Opinion ID: 1934995
Heading Depth: 1
Heading Rank: 53

Heading: Proportionate With Poison Pill

Text: In this case, the initial focus of enhanced judicial scrutiny for proportionality requires a determination regarding the defensive responses by the Unitrin Board to American General's offer. We begin, therefore, by ascertaining whether the Repurchase Program, as an addition to the poison pill, was draconian by being either coercive or preclusive. A limited nondiscriminatory self-tender, like some other defensive measures, may thwart a current hostile bid, but is not inherently coercive. Moreover, it does not necessarily preclude future bids or proxy contests by stockholders who decline to participate in the repurchase. Cf. AC Acquisitions Corp. v. Anderson, Clayton & Co., Del. Ch., 519 A.2d 103 (1986) (enjoining a coercive self-tender and restructuring plan). A selective repurchase of shares in a public corporation on the market, such as Unitrin's Repurchase Program, generally does not discriminate because all shareholders can voluntarily realize the same benefit by selling. See Larry E. Ribstein, Takeover Defenses and the Corporate Contract, 78 Geo.L.J. 71, 129-31 (1989). See also Michael Bradley & Michael Rosenzweig, Defensive Stock Repurchases, 99 Harv.L.Rev. 1377 (1986). Here, there is no showing on this record that the Repurchase Program was coercive. We have already determined that the record in this case appears to reflect that a proxy contest remained a viable (if more problematic) alternative for American General even if the Repurchase Program were to be completed in its entirety. Nevertheless, the Court of Chancery must determine whether Unitrin's Repurchase Program would only inhibit American General's ability to wage a proxy fight and institute a merger or whether it was, in fact, preclusive [39] because American General's success would either be mathematically impossible or realistically unattainable. If the Court of Chancery concludes that the Unitrin Repurchase Program was not draconian because it was not preclusive, one question will remain to be answered in its proportionality review: whether the Repurchase Program was within a range of reasonableness? The Court of Chancery found that the Unitrin Board reasonably believed that American General's Offer was inadequate and that the adoption of a poison pill was a proportionate defensive response. Upon remand, in applying the correct legal standard to the factual circumstances of this case, the Court of Chancery may conclude that the implementation of the limited Repurchase Program was also within a range of reasonable additional defensive responses available to the Unitrin Board. In considering whether the Repurchase Program was within a range of reasonableness the Court of Chancery should take into consideration whether: (1) it is a statutorily authorized form of business decision which a board of directors may routinely make in a non-takeover context; [40] (2) as a defensive response to American General's Offer it was limited and corresponded in degree or magnitude to the degree or magnitude of the threat, ( i.e., assuming the threat was relatively mild, was the response relatively mild?); (3) with the Repurchase Program, the Unitrin Board properly recognized that all shareholders are not alike, and provided immediate liquidity to those shareholders who wanted it. [41] The Court of Chancery's holding in Shamrock, cited with approval by this Court in Time, [42] appears to be persuasive support for the proportionality of the multiple defenses Unitrin's Board adopted. In Shamrock, the Court of Chancery concluded that the Polaroid board had a valid basis for concern that the Polaroid stockholders [like Unitrin's stockholders] will be unable to reach an accurate judgment as to the intrinsic value of their stock. Shamrock Holdings, Inc. v. Polaroid Corp., 559 A.2d at 290. The Court of Chancery also observed, the likely shift in the stockholder profile in favor of Polaroid as a result of the repurchase plan appears to be minimal. Id. Consequently, the Court of Chancery concluded that Polaroid's defensive response as a whole  the ESOP, the issuance of stock to a friendly third party and the stock repurchase plan  was not disproportionate to the Shamrock threat or improperly motivated, and individually or collectively will [not] preclude the successful completion of Shamrock's tender offer. Id. at 288. American General argues that the all cash for all shares offer in Shamrock is distinguishable because Shamrock involved a hostile tender offer, whereas this case involves a fully negotiable Offer to enter into a consensual merger transaction. Nevertheless, American General acknowledges that a determinative factor in Shamrock was a finding that the defensive responses had only an incidental effect on the stockholder profile for the purpose of a proxy contest, i.e., was not preclusive. See id. at 286-288. In Shamrock, the Court of Chancery's proportionality holding was also an implicit determination that the series of multiple defensive responses were within a range of reasonableness.