Unitrin, Inc. v. American General Corp.
- Unitrin, Inc. v. American General Corp.
"Unitrin, Inc. v. American General Corp.", Del. Supr., 651 A.2d 1361 (1995) is the leading case on a board of directors' ability to use defensive measures, such as poison pills or buy backs, to prevent a hostile takeover. The case demontrates an approach to corporate governance that favours the primacy of the board of directors over the will of the shareholders.
United Insurance Company of American
United Insurance Company of American
One East Wacker Drive
Chicago, Illinois 60601
Tel: 312-661-4500
Group Affiliation: [http://www.emporis.com/en/wm/bu/?id=116833 Unitrin, Inc]
Background
American General Corp tendered an offer for a controlling block of shares of Unitrin. The Board of Directors of Unitrin, who held 23% of the shares, did not think the price offered was adequate and so initiated a poison pill and offered a buyback to increase their holdings to 28% of the total shares.
The trial court found that the offer represented a threat of "substantial coercion", and based on the "Unocal v. Mesa Petroleum" test, the poison pill was reasonable but the repurchase was not. The issue before the Supreme Court of Delaware was whether the repurchasing was a reasonable reaction to American General's threat.
Opinion of the Court
The Supreme Court found that the lower court erred in applying the Unocal standard. The court must first determine whether the defensive measure is draconian in that it has the effect of precluding or coercing shareholders choice. Only after that determination should the inquiry shift to whether the measure is within the range of reasonableness in response to the perceived threat.
ee also
* "Unocal v. Mesa Petroleum", 493 A.2d 946 (Del. 1985)
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