79 Pages Posted: 28 Jun 2010 Last revised: 29 Jun 2010
Date Written: June 28, 2010
The Delaware Chancery Court recently applied the Unitrin case to uphold the validity of an NOL Rights Plan with a 5 percent trigger level in Selectica, Inc. v. Versata Enterprises, Inc. The Chancery Court’s ruling is sufficiently expansive that it sanctions the reduction of Rights Plans’ trigger levels to 5 percent at all Delaware corporations. Using a weighted voting model, we show that such an across the board reduction of trigger levels would have important, unanticipated consequences. In particular, we demonstrate that it would favor hedge funds and private equity firms at the expense of strategic acquirers, and that it would greatly increase the power of third party proxy voting advisors. We conclude that the Delaware Supreme Court should consider these unintended side effects in crafting its decision in this case, and that it should adopt an expansive reading of the meaning of preclusive defensive tactics based on its earlier precedent in Unitrin and Moran.
Keywords: takeover, proxy contest, corporate voting, weighted voting, poison pill, Rights Plan
JEL Classification: K22, G30, G34
Suggested Citation: Suggested Citation
Edelman, Paul H. and Thomas, Randall S., Resetting the Trigger on the Poison Pill: Selectica's Unanticipated Consequences (June 28, 2010). Vanderbilt Law and Economics Research Paper No. 10-16. Available at SSRN: https://ssrn.com/abstract=1631941 or http://dx.doi.org/10.2139/ssrn.1631941