Tuesday, July 6, 2010
It's a big week for the shareholder rights plan in Delaware. We've got two high profile cases. The first is the challenge to Barnes & Nobles' shareholder rights plan in the Chancery Court. We've blogged about that saga here already. Second is Versata's challenge to the Selectica NOL pill that will be heard at the Supreme Court. Paul Thomas and Randall Thomas have a new paper on the Selectica NOL pill, Resetting the Triggering on the Poison Pill: Selectica's Unanticipated Consequences. They argue that dropping the trigger level down to less than 5% will have an important, and potentially negative impact on the market for corporate control. This paper is worth reading before dropping in on the arguments later this week.
Abstract: The Delaware Chancery Court recently applied the Unitrin case to uphold the validity of an NOL Rights Plan with a 5 percent trigger level in Selectica, Inc. v. Versata Enterprises, Inc. The Chancery Court’s ruling is sufficiently expansive that it sanctions the reduction of Rights Plans’ trigger levels to 5 percent at all Delaware corporations. Using a weighted voting model, we show that such an across the board reduction of trigger levels would have important, unanticipated consequences. In particular, we demonstrate that it would favor hedge funds and private equity firms at the expense of strategic acquirers, and that it would greatly increase the power of third party proxy voting advisors. We conclude that the Delaware Supreme Court should consider these unintended side effects in crafting its decision in this case, and that it should adopt an expansive reading of the meaning of preclusive defensive tactics based on its earlier precedent in Unitrin and Moran.-bjmq