## Facts

- Hilton Hotels Corporation, a Delaware corporation, adopted a shareholder rights plan in 1999 through a Rights Agreement with a rights agent.
- The plan issued one preferred share purchase right as a dividend attached to each share of Hilton common stock and traded together with the common stock.
- Each right allowed the holder to purchase fractional preferred stock for a set price and, upon a triggering event, to purchase common stock at a discount.
- Leonard Loventhal Account, a trust holding Hilton common stock, notified Hilton that it refused to accept the attached rights.
- The trust sued to invalidate the plan, alleging the board lacked statutory and charter authority to adopt it without stockholder approval, that the plan effectively amended the certificate of incorporation or altered common-stock rights, and that it unlawfully burdened transferability and marketability of shares.
- The Court of Chancery dismissed the action, relying on controlling Delaware precedent approving poison pills.
- The trust appealed to the Delaware Supreme Court.

## Issues

1. Whether Delaware law permits a corporate board to unilaterally adopt a shareholder rights plan that attaches rights to outstanding common shares without stockholder consent.
2. Whether issuing the rights as a stock dividend unlawfully (a) amends the certificate of incorporation or alters common-stock rights, (b) restricts share transferability or marketability, or (c) exceeds the board’s authority under the Delaware General Corporation Law.

## Decision

- The Delaware Supreme Court affirmed the dismissal and upheld the validity of Hilton’s rights plan.
- The court held that prior Delaware precedent controlled: a board may unilaterally adopt a poison pill rights plan.
- The court rejected the argument that individual stockholders may opt out of a valid, board-declared dividend of rights that appurtenantly travels with the shares.
- The court concluded the plan, as structured, did not constitute an unauthorized certificate amendment, did not unlawfully restrain transferability, and fell within statutory board authority.

## Legal Principles

- Under Delaware law, a board of directors may adopt a shareholder rights plan without stockholder approval when authorized by statute and the corporation’s governing instruments.
- Issuing rights as a dividend appurtenant to common shares is treated as the issuance of a separate security, not a formal alteration of the common stock’s charter-defined rights, preferences, or limitations.
- A poison pill’s economic effects on transactions and share value do not, by themselves, establish an unlawful restraint on alienation or an improper certificate amendment.
- Stockholders generally cannot unilaterally detach or disclaim appurtenant rights from their shares when the rights were validly issued and are designed to trade with the shares.
- Challenges to a pill’s adoption based solely on generalized entrenchment concerns do not invalidate the plan absent a well-pled, actionable breach of fiduciary duty tied to the adoption or operation of the plan.

## Conclusion

The Delaware Supreme Court upheld Hilton’s poison pill, holding that Delaware boards may unilaterally adopt rights plans by declaring rights as a stock dividend that automatically attaches to outstanding shares, and that the challenged plan did not exceed statutory authority, amend the certificate, or unlawfully restrict share transferability.


Account v. Hilton Hotels Corp., 780 A.2d 245 (Del. 2001)