Of Lollipops and Law -- A Proposal for a National Policy Concerning Tender Offer Defenses

Early last year, Mesa Petroleum Company made a tender offer for shares of Unocal Corporation in an effort to take over Unocal. Unocal responded by using the lollipop defense, which is a discriminatory issuer self-tender offer. Unocal\u27s use of this defense resulted in huge economic losses to many of Unocal\u27s small shareholders who were not knowledgeable about the ramifications of their participation or non-participation in the tender offer. The Delaware Supreme Court upheld Unocal\u27s use of this defense as an appropriate exercise of business judgment. A federal district court in California refused to strike down the lollipop under federal law because it was exclusively a state law question. In this Article, Professor Fiflis argues that broad federal legislation is needed to limit possible abuses of the lollipop and similar tender offer defenses