Academic

I have a few thoughts about Chancellor Chandler's opinion in eBay v. Newmark:

1.  Since when does Delaware care about oppressed minority shareholders?  My senior English teacher (who later went to law school) tended to digress some (like me), and when we studied Hamlet, she warned us that kids could deal with good parents and with bad parents, but got really screwed up if parents were good sometimes and bad sometimes.  So, she told us, if you're bad, be consistent.  I was reminded of this when reading the eBay opinion.  I could deal if Delaware just didn't recognize oppression doctrine, but here the Court seems to use the policies of shareholder oppression to come to a doctrinal conclusion that favors the minority shareholder (eBay).

What I was predicting we would see is the usual argument:  "eBay knew that it was investing as a minority shareholder in a Delaware corporation and at that time could negotiate for all the protections it needed.  In fact, it negotiated for an agreement that held certain protections, but agreed that those protections would disappear should eBay choose to compete with craigslist.  In choosing to compete with craigslist, eBay, a sophisticated player with ample legal and business counsel, made its bed."  However, the Court doesn't say that.  In fact, it hints that it would have liked to have pursued a breach of the duty of good faith and fair dealing as applied to their shareholder agreement.  Wow.  The next thing I'm waiting for is the word "unconscionability."

If anything, the Court's "suck it up rational actor in a nexus of contracts" speech is saved for craigslist, who "opted to form craigslist, Inc. as a for-profit Delaware corporation and voluntarily accepted millions of dolalrs from eBay as part of a transaction whereby eBay became a stockholder."

2.  Since when does Delaware care about takeover offerors?  (And someone come up with a good noun for those who would like to launch a takeover.)  If you were an attorney consulting with a board of directors who were going to institute a rights plan, then you would show them lines of precedent in which Delaware has upheld right plans against takeover shareholders.  As long as you don't jump from the poison pill cases to the "interference with the shareholder franchise" Blasius-type cases, then you're ok.  But, here, the rights plan breaches fiduciary duties.  Why?

Perhaps because it isn't necessary.  Unocal is actually a very circular standard, which almost promises that the board will win.  For the Unocal heightened scrutiny to kick in, the board has to be acting defensively against a takeover threat.  The board action (rights plan) will be upheld if it is proportional to that threat and for a proper corporate purpose.  So, if there is a real threat, heightened scrutiny will kick in, but that real threat will also provide the defense the board needs to act defensively. 

The eBay case is an odd duck because there is no takeover threat.  At best, eBay owns less than 30% of the shares, and ALL THE OTHER SHARES are owned by "Jim" and "Craig" as the Court refers to them.  (Mostly so we can call their agreement the "Jim-Craig Agreement.")  Without stating the obvious, craigslist is a privately-held company; it cannot be subject to a hostile takeover as long as Jim and Craig don't sell their shares.

So, if there is no real or perceived takeover threat, then why does Unocal kick in at all?  The Court seems to say that Unocal has to apply because this is a rights plan, rights plans are defensive measures, and Unocal applies to rights plans and defensive measures.  OK, but there is no takeover to get defensive about!  Here, Jim and Craig are probably actually acting offensively -- trying to diminish the value of eBay's holdings so that eBay will sell out and go home.  There may be a flipside argument that Jim and Craig are acting defensively -- they want to diminish the value of eBay's holdings so that eBay won't be able to make their lives so miserable that they sell out to eBay broken people.  But surely they can steel themselves against that.  The only thing they can be defending against is having to constantly fight with eBay about the corporate culture of craigslist, and the Court will make mincemeat of that.  (And, with the new staggered board, eBay won't have a rep on the board, so this fighting will be relegated out of the boardroom.)

If Unocal doesn't kick in, then Jim and Craig's rights plan actions are judged under the BJR, so they win, unless Delaware wants to suddenly embrace the shareholder oppression doctrine.  So, the Court must find that Unocal applies in order to find for eBay without completely changing minority shareholder rights forever in Delaware.

Except that Unocal becomes unwieldy here.  So now we have to ask a completely inapposite question in this context:  was the rights plan a reasonable action in response to the perceived threat?  And so then now, under the inapplicable question, Jim and Craig lose because they "in fact did not adopt the Rights Plan in response to a reasonably perceived threat or for a proper corporate purpose." 

So, we keep the shareholder oppression doctrine neat and clean, and we also keep the Unocal progeny line clean.  The next rights plan case involving a publicly-held corporation with an actual takeover situation will be easily distinguishable from eBay v. Newmark.  And the next shareholder oppression case won't have a poison pill.  This case will stand on its own.

That's enough for me.  I'll leave it to our corporate governance experts to correct my errors and provide able commentary.