## Facts

- Chesapeake Corporation and its subsidiary sought to acquire Shorewood Packaging Corporation during an active contest for corporate control in which Shorewood had first made a premium acquisition proposal for Chesapeake and Chesapeake responded with a premium bid for Shorewood.
- Shorewood, a Delaware corporation with an existing classified board and a poison pill, anticipated that Chesapeake would pursue a tender offer and written-consent campaign to replace directors and remove takeover defenses.
- In response, Shorewood’s board adopted defensive bylaws that, among other things, limited stockholders’ ability to call special meetings and gave the board control over the record date for consent solicitations.
- Shorewood also adopted a bylaw raising the vote required to amend Shorewood’s bylaws from a simple majority of outstanding shares to 66⅔%; shortly before trial, the board reduced the threshold to 60%.
- Shorewood management and insiders controlled roughly 24% of Shorewood’s shares; the supermajority requirement effectively gave incumbents blocking power over bylaw changes sought through a consent solicitation.
- Chesapeake filed suit seeking declaratory and injunctive relief to invalidate and enjoin enforcement of the supermajority bylaw, arguing it was adopted to entrench the incumbent board and impede stockholders’ ability to effect governance change.

## Issues

1. Whether a board may validly adopt and maintain a bylaw increasing the stockholder vote required to amend bylaws (including those affecting board structure and removal) during a takeover contest when insiders hold a substantial voting block.
2. Whether the supermajority bylaw was a justified defensive response under enhanced scrutiny for takeover defenses or an impermissible interference with the stockholder franchise requiring a compelling justification.
3. Whether the bylaw’s practical effect was coercive or preclusive by materially impairing the ability of stockholders, through written consent, to change governance rules and replace directors.

## Decision

- The Court of Chancery invalidated the supermajority bylaw, including the amended 60% version.
- The court enjoined enforcement of the bylaw in the ongoing control contest.
- Applying enhanced scrutiny, the court held the board failed to justify the measure as a reasonable and proportionate response to a legitimate threat.
- The court emphasized the bylaw’s real-world effect of granting incumbents effective blocking power over stockholder-driven bylaw amendments central to a consent solicitation.

## Legal Principles

- Defensive measures adopted in response to a takeover threat are reviewed under enhanced scrutiny: directors must identify a legitimate threat and show the response is neither coercive nor preclusive and is proportionate.
- Actions that materially burden the stockholder franchise, especially those aimed at the mechanics of director replacement or governance change, trigger heightened judicial skepticism and require strong justification.
- A bylaw amendment that raises voting thresholds mid-contest, when combined with insider ownership, may be invalid if it operates as an entrenchment device by making successful stockholder action realistically unattainable without management support.
- Claimed protection against “substantive coercion” does not justify measures that substantially disable stockholders’ ability to decide corporate control through established voting mechanisms when less restrictive means are available.

## Conclusion

The Delaware Court of Chancery held that Shorewood’s mid-contest supermajority bylaw improperly impeded stockholders’ ability to amend bylaws and effect a change in board control, and therefore could not be sustained as a proportionate defensive response under enhanced scrutiny.


Chesapeake Corp. v. Shore, 771 A.2d 293 (Del. Ch. 2000)