Corporate Governance

Selectica v. Versata Enterprises: The Irrelevance of Shareholder Discrimination (Part 6)

By J Robert Brown Jr.

So what will be the impact of Selectica?  The analysis that a pill set at 5% is not preclusive provides incentive for companies to make use of this threshold.  Moreover, the analysis, essentially concluding that the low threshold made proxy contests more difficult but was not preclusive, would actually apply to pills set at an even lower threshhold.  These are likely to remain rare because the 5% threshold will in most cases be sufficient.  Nonetheless, pills with the trigger set at even lower numbers will become more common.

The other significance about the case is the irrelevancy that the triggering shareholder was already above the trigger when it was set.  In other words, the court validated a pill designed specifically to stop a particular shareholder from any additional purchases.  The case, therefore, makes clear that pills will also have a major role in stopping purchases, even at low levels.  If a known takeover artist, for example, starts to purchase, a pill could be adopted to put an end to the program even at thresholds below 5%. 

Full post as published by The Race to the Bottom on April 10, 2010 (boomark / email).