Boone Pickens Homepage           Electronic Publishing Center
	TBP TALKING POINTS FOR HB 2554 “THE TEXAS SHAREHOLDER RIGHTS LAW” TEXAS HOUSE BUSINESS AND COMMERCE COMMITTEE AUSTIN TX MAY 1, 1989

The bill, HB 2554, sponsored by Rep. David Cain, combines the control share acquisition and business combination freeze-out approaches.

CONTROL SHARE APPROACH: Under the control share provision, modeled on the Indiana statute upheld by the Supreme Court in 1987, a shareholder crossing ownership thresholds of 20, 33, and 50 percent, must win a vote of “disinterested” shareholders in order to gain voting rights for each stage of ownership (between 20 and 33 percent, 33 percent and 50 percent, and more than 50 percent).

A number of empirical studies have shown that control share measures damage shareholder value. A study on Indiana’s control share statute by economists Greg Sidak and Susan Woodward, who conducted most of their research while on the staff of the White House Council of Economic Advisers, found a loss to shareholders in 19 Indiana firms of $2.65 billion.

A 1987 SEC study found that Ohio’s anti-takeover law, which includes a control share provision, cost shareholders in 37 Ohio-based firms more than $1.45 billion. An update of the 1987 study, by SEC economist Jeffrey Netter and University of Florida finance professor Michael Ryngaert, reported that the loss of value ran as high as 3.4 percent for some Ohio firms.

FREEZE-OUT APPROACH: The freeze-out provision, similar to the measure enacted in New York, would place a five-year moratorium on management opposed business combinations with a shareholder owning 20 percent or more of a target company.

The only exception: the moratorium can be reduced from five years to one year if the acquiring shareholder receives the approval of more than two-thirds of the company’s remaining shares for the business combination.

A 1987 Federal Trade Commission study of New York’s statute found that announcement of the five-year freeze-out cost shareholders in 94 firms more than $1.2 billion, equal to nearly 1 percent of the value of the affected firms. A New Jersey office of Economic Policy study found an 11 percent drop in the value of New Jersey firms affected by that state’s freeze-out.

Another bill, HB 2220, to prohibit golden parachutes not approved in advance by shareholders, will also be covered at the hearing.