Corporate Control Litigation

Can a Corporation Be Stolen? Landmark Disputes in Corporate Control Litigation

Consider the following scenario: one awakens to discover that control of one’s corporation has been wrested away—not through negotiated acquisition, not with the blessing of incumbent management, but against the express wishes of the board of directors and existing ownership. While this might appear to be the premise of a financial thriller, such “corporate hijackings” occur with remarkable regularity and have generated some of the most consequential legal battles in the annals of business law.

The struggle for corporate control raises fundamental questions about the nature of ownership, the scope of fiduciary duty, and the appropriate balance between managerial authority and shareholder sovereignty. Over four decades of intensive litigation, Delaware courts have developed a sophisticated doctrinal framework governing hostile takeovers, defensive measures, and the duties of directors confronting threats to corporate control. This Article examines the landmark cases that have shaped this jurisprudence, analyzing how courts have sought to reconcile competing interests while preserving the integrity of corporate governance.

 

I. Barbarians at the Gate: The Genesis of Modern Takeover Jurisprudence

The year 1988 witnessed a transaction that permanently transformed the landscape of corporate acquisitions. F. Ross Johnson, then chief executive officer of RJR Nabisco, initiated a management-led leveraged buyout valued at seventeen billion dollars. This maneuver precipitated a bidding war of unprecedented proportions, ultimately culminating in Kohlberg Kravis Roberts & Co.’s successful acquisition for twenty-five billion dollars—representing a final price of $109 per share, compared to the initial offers ranging between $75 and $80.

Immortalized in the celebrated volume Barbarians at the Gate, this transaction exposed the mechanics of aggressive acquisitions financed through high-yield debt instruments and posed a fundamental question that continues to resonate: Who properly serves as guardian of shareholder interests when management itself becomes a competing bidder?

 

II. The Anatomy of Hostile Acquisitions

A hostile takeover constitutes an acquisition attempt in which the offeror bypasses incumbent management and appeals directly to shareholders—frequently over the board’s express objection. The arsenal available to hostile acquirers comprises several principal mechanisms.

The tender offer involves a public solicitation to shareholders to tender their shares at a premium to prevailing market prices. A proxy contest represents a campaign to persuade shareholders to vote for a competing slate of director nominees, thereby effecting a change in board composition. Stock accumulation entails the gradual acquisition of shares on the open market; notably, once an acquirer crosses the five percent ownership threshold, disclosure obligations under SEC Schedule 13D are triggered.

Target corporations possess their own defensive arsenal. The shareholder rights plan—colloquially denominated a “poison pill”—operates by diluting a hostile acquirer’s stake through the issuance of additional shares to all other shareholders upon a triggering event. A staggered or classified board structure mandates that only a fraction of directors stand for election each year, thereby extending the period required for a hostile acquirer to obtain board control. The white knight defense involves soliciting a friendly acquirer as a preferable alternative to the hostile bidder.

 

III. Unocal Corp. v. Mesa Petroleum Co.: The Foundational Precedent

On April 8, 1985, T. Boone Pickens—chairman of Mesa Petroleum and among the most aggressive corporate raiders of the era—announced a two-tier tender offer for Unocal Corporation, a major California-based petroleum company. The offer’s structure exemplified classical coercive tactics: $54 per share in cash for approximately thirty-seven percent of outstanding shares (sixty-four million shares) in the front-end tier, with the remaining forty-nine percent to be exchanged for subordinated debt securities that Unocal aptly characterized as “junk bonds.”

The psychological mechanism underlying such offers was straightforward yet ruthless. Shareholders—even those convinced of the company’s superior intrinsic value—faced powerful incentives to tender into the first tier. After all, who would willingly accept highly subordinated debt instruments rather than cash? This “stampede effect” constituted the essence of structural coercion.

 

A. Nine and One-Half Hours That Transformed Corporate Law

Unocal’s board of directors convened on April 13, 1985, for a meeting that would extend nine and one-half hours. Fourteen directors—including eight independent outside members—received comprehensive presentations from legal counsel regarding fiduciary obligations under Delaware corporate law and federal securities regulations.

The presentation by Peter Sachs of Goldman Sachs and Dillon Read proved pivotal. Sachs presented valuation analyses indicating that the minimum cash value achievable through orderly liquidation of one hundred percent of Unocal’s stock would exceed $60 per share—substantially above Mesa’s $54 offer. The presentation encompassed slides illustrating valuation methodologies and comparative analyses of recent transactions in the petroleum industry.

Following these presentations, the eight independent directors convened separately with the company’s financial and legal advisors. After deliberation, they unanimously recommended rejection of Mesa’s offer as “grossly inadequate” and proposed that Unocal conduct a self-tender at a fair price as an alternative.

