March 7, 2011
Poison Pills Make for a Distorted Market
I guess I really just don't care for poison pills. Today the Delaware Supreme Court upheld the poison pill Barnes and Noble put in place to "protect" itself and its shareholders from Rob Burkle. Yucaipa American Alliance Fund II, L.P. v. Riggio, No. 565, 2010 (Del. Supr. Mar. 3, 2011). The Delaware Corporate and Commercial Litigation Blog provides a good summary (and links to background) here.
I understand Unocal and its progeny (I think), but it seems to me there needs to a more compelling reason to block acquistions than what I see in most of the cases. Here, for example, the Court of Chancery said:
[T]he board was concerned that Yucaipa could, along with Aletheia as an admiring and devoted fellow traveler, essentially form a control bloc without paying a control premium.”
It was never my undersanding that shareholders had a right to a control premium, just that they were permitted to seek a control premium.
Maybe I'm wrong and this is a better course of action. After all, it could be that many shareholders aren't sophisticated enough to figure out when they aren't getting a sufficient premium for their shares. But I also think that many people who will support this outcome hate the idea of paternalistic securities regulations. I suppose such people are being internally consistant because they support director primacy over almost anything else, but poison pills don't, in my view, facilitate a free market.
To me, these kinds of poison pills operate as unnecssary market-distorting protections, and I think the courts should require a much stronger showing of a threat to uphold them. Again, if a shareholder wants to sell at a given price and has a willing buyer, absent some sort of fraud, I'm inclined to let them.