The most effective tool to thwart an 
unsolicited takeover proposal

• No hostile tender offer has ever been completed where the rights plan has stayed in place
• Provides target's board with bargaining leverage /
  ability to manage takeover process

Can be adopted by board action,
without need for shareholder approval

• Board's ability to adopt a rights plan is now
  sanctioned by courts and/or statute
• Litigation now focuses on whether a board should redeem the rights to allow a particular offer to proceed
• Open question whether Delaware courts fully embrace use of a rights plan as part of a just say no defense

Adoption is often criticized by shareholder groups who submit precatory proposals at annual meetings

Can a rights plan be used indefinitely to "just say no"?

News Corp sued over rights plan

• Unisuper v News Corp Del Ch 2005
• Plaintiffs alleged that News Corp contracted, or else promised, that any extension of its poison pill would be put to a shareholder vote

• Promises were made in context of seeking shareholder approval for News Corp's reincorporation in Delaware from Australia
• News Corp later adopted rights plan without shareholder approval to address share accumulations by Liberty Media

• Plaintiffs breach of contract and promissory estoppel claims survived motion to dismiss
• Commentary

• Wachtell Lipton 1.20.06

Moran v Household  Del 1985

• Seminal decision upholding a Rights Plan

Revlon v MacAndrews & Forbes  Del 1986

• Upheld the adoption of defensive provisions, including a Rights Plan, as a response to an inadequate offer

Leonard Loventhal v Hilton Hotels

• Del Ch 2000; aff'd Del Sup 2001
• Reaffirmed Household
• Strongly endorses the validity of poison pill rights plans

Cases upholding board's decision not to redeem rights

Cases critical of use of rights plans

Louis Goodman (Skadden Arps) 1.07.87

• Covers securities registration issues

ARV Assisted Living  Inc

Irving Bank  v The Bank of New York SDNY 1988

Prohibit or limit the right of newly-elected directors to redeem an existing rights plan

• Thus making a proxy contest an ineffective means to "go over the heads" of an incumbent board to shareholders
•  Invalid under Delaware law

Mentor Graphics v Quickturn Del 1998

• Invalidated a delayed redemption ("no hand") provision
• Delaware Chancery Court decision

Carmody v Toll Brothers  Inc Del Ch 1998

• Invalidated a continuing director ("dead hand") provision
• Directors can't have distinctive voting powers unless authorized by certificate of incorporation

"Early terminations" in 2005

• Choice Hotels International Inc
• BB&T
• Circuit City Stores Inc
• FirstEnergy
• Goodyear Tire & Rubber Company
• PG&E
• Raytheon Company
• Staples Inc
• First Health Group

Terminations with "right to reinstate"

• Typically allow directors to later re-adopt a right plan, good for one year without shareholder approval
• Electronic Data Systems (EDS)

• Fortune Brands
• ChevronTexaco

• Allstate
• Bristol-Myers Squibb
• Hewlett-Packard
• JP Morgan
• Marathon Oil
• Mattel
• Visteon

Momenta Pharma 2005

Medicis 2005

Wheeling-Pittsburgh 2005

Sina 2005

Replacing rights agent

Unocal Standard  Enhanced Scrutiny