A traditional stockholder rights plan remains one of the most effective tools a board of directors may use to protect the corporation’s stockholders from the threat of a hostile or abusive takeover. Rights plans often include specific provisions designed to address unique threats or issues facing the corporation. One such provision is an “acting in concert”—or so-called “wolf pack”—provision, which is designed to aggregate, for purposes of the rights plan’s triggering threshold, ownership of multiple stockholders who may not have an express agreement, arrangement or understanding among themselves, but who are nonetheless acting in concert towards a common goal.
As with any anti-takeover measure adopted unilaterally by the board, the provisions of a rights plan should be tested under Unocal to determine whether they represent a reasonable and proportionate response to an identified threat to corporate policy or effectiveness. The Delaware courts have not squarely addressed the validity of wolf pack provisions, although the Court of Chancery has recognized that “wolf pack” activity among a group of investors poses a cognizable threat to which a reasonable response is permissible. See Third Point v. Ruprecht, C.A. No. 9469-VCP (Del. Ch. May 2, 2014). A recent ruling of the Court of Chancery, however, provides some insight into the manner in which Delaware courts are likely to analyze wolf pack provisions when deployed in the M&A context. Further, recent litigation suggests that plaintiffs’ firms are likely to be more focused on wolf pack provisions in newly adopted rights plans generally.
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