Sugar & Cyanide: The Combinatory Effects of Poison Pills and Dual-Class Structures on Shareholder Rights

Nathan Andrews.

Corporations represent a strategic compromise by which ownership is separated from management. This structure has numerous legal and economic benefits; however, the corporate structure is especially adept in diversifying ownership. Shares, a type of security which are also often referred to as stock or common stock, represent a portion of ownership of a corporation. Shares of publicly traded corporations are available for purchase on stock exchanges throughout the world allowing virtually any entity to purchase ownership in a corporation. Typically, shareholders receive various rights through share ownership, including the right to vote for directors, who represent the diversified ownership in major decisions. A corporation’s management generally consists of a chief executive officer and various other officers, as well as intermediate and lower level management who do not necessarily have any ownership interest in the corporation.

The demarcation between officers and directors of a corporation, in terms of their duties, decision making capabilities, and overall roles is the subject of substantial literature and debate. The matter is significantly complicated in the context of an attempted takeover. In theory, an outside entity can take over a publicly traded corporation by purchasing all or a majority of its outstanding shares, but in practice, corporate boards have numerous tools at their disposal to block a takeover. These antitakeover measures have evolved continuously since the 1980s and continue to be the subject of litigation and all manner of disputes. Importantly, antitakeover measures can operate to prevent shareholders, the true equity owners of a corporation, from selling their shares to an offeror. Thus, the present state of antitakeover measures allowed by Delaware jurisprudence overly restricts takeover attempts.

Instead, the Courts should recognize the importance of takeovers in the modern economy and reevaluate the consequences of modern Delaware takeover jurisprudence. Ultimately, the current director-centric approach to takeover law improperly subordinates the interests of equity owners to that of directors. To evaluate these problems, this Comment will review and examine modern antitakeover measures and their implications: Section I provides an overview of merger law with a close look at takeovers and antitakeover measures; Section II analyzes the implications of the modern scheme, addressing the effects of solitary and combined antitakeover measures; and Section III provides possible solutions to the U.S. scheme. Section IV concludes.

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