What to Do When the Barbarians are At the Gate

There is nothing quite as exciting in the corporate arena as a takeover bid, particularly a hostile one. It is true that large Chapter 11 filings and anticipated IPOs generate a certain amount of drama, and corporate corruption also makes for an entertaining read. Yet these situations still wilt anemically when compared to unwanted corporate takeovers.  Academicians and legislators may favor the more refined term, “acquisition,” but that does not alter the reality of the situation – one corporation is seeking to take over another and it is exciting stuff.
 
The imagery is positively Arthurian: the bidders are a Barbarian horde amassed at the foot of a once mighty castle; the officers of the target are the royal family of a fading empire, scrambling to keep their kingdom intact. The names of some takeover defenses underscore this medieval theme – the “white knight” or “grey knight” and the “crown jewel.” 
 
Other defense names are equally dramatic, if decidedly less medieval. The “poison pill” conjures images of espionage, assassinations via mysterious powders dropped from opened black capsules into bubbling champagne by nefarious femmes-fatale. The “Pac-Man” defense calls to mind a rapacious, remorseless computerized eating machine. (Anyone who finds my characterization of the Pac-Man defense to be hyperbole never stood in front of one of these machines and emptied their entire allowance into it in less than an hour as I did.)
 
Into this image-rich metaphorical fray leap Donald J. Wolfe, Jr. and Michael A. Pittenger, the LexisNexis Business and Corporate Law Center’s own Jagger/Richards. Wolfe and Pittenger are the authors of the treatise Corporate and Commercial Practice in Delaware Court of Chancery*, which has been an integral part of the corporate practitioner’s library for almost 10 years, and no less than eight expert commentaries. One of those commentaries, Wolfe and Pittenger on Revlon, Inc. and New Standard of Judicial Review describes a standard, regarding takeovers, where:
 
in certain limited circumstances indicating that the sale or break-up of the company is inevitable, the fiduciary obligation of the directors of a target corporation are narrowed significantly; the singular responsibility of the board being to maximize immediate stockholder value by securing the highest price available.
 
In short, to extend my medieval takeover metaphor to (and perhaps past) the breaking point, when the Visigoths are tearing down the gates and the castle is going to fall, it is no longer a King or Queen’s job to try and defend the castle to the man, perhaps at the expense of the Serfs who might still have to live there when the new owners take over. Instead, due diligence requires them to secure the best deal for those Serfs, either with the horde at the castle wall, or perhaps with another, slightly more agreeable, horde.
 
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