## Facts

- Household International, Inc. (Household), a Delaware corporation, operated a diversified group of subsidiaries.
- In August 1984, Household’s board adopted a Preferred Share Purchase Rights Plan (the Rights Plan) as a defense against possible future hostile takeovers, even though no specific takeover bid was pending.
- Under the plan, one “Right” was issued for each outstanding share of Household common stock, and the Rights initially were attached to the common shares and not separately tradeable.
- The plan was triggered if either (i) a person or group commenced a tender offer for at least 30% of Household’s shares, or (ii) a person or group acquired at least 20% of Household’s shares.
- After a trigger and the acquiror’s completion of the acquisition, the Rights (other than those held by the acquiror) entitled remaining stockholders to purchase the acquiror’s stock at a 50% discount (commonly described in the plan as a right to buy $200 of the acquiror’s common stock for $100), producing substantial dilution for the acquiror.
- John A. Moran, a Household director, was one of two directors who voted against adopting the plan.
- Moran also served as chairman of the Dyson-Kissner-Moran Corporation (DKM), which was Household’s single largest stockholder and had considered a buyout of Household.
- Moran and DKM sued Household and its directors in the Delaware Court of Chancery, arguing the Rights Plan was unauthorized under the Delaware General Corporation Law and improperly interfered with stockholder rights in tender offers and proxy contests.
- The Court of Chancery upheld the plan as a valid exercise of the board’s business judgment, and Moran and DKM appealed to the Delaware Supreme Court.

## Issues

1. Does 8 Del. C. § 157 authorize a board to issue the contingent rights and “flip-over” features used in Household’s shareholder-rights (poison pill) plan?
2. Under what fiduciary-duty standard should a Delaware court review a board’s adoption of a preemptive poison pill, adopted before any specific hostile bid?
3. Does the Rights Plan unlawfully prevent stockholders from receiving, considering, and accepting hostile tender offers?
4. Does the Rights Plan unlawfully interfere with stockholders’ ability to conduct a proxy contest and replace the board?

## Decision

- The Delaware Supreme Court affirmed the Court of Chancery’s judgment upholding the Rights Plan.
- The court held that DGCL § 157 provided sufficient statutory authority for Household to issue the Rights and to define their terms and conditions through a board resolution, including the plan’s contingent, acquisition-triggered features.
- The court treated adoption of the plan as a matter of board business judgment and concluded the board’s adoption of the preemptive plan was within the directors’ authority and protected absent a showing of breach of fiduciary duty.
- The court rejected the claim that the plan unlawfully barred tender offers, reasoning that an offer could still be made and communicated to stockholders; the plan affected the economics of acquiring control without board approval rather than imposing a legal prohibition.
- The court found adequate support for the Chancery Court’s finding that the plan’s effect on proxy contests would be minimal, because stockholders could still elect a new board that could redeem or modify the Rights.

## Legal Principles

- DGCL § 157 authorizes a Delaware board to issue rights or options to purchase stock on terms and conditions set by board resolution, including contingent rights tied to acquisition-related events.
- A board may adopt a shareholder-rights plan in advance of a specific takeover attempt as a form of corporate planning, and the decision is generally reviewed under the business judgment rule.
- A poison pill is not invalid solely because it makes a hostile acquisition more expensive; the legal question is whether it improperly strips stockholders of their ability to receive offers, vote, and change corporate control through the electoral process.
- A rights plan does not unlawfully interfere with the stockholder franchise where stockholders retain the practical ability to run a proxy contest, elect a new board, and have that board redeem or alter the plan, and where directors remain subject to fiduciary limits when responding to an actual bid.

## Conclusion

Moran v. Household International, Inc. upheld Household’s preemptive poison pill, holding that DGCL § 157 authorized the issuance and terms of the rights and that the board’s adoption of the plan fell within protected business judgment; the plan did not legally bar tender offers or meaningfully prevent proxy contests because stockholders could still replace the board and cause the pill to be redeemed or changed.


Moran v. Household International, Inc., 500 A.2d 1346 (1985)