 

B. The Discriminatory Exchange Offer: Excluding the Aggressor

On April 15, the board reconvened for a two-hour session and approved an unprecedented defensive strategy. If Mesa succeeded in acquiring sixty-four million shares, Unocal would repurchase the remaining forty-nine percent of outstanding shares for debt securities with a nominal value of $72 per share.

The critical element: Mesa was explicitly excluded from participation in this exchange offer.

The justification possessed logical force. First, permitting Mesa to tender its shares to Unocal would effectively require the company to subsidize the aggressor’s continued acquisition efforts. Second, Mesa, by definition, could not belong to the class of shareholders requiring protection from its own coercive offer. As the court subsequently observed: “There is no obligation of self-sacrifice by a corporation and its shareholders in the face of such a challenge.”

 

C. The Court of Chancery Versus the Delaware Supreme Court

The Vice Chancellor initially granted a temporary restraining order, reasoning that selective exclusion of a single shareholder was impermissible. This analysis rested upon the premise that corporations must accord equal treatment to all shareholders.

The Delaware Supreme Court reversed on May 17, 1985, announcing its judgment orally at 9:00 a.m.—the expedited disposition reflecting the urgency imposed by Mesa’s pending tender offer, scheduled to expire May 23. Justice Moore, writing for the court, articulated what would become a foundational doctrine of corporate law.

 

D. The Unocal Standard: A New Framework for Judicial Review

The court held that the board possessed both the authority and the duty to defend the corporate enterprise against threats, regardless of their source—including actions by the corporation’s own shareholders. Simultaneously, however, the court imposed enhanced judicial scrutiny of defensive measures, justified by the “omnipresent specter” that directors might act primarily in their own interest rather than in the interest of the corporation and its shareholders.

The two-pronged Unocal test requires a board to demonstrate:

1. Reasonable grounds for believing a threat existed to corporate policy and effectiveness, based upon reasonable investigation; and
2. Proportionality of the defensive measures to the nature of the threat posed.

The court identified a non-exhaustive catalog of factors relevant to threat assessment: the inadequacy of the offered price; the nature and timing of the offer; questions of illegality; the impact upon constituencies other than shareholders (including creditors, customers, employees, and the community); the risk of non-consummation; and the quality of securities offered in any exchange.

In the case at bar, the threat was multidimensional: a grossly inadequate two-tier offer of coercive character, coupled with the prospect of “greenmail” from a raider possessed of a “national reputation” for such practices. The court concluded that both of the board’s objectives—defeating the inadequate offer or providing forty-nine percent of shareholders with securities worth $72 rather than “junk bonds”—were legitimate.

 

E. Precedent for Future Contests

The decision in Unocal Corp. v. Mesa Petroleum Co. established the doctrinal foundation upon which the entirety of modern takeover defense jurisprudence rests. Justice Moore expressly rejected the proposition that boards should remain passive in the face of hostile offers, observing: “That clearly is not the law of Delaware, and as the proponents of this rule of passivity readily concede, it has not been adopted either by courts or state legislatures.”

Simultaneously, the court emphasized that board authority is not unlimited. A corporation “does not have unbridled discretion to defeat any perceived threat by any Draconian means available.” The limitations include the requirement that directors not act “solely or primarily out of a desire to perpetuate themselves in office” and the prohibition against “inequitable action… under the guise of law”—invoking the earlier Schnell doctrine.

 

IV. Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc.: When Defense Becomes Betrayal

Merely months after Unocal, Justice Moore confronted another watershed case. This time, however, the question was not the permissibility of defense but rather its limits—and the moment at which a board ceases to be the corporation’s defender and becomes an auctioneer obligated to secure the highest price.

 

A. Personal Animosity and Corporate Warfare

The narrative commenced in June 1985 with an ostensibly routine meeting. Ronald Perelman, chairman of Pantry Pride—a small, highly leveraged company—met with Michel Bergerac, chairman of cosmetics giant Revlon, to discuss a potential friendly acquisition. Perelman proposed a price in the range of $40 to $50 per share.

The meeting ended in failure. Bergerac dismissed these figures as “considerably below Revlon’s intrinsic value.” As the court subsequently found, the refusal was partially motivated by Bergerac’s “strong personal antipathy” toward Perelman. All subsequent overtures from Pantry Pride were rebuffed, and Bergerac conditioned any further discussions upon Pantry Pride’s execution of a standstill agreement—a commitment not to acquire Revlon without prior board approval.

 

B. The Poison Pill Mechanism

On August 19, 1985, Revlon’s board convened in special session to consider the imminent threat. Lazard Frères, the company’s investment banker, advised the directors that $45 per share was “grossly inadequate.” Felix Rohatyn and William Loomis of Lazard Frères explained that Pantry Pride’s financial strategy involved a so-called “bust-up” takeover—acquiring Revlon through junk bond financing, subsequently dismembering the company and liquidating its assets to repay the acquisition debt while retaining the profits.

