Date decided January 11, 1995 Ruling court Delaware Supreme Court | Citation(s) 651 A.2d 1361 (Del. 1995) | |
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Full case name Unitrin, Inc., James E. Annable, Reuben L. Hedlund, Jerrold V. Jerome, George A. Roberts, Fayez S. Sarofim, Henry E. Singleton and Richard C. Vie v. American General Corp. (In re Unitrin, Inc. Shareholders Litigation) Judge(s) sitting Daniel L. Herrmann, John J. McNeilly, Jr., Henry R. Horsey, Andrew G.T. Moore II, & Andrew D. Christie People also search for Unocal Corp. v. Mesa Petroleum Co. | ||
Unitrin, Inc. v. American General Corp., 651 A.2d 1361 (Del. 1995) is the leading case on a board of directors' ability to use defensive measures, such as poison pills or buybacks, to prevent a hostile takeover. The case demonstrates an approach to corporate governance that favors the primacy of the board of directors over the will of the shareholders.
Contents
Facts
American General Corp. tendered an offer for a controlling block of shares of Unitrin. The Board of Directors of Unitrin, who held 23% of the shares, did not think the price offered was adequate and so initiated a poison pill and offered a buyback to increase their holdings to 28% of the total shares.
The trial court found that the offer represented a threat of "substantive coercion", and based on the Unocal v. Mesa Petroleum test, the poison pill was reasonable but the repurchase was not. The issue before the Supreme Court of Delaware was whether the repurchasing was a reasonable reaction to American General's threat.
Judgment
The Delaware Supreme Court found that the lower court erred in applying the Unocal standard. The court must first determine whether the defensive measure is draconian in that it has the effect of precluding or coercing shareholders choice. Only after that determination should the inquiry shift to whether the measure is within the range of reasonableness in response to the perceived threat.