Quickturn Design Systems, Inc. v. Shapiro

721 A.2d 1281 (1998)

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Nature of the Case

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Facts

Mentor (P) was a hostile bidder for Quickturn (D). P built semiconductor chip design workstations and D had logic emulation technology to simulate chip and circuit designs. Because of a downturn in the semiconductor industry in Asia, D's earnings, revenue growth, and stock price declined. Since 1996, P and D were involved in patent litigation that had resulted in P from being barred from competing in the U.S. emulation marketplace. It became increasingly apparent to P that its best option was to acquire D. P then announced a tender offer at $12.125 per share. Under the Williams Act D was required to inform its shareholders of its response to P's offer no later than ten business days after the offer was commenced. Three extensive meetings were held with a large amount of coverage to all the issues related to P's offer. From the results of that meeting, D's board turned down the P offer. On August 21, the Board adopted two defensive measures by amending its bylaws permitting stockholders holding 10% or more of D's stock to call a special stockholder meeting and established a Rights plan by eliminating its dead hand feature and replacing it with the Deferred Redemption Provision; no newly elected board could redeem the Rights plan for six months after taking office in any transaction with an interested person. The combined effect would be to delay the acquisition of D for over six months. P filed suit seeking a declaratory judgment that D's newly adopted provisions were invalid. During the course of this litigation, P filed statements indicating that it had already acquired over 51% of D's outstanding stock. The court determined that D's adoption of the bylaw amendment by itself did not violate the fiduciary duty of Unocal and its progeny; the old provision allowed anyone with 10% ownership to call a shareholder meeting with hardly any time, or notice and D reasoned that this old provision would not give it enough time to evaluate any offer to purchase and thus the new provision prevented a stampede to judgment. P did not challenge this part of the ruling. The court then looked at the Delayed Redemption Provision (DRP). There was no doubt that this further built into the process a six-month delay in addition to the three-month delay allowed by the amendment of the bylaws. The court determined that P's combined tender offer and proxy contest amounted to substantive coercion, but the court determined that the DRP could not pass the proportionality test and therefore declared the DRP invalid under Unocal.