## Facts

- Hollinger International, Inc. was a Delaware public company controlled by Conrad M. Black through an intermediate holding company, Hollinger, Inc.
- Independent directors raised concerns about alleged self-dealing and related-party transactions benefiting Black and his affiliates.
- To resolve conflict, Black and the company entered a restructuring agreement under which Black would resign as CEO, repay certain funds without admitting wrongdoing, and remain chairman to lead a value-maximizing “Strategic Process” for the equal benefit of all stockholders.
- The agreement also contemplated limits and conditions on control-level transactions by Black’s holding-company structure while the Strategic Process proceeded.
- Shortly after the agreement, Black pursued negotiations with the Barclay interests for an upstream transaction at the holding-company level that would effectively transfer control of Hollinger International.
- The board concluded the upstream transaction circumvented the Strategic Process and reflected diversion of a company opportunity and misuse of information.
- In response, the board adopted a shareholder rights plan (poison pill) to deter the upstream control transfer and preserve the Strategic Process.
- Black and his controlled entities adopted bylaw amendments and took governance actions aimed at restricting the International board’s capacity to respond and facilitating the upstream transaction.
- Hollinger International sought declaratory and injunctive relief, including validation of the rights plan, invalidation of the challenged bylaws, and an injunction blocking the upstream transaction.

## Issues

1. Whether a controlling stockholder who is also a fiduciary breached the duty of loyalty by pursuing an upstream control transaction that diverted a company opportunity and undermined an agreed value-maximizing process.
2. Whether the upstream negotiations and related conduct violated the parties’ restructuring agreement governing the Strategic Process and control-level transactions.
3. Whether bylaws and governance actions adopted by the controller’s side were unenforceable because they were taken for an inequitable purpose to disable the board.
4. Whether the board’s adoption of a poison pill was a valid defensive measure under Delaware law in response to the perceived threat.
5. Whether preliminary injunctive relief should issue to prevent consummation of the upstream transaction.

## Decision

- The Court of Chancery found Hollinger International demonstrated a strong likelihood of success that Black breached the duty of loyalty by pursuing the upstream Barclay transaction in conflict with the company’s interests and the agreed Strategic Process.
- The court found Black’s conduct also likely breached the restructuring agreement that required him to lead the Strategic Process for the equal benefit of stockholders and limited upstream transactions.
- The court refused to give effect to bylaw amendments and related governance maneuvers adopted for the inequitable purpose of impairing the board’s ability to act for the corporation and its stockholders.
- The court upheld the shareholder rights plan as a valid exercise of corporate authority and fiduciary judgment as a proportionate response to a legitimate threat.
- The court granted preliminary injunctive relief restraining Black and his affiliates from proceeding with the upstream transaction in violation of fiduciary and contractual obligations.

## Legal Principles

- A controlling stockholder who acts as a corporate fiduciary owes a duty of loyalty and may not divert corporate opportunities or exploit corporate information for personal advantage at the corporation’s expense.
- Contractual governance arrangements between a corporation and a controller can impose enforceable constraints on the controller’s conduct, including obligations to pursue a defined process for the benefit of all stockholders.
- Delaware equity will not permit the exercise of otherwise lawful corporate powers (including bylaw changes) when undertaken for an inequitable purpose, such as disabling directors from discharging fiduciary duties.
- A board may adopt a rights plan as a defensive measure when it reasonably perceives a threat to corporate policy and effectiveness; the response must be proportionate and not coercive or preclusive.
- Preliminary injunctive relief may issue where there is a likelihood of success on the merits, irreparable harm from a change-of-control transaction that cannot be undone, and equities favoring protection of stockholders and the board’s fiduciary role.

## Conclusion

The court treated the upstream sale effort as a disloyal and contract-breaching attempt by a controller-fiduciary to bypass an agreed value-maximizing process, upheld the board’s poison pill as a proper defensive response, declined to enforce inequitable bylaw tactics, and enjoined consummation of the challenged transaction pending final resolution.


Hollinger Int’l, Inc. v. Black, 844 A.2d 1022 (Del. Ch. 2004)