November 17, 2011
Steele on Pills and the Intermediate Standard
In early October, Chief Justice Myron Steele participated in a session in Canada about shareholder rights plans in the US and Canada. The International Law Office has posted summaries of the panel discussion. Steele's comments are interesting:
The chief justice suggested that the view that Delaware law allows a board of directors to 'just say no' to a hostile offer has been overstated. In the context of appropriate findings of fact that a poison pill is no longer reasonable or that there is no sufficiently articulated long-term strategy that requires protection, he suggested that a case could be made for a mandatory injunction removing a poison pill under Delaware law.
When Gilson and Kraakman wrote their paper, Delaware's Intermediate Standard for Defensive Tactics: Is There Substance to Proportionality Review?, they recommended that the court adopt a stance that would inject substance into proportionality review by requiring boards who wished to adopt and maintain defensive measures against an unwanted, but otherwise noncoercive offer, to articulate a long term strategy that they would have to live with. Could it be that Steele is open to a Gilson/Kraakman like approach to proportionality review? That might breathe new life into Unocal.
But those weren't the only comments made by Steele:
Steele noted that the analysis is determined primarily by the facts found in each decision. Findings of fact made by the Court of Chancery are accepted on review by the Delaware Supreme Court unless they are clearly erroneous. Steele suggested that, with appropriate findings of fact, a pill could be removed under Delaware law. ...
Steele noted that there was a tension between the view, on the one hand, that the board should have power to defeat an inadequate hostile offer and the view, on the other hand, that, once the board has discharged its duty to make clear to shareholders its view of the long-term value of the corporation and there is no likelihood that the poison pill could be used to generate an alternative offer, it should be the shareholders' responsibility to decide whether to accept the board's view of the corporation's value or accept the bidder's offer. Chandler's opinion appeared to show some sympathy for the latter position. However, he described his analysis as "constrained by Delaware Supreme Court precedent".
Steele took issue with the view that the Chancery is constrained in its ability to remove a pill in the appropriate circumstances. He suggested that if the chancellor had found facts that were inconsistent with it being reasonable to keep the pill in place, an injunction against maintaining the pill could be issued under Delaware law. Where there is a battle of valuations, rather than the defence of a long-term strategy, a case can be made for removing the pill and letting the shareholders decide.
OK, so if the question is one about the adequacy of a noncoercive offer, is Steele suggesting that a board could be ordered to pull its pill? That an inadequate offer on its own is not a cognizable threat? Personally, I tend to agree and would be happy with that result. But, I'd be surprised if the Supreme Court was already there intellectually and simply waiting for the Chancery Court to hand up an opinion for appellate review. Could it be that Chandler in Air Products just got it wrong?
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