24 Pages Posted: 28 Nov 2006
Date Written: 2006
This article reviews the interactions between Delaware and Federal takeover law in the context of the hostile takeover bid to acquire PeopleSoft which began with an unsolicited cash tender offer at $16.00 per share in June 2003 and ended with a negotiated deal at $26.50 per share in December 2004. The article suggests that Delaware's restrictions on shareholders, in particular the restrictions on the free alienability of shares created by the poison pill, cannot be evaluated independently of the doctrinally separate restrictions on shareholder communication provided for by the federal regime. The link between the two is Delaware's reliance on the proxy contest as the primary safety valve on misuse of the poison pill by disloyal boards and management. At the same time that Delaware law was evolving to place its faith in proxy contests as the primary source of market discipline, Washington's regulation of that very proxy system, regulation that was originally designed to protect shareholder voice, was perverted through, among other things, capture by the managerial class. The federal proxy regime is now a formidable impediment to shareholder voice, not its champion. In making proxy out the linchpin of its thinking regarding poison pills, Delaware imported all the shortcomings of the federal regime. These shortcomings upset the balance Delaware was seeking by acting as a thumb on the scale in favor of management. This state of affairs, whose shortcomings were reflected in the Oracle-Peoplesoft case, shows the need for a relaxation of restrictions on shareholder communication to provide for increased shareholder involvement in fundamental transactions. The article argues that if shareholder voice is to be the ultimate safety valve on misuse of the pill, if it is to replace alienability through a tender as the manner in which shareholders express their point of view, then shareholder communication needs to become less anathema in the eyes of the law.
Keywords: Takeovers, Oracle, PeopleSoft, poison pill, takeover defense
JEL Classification: G34, K22, L40, L86
Suggested Citation: Suggested Citation