Section 203 of the Delaware General Corporation Law is a company anti-takeover statute. Section 203 prohibits a stockholder from engaging in a business combination with a company for three years after the stockholder acquires 15% or more of the company’s voting equity. If a company’s board pre-approves such a business combination, however, the Section 203 anti-takeover protections do not apply.

To avoid Section 203’s three-year anti-takeover period in Arkansas Teacher Retirement System v. Alon USA Energy, C.A. No. 2017-0453-KSJM (Del. Ch. Jun. 28, 2019), a stockholder sought pre-approval from the company’s board of its proposed acquisition of 48% of the company’s stock from its largest stockholder. The company’s board agreed to the proposed acquisition on the condition that the stockholder enter into an agreement with the company that limited the three-year anti-takeover period in Section 203 to one year. Plaintiff stockholders subsequently brought suit, challenging the acquisition because the acquiring stockholder failed to comply with the one-year anti-takeover period in breach of its agreement with the company.

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