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Corporate Governance

: The Harvard Law School Corporate Governance Blog

Delaware Issues Important Poison Pill Opinion

By Harvard Law School Program on Corporate Governance

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Editor?s Note: Eduardo Gallardo is a partner focusing on mergers and acquisitions at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn Client Alert regarding the Delaware Court of Chancery's decision in Yucaipa American Alliance Fund II, L.P. v. Riggio et al., which is available here.

On August 11, 2010, the Delaware Court of Chancery issued an important opinion in the area of stockholder rights plans, or poison pills. Vice Chancellor Strine's opinion in Yucaipa American Alliance Fund II, L.P. v. Riggio et al., 2010 WL 3170806 (Del. Ch. Aug. 11, 2010), reaffirms Delaware's traditional deference to a board's well-informed and well-reasoned implementation of antitakeover measures, and gives meaningful guidance to boards and their advisors in the implementation of poison pills and other defensive measures in the face of a potential unsolicited change in control situation.

The case arose out of Barnes & Noble's implementation of a poison pill as a response to the rapid stock accumulation on the part of funds associated with Ronald Burkle ("Yucaipa"), which had approximately doubled their stake in Barnes & Noble to nearly 18% over a four day period in November 2009. Barnes & Noble's pill would be triggered when a shareholder acquired over 20% of Barnes & Noble's outstanding stock. The pill would also be triggered when two or more stockholders, who combined own over 20%, enter into an "agreement, arrangement or understanding . . . for the purpose of acquiring, holding, voting . . . or disposing of any voting securities of the Company." The poison pill's 20% threshold did not apply to Barnes & Noble's chairman and founder Leonard Riggio, whose approximately 30% stake was grandfathered under the terms of the implemented pill. However, the pill did limit Riggio from further increasing his stake in the company. Yucaipa challenged the implementation of the poison pill by Barnes & Noble's board of directors, claiming that such action, and the board's subsequent refusal to amend the pill, was a breach of the board's fiduciary duties.

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Full post as published by The Harvard Law School Corporate Governance Blog on August 24, 2010 (boomark / email).