Corporate Law
493 A.2d 946 (Del. 1985)
Study notes for Unocal v. Mesa Petroleum: professor notes, cold call prep, exam angles, and memory aids.
A corporate board may employ defensive measures against a takeover bid if there are reasonable grounds to believe a threat exists and the response is proportional to that threat.
Unocal v. Mesa Petroleum is a landmark case that established a two-prong test for assessing the legality of defensive measures undertaken by corporate boards in response to potential hostile takeovers. Professors will underscore the importance of the board's duty to protect shareholder interests while balancing shareholder value against any perceived threats. The case profoundly illustrates the board's discretion in determining what constitutes a reasonable response to an imminent takeover threat. This reflects the fiduciary responsibility of the board and sets precedents for future hostile takeover defenses.
In discussing this case, emphasis should be placed on how Delaware law affords boards of directors significant leeway to act in what they perceive to be the best interests of the corporation. The outcome reinforces the notion that any defensive measures taken must not only respond to a credible threat, but also maintain proportionality, aligning the corporate response with the nature of the takeover attempt. This dual requirement curtails potential abuses of shareholder rights while permitting necessary corporate governance actions.
U-P-C: Unocal's Perceived Coercion (to remember the two prongs of threat perception and proportional response)
| Case | Distinction |
|---|---|
| Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. | Revlon deals with the duty of boards during the sale of a company, focusing on maximizing shareholder value, whereas Unocal focuses on defensive measures against hostile takeovers. |
| Smith v. Van Gorkom | Smith addresses the duty of care in decision-making processes by directors, while Unocal concerns the responses to external threats and the justification of those responses. |
Allowing boards to take defensive measures protects companies and their shareholders from coercive and inadequate offers that do not reflect true company value.
Too much leeway may lead to entrenched boards that prioritize their own interests over those of shareholders, potentially resulting in missed opportunities for maximizing share value.
Students may be asked to analyze the application of the Unocal test in hypothetical exam scenarios involving hostile takeovers. Understanding how to evaluate both prongs of the test will be crucial.