Monday, November 23, 2015

Moran Turns 30; Poison Pills Party

Last week was the 30th anniversary of the Delaware Supreme Court’s decision in Moran v. Household International, Inc., 500 A.2d 1346 (Del. 1985). In Moran, decided on Nov. 19, 1985, the Delaware Supreme Court upheld what has become the leading hostile takeover defensive tactic, the poison pill.

Martin Lipton, the primary developer of the pill, even makes an appearance in the case—and obviously a carefully scripted one: “The minutes reflect that Mr. Lipton explained to the Board that his recommendation of the Plan was based on his understanding that the Board was concerned about the increasing frequency of ‘bust-up’ takeovers, the increasing takeover activity in the financial sector industry, . . . , and the possible adverse effect this type of activity could have on employees and others concerned with and vital to the continuing successful operation of Household even in the absence of any actual bust-up takeover attempt.”

I’m not sure the takeover world would be that different today if Moran had rejected poison pills. I’m reasonably confident the Delaware legislature would have amended the Delaware statute to overturn the ruling, as they effectively did with another ruling decided earlier that same year, Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985). Shortly after Van Gorkom made it clear that directors might actually be liable for violating the duty of care, the legislature added section 102(b)(7) to the Delaware law, allowing corporations to eliminate any possibility of damages for duty-of-care violations.

As my colleague Joan Heminway has pointed out, 1985 was an incredibly important year for M & A practitioners. In addition to Moran and Van Gorkom, a third major case was also decided that year: Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985).

Van Gorkom was decided in late January of 1985, Unocal in June, and Moran in November. Corporations casebooks and treatises are filled with Delaware Supreme Court decisions, but that has to be one of the most important ten-month periods in Delaware corporate law jurisprudence—especially in the mergers and acquisitions area.

Business Associations, C. Steven Bradford, Case Law, M&A | Permalink


I'm in the middle of teaching poison pills to my students - and I also pointed out that 1985 was a banner year for M&A! Don't forget; Revlon was also argued that year. And I told them about Martin Lipton's importance, because his name appears in Unocal, Moran, and Revlon - but then I had to disclaim any relation, because they were all wondering :-).

Posted by: Ann Lipton | Nov 23, 2015 8:41:38 AM

Too bad Marty's not your dad. You would probably have much more money.

I don't know how I managed to leave out Revlon.

Posted by: Steve Bradford | Nov 23, 2015 9:15:30 AM

Every time I teach Moran and poison pills in Corporate Finance (since my three-credit-hour Business Associations course doesn’t permit me to get into the nuts and bolts of poison pills), I tell my students (as I mentioned in my earlier post) that the law firm I worked for, Skadden, Arps, Slate, Meagher & Flom, was on the opposite side of that case—raising all those arguments about why the poison pill should not be validated. Lots of creativity, imv, was involved in identifying and making some of those arguments

Having lost the battle in Moran, however, Skadden somewhat won the war by designing the later-and-still prevailing form of stockholder rights plan (also alluded to in my earlier post). One of my friends was on the team that wrote that flip-in/flip-over rights plan. And I committed a junior associate drafting sin (that I also describe to my Corporate Finance students) by trying to re-write portions of the stockholder rights agreement that did not need re-writing . . . . [sigh] . . .

Those were the days—the halcyon days of corporate takeovers and anti-takeover devices. I am so blessed to have been able to practice at Skadden through that era—the crazy, hazy 1980s—with some very special people. But I also am not related to Marty Lipton—or to Joe Flom, for that matter!

Thanks for the memories, Steve.

Posted by: joanheminway | Nov 25, 2015 3:49:13 AM

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