Third Point LLC v. Ruprecht
Delaware Court of Chancery
2014 WL 1922029 (2014)
Activist hedge fund Third Point LLC (plaintiff) became Sotheby's largest shareholder, holding 9.6 percent at the time of suit, prompting Sotheby's board -- majority independent and advised by outside financial and legal counsel -- to discuss the fund's growing stake across multiple meetings and emails; Chairman and CEO William Ruprecht (defendant) described an "imminent activist effort to shift our management agenda," and after Third Point publicized a letter criticizing Sotheby's management, Ruprecht concluded a proxy contest with a realistic chance of activist victory was likely. Sotheby's responded by adopting a shareholder rights plan letting non-control-seeking shareholders own up to 20 percent before triggering the plan, but triggering it at just 10 percent for shareholders who acquired stock for any control-related purpose. Third Point sued for breach of fiduciary duty and moved for a preliminary injunction.
Whether a shareholder rights plan is valid if the board had reasonable grounds for believing that a danger to corporate policy existed, and the board's defensive response was reasonable in relation to the threat.