The Delaware Supreme Court recently issued its opinion affirming the Chancery Court decision in Selectica, Inc. v. Versata, Inc. The Chancery Court held earlier this year that a “poison pill” shareholder rights plan with a 4.99% trigger, implemented by the board of Selectica to protect against the company’s net operating loss carryforwards (NOLs), met the Unocal standard of review and is valid under Delaware law. For a previous discussion by this blog of the Chancery Court’s decision, click here.

Versata and its parent, Trilogy, appealed the Chancery Court decision, asserting that the court erred in applying the Unocal test for enhanced judicial scrutiny and that the NOL poison pill, either individually or in combination with a classified board of directors, had a preclusive effect on the shareholders’ ability to pursue a successful proxy contest for control of the Company’s board. The Supreme Court affirmed the Chancery Court’s conclusion that Unocal is the appropriate test, concluding that (1) the board had reasonable grounds for concluding that the NOLs were an asset worth protecting, and (2) the use of the poison pill was not preclusive or coercive and was a reasonable response in relation to the threat identified. However, the Court cautioned that its holding is fact specific, noting “the fact that the [4.99% poison pill] was reasonable under the specific circumstances of this case, should not be construed as generally approving the reasonableness of a 4.99% trigger in the Rights Plan of a corporation with or without NOLs.”

Barnes & Noble issued a press release announcing preliminary results of shareholder voting at today’s annual meeting. Based on that data, billionaire investor Ronald Burkle lost his bid to place himself and two others on the board of the bookseller. In addition, the shareholder proposal to amend the company’s poison pill, submitted by Mr. Burkle’s investment funds, The Yucaipa Companies, Inc., was rejected. Yucaipa issued a statement saying in part: “As we pointed out to Vice Chancellor Strine in August [referring to Yucaipa’s failed attempt to have the Delaware court invalidate Barnes & Noble’s poison pill], it is nearly impossible for any stockholder to do something Leonard Riggio [Chairman and largest shareholder] doesn’t want to do because of his built-in voting advantage.” Yucaipa pledged to continue pressing for changes at Barnes & Noble and encouraged the board’s independent committee to consider amending the poison pill “to allow other bidders to neutralize Mr. Riggio’s voting bloc.” For further background, see blogs posted at this site on August 16 and 18, 2010.

"More fortunate than Goliath, eBay leaves this field with only a gash across its forehead; less fortunate than David, Craigslist leaves this field with something less than total victory." - Chancellor William Chandler III

In 2004, eBay acquired a 28 percent stake in privately held Craigslist and became one of only three Craigslist stockholders. Soon after, eBay acquired competing international classified sites and ultimately unveiled a direct U.S. rival in 2007, Kijiji. In response, Craigslist (i) adopted a poison pill to prevent a hostile takeover, (ii) staggered board elections in a manner that made it impossible for eBay to unilaterally appoint a director and (iii) diluted eBay’s ownership percentage by granting additional shares to the majority stockholders (the founders of Craigslist) who, in return, granted a right of first refusal in favor of the company. eBay filed suit challenging all three of these actions in 2008.

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As discussed in this blog recently, Barnes & Noble is at the center of a proxy fight between Ron Burkle, billionaire owner of the Yucaipa group of funds that owns approximately 18.7% of B&N common stock, and Leonard Riggio, Chairman of B&N, who controls approximately 29.9% of the equity. Riggio disclosed yesterday that he had exercised options to acquire 990,740 shares, which will enable him to vote all of his stock holdings. The exercise price for the shares was $16.96 per share, exceeding yesterday’s market price for the shares, which closed at $15.35 per share. Burkle has announced that he will seek to replace the three B&N directors who are up for re-election at the September 28, 2010 stockholder meeting, including Chairman Riggio.

In a decision rendered on August 12, 2010, Yucaipa American Alliance Fund II, L.P. v. Leonard Riggio, the Delaware Chancery Court upheld Barnes & Noble’s poison pill against a challenge from the company’s second largest stockholder, several funds (the “Yucaipa” funds) run by bilionaire Ron Burkle. The opinion establishes that the court is willing to find a poison pill to be a reasonable defense to threatened proxy contests for the election of new directors, and not just to threats of hostile takeovers. The opinion also includes in dicta the view that a poison pill may be unacceptibly preclusive if it does not leave the insurgent stockholder with a fair chance of success. This view is contrary to a view set out in the court’s recent decision in Selectica, Inc. v. Versata Enterprises, Inc., in which the court said a pill is not preclusive unless it “render[s] a successful proxy contest a near impossibility or else utterly moot.”

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Carl Icahn announced on Friday an extension of his tender offer to acquire outstanding common stock of Lions Gate Entertainment Corp. for $7.00 cash per share. According to his press release, the offer will now expire on June 1, 2010, unless extended or withdrawn.

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Investor Carl Icahn scored a temporary victory in his hostile bid to take over Lions Gate Entertainment, when the British Columbia Securities Commission (“BCSC”) granted an application to invalidate the Lions Gate poison pill. On April 27, 2010, the BCSC ordered a “cease trading” with respect to the poison pill adopted by Lions Gate’s board on March 11, 2010, just 10 days after the Icahn Group launched its $7 per share tender offer. 

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A recently decided Delaware Chancery Court decision reinforces the validity and utility of the “poison pill” as a protective device available to a corporate board of directors. In Selectica, Inc. v. Versata Enterprises, Inc., Vice Chancellor John W. Noble upheld the decision of the Selectica board to adopt and use a poison pill to protect against the value of the company’s net operating losses (“NOLs”). The case involves a unique set of facts (among other things, this was the first intentional triggering of the modern poison pill) and offers several important lessons for practitioners.

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