According to the experts, with proper timing such transactions could generate returns of $60 to $70 per share for Pantry Pride, whereas a sale of the company as a going concern would likely fall within the “mid-fifties.”

Martin Lipton, Revlon’s special counsel (and the originator of the poison pill concept), recommended two defensive measures: first, repurchase of up to five million of the company’s nearly thirty million outstanding shares; and second, adoption of a Note Purchase Rights Plan.

The mechanics of this particular poison pill were sophisticated: each Revlon shareholder would receive as a dividend one Note Purchase Right for each share of common stock held. This right entitled the holder to exchange one common share for a Revlon note with $65 principal at twelve percent interest with one-year maturity. The rights would be triggered when any person acquired beneficial ownership of twenty percent or more of Revlon’s shares—unless the acquirer purchased all shares for cash at $65 or more per share. Critically, the rights would not be available to the acquirer itself, and prior to the twenty percent trigger, the board retained authority to redeem the rights for ten cents each.

Both proposals were unanimously adopted.

 

C. The Escalating Contest: From $45 to $58

On August 23, Pantry Pride made its first hostile move: a public tender offer for all Revlon shares at $47.50 per common share, conditioned upon obtaining financing and redemption of the Rights.

Revlon’s board reconvened on August 26 and recommended that shareholders reject the offer. Additional defensive measures followed—on August 29, Revlon commenced its own exchange offer for ten million shares, offering for each tendered share: one Senior Subordinated Note with $47.50 principal at 11.75% interest, maturing in 1995, plus one-tenth of a share of convertible preferred stock valued at $100 per share. Revlon shareholders tendered eighty-seven percent of outstanding shares (approximately thirty-three million), and the company accepted the full ten million shares on a pro rata basis.

These new Notes contained covenants restricting Revlon’s ability to incur additional debt, sell assets, or pay dividends without approval by the “independent” (non-management) directors.

At this juncture, both the Rights and the Note covenants effectively blocked Pantry Pride’s acquisition attempt.

But Perelman refused capitulation. On September 16, Pantry Pride announced a new tender offer at $42 per share, conditioned upon acquiring ninety percent of outstanding shares—or at a higher price for a smaller stake if Revlon removed the blocking Rights. Although nominally lower than the earlier $47.50 proposal, Lazard Frères characterized the two bids as “essentially equal” after accounting for the completed exchange offer.

Pantry Pride continued its escalation: $50 (September 27), $53 (October 1), $56.25 (October 7).

 

D. The White Knight’s Entrance

On October 3, Revlon’s board convened to consider the $53 offer and examine alternatives. Both Forstmann Little & Co. and the investment group Adler & Shaykin submitted proposals. The directors unanimously agreed to a leveraged buyout by Forstmann: $56 per share in cash, with Forstmann assuming $475 million in debt from the Notes, redemption of the Rights, and waiver of the covenants for Forstmann or in connection with any superior offer.

 

E. Noteholders Versus Shareholders: The Fatal Turn

Here began the drama that would prove dispositive in the court’s analysis.

Upon announcement of the planned merger and contemplated waiver of the Note covenants, the market value of these securities began to decline. The Notes, which had initially traded near par (approximately 100), fell to 87.50 by October 8. One director subsequently reported a “deluge” of telephone calls from irate noteholders, and on October 10, the Wall Street Journal reported threats of litigation by these creditors.

On October 7, Pantry Pride raised its offer to $56.25, conditioned upon nullification of the Rights, waiver of the covenants, and election of three Pantry Pride directors to Revlon’s board. On October 9, representatives of all three parties met in an attempt to negotiate Revlon’s fate—without success. At this meeting, Pantry Pride announced it would engage in “fractional bidding,” topping any Forstmann offer by a slight increment.

Significantly, Forstmann—to the exclusion of Pantry Pride—had been granted access to Revlon’s confidential financial data. The parties were not negotiating on equal terms.

 

F. The Lock-Up That Terminated the Auction

On October 11, Forstmann—again armed with confidential Revlon data—met with the company’s special counsel and investment banker. On October 12, Forstmann submitted a new offer: $57.25 per share, subject to several conditions.

The principal demand was a lock-up option: the right to acquire Revlon’s Vision Care and National Health Laboratories divisions for $525 million if another acquirer obtained forty percent of Revlon’s shares. The difficulty? Lazard Frères valued these divisions at $625 to $700 million—the option thus represented a discount of $100 to $175 million.

Additionally, Revlon was required to accept a no-shop provision—a prohibition on negotiations with other bidders. The Rights and covenants would be eliminated as in the October 3 agreement. A termination fee of $25 million would be placed in escrow, payable to Forstmann if the transaction failed or another acquirer obtained more than 19.9% of shares. Finally, Revlon management would have no participation in the merger.

