October 7, 2005
News Corp. Sued over Poison Pill
This year’s hot item for corporate activists clearly is majority voting for the election of directors. In past years it has been the removal of poison pills. Both of these agendas have typically been pursued through the shareholder proposal mechanism of Exchange Act rule 14a-8. Under this rule, it is possible for a shareholder to get a proposal on a company’s proxy (and thereby get it voted on by the shareholders) provided the shareholder complies with the strict procedural and content restrictions of the rule, typically in the face of arguments by the company’s lawyers that the proposal does not comply. It is well established that the content restrictions do not allow a straight-forward binding shareholder proposal adopting majority voting or removing a poison pill to be placed on the ballot. Instead, the proposal has to be stated as a non-binding recommendation to the board that it adopt majority voting, remove the pill, etc. (it may be possible to get a binding proposal on the proxy by structuring it as a bylaw amendment, but that maneuver is beyond the scope of this post).
The reason I bring this up, is that Reuters reports a different tactic initiated by some institutional shareholders against New Corp. concerning the extentsion of its pill. These shareholders are suing. The article caught my eye because it is well established that a board has the power to put a poison pill in place without shareholder approval, so I’m curious as to the legal basis for the suit (the article does not say). I’ll see if I can find out more details.
UPDATE: The Reuters article referenced above has been revised. It now says that the shareholders are suing News Corp. "for reneging on a promise to seek shareholder approval before extending a poison pill provision." Sounds like a contract law claim.
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