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DBA 302
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Law
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Nov 24, 2024
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docx
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3
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What is the standard of review that the Delaware Supreme Court used in Cheff v. Mathes to
evaluate the validity of the board's decision in the principal case?
Burden proof. The court shoved the burden to the defendant directors to demonstrate that they
had reasonable grounds that the hostile tender threatened and consisted danger to the business
policy and effectiveness. This would prove that the directors acted in good faith and not merely
as a way to perpetuate control of the company (Adolff, 2012).
In what sense do the facts of the principal case give rise to a conflict of interest?
The plaintiff alleged that the purchase of the company's shares using the corporate fund was in
the incumbent directors' interests, ensuring they continued to perpetuate the control. The
directors acted with an impure motive of desiring to maintain the company control. It can be
argued that they worked with self-interest to stop the Maremont entrance into the board.
Maremont disapproved of the method used in their marketing and was a proponent of wholesaler
marketing strategy. The holland directors felt threatened that then allowing Maremont into their
board threatened the company's future. It also against the company policy for the directors to use
the corporate funds to purchase premium shares for their interests.
3.
What is "greenmail?"
Greenmail is the practice of a person or the company buying a significant number of shares in a
given company with intentions of threatening a hostile takeover and misusing the threat to coerce
the target company to repossess the shares at a premium price. In mergers and acquisitions, the
company may make greenmail payment as a defensive way to impede the takeover bid (Armour,
Jacobs & Milhaupt, 2011).
4.
Describe the "poison pill" and the Delaware Supreme Court's position of validity concerning
it.
The poison pill is a defense strategy applied by the target company to discourage or prevent a
potential hostile takeover bid by an acquiring firm. Potential target firms use the tactic to appear
less attractive to a potential acquirer. This strategy allows existing shareholders to purchase
additional shares at discounted prices diluting the ownership interests. The Delaware supreme
court upheld the poison pill's validity with a 4.99% trigger aimed to protect a firm's net operating
losses and subsequent use of the poison pill to eliminate future threats to those net operating
losses. Heron, R. A., & Lie, E. (2015)
References
Armour, J., Jacobs, J. B., & Milhaupt, C. J. (2011). The evolution of hostile takeover regimes in
developed and emerging markets: An analytical framework.
Harv. Int'l LJ
,
52
, 219.
Heron, R. A., & Lie, E. (2015). The effect of poison pill adoptions and court rulings on firm
entrenchment.
Journal of Corporate Finance
,
35
, 286-296.
Adolff, E. A. (2012). The Business Judgment Rule and Anti-Takeover Defensive Tactics:
Ivanhoe Partners v. Newmont Mining Corp.
St. John's Law Review
,
62
(4), 7.
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