Document Type
Article
Publication Title
International Review of Law and Economics
Publication Date
9-1994
ISSN
0144-8188
Page Number
327
Keywords
Rights Plans, shareholders voting power, proxy contests
Disciplines
Law | Law and Economics
Abstract
American corporate management has sought to insulate itself from dissident shareholders’ voting power by enacting “Rights Plans.” Rights Plans reduce a dissident shareholder’s chances of winning a proxy contest by restricting the number of shares that a dissident group can own Most Rights Plans severely penalize a dissident shareholder that owns more than a limited amount, or trigger level, of 15% to 20% of the corporation’s voting common stock. Rights Plans can stop a dissident from forming coalitions with other shareholders if collectively they would own a greater percentage of voting stock than this trigger level.
Incumbent boards have used Rights Plans to stop dissident groups from communicating with one another by threatening to trigger the Rights Plan if any such discussions take place. A target company may also try to use certain types of Rights Plans to prevent shareholders from accepting a majority of the revocable proxies cast in an election, thereby preventing them from winning a proxy contest. All of these effects may reduce, or eliminate, a dissident shareholder’s chances of winning a proxy contest.
Legal scholars have been critical of the use of Rights Plans in proxy contests.” Nevertheless, the Delaware courts have approved the deployment of this defensive tactic in proxy contests in Moran v. Household International, Inc., concluding on weak statistical evidence that the impact of Rights Plans on dissidents’ chances of winning a proxy contest were “speculative.” This conclusion has yet to be critically examined, as existing empirical scholarship has largely focused on the effect of Rights Plans on the value of a corporation’s stock: This article aims to fill that gap.
Recommended Citation
Randall S. Thomas and Kenneth J. Martin,
The Impact of Poison Pills on Proxy Contests: Reevaluating Moran v. Household International, 14 International Review of Law and Economics. 327
(1994)
Available at: https://scholarship.law.vanderbilt.edu/faculty-publications/1472