TOWARD UNLOCKING LOCKUPS

When faced with a possible takeover, target boards often enter into lo ckup agreements with a favored bidder, agreeing to compensate that bid der some specified amount in the event a merger agreement is not consu mmated. Courts and scholars have approached these lockup arrangements with great suspicion, viewing them as a means by which target boards d iscourage higher valuing hostile bidders and protect their own jobs at the expense of target shareholders. Stephen Fraidin and Jon Hanson cr itique the courts' approach to lockups, as well as previous proposals for reforming that approach. Hanson and Fraidin then offer a new view of lockups. Drawing on law and economics insights, they argue that, fo r reasons that courts and scholars have not previously understood, loc kups are unlikely to threaten, but may well serve, the goals of ensuri ng that corporate assets are transferred to their highest valued use a nd that target shareholder revenues are maximized Courts, Fraidin and Hanson conclude, should enforce all lockups, subjecting them only to t he business judgment rule.