Unitrin, Inc. v. American General Corp.

651 A.2d 1361 (Del.1995)

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Nature of the Case

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Facts

American General (P) publicly announced a proposal to merge with Unitrin (D). The offer made by P was at least 30% above market price at the time. However, an outside accounting group wrote an opinion letter stating that the offer was financially inadequate and not in the best interest of the shareholders. D, relying on the outside letter, responded by repurchasing 10 million of its own shares to block the proposed merger. P then went public with their failed offer and D took that as a sign of a hostile takeover. D then approved a poison pill plan to prevent the anticipated hostile takeover. The board of Unitrin then authorized a repurchase plan that would prevent a takeover. This plan was approved by an outside accounting group. The board of D made public the fact that it felt that the original offer of P was inadequate. P sued and claimed that the buyback and the poison pill were a disproportionate response to the proposed takeover. The Court of Chancery, the lower court, ruled in favor of P. D contends that its directors did not act solely to protect their jobs and that their response was reasonable. The lower court should have asked whether the repurchase plan was draconian and whether it was a reasonable response to the proposed merger.