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Anti-Takeover Measures in Ebay v. Craigslist
Delaware corporate jurisprudence has long recognized the utility ' and upheld the validity ' of defensive measures implemented in response to, or in anticipation of, hostile takeover threats. The overwhelming majority of the decisions in jurisprudence generally arise in the context of contests for control of publicly traded companies. Not surprisingly, attacks from the perceived raider typically assail the self-interest and self-dealing of the board of directors and management of the target, alleging that the defensive measures adopted are more intended to entrench and enrich management than they are reasonably crafted to accomplish the defensive strategy proffered as justification.
The courts have sought to create a level playing field for such disputes, emphasizing that “a corporation does not have unbridled discretion to defeat any perceived threat.” Unocal Corp. v. Mesa Petroleum Co., 493 A. 2d 946, 955 (Del. 1985). Defensive measures must be reasonable in relation to the threat posed and cannot have as their sole or primary purpose the entrenchment of management. Id. However, what happens when the majority shareholders interest is so large as to make entrenchment and self-interest an academic issue? How far can the majority shareholders of a closely held company go to repel, and further insulate their company from, the perceived threat of a predatory minority stakeholder? By what standard will the majority shareholder's conduct be measured? Will the business judgment rule apply, or will entire fairness be required in defense of the measures implemented by the majority?
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