On the Validity of Poison Pill By-Laws

Abstract:     
This piece provides the brief submitted to the Delaware Chancery Court by plaintiff in the case of Bebchuk vs. CA, Inc. The case concerns the attempt by CA to exclude from the corporate ballot a stockholder proposal to adopt a proposed bylaw concerning the use of poison pills on grounds that it would be invalid under Delaware law. Under the proposed bylaw, a board would not be able to maintain a pill indefinitely without periodic determination than doing so would serve shareholders. The brief explains why, in contrast to the claims made by CA, the proposed bylaw would neither violate any of the provisions of the Delaware corporate code nor impedes directors' fulfillment of their fiduciary duties. Although the court decided that the case was not sufficiently ripe for a ruling on the validity of the proposed bylaw, the court's decision rejected CA's arguments that the bylaw is clearly invalid.

Keywords: Takeovers, takeover defenses, poison pill, bylaws, charter, fiduciary duties, corporate governance, agency costs, directors, shareholders, Delaware

JEL Classifications: D70, G30, G32, G34, G38, K22

Working Paper Series