Yucaipa American Alliance Fund II, L.P. v. Riggio et al.: Delaware Chancery Court Finds Barnes & Noble, Inc.’s Rights Plan Was a Good Faith, Reasonable Response to a Threat Posed to the Company and Its Stockholders

Sullivan & Cromwell LLP - August 24, 2010
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In a decision issued on August 11, 2010, Vice Chancellor Strine, in Yucaipa American Alliance Fund II, L.P. v. Riggio et al., confirmed the applicability of the Unocal standard to the Barnes & Noble Board of Directors’ decision to adopt a stockholder rights plan following the rapid accumulation of shares by Yucaipa. The plan grandfathered the 30% position of the founding stockholder of Barnes & Noble but established a 20% threshold for all other acquirers. The Court also found that maintenance of the plan in the face of a pending proxy contest by Yucaipa, and the refusal to amend the plan to permit Yucaipa to acquire sufficient additional shares (including by acting in concert with other stockholders in running the proxy contest), to eliminate the founding shareholder’s advantage in the contest, did not fundamentally restrict Yucaipa from winning a proxy contest and was thus a good faith, reasonable response to the threat posed to Barnes & Noble and its stockholders. Yucaipa provides significant guidance as to the use, and limitations, of a rights plan in connection with a proxy contest.