Unisuper Ltd. v. News Corporation
Delaware Court of Chancery
2005 WL 3529317 (2005)
News Corporation (NC) (defendant), an Australian corporation, planned to reorganize by reincorporating as a Delaware corporation. A portion of NC’s stock was owned by Australian institutional investors (plaintiffs). Some corporate advisory firms told NC that they were concerned that, unlike Australian law, Delaware law did not require corporations to obtain shareholder approval to institute a poison pill. A poison pill is when a corporation takes an action that is meant to dilute a hostile purchaser’s power to take over control of the corporation, like giving its existing shareholders the right to buy additional, deeply discounted shares. A poison pill is sometimes referred to as a shareholder-rights plan. The advisory firms attempted to convince NC to include a provision in the Delaware certificate of incorporation that would require shareholder approval of any poison pill, but NC refused. Without this extra protection, NC’s institutional investors opposed the reorganization. By that point, NC claimed that it was too late to include the issue in the Delaware certificate of incorporation. However, NC agreed to create a board policy limiting the board of directors’ ability to institute a poison pill. Under the proposed policy, the board could still create a poison pill. However, if the shareholders did not approve the poison pill or shareholder-rights plan, then the plan would expire after one year. The policy also prohibited the board from simply passing new poison pills each year that had substantially the same terms, to sidestep the need for shareholder approval. NC put out a press release and sent a letter to all shareholders explaining these terms. The shareholders then approved the reorganization. Approximately two weeks later, a potential hostile acquirer appeared, and the board adopted a poison pill. However, the board renewed the poison pill the following year without seeking shareholder approval. Plaintiffs sued NC, alleging breach of contract, fraud, and breach of fiduciary duties. NC moved to dismiss the claims.
Rule of Law
Holding and Reasoning (Chandler, J.)
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