Moran v. Household Int'l Inc.

500 A.2d 1346 (1985)

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Nature of the Case

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Facts

D adopted the Rights Plan that provides that D common stockholders are entitled to the issuance of one Right per common share under certain triggering conditions. There are two triggering events that can activate the Rights. The first is the announcement of a tender offer for 30 percent of D's shares ('30% trigger') and the second is the acquisition of 20 percent of D's shares by any single entity or group ('20% trigger'). If an announcement of a tender offer for 30 percent of D's shares is made, the Rights are issued and are immediately exercisable to purchase 1/100 share of new preferred stock for $100 and are redeemable by the Board for $.50 per Right. If 20 percent of D's shares are acquired by anyone, the Rights are issued and become non-redeemable and are exercisable to purchase 1/100 of a share of preferred. If a Right is not exercised for preferred, and thereafter, a merger or consolidation occurs, the Rightsholder can exercise each Right to purchase $200 of the common stock of the tender offeror for $100. This is known as a 'flip-over' provision of the Rights Plan. D's board adopted the plan as a preventive mechanism to ward off future advances. D's management became concerned about the company's vulnerability as a takeover target and began considering amending its charter to render a takeover more difficult. P, one of Household's own Directors and also Chairman of the Dyson-Kissner-Moran Corporation, ('D-K-M'), which is the largest single stockholder of D, began discussions concerning a possible leveraged buy-out of D by D-K-M. The poison pill Plan was approved. P filed this suit. The Court of Chancery ruled in favor of D holding that the plan was a legitimate exercise of business judgment by D's board. P appealed.