WILMINGTON, JAN. 4 -- A proposed Delaware law aimed at discouraging hostile takeovers was approved by the corporate law section of the State Bar Association today after attempts to weaken it failed.
The 131 lawyers debated for two hours before voting to recommend the bill, which has drawn the opposition of Texas oilman T. Boone Pickens Jr., Securities and Exchange Commission member Joseph Grundfest and others.
Delaware is considering a bill to make hostile takeovers difficult, if not impossible. Similar laws have been enacted by 32 other states.
The legislation -- which goes before the bar association's executive committee Tuesday, and then would be introduced in the General Assembly -- would prevent a hostile suitor from making a tender offer for three years after obtaining 15 percent of a company's outstanding stock unless he has the support of the directors or can obtain 85 percent of the stock in one transaction.
The committee rejected pleas from corporate lawyers who said the law will only serve to entrench managers and directors to the disadvantage of outsider shareholders. "Is it reasonable and fair to set the threshold at 85 percent?" asked Charles Richards Jr., the leading opponent of the legislation, and Delaware attorney for Pickens. "In what other institution of our society does it require 85 percent to pass something?"
Richards proposed amendments lowering the threshold to 75 percent, excluding all officers' and directors' stock, and allowing tender offers to go forward if approved by a simple majority of stockholders. The amendments failed 30-101. The final package was approved 101-24.
Gov. Michael Castle is seeking early approval of the measure to protect Delaware's position as a premier incorporator. The state is the nominal home to 179,000 corporations, including 55 percent of the Fortune 500 and 46 percent of the corporate members of the New York Stock Exchange.
Delaware's legislation was based on New York's law, but compromises have left holes in it.
Some opponents have warned that approval of a takeover bill would be viewed by the SEC as an intrusion on interstate commerce.