Abstract: Takeover regulation should neither hamper nor promote takeovers, but instead allow individual
companies to decide the contestability of their control. Based on this premise, we advocate a takeover
law exclusively made of default and menu rules supporting an effective choice of the takeover regime at
the company level. For reasons of political economy bearing on the reform process, we argue that
different default rules should apply to newly public companies and companies that are already public
when the new regime is introduced. The first group should be governed by default rules crafted against
the interest of management and of controlling shareholders, because these are more efficient on
average and/or easier to opt out of when they are or become inefficient for the particular company.
The second set of companies should instead be governed by default rules matching the status quo even
if this favors the incumbents. This regulatory dualism strategy is intended to overcome the resistance of
vested interests towards efficient regulatory change. Appropriate menu rules should be available to
both groups of companies in order to ease opt-out of unfit defaults. Finally, we argue that European
takeover law should be reshaped along these lines. Particularly, the board neutrality rule and the
mandatory bid rule should become defaults that only individual companies, rather than member states,
can opt out of. The overhauled Takeover Directive should also include menu rules, for instance a
poison pill defense and a time-based breakthrough rule. Existing companies would continue to be
governed by the status quo until incumbents decide to opt into the new regime.