Unitrin, Inc. v. American General Corp.

651 A.2d 1361 (1995)

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Unitrin, Inc. v. American General Corp.

Delaware Supreme Court
651 A.2d 1361 (1995)

  • Written by Robert Cane, JD
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Facts

American General Corp. (plaintiff) sought to acquire Unitrin, Inc. (defendant). Unitrin declined. American General made an all-cash tender offer to purchase all of the shares of Unitrin at a 30 percent premium. In response, Unitrin’s board approved a poison pill and authorized a share-repurchase program for up to 10 million shares of outstanding stock. Unitrin’s directors held about 23 percent of Unitrin’s stock. Institutional investors held 42 percent of Unitrin’s stock. American General challenged Unitrin’s board’s decision to implement the share-repurchase program in the Delaware Court of Chancery. The chancery court concluded that the repurchase program was a disproportionate response to American General’s tender offer because it was “unnecessary,” and the court preliminarily enjoined Unitrin from making more repurchases. Unitrin appealed to the Delaware Supreme Court.

Rule of Law

Issue

Holding and Reasoning (Holland, J.)

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Key Terms

  • Tender OfferA publicly made offer to buy a specified number of shares, on a set date and at a set price that is usually above market value, directly from a corporation’s shareholders with the purpose of gaining control of the corporation.
  • Poison pillAlso known as a shareholder-rights plan, a corporate strategy developed in the 1980s to defend against hostile takeovers. Poison pills generally grant rights to existing shareholders, which are triggered when an outside party makes a bid for a certain percentage of the company’s stock, and which would result in the dilution of the acquirer’s holdings.
  • Unocal TestA test developed in Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985) and subsequent cases under which the court applies enhanced scrutiny to board actions taken to defend against a takeover threat. Under this test, defensive actions must not be preclusive or coercive, and they must also be reasonable and proportionate in relation to the threat posed.

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