Friday, May 22, 2009
The growing use of derivatives in the market for corporate control has taken what was once a simple calculation about control and ownership and made it much more complicated. Henry Hu and Bernie Black's paper on empty voting a couple of years ago brought this issue into the foreground. The Mylan Labs transaction highlighted the difficulties presented by derivatives in the market for corporate control. That case even generated a Harvard Business School case-study highlighting the issue. Needless to say the corporate law has been struggling to catch up. This last term, the Delaware legislature passed an amendment - section 213(a) - in an attempt to help boards deal with this issue. The new 213(a) will permit boards to set record dates for stockholders entitled to vote different from notice dates. The effect will be to reduce to possibility of voting by parties who do not hold an economic interest in the stock. Chancellor Chandler's ruling (made from the bench) brings the chancery court into the picture with respect derivatives and the poison pill. It's hard to imagine that he could have come out any other way. Had he ruled that the language of the rights plan was too vague, it would have opened the door for potential to emasculate all the pills out there. Given the reliance that corporate planners have placed in the pill, that's not an outcome that would have gone over very well at all.