Corporate Law (Corporate Governance; Mergers & Acquisitions)

Unocal Corp. v. Mesa Petroleum Co. — Study Notes

Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985)

Study notes for Unocal Corp. v. Mesa Petroleum Co.: professor notes, cold call prep, exam angles, and memory aids.

Boards may adopt defensive measures against hostile takeovers if those measures are reasonable and proportionate to the threat faced.
Professor Notes

In Unocal Corp. v. Mesa Petroleum Co., the Delaware Supreme Court established a critical precedent regarding the standards for board responses to hostile takeover bids. This case is significant as the Court moved away from the traditional business judgment rule, introducing the enhanced-scrutiny standard for evaluating defensive measures taken by boards during hostile takeovers. Professors would emphasize the importance of a company’s ability to defend itself against coercive takeover attempts while still maintaining a balance between shareholder interests and management's discretion in decision-making. Moreover, the Court's ruling affirms a company's right to enact defensive measures, like selective self-tenders, enhancing board authority in the face of hostile takeovers.

Cold Call Prep
  1. 1What was the significance of the enhanced-scrutiny standard established in Unocal?
  2. 2How did the court address the issue of corporate self-defense in a hostile takeover?
  3. 3What factors did the court consider in determining the reasonableness of Unocal's actions?
  4. 4Why was the two-tiered tender offer by Mesa considered coercive?
  5. 5Can a board's defensive actions be seen as prioritizing management interests over shareholder interests?
Mnemonic Device

U-Stand Strong (for Unocal's standard of enhanced scrutiny and strength against hostile takeovers)

Distinguish From
CaseDistinction
Smith v. Van GorkomIn Smith, the court highlighted the business judgment rule, focusing more on board decision-making in a sale context rather than defensive measures.
Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc.Revlon emphasizes the board’s duty to maximize shareholder value at the sale stage, while Unocal supports broader defensive strategies during takeover attempts.
Policy Arguments

For the Rule

The rule protects companies from coercive and inadequate offers that may harm the long-term interests of the shareholders.

Against the Rule

Opponents argue that such defensive measures can entrench management and diminish shareholder rights by hampering the ability of shareholders to choose their leadership.

Class Discussion Points
  • Discuss the balance between defensive measures and shareholders' rights in corporate governance.
  • Explore the implications of enhanced scrutiny for directors' fiduciary duties in the context of hostile takeovers.
  • Analyze how the rulings in Unocal have been applied or interpreted in subsequent case law related to corporate takeovers.
Exam Angle

This case is likely to appear on exams in discussions about the standards governing board responses to hostile takeovers, as well as the legality and appropriateness of various defensive measures, including selective self-tenders.

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