In exchange, Forstmann agreed to support the par value of the Notes, which had weakened in the market, through an exchange for new securities. Forstmann demanded immediate acceptance—otherwise the offer would be withdrawn.

The board unanimously approved Forstmann’s proposal, citing three justifications: the higher price compared to Pantry Pride’s bid; protection of the noteholders; and the certainty of Forstmann’s financing.

 

G. The Judgment: From Defenders to Auctioneers

Pantry Pride immediately challenged the lock-up, the termination fee, and the exercise of the Rights and covenants. On October 22, it raised its offer to $58 per share—conditioned upon nullification of the Rights, waiver of the covenants, and injunction of the Forstmann lock-up.

On October 15, the Court of Chancery prohibited further transfer of assets, and eight days later enjoined the lock-up, no-shop provision, and termination fee. The court concluded that Revlon’s directors had breached their duty of loyalty by making concessions to Forstmann out of concern for their personal liability to noteholders, rather than maximizing the sale price for shareholders’ benefit.

The Delaware Supreme Court affirmed on November 1, 1985—announcing its decision orally at 9:00 a.m., just one day after hearing argument.

 

H. The Revlon Doctrine: Auctioneer, Not Defender

Justice Moore articulated a doctrine that would permanently transform the law of corporate acquisitions:

“When Pantry Pride increased its offer to $50 per share, and then to $53, it became apparent to all that the break-up of the company was inevitable. The Revlon board’s authorization permitting management to negotiate a merger or buyout with a third party was a recognition that the company was for sale. The duty of the board had thus changed from the preservation of Revlon as a corporate entity to the maximization of the company’s value at a sale for the stockholders’ benefit. This significantly altered the board’s responsibilities under the Unocal standards. It no longer faced threats to corporate policy and effectiveness, or to the stockholders’ interests, from a grossly inadequate bid. The whole question of defensive measures became moot. The directors’ role changed from defenders of the corporate bastion to auctioneers charged with getting the best price for the stockholders at a sale of the company.“

The court emphasized that lock-ups are not per se illegal under Delaware law. Indeed, they may serve to attract bidders into a contest for corporate control, creating an auction that maximizes shareholder value. However—and this distinction proved critical—”lock-ups which draw bidders into the battle benefit shareholders, [while] similar measures which end an active auction and foreclose further bidding operate to the shareholders’ detriment.”

 

I. Why the Revlon Board Lost

The court identified three fundamental failures:

First, solicitude for noteholders was unjustified in the context of duties owed to shareholders. “The rights of the [noteholders] already were fixed by contract. The noteholders required no further protection, and when the Revlon board entered into an auction-ending lock-up agreement with Forstmann on the basis of impermissible considerations at the expense of the shareholders, the directors breached their primary duty of loyalty.”

The court addressed Revlon’s argument that Unocal permits consideration of other constituencies: “Although such considerations may be permissible, there are fundamental limitations upon that prerogative. A board may have regard for various constituencies in discharging its responsibilities, provided there are rationally related benefits accruing to the stockholders. However, such concern for non-stockholder interests is inappropriate when an auction among active bidders is in progress, and the object no longer is to protect or maintain the corporate enterprise but to sell it to the highest bidder.”

Second, disparate treatment of bidders was impermissible. The court observed with evident irony that the parties even considered a no-shop agreement when Revlon had dealt preferentially and almost exclusively with Forstmann throughout. After the board authorized negotiations with other parties, Forstmann received “every negotiating advantage that Pantry Pride had been denied: cooperation from management, access to financial data, and the exclusive opportunity to present merger proposals directly to the board of directors.”

“Favoritism for a white knight to the total exclusion of a hostile bidder might be justifiable when the latter’s offer adversely affects shareholder interests, but when bidders make relatively similar offers, or dissolution of the company becomes inevitable, the directors cannot fulfill their enhanced Unocal duties by playing favorites with the contending factions.”

Third, the actual differential between offers was marginal. Although Forstmann’s $57.25 offer was nominally higher than Pantry Pride’s $56.25 bid, when adjusted for the time value of money—Pantry Pride offered immediate cash, while the Forstmann merger would require time to consummate—the difference was “insubstantial.” “In reality, the Revlon board ended the auction in return for very little actual improvement in the final bid. The principal benefit went to the directors, who avoided personal liability to a class of creditors to whom the board owed no further duty under the circumstances.”

 

J. The Revlon Legacy

The Revlon doctrine established a clear demarcation: once a corporation is “in play” and sale becomes inevitable, the board loses authority to favor one bidder or to consider interests other than those of shareholders. The sole criterion becomes price.

The question of precisely when “Revlon duties” are triggered remains subject to ongoing judicial refinement. Courts have held that:

• Stock-for-stock mergers do not necessarily trigger Revlon (as in Paramount Communications, Inc. v. Time Inc.)
• Cash sales to private equity clearly trigger Revlon
• Break-up transactions trigger Revlon
• Changes of control in which shareholders lose meaningful voting rights may trigger Revlon

The doctrine represents Delaware’s effort to ensure that when shareholders inevitably lose their investment in a particular form, they receive maximum compensation, with value neither diverted to other constituencies nor dissipated through suboptimal sale processes.

