Chancery OKs Fast Track For 2nd Poison Pill Challenge

By Jeff Montgomery
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Law360 (September 10, 2020, 10:21 PM EDT) -- The second in a trio of Chancery Court suits challenging pandemic-driven poison pill provisions to defend against corporate takeovers won fast-track status on Thursday, with a Delaware vice chancellor rejecting company arguments that there was no possibility of irreparable harm to stockholders.

Vice Chancellor Kathaleen S. McCormick approved expedited treatment for proceedings involving aerospace industry supplier AAR Corp. and said that she would consider coordinated or back-to-back proceedings involving a similar challenge to a poison pill measure approved by pipeline giant The Williams Companies, which was expedited on Sept. 8.

"I recognize that context matters and the process and reasons for adopting the respective plans in Williams and this action likely differ," the vice chancellor said. "There are still likely efficiencies to be gained from a coordinated approach."

The same law firms — Bernstein Litowitz Berger & Grossmann LLP and Friedman Oster & Tejtel PLLC —sued AAR and Williams as well as Tribune Publishing Company over their adoption earlier this year of poison pill, or shareholder rights, measures. The same stockholder led the proposed class in the AAR and Tribune cases.

All of the provisions were described as "highly aggressive" bylaw amendments that granted stockholders rights to buy half-price shares of the companies if a buyer or group of buyers accumulated shares above a triggering threshold without board approval. Those who trip the trigger are ineligible to exercise the rights, so that the poison pill can create a majority to block a takeover through open market stock buys.

AAR and Tribune set their triggers at accumulations of 10% of the companies' stock by an individual or parties acting in concert, described as "Wolfpacks." Williams set the trigger at what the proposed class in that case said was a "stunningly low" 5%.

All the poison pills were described by the companies as temporary measures, expiring in less than a year and aimed at protecting the businesses from the risk that market volatility and lower stock prices during the economy-stunting pandemic would encourage attempted company takeovers.

"The key question in this case is whether plaintiff's showing of a sufficient possibility of irreparable harm [to stockholders] is materially different," from Williams, the vice chancellor said.

Thomas G. James of Bernstein Litowitz told the vice chancellor that, as with Williams, "You have this definition of acting in concert that's truly broad. It's incredibly expansive." He added that the concerted action provisions are "asymmetrical," working to the detriment of stockholders in part because they don't apply to acquisitions by directors and officers.

The suit also challenged the Wolfpack provision as "highly-coercive and potentially preclusive" method for deciding if groups of potentially unrelated stockholders constitute a pill-triggering risk.

"There doesn't have to be an actual proxy contest pending in order for a pill to chill the stockholders' franchise or pose irreparable harm," James said, noting that investors could be unaware that they were about to become part of a concerted, pill-triggering action.

Blake A. Rohrbacher of Richards Layton & Finger PA, counsel for AAR Corp., said that the company adopted its shareholder rights measure on March 30 and set it to expire on Feb. 28. 2021. The proposed class sued months later, on Aug. 28.

AAR enacted the rights plan after the deadline for stockholder annual meeting challenges to incumbent directors or other initiatives, and the measure will expire before the deadline for board challenges at next year's voting, Rohrbacher said.

Tribune Publishing adopted its one-year poison pill on July 28, with a July 27, 2021, expiration. Williams' measure went into effect on March 30 and expires on March 20, 2021.

In the case of AAR, "the plaintiff failed to demonstrate any imminent, irreparable harm in this case," Rohrbacher said. He added later that the stockholders have "no explanation for waiting half of the rights plan before bringing this case," and said that stockholders, rather than waging a proxy contest, are focused on "waging a litigation contest."

Vice Chancellor McCormick said that the proposed class made a sufficient argument that AAR's measure poses a threat of irreparable harm for expedited proceedings, and noted that because the poison pill could be tripped by "concerted" actions, "there remains the issue of stockholders being limited in ability to organize and communicate."

The vice chancellor also said that while she had been lenient in permitting fast-tracking despite the delay between the enactment of the pill and the filing of the suit, "I might not be so forgiving going forward."

Gregory V. Varallo of Bernstein Litowitz said a decision on a bid to expedite the Tribune case has yet to be made.

Attorneys in the AAR and Williams cases argued that Delaware's original poison pill legislation allowed exercise of a rights offering after an acquisition of 20% of a company's stock. The threshold later dropped to 15% for "plain vanilla" rights plans.

Vladimir Gusinsky Revocable Trust is represented by Gregory V. Varallo, Mark Lebovitch, Thomas G. James and Jacqueline Ma of Bernstein Litowitz Berger & Grossmann LLP and Jeremy S. Friedman and David F.E. Tejtel of Friedman Oster & Tejtel PLLC.

Anthony K. Anderson et al., are represented by Blake Rohrbacher and Alexander K. Krischik of Richards Layton & Finger PA and James P. Smith III of Winston Strawn LLP.

The case is Vladimir Gusinsky Revocable Trust v. Anthony K. Anderson et al., case number 2020-0714 in the Court of Chancery of the State of Delaware. The Williams case is Wolosky v. Armstrong et al., case number 2020-0707. The Tribune Publishing case is Vladimir Gusinsky Revocable Trust v. Carol Crenshaw, et al., case number 2020-0716.

--Editing by Jill Coffey.

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