In the closing days of 2010, The New York Times’ Dealbook published an excellent piece documenting how Abercrombie & Fitch Co. (NYSE:ANF) is quietly seeking shareholder approval to reincorporate the company in the state of Ohio. This is an exceedingly rare move, as ANF is currently incorporated in the state of Delaware, a state that is home to 63% of the Fortune 500, 73% of all new U.S. IPOs and more than 879,000 other business entities. American states engage in a form of horizontal regulatory competition, the result of a conflict of laws principle that allows companies to choose their place of incorporation separately from their place of operations. Over the last century, Delaware has emerged victorious as the leader in new business entity formation, as well as attracting existing entities which initially incorporated in other states.

Why do such a disproportionate number of business entities choose Delaware? Among the many reasons, the most compelling include its non-existent income tax on out-of-state filers, flexible General Corporation Law, and, most importantly, its unique court structure. The Delaware Court of Chancery is a 219-year-old institution devoted solely to corporate law issues. The result of its long history and specialist judges (called chancellors) is that Delaware has the most well-developed body of corporate case law in the nation, which provides a predictability in interpretation and outcome that corporations seek. Former Chief Justice William Rehnquist said the following of the Delaware Court of Chancery:

“[S]ince the turn of the century, it has handed down thousands of opinions interpreting virtually every provision of Delaware’s corporate law statute. … Perhaps most importantly, practitioners recognize that ‘[o]utside the takeover process…most Delaware corporations do not find themselves in litigation. The process of decision in the litigated cases has so refined the law, that business planners may usually order their affairs to avoid law suits.’”

Given the depth and breadth of case law arising from Delaware, and the consequent predictability it affords in-state corporations, it is quite surprising that ANF seeks to reincorporate in Ohio partly so as to gain clarity on corporate governance issues. ANF provides the following as a rationale behind the move:

We believe that Ohio law affords directors a clearer balance of corporate governance rights and obligations than Delaware law and would thereby enhance our ability to attract and retain highly qualified individuals to serve as directors.

Seeing that numerous Delaware-based Fortune 500 companies have no problem attracting and retaining competent directors, this is a questionable claim. Beyond this, ANF also cites tax savings, but these savings are a meager 0.000062% of revenues and are certainly offset by the costs of creating and distributing a proxy, and the legal fees associated with effecting the reincorporation. The company’s final rationale is a vague “commitment” to the state of Ohio.

The reasons provided don’t appear to justify the effort, so what is the real reason for the move? A close inspection of ANF’s filing reveals a common thread – the threat of takeover and associated liability. ANF says it will gain “operational and statutory benefits” in Ohio that will allow it to remove its supermajority voting requirement and poison pill, both of which are designed to decrease the ability of potential acquirers to be successful. Further, it states that Ohio’s law provides “explicit guidelines regarding the matters that are appropriate for directors to consider … when deciding whether a proposed takeover is in the best interests of the corporation,” which provides clarity on potential director liability arising from a takeover. Additionally, as Chief Justice Rehnquist stated…