 

V. Air Products and Chemicals, Inc. v. Airgas, Inc.: The Limits of “Just Say No”

The period 2010–2011 witnessed a contest that tested the outer boundaries of a target’s authority to reject hostile offers. Air Products launched a fully-financed, all-cash offer for Airgas—initially at $60 per share, ultimately raised to $70. The Airgas board consistently refused, maintaining that the price inadequately reflected the company’s intrinsic value.

Air Products pursued a multi-front strategy. It successfully elected three directors to Airgas’s nine-member staggered board and filed suit seeking to compel redemption of the poison pill. Chancellor William Chandler, despite expressing personal reservations, upheld Airgas’s defensive measures. His reasoning proved significant: the very risk that shareholders might tender into an inadequate offer—”substantive coercion”—constitutes a cognizable threat justifying continued defense.

The judgment demonstrated that the combination of a staggered board and poison pill creates a virtually impenetrable barrier for approximately two to three years. Simultaneously, the court made clear that this does not confer upon boards an unlimited right to “just say never”—defenses must remain proportionate to the threat and supported by rigorous analysis, consistent with the Unocal framework.

 

VI. Vodafone AirTouch plc v. Mannesmann AG: The Largest Hostile Takeover in History

The year 1999 brought the largest hostile acquisition ever consummated. UK-based Vodafone launched an unsolicited bid for German telecommunications conglomerate Mannesmann, offering share consideration valued at approximately €180 billion.

This transaction transcended purely financial dimensions, becoming a referendum on the German model of stakeholder capitalism. Trade unions organized protest strikes under the slogan “against hostile takeover—Mannesmann is not for sale.” Klaus Zwickel, president of the IG Metall metalworkers’ union, characterized Vodafone’s approach as “predator capitalism” (Raubtier-Kapitalismus) directed solely at short-term shareholder returns.

Mannesmann deployed various defensive measures: it sued Goldman Sachs for conflict of interest (the bank had previously advised Mannesmann before advising Vodafone); sought alliance with French telecommunications company Vivendi; and emphasized employee co-determination rights under German law.

Ultimately, Vodafone prevailed after increasing its offer and providing assurances regarding employment and governance practices. Mannesmann shareholders received 58.96 Vodafone shares for each Mannesmann share, representing 49.5% of the combined entity. The case demonstrated that even corporations most deeply embedded in local tradition cannot withstand pressure from international institutional investors, who held more than sixty percent of Mannesmann’s shares.

 

VII. Mittal Steel Co. N.V. v. Arcelor S.A.: “Monkey Money”

The 2006 acquisition of European steel giant Arcelor by Lakshmi Mittal stands as one of the most acrimonious corporate battles in European history. Mittal Steel, then the world’s largest steel producer, launched an initial offer of €18.6 billion, which Arcelor CEO Guy Dollé famously dismissed as “monkey money.”

Arcelor mobilized an unprecedented defensive arsenal: lobbying the governments of France, Spain, and Luxembourg; conducting media campaigns emphasizing cultural differences; and even pursuing a merger with Russian steelmaker Severstal as a white knight alternative.

Despite these efforts, institutional investors—including many non-European holders controlling more than sixty percent of Arcelor’s shares—forced negotiations. Mittal systematically increased its offer to a final €26.9 billion. The case illustrated the diminishing effectiveness of nationalistic defensive arguments against pressure from global capital markets.

 

VIII. Kraft Foods Inc. v. Cadbury plc: When Promises Are Broken

Kraft Foods’ acquisition of iconic British confectioner Cadbury during 2009–2010 became notable for the social consequences of hostile takeovers. Kraft initially offered 745 pence per share, ultimately paying 840 pence in a transaction valued at £11.5 billion.

Controversy erupted after closing. Kraft had promised to maintain the Somerdale factory, which employed over 4,000 workers. Shortly after acquisition, Kraft announced its closure. The company was compelled to issue a public apology and commit to no manufacturing job reductions for two years—a commitment covering only forty percent of UK employees.

The Cadbury affair catalyzed significant reforms to UK takeover regulations, strengthening protections for domestic companies against foreign acquirers and requiring more substantive commitments regarding post-acquisition employment and operations.

 

IX. Oracle Corp. v. PeopleSoft, Inc.: Eighteen Months of Corporate Warfare

Oracle’s eighteen-month campaign to acquire enterprise software rival PeopleSoft (2003–2004) demonstrated how far defensive measures could extend. The initial $16 per share offer was ultimately raised to $26.50.

