The Madrid Region invents a Public Poison Pill
The poison pill (or shareholder rights plan) refers to a strategy that companies use to avoid a hostile takeover. It was invented by the legendary American lawyer Martin Lipton of Wachtell, Lipton, Rosen & Katz in 1982, i.e. at the beginning of the great wave of hostile takeovers that shook the American economy during the 1980s.
A common version of the poison pill involves the issuance of new shares at a heavily discounted price from which existing shareholders would benefit to the detriment of the potential acquirer. The broad aim is to increase the price of the acquisition and also to direct the negotiation of its terms to the board of directors of the target company and not to its shareholders.
In practice, poison pills did not prevent hostile takeovers in the United States during the 1980s and 1990s (in fact, those years are considered one of the golden ages of hostile takeovers). But they did complicate them, in some cases deterred them (as in the case of Microsoft’s takeover of Yahoo!) and, in general, made them more expensive.
Isabel Díaz Ayuso’s announcement of a new Law for the Defence of the Fiscal Autonomy of the Madrid Region seems, in my opinion, to follow the same logic. It is doubtful whether such a Law would, in itself, prevent a “harmonization” (i.e. increase) of the taxes ceded by the State to Madrid through an amendment of the Organic Law on the Financing of the Autonomous Communities (LOFCA). In principle, Organic Laws prevail over regional laws in Spain.
That said, the price of this “harmonization” would increase considerably if the new law announced by the Madrid President were to be approved. Indeed, it seems most probable that the new Law will provoke a conflict of competence with the national Government which will end up before Spain’s Constitutional Court (CC). In such a case, the CC would have to decide on the definition of the concept of “financial autonomy” of the Spanish Regions included in Article 156.1 of the Constitution (previously defined by the CC as “the determination and organization of the income and expenditure necessary for the exercise of its functions”). It is true that, having raised this conflict of competence, the Government would obtain the suspension of the Madrid law by simply requesting it from the CC; but it is also true that the CC could agree to lift the suspension within a period of five months.
The CC’s final decision would be uncertain; what is indisputable would be that the Spanish national Government’s goal to raise taxes in the Madrid Region would be considerably delayed. And in several years’ time the current Government may be gone or its main allies may change (it is worth remembering that the demand for higher taxes in Madrid comes from an unusual agreement between the Government and the catalan independence party ERC; the Catalan secessionists want to break away from Spain but, in the meantime, they do not hesitate to dictate tax policies in other parts of Spain).
In any case, the hostile takeover bid by Pedro Sánchez’s government against the fiscal policy of the Madrid region would have been thwarted.
In sum, the decision to pass the new Law for the Defence of Madrid’s Fiscal Autonomy seems to me to be a wise one. Its existence will seek to prevent the Government from imposing in the short term the increase in taxes ceded to Madrid. In other words, Ayuso is unwilling to put up with the Government hurting Madrid taxpayers and is taking the initiative to prevent it. This is exactly why many Madrileños (44,73%) voted for her in the recent regional elections. Ayuso, therefore, is true to her word and, by the way, innovates legally by creating a kind of public poison pill.
