Opinion ID: 1934995
Heading Depth: 1
Heading Rank: 24

Heading: Chancery Approves Poison Pill

Text: The second aspect or proportionality test of the initial Unocal burden required the Unitrin Board to demonstrate the proportionality of its response to the threat American General's Offer posed. The record reflects that the Unitrin Board considered three options as defensive measures: the poison pill, the advance notice bylaw, and the Repurchase Program. The Unitrin Board did not act on any of these options on July 25. On August 2, American General made a public announcement of its offer to buy all the shares of Unitrin for $2.6 billion at $50-3/8 per share. The Unitrin Board had already concluded that the American General offer was inadequate. It also apparently feared that its stockholders did not realize that the long term value of Unitrin was not reflected in the market price of its stock. On August 3, the Board met to decide whether any defensive action was necessary. The Unitrin Board decided to adopt defensive measures to protect Unitrin's stockholders from the inadequate American General Offer in two stages: first, it passed the poison pill and the advance notice bylaw; and, a week later, it implemented the Repurchase Program. With regard to the second aspect or proportionality test of the initial Unocal burden, the Court of Chancery analyzed each stage of the Unitrin Board's defensive responses separately. Although the Court of Chancery characterized Unitrin's antitrust concerns as makeweight, it acknowledged that the directors of a Delaware corporation have the prerogative to determine that the market undervalues its stock and to protect its stockholders from offers that do not reflect the long term value of the corporation under its present management plan. Paramount Communications, Inc. v. Time, Inc., 571 A.2d at 1153. The Court of Chancery concluded that Unitrin's Board believed in good faith that the American General Offer was inadequate and properly employed a poison pill as a proportionate defensive response to protect its stockholders from a low ball bid. No cross-appeal was filed in this expedited interlocutory proceeding. Therefore, the Court of Chancery's ruling that the Unitrin Board's adoption of a poison pill was a proportionate response to American General's Offer is not now directly at issue. Nevertheless, to the extent the Unitrin Board's prior adoption of the poison pill influenced the Court of Chancery's proportionality review of the Repurchase Program, the Board's adoption of the poison pill is also a factor to be considered on appeal by this Court.