PeopleSoft deployed unprecedented defensive measures. Its Customer Assurance Program promised customers between two and five times their purchase price if Oracle acquired PeopleSoft and subsequently reduced product support—creating potential liabilities that substantially increased acquisition costs. The company also announced acquisition of J.D. Edwards for $1.7 billion, seeking to become the world’s second-largest enterprise applications provider.

The U.S. Department of Justice sought to block the transaction, arguing it would create anticompetitive concentration in the enterprise software market. Judge Vaughn Walker ruled for Oracle, holding that the government failed to prove the existence of a distinct market comprising only Oracle, PeopleSoft, and SAP.

The Delaware court ultimately required PeopleSoft to redeem its poison pill, and the transaction closed in December 2004.

 

X. Corporate Raiding and Value Extraction: The TWA Case

Carl Icahn’s acquisition of Trans World Airlines represents a paradigmatic example of how corporate control can serve as a vehicle for value extraction at the expense of enterprise viability. Icahn obtained control of TWA in 1988 and proceeded to systematically liquidate the carrier’s most valuable assets.

In 1991, he sold TWA’s prized London routes to American Airlines for $445 million. He negotiated the notorious “Karabu ticket agreement,” which permitted him to purchase any ticket routing through St. Louis at a forty-five percent discount and resell through his website Lowestfare.com—arrangements that cost TWA an estimated $100 million.

Former TWA pilot Jeff Darnall offered a succinct assessment: “It became more and more apparent that Carl was not interested in growing the airline but in using TWA as a financial vehicle to acquire wealth for himself.”

TWA entered bankruptcy in 1992, just four years after Icahn obtained control, and ultimately ceased operations in 2001. Icahn personally realized $469 million from the privatization, while thousands of employees lost their livelihoods.

 

XI. Greenmail: Legalized Corporate Extortion

A distinct phenomenon of the 1980s was “greenmail”—the practice of accumulating substantial equity stakes, threatening hostile takeover, and subsequently selling shares back to the corporation at a premium.

Notably, the Unocal court observed the irony of Mesa’s position: Delaware law had previously sanctioned the payment of greenmail to raiders, with all other shareholders excluded from such preferential treatment. “Given Mesa’s past history of greenmail, its claims here are rather ironic,” Justice Moore remarked. If premiums could be paid to aggressors while excluding other shareholders, it was equally logical to exclude the aggressor from benefits offered to others.

The mechanics of greenmail were straightforward: a raider would acquire more than five percent of a target’s shares, announce intentions to seek control in SEC filings, and the board—seeking to avoid a hostile takeover—would repurchase those shares at an inflated price.

A canonical example: Saul Steinberg received approximately $31 million from Disney’s board in 1984 after threatening a takeover. Sir James Goldsmith similarly profited from Goodyear in 1986.

These practices prompted a wave of anti-greenmail legislation at both state and federal levels, requiring equal treatment of all shareholders.

 

XII. Additional Foundational Delaware Doctrines

A. The Entire Fairness Standard: Weinberger v. UOP, Inc. (1983)

Weinberger v. UOP, Inc. fundamentally reformed the law governing squeeze-out mergers of minority shareholders. Signal Companies, holding 50.5% of UOP, proposed to acquire the remaining shares at $21 per share. Problematically, two Signal executives who sat on UOP’s board had prepared a confidential analysis indicating the shares were worth at least $24—information they failed to disclose to UOP’s other directors.

The court articulated an “entire fairness” standard requiring demonstration of both fair dealing (timing, structure, negotiation, disclosure, and approval process) and fair price. The decision also revolutionized valuation methodology, rejecting the traditional “Delaware block method” in favor of modern techniques such as discounted cash flow analysis.

 

B. The MFW Safe Harbor: Kahn v. M & F Worldwide Corp. (2013)

Kahn v. M & F Worldwide Corp. established a “safe harbor” for controlling shareholder squeeze-outs. Where a transaction is conditioned ab initio upon approval by both an independent special committee AND a majority of minority shareholders, it is subject to the deferential business judgment standard rather than the stringent entire fairness test.

The requirements are exacting: the committee must be genuinely independent, possess authority to say “no,” select its own advisors, and the minority vote must be informed and uncoerced.

 

C. The Schnell Doctrine (1971)

Schnell v. Chris-Craft Industries, Inc. established the principle that “inequitable action does not become permissible simply because it is legally possible”—language expressly invoked in Unocal. In Schnell, the board advanced the date of the annual meeting to frustrate an opposition group’s proxy contest.

The court enjoined the manipulation, holding that even technically lawful actions may breach fiduciary duties when undertaken for inequitable purposes. The doctrine is applied “sparingly”—only in cases threatening fundamental shareholder rights.

 

XIII. Judicial Valuation: When Markets Fail

A. In re Appraisal of Ancestry.com, Inc. (2015)

Permira’s acquisition of Ancestry.com at $32 per share became a testing ground for “appraisal arbitrage”—the strategy of purchasing shares after merger announcement and challenging the price through judicial appraisal.

