In post No. 117/09 and post No. 202/09 I highlighted the takeover dispute between Dutch telecom giant KPN and iBasis, Inc. before the Delaware Chancery Court, that was ultimately settled. The dispute had interesting characteristics, as it touched on the viability under Delaware corporate law of the well-known 'just say no' defence by the target's board, that it still questioned in case law and doctrine.
For some background on the case and this issue, here's a post by one of the lawyers representing iBasis, Inc.'s special committee during its dispute with KPN. His bottom line:
The recent litigation between Koninklijke KPN N.V. and iBasis, Inc. brought the tension between shareholder choice and board control in Unocal analysis to the forefront. iBasis’ majority shareholder KPN made a tender offer of $1.55 per share for all outstanding shares on July 13, 2009. This price represented a 19.2% premium over iBasis’ previous business day’s closing price. In response, the iBasis board convened a special committee to evaluate the tender offer. Concluding that the offer price was grossly inadequate, the special committee recommended, and the iBasis board implemented, a shareholder rights plan to block KPN’s tender offer. Litigation between the parties, involving several issues, including whether the shareholder rights plan should be struck down, quickly ensued.
The litigation between KPN and iBasis highlighted the murkiness of Delaware law concerning shareholder rights plans, and placed squarely at issue whether Time-Warner should be read as an endorsement of “just say no.” iBasis argued that, while Time-Warner did not overrule Unocal, it clarified that a board could implement a plain-vanilla shareholder rights plan in response to a non-structurally coercive all cash, all shares, tender offer, particularly in cases where the target, within a reasonable period of time, could acquire control of the target board through a proxy contest and redeem the plan. iBasis effectively adopted a view favoring tempered corporate control of a company with appropriate checks (the proxy process) that would allow shareholders to overrule a board’s decision. iBasis also argued that the iBasis special committee justifiably relied on its advisors, the special committee reasonably concluded that the KPN offer was inadequate and posed a threat to shareholders (both because the price was too low and because KPN’s disclosure was lacking), the shareholder rights plan was not a disproportionate response to KPN’s offer and the iBasis board was not seeking to entrench itself by adopting the shareholder rights plan, all of which justified the implementation of the plan. During the pendency of KPN’s offer, the special committee also indicated to KPN that there would be a price at which it would be willing to give a favorable recommendation of the offer.
KPN took a different view of Time-Warner, arguing that the current law in Delaware required the redemption of a shareholder rights plan (that should never have been implemented in the first place) when a company is facing a non-structurally coercive tender offer. KPN emphasized the importance of giving shareholders the option to tender their shares after the target board and the acquirer have had the time to make their cases for and against the offer before the shareholders.
The dispute between iBasis and KPN was settled before the Delaware Chancery Court issued a ruling. Following trial, post-trial briefing, oral argument and post-argument letter briefing, KPN agreed to increase its offer to $3.00 per share (representing a premium of 130.8% over the closing price of iBasis shares the last trading day prior to the announcement of KPN’s tender offer), in exchange for the iBasis special committee agreeing to terminate the rights plan and recommend that shareholders tender. Due to the settlement, the conflict between shareholder choice and board control that arises when a company faces a non-coercive tender offer remains an open issue. However, it might not be long before the Delaware courts provide additional guidance given the increase in hostile M&A activity and the signaling by Delaware jurists and commentators that the time is right to bring further clarity to this subject.
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