A Harvard professor has issued a counter-challenge to software manufacturer CA Corp.'s assertion that the professor's shareholder-rights-plans bylaw proposal is illegal under Delaware state law.
Bebchuk said that CA is trying to use an illegality assertion to exclude his proposal to adopt a so-called poison-pill provision from the company's corporate ballot. Bebchuk is seeking a declaratory judgment from the Delaware courts that his proposal is valid under state law, as well as an order compelling the software company to withdraw a submission to the Securities and Exchange Commission containing the illegality assertion.
Shareholder rights plans, known informally as poison pills, are often used to avoid takeover bids. There are several types of poison pills that can be planned by a company that thinks it may be the target of a takeover by a potential acquirer, including taking on a large number of new securities to existing shareholders or buying smaller companies using a stock swap and diluting the value of the target's stock.
The legality of poison pills was unclear for some time, but they were upheld as a valid part of Delaware corporate law by the state's Supreme Court in 1985.
Bebchuk will be represented by securities and corporate governance law firm Grant & Eisenhofer. In recent months, companies including American International Group and Time Warner have agreed to amend their bylaws in response to Bebchuk's proposals."It is unfortunate that CA is trying to preclude shareholders from voting on my proposal," said Bebchuk, in a statement. "I hope that the resolution of this case will prevent CA from doing so and will make clear that shareholders have the right to adopt bylaw provisions."
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