Corporate Law
Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985)
Study notes for Corporate Takeover Defense: professor notes, cold call prep, exam angles, and memory aids.
A corporate board may employ defensive measures against hostile takeovers if it reasonably perceives a threat and the response is proportionate to that threat.
The case of Unocal Corp. v. Mesa Petroleum Co. serves as a cornerstone in understanding the legal parameters within which corporate boards can defend against hostile takeovers. Professors emphasize the necessity of establishing that the board has a reasonable belief that a takeover poses a threat to the corporate policy or effectiveness, which Unocal's board argued in this situation. It's critical to grasp the significance of proportionality in the defensive measures employed by the board, as the Delaware Supreme Court established a framework for reviewing such actions that balances shareholder interests against director discretion.
Additionally, discussions often focus on the evolution of corporate governance and the implications of this decision on the power dynamics between shareholders and boards of directors. This case illustrates the vital role of fiduciary duties and the complex nature of balancing aggressive corporate actions with the necessary legal protections for companies facing potential disruption from external forces.
U-Trust-Can: Unocal indicated boards must Trust their judgment to assess a threat and Can respond if the actions are proportionate.
| Case | Distinction |
|---|---|
| Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. | Revlon emphasizes when a board must maximize shareholder value during a sale; Unocal considers defense strategies when a threat is perceived without immediate sale considerations. |
| Smith v. Van Gorkom | Van Gorkom deals with the duty of care in director decision-making, while Unocal centers on the board's defensive maneuvers against perceived threats. |
| Dodge v. Ford Motor Co. | Dodge primarily addresses the obligation to profit shareholders, while Unocal focuses on the ability of boards to defend the corporation’s long-term strategy. |
Permitting boards to act defensively encourages them to protect corporate interests and maintain stability against aggressive takeover tactics that might not serve the company in the long-term.
Allowing excessive discretion in defensive measures may enable boards to entrench themselves and act against shareholder interests, potentially stifling competition and corporate improvement.
This case frequently appears on exams in discussions about corporate governance and board fiduciary duties, particularly related to takeover defenses and the balance of power within corporate control.