''Unitrin, Inc. v. American General Corp.'', 651 A.2d 1361 (Del. 1995) is the leading case on a
board of directors
A board of directors is a governing body that supervises the activities of a business, a nonprofit organization, or a government agency.
The powers, duties, and responsibilities of a board of directors are determined by government regulatio ...
' ability to use defensive measures, such as
poison pills or
buybacks, to prevent a
hostile takeover
In business, a takeover is the purchase of one company (law), company (the ''target'') by another (the ''acquirer'' or ''bidder''). In the UK, the term refers to the acquisition of a public company whose shares are publicly listed, in contrast t ...
. The case demonstrates an approach to
corporate governance
Corporate governance refers to the mechanisms, processes, practices, and relations by which corporations are controlled and operated by their boards of directors, managers, shareholders, and stakeholders.
Definitions
"Corporate governance" may ...
that favors the primacy of the board of directors over the will of the shareholders.
Background
American General Corp. tendered an offer for a controlling block of shares of Unitrin. The board of directors of Unitrin, who held 23% of the shares, did not think the price offered was adequate and so initiated a poison pill and offered a buyback to increase their holdings to 28% of the total shares.
The trial court found that the offer represented a threat of "substantive coercion", and based on the ''
Unocal v. Mesa Petroleum'' test, the poison pill was reasonable but the repurchase was not. The issue before the Supreme Court of Delaware was whether the repurchasing was a reasonable reaction to American General's threat.
Judgment
The Delaware Supreme Court found that the
Delaware Court of Chancery
The Delaware Court of Chancery is a court of equity in the U.S. state of Delaware. It is one of Delaware's three constitutional courts, along with the Supreme Court and Superior Court. Since 2018, the court consists of seven judges. The cour ...
erred in its application of the Unocal standard. The court must first determine whether the defensive measure is "draconian" in that it has the effect of precluding or coercing shareholders choice. Only after that determination should the inquiry shift to whether the measure is within the range of reasonableness in response to the perceived threat.
In the case, the Supreme Court did not find the repurchasing action was per se preclusive or coercive, and remanded the case to the Court of Chancery to determine if the poison pill and repurchase plan were "within the range of reasonable defensive measures."
See also
* ''
Unocal v. Mesa Petroleum'', 493 A.2d 946 (Del. 1985)
References
External links
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{{DEFAULTSORT:Unitrin, Inc. V. American General Corp.
United States corporate case law
Delaware state case law
1995 in United States case law
1995 in Delaware