Goldman Sachs conducted a rigorous auction process: contacting seventy potential acquirers, receiving seven preliminary indications of interest ranging from $30 to $38 per share, and conducting full due diligence with the three highest bidders.

Hedge funds associated with Merion Capital purchased 1.4 million shares post-announcement and sought judicial determination of “fair value.” Their expert valued the company at $42.81 per share; the company’s expert at $30.63.

Vice Chancellor Glasscock conducted an independent DCF analysis and arrived at $31.79—within one percent of the transaction price. Ultimately, he concluded that where a robust auction has occurred, market price best reflects fair value. The decision significantly diminished the appeal of appraisal arbitrage.

 

B. Hewlett-Packard Company v. Lynch: When Acquisitions Prove Fraudulent

Hewlett-Packard’s $11.7 billion acquisition of UK software company Autonomy in 2011 devolved into one of the most complex fraud proceedings in corporate history.

Merely fourteen months after closing, HP announced an $8.8 billion write-down, attributing approximately $5 billion to “serious accounting improprieties” at Autonomy. The allegations encompassed revenue manipulation, mischaracterization of revenue sources, and artificial margin inflation.

Litigation proceeded simultaneously in UK courts (civil proceedings), US courts (criminal prosecution), and before regulators (SEC, FBI, UK Serious Fraud Office).

In 2022, the UK court found in HP’s favor on liability. However, the quantum determination yielded surprising conclusions: had Autonomy’s accounts been accurate, fair value would have been £23—only 9.8% below the £25.50 actually paid.

Ultimately, the court awarded $940 million in damages, finding that nearly eighty percent of HP’s write-down resulted from its own due diligence failures and internal integration problems rather than seller fraud. The $5 billion fraud figure announced in 2012 “was not based on a detailed analysis.”

In separate US criminal proceedings, Autonomy founder Mike Lynch was acquitted of all charges in 2024. In a tragic denouement, Lynch perished in a yachting accident off the coast of Sicily in August 2024, two months after his acquittal.

 

XIV. Shareholder Activism: Contemporary Corporate Control

Modern contests for corporate control rarely assume the form of classical hostile takeovers. More commonly, activist hedge funds accumulate equity positions and apply pressure for strategic change or board reconstitution.

A. Pershing Square Capital Management, L.P. v. Canadian Pacific Railway Limited (2012)

Bill Ackman’s Pershing Square achieved a complete victory at Canadian Pacific Railway. After disclosing a 14.2% stake and proposing replacement of CEO Fred Green with industry veteran E. Hunter Harrison, the board offered Ackman a single seat conditioned upon cessation of further activism. Ackman declined and nominated seven directors.

The day before the scheduled vote, the CEO and five directors resigned rather than face near-certain defeat. Ackman’s entire slate assumed board seats without formal vote. At the brief annual meeting, Ackman struck a conciliatory note: “We came in peace, and I am delighted to say that we are at peace once again.”

 

B. E.I. du Pont de Nemours and Company v. Trian Fund Management, L.P. (2015)

The proxy contest between DuPont and Nelson Peltz’s Trian Fund Management constituted the highest-profile activist battle of 2015. Trian, holding 2.7% of shares, criticized DuPont for inefficient conglomerate structure, excessive corporate overhead (including ownership of a 1,252-seat theater), and proposed separation into three entities.

Both major proxy advisory firms—ISS and Glass Lewis—supported Trian. Nevertheless, DuPont prevailed decisively, with all twelve incumbents reelected. The support of DuPont’s three largest institutional shareholders—Vanguard, BlackRock, and State Street—proved determinative, along with CEO Ellen Kullman’s articulation of a clear strategic vision.

Ironically, DuPont subsequently implemented much of Trian’s agenda: merger with Dow Chemical in 2017 and subsequent separation into three companies.

 

C. Elliott Management Corporation v. Hess Corporation (2013)

Paul Singer’s Elliott Management targeted Hess Corporation, demanding company separation and removal of board members characterized as “cronies”—including former Governor Tom Kean and former Senator Sam Nunn.

Following negotiations that extended to dawn on the morning of the annual meeting, the parties reached settlement: Elliott received three board seats, John Hess separated the chairman and CEO roles, and the board agreed to annual election of all directors (eliminating the staggered structure).

Preliminary vote counts showed approximately 148 million votes for Elliott versus 132 million for Hess—management preferred negotiation to public defeat.

 

D. Pershing Square Capital Management, L.P. v. Automatic Data Processing, Inc. (2017)

Bill Ackman’s proxy contest for three board seats at ADP ended in decisive defeat. Despite detailed analyses demonstrating that ADP’s revenue per employee ($160,000) significantly lagged competitors such as Paychex ($224,000), institutional shareholders supported incumbent management.

