## Facts

- Hilton Hotels Corporation and its subsidiary commenced a hostile bid for ITT Corporation, pairing a cash tender offer with a proxy contest aimed at replacing ITT’s board.
- ITT opposed the bid and later adopted a board-approved “Comprehensive Plan” during the proxy fight.
- The plan contemplated a restructuring that placed most assets into a new entity, coupled with governance changes designed to make board replacement difficult.
- Governance measures included a classified (staggered) board and supermajority voting requirements to remove directors without cause and to amend those requirements.
- The plan also imposed deal-cost consequences that would make acquisition materially more burdensome for Hilton.
- ITT sought to implement the plan before the upcoming annual meeting and without submitting the structural governance changes to a shareholder vote.
- Hilton sought injunctive and declaratory relief to prevent implementation of the plan in a manner that would affect the imminent shareholder election.

## Issues

1. Whether ITT’s board could implement the Comprehensive Plan’s restructuring and governance defenses without shareholder approval while a control contest and proxy fight were pending.
2. Whether the plan unlawfully interfered with the shareholder franchise by frustrating shareholders’ ability to elect directors in the impending meeting.
3. What standard of review applies to board action in a takeover context that materially affects shareholder voting rights under Nevada law.

## Decision

- The court granted permanent injunctive relief barring ITT from implementing the Comprehensive Plan in a way that would affect the forthcoming shareholder vote without shareholder approval.
- Because Nevada authority was limited, the court looked to Delaware takeover jurisprudence for guidance and applied Unocal-style enhanced scrutiny rather than ordinary business-judgment deference.
- The court found the plan was designed to impede the proxy contest and entrench incumbents by changing election mechanics and control-related governance rules immediately before a shareholder vote.
- ITT failed to justify the measures as a reasonable and proportionate response to a legitimate threat; the plan was found preclusive and disproportionate.
- The court issued declaratory relief clarifying that such vote-impairing structural defenses could not be imposed unilaterally by the board in this setting.

## Legal Principles

- When directors adopt defensive measures in a control contest that materially affect shareholder voting, courts apply enhanced scrutiny rather than deferential business-judgment review.
- Board action that purposefully interferes with the shareholder franchise—by altering election mechanics or making effective board replacement impracticable—may be invalid absent a compelling justification.
- Under Unocal-style review, directors must show (1) a reasonable perception of a threat and (2) a proportional response that is neither coercive nor preclusive.
- The presence of independent or outside directors and asserted good faith does not excuse defensive action that restricts or distorts the shareholder vote.
- Structural defenses implemented on the eve of an election, without a shareholder vote, are especially suspect when their practical effect is to block an ongoing proxy contest.

## Conclusion

The court permanently enjoined ITT from implementing takeover defenses that would alter or impede the shareholder vote in the pending proxy contest, holding that vote-preclusive restructuring and governance changes require heightened justification and, in this context, could not be imposed without shareholder participation.


Hilton Hotels Corp. v. ITT Corp., 978 F. Supp. 1342 (D. Nev. 1997)