Opinion ID: 1934995
Heading Depth: 1
Heading Rank: 29

Heading: Repurchase Program

Text: Before the Repurchase Program began, Unitrin's directors collectively held approximately 23% of Unitrin's outstanding shares. Unitrin's certificate of incorporation already included a shark-repellent [19] provision barring any business combination with a morethan-15% stockholder unless approved by a majority of continuing directors or by a 75% stockholder vote (Supermajority Vote). Unitrin's shareholder directors announced publicly that they would not participate in the Repurchase Program and that this would result in a percentage increase of ownership for them, as well as for any other shareholder who did not participate. The Court of Chancery found that by not participating in the Repurchase Program, the Board expected to create a 28% voting block to support the Board's decision to reject [a future] offer by American General. [20] From this underlying factual finding, the Court of Chancery concluded that American General might be chilled in its pursuit of Unitrin: Increasing the board members' percentage of stock ownership, combined with the supermajority merger provision, does more than protect uninformed stockholders from an inadequate offer, it chills any unsolicited acquiror from making an offer. The parties are in substantial disagreement with respect to the Court of Chancery's ultimate factual finding that the Repurchase Program was a disproportionate response under Unocal. Unitrin argues that American General or another potential acquiror can theoretically prevail in an effort to obtain control of Unitrin through a proxy contest. American General argues that the record supports the Court of Chancery's factual determination that the adoption of the Repurchase Program violated the principles of Unocal, even though American General acknowledges that the option of a proxy contest for obtaining control of Unitrin remained theoretically available. The stockholder-plaintiffs argue that even if it can be said, as a matter of law, that it is acceptable under certain circumstances to leave potential bidders with a proxy battle as the sole avenue for acquiring an entity, the Court of Chancery correctly determined, as a factual matter, that the Repurchase Program was disproportionate to the threat American General's Offer posed.