The distinction from Canadian Pacific? ADP was a well-managed company with clear strategy. Shareholders differentiate between corporations requiring restructuring and those against which activists merely seek opportunity.

 

XV. Innovations in Circumventing Defensive Measures

Elliott Management’s 2025 campaign against Phillips 66 proposed an innovative mechanism to neutralize staggered board defenses.

The concept possessed elegant simplicity: rather than waiting three years to replace all directors, Elliott proposed that Phillips 66 amend its corporate governance guidelines to request that every director—including those with unexpired terms—voluntarily submit resignation letters prior to each annual meeting. Directors could subsequently be renominated and reelected, but effectively all would face annual evaluation.

Phillips 66 objected, arguing the proposal “contravenes well-settled principles of Delaware corporate law.” However, this argument overlooks a fundamental point: no provision can prohibit directors from voluntarily resigning. Elliott does not propose mandatory removal but rather establishment of a best practice that directors may elect to follow or reject.

Should this tactic gain acceptance, one of the most powerful defensive mechanisms could be effectively neutralized through simple majority vote.

 

XVI. International Dimensions: Morrison v. National Australia Bank

Morrison v. National Australia Bank Ltd. (2010) significantly circumscribed the extraterritorial reach of American securities law.

National Australia Bank acquired Florida-based HomeSide Lending in 1998. When HomeSide’s asset valuation models proved overstated, NAB announced write-downs totaling $2.2 billion. Australian shareholders who purchased NAB shares on the Australian Securities Exchange filed suit in US courts, arguing that the fraud occurred in Florida.

The Supreme Court held unanimously that American securities law does not apply to securities traded on foreign exchanges, even when fraudulent conduct occurs within the United States. The Court adopted a “transactional test” focusing on where securities were purchased or sold rather than where misconduct occurred.

The decision eliminated two categories of class actions: foreign plaintiffs suing foreign issuers for foreign exchange transactions (“foreign-cubed” cases) and domestic plaintiffs suing foreign issuers for foreign exchange transactions (“foreign-squared” cases).

 

XVII. Practical Implications

Four decades of corporate control litigation yield several universal principles.

For boards of directors, documentation of decision-making processes and financial advisor opinions proves critical—as Unocal demonstrated, a nine-hour meeting with independent experts and separate deliberations by independent directors can determine litigation outcomes. When rejecting hostile offers, boards should articulate specific valuation concerns rather than merely general strategic preferences. But as Revlon established—once sale becomes inevitable, directors must abandon the defender’s role and assume that of neutral auctioneer, maximizing price for shareholders. Favoring a white knight at the expense of a superior offer creates a direct path to personal liability.

For activists and hostile acquirers, fully-financed cash offers at substantial premiums prove most difficult to resist—Revlon demonstrates that where offers are comparable, boards cannot favor one bidder. Staggered boards combined with poison pills create multi-year barriers requiring patience. Public campaigns must present credible operational theses supported by data.

For minority shareholders, appraisal rights provide a mechanism to challenge inadequate squeeze-out prices. Robust sale processes with competitive auctions are difficult to challenge. Understanding liquidation preference structures in venture-backed companies proves essential—as In re Trados Inc. Shareholder Litigation demonstrated, common shareholders may receive nothing even when the company sells for hundreds of millions of dollars.

 

Conclusion: Can a Corporation Be Stolen?

The answer depends upon one’s definition of “theft.” Corporate law has developed a sophisticated system of equilibria between shareholder property rights and managerial authority to conduct corporate affairs.

As the Delaware Supreme Court observed in Unocal: directors possess the duty to protect the corporate enterprise from threats—but this protection is not absolute. It must be proportionate, grounded in reasonable investigation, and free from motivation to perpetuate incumbency. If shareholders are dissatisfied with their elected representatives, “the powers of corporate democracy are at their disposal to turn the board out.”

And as the same Justice added in Revlon: when a corporation is “for sale,” directors’ defensive authority terminates. “Our corporate law is not static. It must grow and develop in response to, indeed in anticipation of, evolving concepts and needs.” Lock-ups that attract bidders are legitimate; lock-ups that terminate auctions constitute breaches of fiduciary duty.

Shareholders can effect changes in corporate control against managerial opposition—but the process is costly, time-consuming, and subject to judicial review. Boards may defend against hostile offers—but they cannot indefinitely disregard shareholder interests nor favor one bidder in an auction context. Controlling shareholders may eliminate minorities—but must ensure fair process and fair price.

What appears from management’s perspective as attempted theft may, from an activist’s perspective, represent salvation of a mismanaged enterprise. What threatens employees’ livelihoods may, for shareholders, unlock trapped value.

Perhaps the more appropriate question is not “can a corporation be stolen?” but rather “who is its true owner?”—a question to which corporate law continues to seek answers.