(FORTUNE Magazine) – A fundamental change in the takeover game has been under way since the Supreme Court upheld Indiana's ''control share'' statute earlier this year. In a matter of months some 20-odd states have enacted similar anti-takeover laws, including Minnesota, where the legislature acted at the behest of Dayton Hudson, and Massachusetts, where the target company was Gillette. Several keen students of takeovers, including attorney Martin Lipton, the inventor of the so-called poison pill takeover defense, have argued that Indiana-type laws will have little effect on raiders and might even make it easier for them to capture target companies. I think just the opposite: Unless Congress passes legislation to preempt these new state laws, the political tide will have decisively turned against the raiders. The Indiana statute tilts the game in favor of target management by slowing down the raider. Once a hostile acquirer announces his intention to buy 20% or more of a company's stock, he must call on the company to convoke a shareholders' meeting within 50 days so that ''disinterested'' shareholders -- everyone except the raider himself and management or its affiliates -- can ^ cast their ballots on whether the acquirer will be allowed to vote the shares he buys. If the vote goes against the raider, he might conceivably buy 75% or more of the stock in the target but be unable to install his own board. The political motivation behind state anti-takeover laws is obvious -- us vs. them. State legislators are protecting home-grown businesses against ''outsiders'' with fearsome reputations for dismantling companies, closing plants, putting people out of work, and so forth. States have been trying to strew broken glass in the paths of raiders for years. But the Supreme Court, acting on the theory that Congress wanted a ''level playing field'' for takeovers when it passed the Williams Act back in 1968, tossed out an Illinois statute, and the lower federal courts enthusiastically struck down each subsequent attempt. Then came the Indiana control-share case. Lipton and others have noted that laws like Indiana's could help raiders by making it easier to put a company into play. Since management has to call a shareholders' meeting at the demand of a substantial shareholder, they argue, arbitragers could buy a lot of the stock and, as ''disinterested'' shareholders, vote for the raider. So the skeptics naturally suspect that the Indiana-type statutes may simply complicate the maneuvering without changing the ultimate outcome. But I see several reasons to believe that the state statutes could dissuade all but the most determined raiders. In one sense, all the control-share statute does is extend the period of the tender, adding 30 days for a shareholder vote to the 20 days required under the Williams Act. The trouble is what will happen in those 50 days: Both sides will wage a vigorous proxy fight, and the history of proxy contests shows that they promote enormous amounts of litigation. If management and raiders start trading insults in public and in SEC filings, and then claim the other side's insults are deficient in terms of legal disclosure requirements, we're looking at the possibility of extended court proceedings. Tender offers will remain open not for 50 days, but perhaps 150. Those who are not awed by state laws assume that the ''arbs'' will continue to buy and hold the target company's stock. I wonder. Arbs want deals concluded quickly; the longer one continues, the lower the rate of return on the funds they have committed. Moreover, the potential targets, at least the foresighted ones, will tuck away stock in friendly hands. It does not require great ingenuity to find homes for large chunks of stock with investors whose allegiance goes beyond the next quarter's earnings. Management, for example, can sell stock to tax-advantaged employee-purchase plans. The rank and file may not like management, but employees tend to like raiders even less. If one takes into account the fact that management tends to pick up votes in a proxy contest just by virtue of the fact that it is management, one can imagine scenarios where a raid will fail even though it is obviously a good deal for shareholders. THE MANDATED VOTE by disinterested shareholders could also enhance the power of the old-boy network. Even though the chief executive of company X is chummy with the chief executive of a major insurance company, it is hard for him to ask his friend not to tender stock to a raider who is offering a premium for it. By contrast, in a proxy fight it's a lot easier for the insurance executive to vote for a semiabstract proposition that would forbid Carl Icahn to have a major say in the affairs of company X if he happens to acquire more than 20% of the stock. And those votes aren't counted in public. Finally, now that state legislatures have the bit in their teeth, they can amend statutes as they see fit. Assume for the moment Congress does not pass a law preempting state law entirely. Assume further that the Supreme Court does not reverse its stance. If a raider successfully overcomes a state statute, the state can amend it to put more broken glass in the raider's path. Ultimately the Supreme Court may strike down the most blatant attempts to repel takeovers. But unless it does a complete about-face, some state legislation will remain. More important, the Supreme Court takes a long time to resolve an issue. In the final analysis, the future of takeovers can be forecast intelligently only if one understands the underlying political realities. On one side stand the raiders, buoyed by ample financing, the inability of the stock market to recognize bust-up values (natural enough when a company isn't scheduled to be busted up), and an abstract economic theory that wealth is maximized when the markets are left to their own devices. On the other side stands the entrenched power of the corporate establishment, backed up by the labor unions. From a political standpoint, I once thought that this would be no contest at all. The money and the power to influence politicians lay in the establishment: They would get together and outlaw hostile takeovers. I failed to appreciate, first, the power of the ideology behind the so-called free- market solution; and second, the innate hostility to big business that lurks in the minds of some members of Congress. I failed to appreciate adequately that many ''new breed'' members believe, as did Jack and Bobby Kennedy, that big businessmen are bastards. These Congressmen secretly delight, I have come to believe, in seeing Boone Pickens tweak the noses of the corporate elite, ousting those arrogant fellows who are so prone to lecture politicians on their inability to share the wisdom that businessmen are privy to. When the establishment failed to get the job done federally, it was easy to predict that the bosses would work through the states, where the legislatures are much more sensitive to pressure from employers whose presence means so much in terms of jobs and revenues. The Supreme Court frustrated those efforts for a time but, as Mr. Dooley says, the Supreme Court follows the election returns. The insider trading scandal may not have turned the tide in the Congress, but it may have had just enough power to sensitize the majority of the Court to the legitimacy of state desires to control the corporations they charter. States have a very different view of major corporations than free-market economists. All the economists see are the raider, management, and shareholders. The states see customers, vendors, employees, and taxes; the unions see jobs. It's not surprising that the Court decided that the state of Indiana should win on a matter where the state interest is clearly strong and the federal interest is more or less abstract. I think the Court will continue to feel that way because, again, that's where the political dynamics point. We are dealing with power and levels of interest. The raiders and the arbitragers have money, and that is power of a sort. But the states have much at stake and much more power. HOW SHOULD takeover rules be set? State regulation has disadvantages. Given free rein, the lowest common denominator -- the state that artfully enacts the most protective legislation -- is likely to set the tone, if only because companies will find ways to reincorporate themselves there. However, a solution that ignores state interests entirely -- the ultimate free-market, laissez-faire scenario -- is politically ingenuous. If Massachusetts asserts a strong interest in the ultimate governance of Gillette, one blinks at political reality to dismiss that interest. While shareholders legally own a corporation, that is not the end of the political analysis. A person may legally own real property, but the way he manages or disposes of it is subject to rules laid down by society. Consequently, I forecast a result that is common when political, social, and economic forces are in tension -- a compromise. Ultimately the courts, Congress, and the state legislatures will work out some kind of system that gives everyone a voice. The shareholder will have access to hostile tenders, albeit conditioned access. Directors of the target will be permitted to winnow out tenders that are advanced by fast-buck artists bent only on putting a company in play and then profiting from the resulting commotion. The states will be able to impose conditions that protect against precipitate (in the minds of the employees, at least) plant closings. No politically powerful constituency will be either entirely happy or entirely shut out of the process. As Herman Hickman used to say, his object as Yale football coach was to keep the alumni ''sullen but not mutinous.'' The various interests involved in hostile takeovers, for and against, will each wind up in the same frame of mind.