Mentor Graphics Corporation v. Quickturn Design Systems, Inc.
Court of Chancery of Delaware
728 A.2d 25 (1998)
Mentor Graphics (plaintiff) made an unsolicited cash tender offer for all shares of Quickturn Design Systems (defendant) without first trying to negotiate with Quickturn's board, and announced it would also seek to replace Quickturn's board through a proxy fight at a special shareholder meeting. Quickturn's board thought the offer was inadequate. It amended the bylaws to delay any shareholder-called special meeting to 90-100 days out, and it adopted a Deferred Redemption Plan (DRP): if a majority of directors were replaced by shareholder vote, the newly elected board still could not redeem the company's shareholder rights plan for six months if doing so would help a bidder connected to the new directors' election. Mentor sued for a declaration that the DRP was invalid.
Whether a target corporation board's shareholder rights plan, adopted in response to a hostile bid, is invalid when it is not a reasonable, proportionate response to a perceived threat to corporate policy and effectiveness.