M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Friday, October 8, 2010

Why does anyone still have a poison pill?

I occasionally give some thought to the question why any board bothers to adopt a poison pill absent an obvious threat of takeover.  I mean, why bother?  A well-informed board can adopt a shareholder rights plan in, let's be honest, about five minutes.  These plans are by now pretty standardized and if your outside counsel bills you more than a few hours to put one together for your company, you probably should look at your bills a little closer.  At the same time, if you carry a pill in the absence of a takeover threat - just in case - you'll get dinged by Riskmetrics and they'll recommend voting against your board.   Who wants that?  

Hypercom has it about right.   They had no pill in place and then when Verifone started sniffing around, the board met, considered and then issued a press release that read:


Hypercom’s Board thoroughly reviewed VeriFone’s unsolicited proposal with the assistance of its independent financial and legal advisors and concluded that the proposal significantly undervalues the Company and its future prospects and is not in the best interests of stockholders. Hypercom believes that VeriFone’s proposal is opportunistic and intended to disrupt its business, which has successfully taken market share from VeriFone in several markets.
“Our Board firmly believes that Hypercom has proven its ability to grow profitably, has strong near- and long-term value creation potential and is well-positioned to increase profits and market share,” said Norman Stout, Chairman of the Hypercom Board of Directors. “We are committed to representing the best interests of our stockholders and consistently have been open to exploring ways of enhancing value. However, we believe that VeriFone is not offering appropriate value to Hypercom stockholders, given our evident momentum in the marketplace and our excellent future prospects.”


With that, Hypercom adopted a pill.  Now, should a court review the board's decision to adopt the pill, we know that the court will subject it to Unocal intermediate scrutiny.  But guess, what?  We also know that under Moran, if a board had adopted a pill "under a blue sky", the subsequent decision not to pull the pill in the face of an offer would also be subject to intermediate scrutiny.  So ... since everybody knows that anybody can quickly adopt a pill and since Riskmetrics, etc hate the pill for governance reasons, I think everybody should just get rid of them ... until you need them, that is. 

OK, it's Friday.  Off my soapbox.  I'll take up Hypercom's suit against Verifone another day.



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