After the Airgas/Air Products poison pill was upheld, the Delaware Supreme Court’s recent decision provided even more support for for a board of directors to use a poison pill to curb a hostile takeover. In a one-page order, the Delaware Supreme Court affirmed Vice Chancellor Strine’s post-trial opinion in Yucaipa American Alliance Fund II, L.P. v. Riggio, C.A. No. 5465-VCS (Del. Ch. Aug. 12, 2010), which stated that:
In response to this threat that the corporation’s stockholders would relinquish control through a creeping acquisition without the benefit of receiving a control premium, the board adopted a measured pill that protected Barnes & Noble’s shareholders without precluding Yucaipa’s ability to exercise its franchise rights by having the chance to run an effective proxy contest. Indeed, the record indicates that even with the pill in place, Yucaipa not only has a reasonable chance to, but is in fact likely to, prevail in a proxy contest if it runs a credible slate of candidates and articulates a sound business platform justifying the slate’s election. Thus, the board’s decision to use the pill to ensure that Yucaipa could not acquire control while bypassing negotiations with the board was reasonable because it addressed that threat while leaving Yucaipa with a fair chance to prevail in a proxy contest. Moreover, the pill is subject to a stockholder vote this year, a feature that further limits its inhibiting potency.
The Delaware Corporate and Commercial Litigation Blog (as always) provides an excellent analysis here.
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