The Delaware Chancery Court has determined that in the context of a tender offer, a corporation's board of directors, and not its shareholders, has the authority to decide the adequacy of, and whether to accept, that tender offer. The court also determined that a board that has made a good faith reasonable determination that a tender offer is inadequate may block the tender offer via the use of a shareholder rights plan (a/k/a a poison pill) and a staggered board regardless of shareholder interest in acceptance of the offer.
In this case, the offeror asked the court to order the target company's board of directors to redeem the poison pill and allow its shareholders to decide for themselves whether they wanted to tender their shares to the offeror pursuant to the tender offer. The court ruled that because the target company's board made a reasonable and good faith determination, the target company suffered a legally cognizable threat in the form of an inadequate bid price, and because a majority of the target company's shareholders would likely tender their shares pursuant to the offer, the board was entitled to take defensive measures to block the offeror's bid.
The court's decision in this case supports prior Delaware case law affirming the use of a shareholder rights plan as a valid takeover defense.
Air Products and Chemicals, Inc. v. Airgas, Inc. et al, C.A. 5249-CC (Del. Ch. Feb. 15, 2011)