Is Moderation the Highest Virtue? A Comparative Study of a Middle Way of Control Transaction Regimes

Comparative studies of control transaction regimes mostly compare between the Market Rule as adopted in the U.S. and the General Offer Rule ad adopted in European Union, while paying less attention to the Partial Offer Rule, a middle way model adopted in many East Asian countries such as Japan, South Korea, China, Taiwan, etc. In this paper, we attempt to fill this gap by highlighting the Partial Offer Rule adopted in these countries, analyzing this rule's theoretical foundation and observing its implementation in practice. Our theoretical analyses of the Partial Offer Rule are comprised of two parts. First, by adding to the current economic analytical framework the factor of cost of funds, we demonstrate that, from the perspective of efficiency, the Partial Offer Rule dominates the General Offer Rule and is thus more representative of the mandatory bid camp. Second, by comparing these three regimes through the lens of their respective filter mechanism, we argue that the filter mechanism inbuilt in the Partial Offer Rule has its theoretical advantages in terms of incentivizing the target's incumbent controlling shareholder to select an efficient acquirer, which, compared with the filter mechanisms inbuilt in the Market Rule and the General Offer Rule, is more effective. Having established the theoretical foundation of the Partial Offer Rule, we turn to observe the Partial Offer Rule in implementation. We identify several aspects in practice that may compromise the Partial Offer Rule's theoretical advantages, ranging from various types of circumvention implemented by related market players to the defective design of events of exemption adopted by rule-makers. In sum, we provide comprehensive accounts both in theory and in practice of the Partial Offer Rule, a long neglected control transaction regime