Randy J. Holland

“ The stockholder-plaintiffs argue that even if it can be said, as a matter of law, that it is acceptable under certain circumstances to leave potential bidders with a proxy battle as the sole avenue for acquiring an entity, the Court of Chancery correctly determined, as a factual matter, that the Repurchase Program was disproportionate to the threat American General's Offer posed. ”

“ We begin, therefore, by ascertaining whether the Repurchase Program, as an addition to the poison pill, was draconian by being either coercive or preclusive.
A limited nondiscriminatory self-tender, like some other defensive measures, may thwart a current hostile bid, but is not inherently coercive. Moreover, it does not necessarily preclude future bids or proxy contests by stockholders who decline to participate in the repurchase. ”

“ Subjective Determination The subjective premise was the Court of Chancery's sua sponte determination that Unitrin's outside directors, who are also substantial stockholders, would not vote like other stockholders in a proxy contest, i.e., in their own best economic interests. At American General's Offer price, the outside directors held Unitrin shares worth more than $ 450 million. Consequently, Unitrin argues the stockholder directors had the same interest as other Unitrin stockholders generally, when voting in a proxy contest, to wit: the maximization of the value of their investments. ”

“ As American General acknowledges, a less than 15% stockholder bidder need not proceed with acquiring shares to the extent that it would ever implicate the Supermajority [p1382] Vote provision. In fact, it would be illogical for American General or any other bidder to acquire more than 15% of Unitrin's stock because that would not only trigger the poison pill, but also the constraints of 8 Del. C. § 203. If American General were to initiate a proxy contest before acquiring 15% of Unitrin's stock, it would need to amass only 45.1% of the votes assuming a 90% voter turnout. ”

“ Draconian Defenses Coercive or Preclusive Range of Reasonableness In assessing a challenge to defensive actions by a target corporation's board of directors in a takeover context, this Court has held that the Court of Chancery should [p1387] evaluate the board's overall response, including the justification for each contested defensive measure, and the results achieved thereby. Where all of the target board's defensive actions are inextricably related, the principles of Unocal require that such actions be scrutinized collectively as a unitary response to the perceived threat. ”

“ The business judgment rule is a "presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company." ”

“ American General Threat Reasonableness Burden Sustained The first aspect of the Unocal burden, the reasonableness test, required the Unitrin Board to demonstrate that, after a reasonable investigation, it determined in good faith, that American General's Offer presented a threat to Unitrin that warranted a defensive response. This Court has held that the presence of a majority of outside independent directors will materially enhance such evidence. ”

“ If a defensive measure is not draconian, however, because it is not either coercive [p1388] or preclusive, the Unocal proportionality test requires the focus of enhanced judicial scrutiny to shift to "the range of reasonableness." Paramount Communications, Inc. v. QVC Network, Inc., Del. Supr., 637 A.2d 34, 45-46 (1994) . Proper and proportionate defensive responses are intended and permitted to thwart perceived threats. When a corporation is not for sale, the board of directors is the defender of the metaphorical medieval corporate bastion and the protector of the corporation's shareholders. ”

“ Because the effect of the proper invocation of the business judgment rule is so powerful and the standard of entire fairness so exacting, the determination of the appropriate standard of judicial review frequently is determinative of the outcome of [the] litigation. ”

“ A selective repurchase of shares in a public corporation on the market, such as Unitrin's Repurchase Program, generally does not discriminate because all shareholders can voluntarily realize the same benefit by selling. ”

“ After acknowledging that the adoption of the rights plan was within the directors' statutory authority, this Court determined that the implementation of the rights plan was a proportionate response to the theoretical threat of a hostile takeover, in part, because it did not "strip" the stockholders of their right to receive tender offers and did not fundamentally restrict proxy contests, i.e., was not preclusive. ”

“ Although the Court of Chancery characterized Unitrin's antitrust concerns as "makeweight," it acknowledged that the directors of a Delaware corporation have the prerogative to determine that the market undervalues its stock and to protect its stockholders from offers that do not reflect the long term value of the corporation under its present management plan. Paramount Communications, Inc. v. Time, Inc., 571 A.2d at 1153. ”

“ Grace, 606 A.2d at 92.
This Court also specifically noted that boards of directors often interfere with the exercise of shareholder voting when an acquiror launches both a proxy fight and a tender offer. Id. at 92 n.3. [22] We then stated that such action "necessarily invoked both Unocal and Blasius" because "both [tests] recognize the inherent conflicts of interest that arise when shareholders are not permitted free exercise of their franchise." ”