Bill Aims to Limit Takeovers

Seeking to protect the Massachusetts Miracle against corporate raiders, Gov. Michael S. Dukakis yesterday proposed installing some of the nation's highest barriers to hostile takeovers.

The barriers would include requiring mandatory severance pay for workers laid off during takeover battles. Dukakis said he hoped the package would win speedy approval from the state Legislature and inspire similar measures across the nation.

"In the absence of federal action,...the states have got to move--and we're going to move," he said.

The former Democratic presidential candidate described the legislation at a news conference in Cambridge's Technology Square, outside the headquarters of Polaroid Corp., which recently staved off a $3.1 billion hostile bid from Shamrock Holdings Inc. of Burbank, Calif.

He said Polaroid's experience helped shape the bill. The instant photography company, which is incorporated in Delaware, made use of a Delaware law that bars completion of a takeover for three years unless the raider either gets approval of the target company's board or buys 85 percent of its stock.

By placing millions of its shares in friendly hands through an employee stock ownership plan, Polaroid made it virtually impossible for Shamrock to reach the 85 percent level.

The Massachusetts law would go further, raising the threshold to 90 percent. The law would also be triggered earlier--delaying a takeover as soon as a hostile bidder acquires 5 percent of a public company's stock, rather than 15 percent, as in Delaware.

Since the bill was drafted by a 27-member commission appointed by Dukakis and including labor leaders, corporate executives, lawyers and legislators, the measure is virtually guaranteed a solid base of support.

But some provisions, such as the severance pay, are expected to draw opposition from business lobbyists. Merger specialists also predicted that the 5 percent threshold would be challenged in court as an unconstitutional intrusion on federal authority over interstate commerce.

"It's an admirable effort, but the question is going to come down to state regulation versus federal regulation, and I think there's going to be a lot of debate about it," said Thomas J. Dougherty, a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom. "They're going to be in and out of court."

Dukakis maintained the legislation was not designed to ban all takeovers, or even all hostile takeovers.

Rather, he said, "the aim is to force takeover artists to be socially responsible" and block them from buying companies, laying off workers and then selling the companies piecemeal at big profits.

Among the legislation's provisions is a requirement that an acquiring company assume all of the takeover target's labor contracts.

In addition, boards of directors would be given explicit permission to consider the interests of employees, customers and communities in deciding whether to reject a takeover offer. That would help insulate directors from lawsuits by shareholders who favor selling out quickly for the highest price.

From the time a raider acquires 5 percent of a company's stock until two years after the takeover is completed, all employees who are laid off without good cause would be entitled to two weeks severance pay for each year they had been employed.

Also, the legislation would make it easier for corporations to set up shareholder rights plans, or "poison pill" defenses, which boost the price of a takeover by giving shareholders an automatic right to buy additional shares.

Finally, the bill would require approval from the owners of at least 40 percent of a company's stock to call a special meeting of the company's shabeholders. Now, approval from just 10 percent is needed--a right that was meant to ensure accountability but "has been abused lately" by some hostile raiders, said Stephen B. Kay, a partner in the brokerage firm of Goldman, Sachs & Co. who served on the Dukakis commission.