders like T. Boone Pickens; the Hershey Company, majority-owned by a trust for a school for orphans, shows how far that instinct can go. Critics answer that whoever will pay the most should control the company, and that the threat of a takeover is one of the few things holding managers accountable. Morley adds the twist of dual-class stock, which lets founders like those of Google and Facebook keep control with a fraction of the equity — perhaps a cure for the rational apathy of dispersed shareholders, perhaps not. Which side is right, he admits, is nearly impossible to study, because a company that adopts a defense is never the same as one that doesn't.
What to Know Now
The weapons Morley catalogs are still on the shelf; the rules for using them have been sharpened, and dealmakers should know the current ones. Delaware's threat-and-proportionality test has real teeth: in 2021 its courts struck down Williams Companies' 5 percent pill as overbroad. The pill-plus-staggered-board combination is now rare at the top of the market — staggered boards fell from 61 percent of the S&P 500 in 2002 to about 12 percent by 2022 — so the proxy contest Morley describes has taken on added importance, and the SEC's universal proxy rule, in force since 2022, puts every nominee on a single ballot and makes those contests easier to wage. On the squeeze-out side, Delaware's 2025 amendments created safe harbors for controlling-stockholder transactions and a statutory definition of a controller, upheld by its Supreme Court in 2026, even as companies such as Tesla have reincorporated elsewhere. Hostile and unsolicited bids have also ticked back up — roughly 11 percent of global M&A in 2024, versus about 7 percent in 2014. Two details from the conversation also need correcting: Maryland's control-share statute uses a 10 percent threshold, not 15, and the Hershey Trust holds about 28 percent of Hershey's economic value but roughly 79 percent of the vote — a controlling vote rather than a majority of the shares. Morley's framework for thinking about who should control a company remains a useful lens for all of it; these are the current rules of engagement.
