Chesapeake Corporation v. Shor

771 A.2d 293 (Del. Ch. 2000)

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Nature of the Case

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Facts

D made a 41%, all-cash, all-shares premium offer for Chesapeake (P). P's board rejected the offer as inadequate, citing the fact that the stock market was undervaluing its shares. P countered with a 40%, all-cash, all-shares premium offer for D. D's board, all of whose members are defendants in this case, turned down this offer, claiming that the market was also undervaluing D. D's board adopted a host of defensive bylaws to supplement D's poison pill. The bylaws were designed to make it more difficult for P to amend D bylaws to eliminate its classified board structure, unseat the director-defendants, and install a new board amenable to its offer. The bylaws raised the votes required to amend the bylaws from a simple majority to 66 2/3% of the outstanding shares. D's management controls nearly 24% of the company's stock, and thus the 66 2/3% Supermajority Bylaw made it mathematically impossible for P to prevail in a consent solicitation without management's support, assuming a 90% turnout. P increased its offer, went public with it in the form of a tender offer and a consent solicitation, and initiated this lawsuit challenging the 66 2/3% Supermajority Bylaw. Shortly before trial, D's board amended the Bylaw to reduce the required vote to 60%. P contends that the D board, which is dominated by inside directors, adopted the Bylaw so as to entrench itself and without informed deliberations.