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Recent Delaware Cases Regarding Poison Pills

By Harvard Law School Program on Corporate Governance

Delaware courts have recently ruled on the validity of a shareholder rights plan, or ?poison pill,? in two situations that presented issues of first impression under Delaware law. On August 12, 2010, Vice Chancellor Strine, in Yucaipa American Alliance Fund II, L.P. v. Riggio, C.A. No. 5465-VCS (Del. Ch. Aug. 12, 2010), upheld the use of a poison pill with a 20 percent threshold to delay a possible takeover of Barnes & Noble by funds controlled by Ronald Burkle, even though the founder and chairman of Barnes & Noble, Leonard Riggio, controlled more than 30 percent of the company?s outstanding common stock.

Less than a month later, on September 9, 2010, Chancellor Chandler, in eBay Domestic Holdings, Inc. v. Newmark, et al., C.A. No. 3705-CC (Del. Ch. Sept. 9, 2010), rescinded a poison pill adopted by the directors of craigslist because the court found that the purpose of the pill was to punish eBay, the holder of about 28 percent of craigslist?s outstanding common stock, rather than to protect the company or its shareholders from economic harm. These cases demonstrate the willingness of the Delaware courts to uphold the use of poison pills when directors can make a reasonable argument that they are being used to protect the economic interest of shareholders and the unwillingness of those courts to permit the use of poison pills in other circumstances.

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Full post as published by The Harvard Law School Corporate Governance Blog on October 10, 2010 (boomark / email).