Moran v. Household International, Inc.
Citation: 500 A.2d 1346 (Delaware Supreme Court, 1985)
Facts
Household International’s board adopted a shareholder rights plan (poison pill) — specifically a “flip-in” and “flip-over” rights plan — preemptively, without any immediate takeover threat. The rights plan would allow all shareholders except a hostile acquirer to purchase Household stock at half price if any acquirer obtained 20% or more of Household’s shares, making a hostile acquisition prohibitively expensive. A shareholder and a director challenged the adoption of the pill as beyond the board’s authority and as a breach of fiduciary duty.
Issue
Whether a board of directors has the legal authority to adopt a shareholder rights plan (poison pill) without shareholder approval, and whether doing so violates fiduciary duties.
Holding
Yes, the board has authority under Delaware law to adopt a poison pill without shareholder approval, and the adoption here satisfied the Unocal enhanced scrutiny standard. The pill was upheld.
Rule
A board may adopt a shareholder rights plan pursuant to its broad authority under Delaware law (DGCL §§ 141, 157) to issue rights to purchase securities. The adoption of a pill is subject to Unocal enhanced scrutiny when challenged, but a pill adopted as a proportionate defensive measure against the general threat of coercive or inadequate takeover bids satisfies that standard. Critically, the pill does not preclude all takeovers — it can be redeemed by the board, and thus preserves board discretion without categorically blocking acquisitions.
Significance
Moran validated the poison pill as a legal defensive tool and is one of the most consequential corporate law decisions ever, given how ubiquitous shareholder rights plans became in public company practice. The case is taught for: (1) board authority to act unilaterally in the defensive posture, (2) application of Unocal to a non-crisis adoption of a defensive measure, and (3) the judicial logic that a pill is permissible because it is redeemable — the board cannot use it to absolutely block all bids, only to give itself time to consider alternatives. Moran is a companion case to Unocal.