Opinion ID: 1934995
Heading Depth: 1
Heading Rank: 31

Heading: Shareholder Franchise

Text: This Court has been and remains assiduous in its concern about defensive actions designed to thwart the essence of corporate democracy by disenfranchising shareholders. Paramount Communications, Inc. v. QVC Network, Inc., Del.Supr., 637 A.2d 34, 42 n. 11 (1994). See also Stroud v. Grace, Del. Supr., 606 A.2d 75 (1992). For example, when this Court concluded that rescheduling an annual meeting date directly manifested an entrenchment motive on the part of a board, we stated: [M]anagement has attempted to utilize the corporate machinery and the Delaware Law for the purpose of perpetuating itself in office; and, to that end, for the purpose of obstructing the legitimate efforts of dissident stockholders in the exercise of their rights to undertake a proxy contest against management. These are inequitable purposes, contrary to established principles of corporate democracy. Schnell v. Chris-Craft Indus., Inc., Del. Supr., 285 A.2d 437, 439 (1971). See also Paramount Communications, Inc. v. QVC Network, Inc., 637 A.2d at 42 n. 11. Nevertheless, this Court has upheld the propriety of adopting poison pills in given defensive circumstances. Keeping a poison pill in place may be inappropriate, however, when those circumstances change dramatically. See Moran v. Household Int'l, Inc., Del. Supr., 500 A.2d 1346, 1355 (1985). Cf. Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., Del.Supr., 506 A.2d 173, 179 (1986). Similarly, this Court has recognized the propriety of implementing certain repurchase programs (as in Unocal itself), as well as the unreasonableness and non-proportionality of responding defensively to a takeover bid with a coercive and preclusive partial self-tender offer. See Paramount Communications, Inc. v. Time, Inc., Del.Supr., 571 A.2d 1140, 1154 (1990) ( citing AC Acquisitions Corp. v. Anderson, Clayton & Co., Del.Ch., 519 A.2d 103 (1986)). More recently, this Court stated: we accept the basic legal tenets, set forth in Blasius Indus., Inc. v. Atlas Corp., Del.Ch., 564 A.2d 651 (1988), [21] that [w]here boards of directors deliberately employ[] . . . legal strategies either to frustrate or completely disenfranchise a shareholder vote, ... [t]here can be no dispute that such conduct violates Delaware law. Stroud v. Grace, 606 A.2d at 91. In Stroud, we concluded, however, that a Blasius analysis was inappropriate. We reached that conclusion because it could not be said that the `primary purpose' of the board's action was to interfere with or impede exercise of the shareholder franchise, and because the shareholders had a full and fair opportunity to vote. Stroud v. Grace, 606 A.2d at 92. This Court also specifically noted that boards of directors often interfere with the exercise of shareholder voting when an acquiror launches both a proxy fight and a tender offer. Id. at 92 n. 3. [22] We then stated that such action necessarily invoked both Unocal and Blasius  because both [tests] recognize the inherent conflicts of interest that arise when shareholders are not permitted free exercise of their franchise. Id. Consequently, we concluded that, [i]n certain circumstances, [the judiciary] must recognize the special import of protecting the shareholders' franchise within Unocal's requirement that any defensive measure be proportionate and `reasonable in relation to the threat posed.' Id. (citation omitted). [23]