Opinion ID: 1934995
Heading Depth: 1
Heading Rank: 22

Heading: Reasonableness Burden Sustained

Text: The first aspect of the Unocal burden, the reasonableness test, required the Unitrin Board to demonstrate that, after a reasonable investigation, it determined in good faith, that American General's Offer presented a threat to Unitrin that warranted a defensive response. This Court has held that the presence of a majority of outside independent directors will materially enhance such evidence. Unocal, 493 A.2d at 955. Accord Paramount Communications, Inc. v. Time, Inc., Del.Supr., 571 A.2d 1140, 1154 (1990); Polk v. Good, Del.Supr., 507 A.2d 531, 537 (1986); Moran v. Household Int'l, Inc., Del.Supr., 500 A.2d 1346, 1356 (1985). An outside director has been defined as a non-employee and non-management director, ( e.g., Unitrin argues, five members of its seven-person Board). See Grobow v. Perot, Del.Supr., 539 A.2d 180, 184 n. 1 (1988). Independence means that a director's decision is based on the corporate merits of the subject before the board rather than extraneous considerations or influences. Aronson v. Lewis, Del.Supr., 473 A.2d 805, 816 (1984). [15] The Unitrin Board identified two dangers it perceived the American General Offer posed: inadequate price and antitrust complications. The Court of Chancery characterized the Board's concern that American General's proposed transaction could never be consummated because it may violate antitrust laws and state insurance regulations as a makeweight excuse for the defensive measure. It determined, however, that the Board reasonably believed that the American General Offer was inadequate and also reasonably concluded that the offer was a threat to Unitrin's uninformed stockholders. The Court of Chancery held that the Board's evidence satisfied the first aspect or reasonableness test under Unocal. The Court of Chancery then noted, however, that the threat to the Unitrin stockholders from American General's inadequate opening bid was mild, because the Offer was negotiable both in price and structure. [16] The court then properly turned its attention to Unocal's second aspect, the proportionality test because [i]t is not until both parts of the Unocal inquiry have been satisfied that the business judgment rule attaches to defensive actions of a board of directors. Paramount Communications, Inc. v. Time, Inc., 571 A.2d at 1154. [17] See Unocal, 493 A.2d at 955.