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Moran v. Household International, Inc.
Delaware Supreme Court
500 A.2d 1346 (Del. 1985)
Household International, Inc.’s (Household) (defendant) director, Moran (plaintiff), was chairman of Dyson-Kissner-Moran Corporation (DKM) (plaintiff), Household’s largest shareholder. DKM suggested a buyout. A financial survey showed that Household’s assets were worth more than its share price reflected. Household’s board became concerned about bust-up takeovers and two-tier tender offers. The board adopted a “poison pill” shareholders’ rights plan. Under the plan, shareholders would be issued one right per common share allowing the holder to buy 1/100 of a share of preferred stock if a triggering event occurred. If a tender offer was made for 30 percent of Household’s shares, the right issued fully exercisable. The board could redeem the right for $0.50. If one entity acquired 20 percent of shares, non-redeemable rights issued. After the merger, unexercised rights allowed holders to buy the offeror’s common stock for half price under a “flip-over” provision. Moran and DKM sued in the Delaware Court of Chancery to challenge the provision. The chancery court affirmed the rights plan as a valid exercise of the Household board’s business judgment. The plaintiffs appealed to the Delaware Supreme Court.
Rule of Law
Holding and Reasoning (McNeilly, J.)
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