M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Thursday, June 26, 2014

Eli Lilly and Indiana's control share statute

What with all the attention to hostile pharma deals these days, it's no surprise that names of potential targets are getting batted around in the press.  This was interesting, though. A name of a firm that is not a target - Eli Lilly. Why?  Because Eli Lilly is an Indiana corporation and Indiana corporations are subject to that state's control share statute.  This flavor of state antitakeover prevents  an acquiring shareholder from exercising the voting rights over any "control shares" without the express approval by the other shareholders of the target corporation.   This particular type of antitakeover decision was approved by the US Supreme Court in CTS Corp as not pre-empted by the Williams Act and within the competence of state legislatures.    Though largely superceded by Section 203, later generation antitakeover statutes, the control share statutes are still out there and they are potent defenses.



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I don't think control share statutes are as potent as DGCL 203 and its sister statutes because most allow the hostile party to call a special meeting to approve the proposed acquisition. This essentially is an automatic right to call a special meeting that might not otherwise be available, and it becomes a referendum on the takeover. Harbinger invoked this right a few years ago at Cleveland Cliffs, but the proposed acquisition was not approved.

Posted by: None | Jun 27, 2014 2:46:47 PM

I agree. 203 is likely much more potent than these control share statutes. 203 leaves the power in the hands of the board whereas, as the commenter notes, the control share statutes permit essentially a referendum on the offer.

Posted by: bjmq | Jul 2, 2014 11:17:27 AM

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