Beginning in 1985, Delaware’s jurisprudence governing the legality of takeover defenses, i.e., poison pills, has centered around a subtly complex concept—proportionality—as introduced in the seminal case of Unocal Corp. v. Mesa Petroleum Co. Unfortunately, Unocal proportionality review, initially billed as a comparison of the threat posed by a hostile bidder and the board’s defensive response, never evolved into a true balancing of these two elements. The failure of Unocal proportionality review to develop into anything more than a fact-specific inquiry with little precedential value could easily be viewed as one of Delaware corporate law’s greatest disappointments.
In the face of widespread criticism from academic commentators and their frequent calls for doctrinal overhaul in the name of predictability and bright-line rules, this Note argues, however, that the ad hoc quality of Unocal proportionality review, along with other inconsistencies in Delaware corporate law, is entirely appropriate in the context of takeover defense jurisprudence. It reaches this conclusion by likening Delaware’s takeover defense doctrine to federal antitrust’s Rule of Reason, which polices illegal restraints on trade under the Sherman Act.
Using this comparison, this Note presents a novel paradigm for understanding Delaware’s review of defensive measures, positing that the regime’s so-called flaws are actually key components of an effective, antitrust-like mechanism for evaluating directors’ implementation of takeover defenses. In doing so, it will demonstrate not only that Delaware courts’ treatment of Unocal as an ad hoc, effects-based test is a workable and appropriate methodology, but also that Delaware courts are uniquely equipped to employ such a method and can do so without the typical difficulties often attending a case-specific form of review. As a result, this Note offers a unique perspective on the undervalued strength of Delaware’s takeover defense jurisprudence, challenging critics’ repeated calls for reform and providing practitioners with valuable insight into the true underlying goals of the law with which they seek to comply.