Corporate Governance

Selectica, the Delaware Supreme Court, and the Effort to Limit Access

By J Robert Brown Jr.

We are examining the Delaware Supreme Court's recent decision in Selectica.  The opinion affirmed the validity of a poison pill with a 5% trigger.  ?

Unitrin also prohibited poison pills that had a preclusive effect on proxy contests.  Preclusive meant that success was "realistically unattainable."  As the Court described:

• A defensive measure is preclusive where it 'makes a bidder's ability to wage a successful proxy contest and gain control either ‘mathematically impossible' or ‘realistically unattainable.'' A successful proxy contest that is mathematically impossible is, ipso facto, realistically unattainable. Because the 'mathematically impossible' formulation in Unitrin is subsumed within the category of preclusivity described as 'realistically unattainable,' there is, analytically speaking, only one test of preclusivity: 'realistically unattainable.'

Yet as we will show in the next post, the Court did not apply a "realistically unattainable" standard.  As long as a proxy contest is mathematically possible, Selectica indicates that the Court will find the that the pill does not make a proxy contest "realistically unattainable."

For materials from the lower court proceedings, access the DU Corporate Governance web site.

Full post as published by The Race to the Bottom on October 25, 2010 (boomark / email).