Litigation Over a Triggered Poison Pill: Selectica

When a poison pill threatens potential acquirers, the acquiring company usually files suit to have the pill declared invalid -- before the the acquisition.  In an unusual case, a group of purchasers triggered a poison pill intentionally, the target company, Selectica, refused to withdraw it and the target company began litigation in the Delaware Chancery Court to have the pill declared valid.  The pill, a shareholder rights plan that dilutes the acquirer by exchanging one right for one share of target stock not held by the acquiring group, had two unusual features, first it had a 4.99 percent trigger -- very low-- and second it gave the Selectica board ten days after the triggering purchase to withdraw or act on the pill's dilution. The case will provide the Delaware courts yet another opportunity to consider limits on the use of poison pill plans.  I hope they will take it and declare the 4.99 percent trigger too low to be justifiable as a takeover protection.