Bulletproof: mandatory rules for deal protection

This article provides an economic analysis of mechanisms that protect negotiated acquisitions of companies and explains the need for a mandatory rule limiting the use of such mechanisms. The Delaware courts have in fact imposed restrictions on various forms of deal protection without recognizing a consistent underlying economic logic to their decisions and without establishing a consistent principle governing different forms of deal protection. This article argues for a mandatory rule limiting the ability of sellers to bulletproof acquisitions. Though requirements to include effective fiduciary termination provisions in all merger agreements may effectively end the ability of sellers to bulletproof transactions, there remain a small number of deal protection devices that are not affected by the presence of an effective fiduciary termination right in a merger agreement.