Portfolio 78-1st: The Takeover Law of Delaware

I. Evolution of §203
. Introductory Material
A. The Need for §203
B. Development of Second-Generation Takeover Statutes
1. Control-share acquisition statutes
2. Fair-price laws
3. Control-share cash-out laws
4. Business combination moratorium statutes
C. Delaware’s Response to CTS
D. Principal Controversies Surrounding §203
1. The economic policy debate
2. The 90 percent threshold debate
3. The opt-out/opt-in debate

II. Analysis of §203(a)
. Introductory Material
A. Introduction
1. Business combinations
2. Interested stockholders and the three-year moratorium
B. Prior Approval by the Board
1. Business judgment rule or heightened duty?
2. What constitutes prior approval?
3. The issue of subsequent approval
C. The 85 Percent Exception
1. Sterilized shares: directors and employee stock plans
2. Calculation of the 85 percent threshold
D. Approval by Minority Stockholders

III. Section 203(b): The Seven Exemptions From §203(a)
. Introductory Material
A. Exclusion by Original Certificate of Incorporation
B. The Board’s 90-Day Opt-Out Decision
C. The Stockholders’ Power to Opt Out
1. The 12-month waiting period
2. Voting requirements under §203(b)(3)
D. Non-Public Corporations
E. Inadvertent Interested Stockholders
F. Exemption for Competitive Offers to Acquire the Company
1. The three prerequisites to the competitive bid exemption
2. Types of competitive bids that trigger the exemption
3. The 20-day notice requirement
4. Additional issues arising under §203(b)(6)
G. Exclusion of Transactions With Grandfathered Interested Stockholders
H. Opting Into §203

IV. Section 203(c): Definitions
. Introductory Material
A. Affiliates
B. Associates
C. Business Combinations
1. Mergers and consolidations
2. Sales, leases, and other dispositions of assets
3. Issuance or transfer of stock
4. Other transactions that increase the interested stockholder’s proportionate stock interest
5. Receipt by interested stockholder of indirect financial benefit
D. Control
E. Interested Stockholder
1. Exceptions to interested stockholder status
2. Additional interested stockholder issues
F. Person
G. Stock
H. Voting Stock
I. Owner
J. Limitation on Supermajority Vote Provisions
K. Exclusive Chancery Court Jurisdiction

V. Strategies and Techniques for Coping With §203
. Introductory Material
A. The Impact of §203 on Acquisition Techniques
1. Tender offers
a. Tender offer combined with consent solicitation
b. Naked tender offer
c. Foothold approach
d. Conditional tender offers
e. Circumventing §203 after the offer
2. Financing arrangements
a. Junk-bond financing
b. Bridge financing
3. Open market purchases
B. The Impact of §203 on Defensive Techniques
1. Charter and bylaw provisions
a. Supermajority-vote provisions
b. Fair-price provisions
c. Business-combination provisions
d. Classified board
e. Voting provisions
f. Elimination of action by written consent
g. Bylaws controlling nominations and written consent
2. Rights plans and poison pills
a. Share-purchase rights plans
b. Notes-purchase rights plans
3. Restructuring defenses
a. Sale of major assets
b. Master limited partnerships
c. Splitups and spinoffs
d. Self-tenders
4. Recapitalizations and reorganizations
5. White knights and other arrangements

VI. Constitutionality of Delaware’s Takeover Statute
. Introductory Material
A. Edgar v. MITE Corp.: The Supreme Court Strikes Down the First Generation of Takeover Statutes
1. Commerce clause violation
2. Preemption ambiguity
B. CTS Corp. v. Dynamics Corp. of America: The Supreme Court Upholds a Second-Generation Statute
1. Lack of preemption
2. No commerce clause violation
C. The Delaware Takeover Statute: §203
1. Analysis of preemption issues
2. Analysis of commerce clause issues
3. Retroactive application of §203
D. The Judicial View of §203’s Constitutionality