Allocation of Control in Hostile Takeover : Lessons from Cadbury

This paper seeks to examine the theory of corporate control in clarifying the boundaries of control of the board of the target and its shareholders. In doing so, a reference will be made to the Malaysian takeover law in order to examine how the law allocates control. Since the Companies Act 1965 requires the directors of the target to exercise care, skill and diligence when recommending the acceptance or rejection of offer, the business judgement rule as contained in the Companies Act will be discussed to see whetherthe directors have discharged the duties required. The business judgment rule as applied in Delaware, the place of the origin of the rule, will be discussed in detail. As the Delaware courts have deliberated considerably on the application of the business judgement rule in relation to takeovers, this paper will reflect on the leading decisions of Delaware courts in order to shed light on the aspect of allocation of control in a company facing a takeover bid