Moran v. Household International, Inc., 500 A.2d 1346 (Del. 1985)
Moran v. Household International is the seminal Delaware Supreme Court decision that legitimated the modern shareholder rights plan—better known as the poison pill.
Does a Delaware corporation's board of directors have authority under the DGCL to adopt a shareholder rights plan (poison pill) without shareholder approval, and is such adoption a valid exercise of fiduciary duty on its face absent a specific takeover bid?
Under DGCL § 141(a), a corporation's business and affairs are managed by or under the direction of the board of directors. DGCL § 157 authorizes boards to create and issue rights and options entitling the holders to purchase stock upon terms fixed by the board. The adoption of a shareholder rights plan falls within these statutory powers, subject to directors' fiduciary duties. When a defensive measure is adopted in the face of or in anticipation of takeover activity, the board's conduct is evaluated under the fiduciary framework that includes the business judgment rule and, where applicable, Unocal's enhanced scrutiny: the board must show reasonable grounds for believing a danger to corporate policy and effectiveness exists and that the defensive response is reasonable and proportionate (i.e., not coercive or preclusive). The plan's legality is assessed facially at adoption, while its future application to a particular bid may be separately scrutinized under Unocal and related precedents.
Yes. The Delaware Supreme Court held that the DGCL authorizes a board to adopt a shareholder rights plan without shareholder approval and that Household's plan was facially valid. The court further held that the board acted within its fiduciary obligations in adopting the plan on a preemptive basis; any later use of the plan against a specific offer would be subject to Unocal's enhanced scrutiny.
Moran is the foundational case validating poison pills under Delaware law. It entrenched the board's statutory authority to adopt rights plans without shareholder approval and framed how fiduciary duties constrain both adoption and use. The decision catalyzed widespread adoption of pills and, together with Unocal, created the modern analytic sequence: boards may adopt a pill proactively; the pill is facially valid; and any deployment against a live bid must satisfy enhanced scrutiny (and, where control sale becomes inevitable, Revlon duties). For students, Moran illuminates statutory interpretation (DGCL §§ 141 and 157), the limits of shareholder autonomy in tender contexts, and the doctrinal interplay between business judgment deference and takeover-specific scrutiny.