Poison Pill Still a Viable Prescription in Delaware


On March 3, 2011, the Delaware Supreme Court issued a one-page order1 affirming the Chancery Court’s decision in Yucaipa American Alliance Fund II, L.P. v. Riggio,2 which upheld the use of a shareholder rights plan — or “poison pill” — by the board of Barnes and Noble. The Supreme Court’s decision is the latest in a series of recent opinions upholding the good faith implementation of rights plans under Delaware law. In an October 2010 opinion,3 the Delaware Supreme Court upheld the Chancery Court’s decision in Selectica Inc. v. Versata Enters., Inc.,4 in which it validated the Selectica board’s use of a rights plan in an effort to prevent the lossof Selectica’s net operating loss carry forwards. And on February 15, 2011, the Delaware Court of Chancery issued its opinion in Air Products & Chemicals, Inc. v. Airgas, Inc.,5 upholding the Airgas board’s maintenance of its shareholder rights plan in response to anall-cash tender offer from Air Products.

As discussed in a prior Jackson Walker L.L.P. Corporate & Securities e-Alert, in evaluating the relevant boards’ use of the poison pill, both the Yucaipa and Selectica opinions relied on the Delaware Supreme Court’s formulation of “enhanced scrutiny,” first set forth in Unocal.6 In Airgas, the Chancery Court, also following Unocal, ruled in favor of the Airgas board, reaffirming the right of an independent board acting in good faith and after reasonable investigation to defend against a hostile tender offer.

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