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Moran v. Household Int'l

Supreme Court of Delaware, New Castle

May 21, 1985 ; November 19, 1985, Decided

No. 37, 1985

Opinion

 [*1348]  This case presents to this Court for review the most recent defensive mechanism in the arsenal of corporate takeover weaponry -- the Preferred Share Purchase Rights Plan ("Rights Plan" or "Plan"). The validity of this mechanism has attracted national attention. Amici curiae briefs have been filed in support of [**3]  appellants by the Security and Exchange Commission ("SEC") 1 and the Investment Company Institute. An amicus curiae brief has been filed in support of appellees ("Household") by the United Food and Commercial Workers International Union.

In a detailed opinion, the Court of Chancery upheld the Rights Plan as a legitimate exercise of business judgment by Household. Moran v. Household International, Inc., Del.Ch., 490 A.2d 1059 (1985). We agree, and therefore, affirm the judgment below.

The facts giving rise to this case have been carefully delineated in the Court of Chancery's opinion. Id. at 1064-69. A review of the basic facts is necessary for a complete understanding of the issues.

On August 14, 1984, the Board of Directors of Household [**4]  International, Inc. adopted the Rights Plan by a fourteen to two vote. 2 The intricacies of the Rights Plan are contained in a 48-page document entitled "Rights Agreement." Basically, the Plan provides that Household common stockholders are entitled to the issuance of one Right per common share under certain triggering conditions. There are two triggering events that can activate the Rights. The first is the announcement of a tender offer for 30 percent of Household's shares ("30% trigger") and the second is the acquisition of 20 percent of Household's shares by any single entity or group ("20% trigger").

 [*1349]  If an announcement of a tender offer for 30 percent of Household's shares is made,  [**5]  the Rights are issued and are immediately exercisable to purchase 1/100 share of new preferred stock for $100 and are redeemable by the Board for $.50 per Right. If 20 percent of Household's shares are acquired by anyone, the Rights are issued and become non-redeemable and are exercisable to purchase 1/100 of a share of preferred. If a Right is not exercised for preferred, and thereafter, a merger or consolidation occurs, the Rights holder can exercise each Right to purchase $200 of the common stock of the tender offeror for $100. This "flip-over" provision of the Rights Plan is at the heart of this controversy.

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500 A.2d 1346 *; 1985 Del. LEXIS 557 **; Fed. Sec. L. Rep. (CCH) P92,371

JOHN A. MORAN and The DYSON-KISSNER-MORAN CORPORATION, Plaintiffs Below-Appellants, and GRETL GOLTER, individually and in a derivative capacity, Plaintiff Intervenor Below-Appellant, v. HOUSEHOLD INTERNATIONAL, INC., a Delaware Corporation, DONALD C. CLARK, THOMAS D. FLYNN, MARY JOHNSTON EVANS, WILLIAM D. HENDRY, JOSEPH W. JAMES, MITCHELL P. KARTALIA, GORDON P. OSLER, ARTHUR E. RASMUSSEN, GEORGE W. RAUCH, JAMES M. TAIT, MILLER UPTON, BERNARD F. BRENNAN and GARY G. DILLON, Defendants Below-Appellees

Prior History:  [**1]  Upon appeal from Court of Chancery.

Disposition: Affirmed.

CORE TERMS

Rights, tender offer, takeover, shares, proxy, stock, appellant's contention, contest, trigger, business judgment rule, acquisition, stockholders, board of directors, authorizes, holders, offeror, hostile, tendered, redeem, certificate of incorporation, unauthorized, Appellants', provisions, Commerce, two-tier, business judgment, regulation, financing, coercive, issuance

Mergers & Acquisitions Law, Mergers, Duties & Liabilities of Directors & Officers, Takeovers & Tender Offers, Takeovers & Tender Offers, General Overview, Business & Corporate Law, Management Duties & Liabilities, Fiduciary Duties, Business Judgment Rule, Directors & Officers, Governments, Legislation, Interpretation, Corporate Governance, Constitutional Law, Supremacy Clause, Transportation Law, Interstate Commerce, Federal Preemption, Congressional Duties & Powers, Commerce Clause, Duties & Liabilities of Shareholders, Evidence, Burdens of Proof, Ultimate Burden of Persuasion, Fiduciaries, Causes of Action, Defenses