DOVER, DEL., JAN. 28 -- Without debate, the Delaware Senate today approved legislation designed to severely limit hostile corporate takeovers.
The Senate voted 19-1, with one member not voting, to pass the legislation, which will take effect when signed into law and has a grandfather clause making its terms retroactive to Dec. 23. Gov. Michael N. Castle is expected to sign the legislation next week.
Supporters said the bill will put a stop to "greenmail." In that practice, a potential buyer who amasses a large stake in a company is bought out by the company and usually receives a premium above the market price for his shares.
Opponents of the legislation contended that shareholders will lose their rights to sell and will not receive the best price for their stock. They also contended that it will entrench management.
Delaware officials have feared that if the legislation does not become law, companies incorporated in the state will reincorporate elsewhere.
With its liberal corporate laws, about 184,000 firms are incorporated in Delaware, including 56 percent of the Fortune 500 companies and 45 percent of the corporations listed on the New York Stock Exchange.
The state reaps more than $170 million annually, or about 17 percent of its revenue, from corporate franchise taxes and fees.
Under the bill, a buyer who acquires 15 percent or more of a target's stock must wait three years before completing the takeover. Among the many exceptions to the restrictions is a provision allowing a buyer to acquire 85 percent of a company's stock in one transaction.
When the bill becomes law, directors will have 90 days to vote on whether to declare their companies exempt from its provisions. Shareholders also can vote to opt out, but the decision would not take effect until a year after the vote.
Under the grandfather clause, a buyer with 15 percent or more shares of a company will be exempt from the law if the shares were purchased before Dec. 23.
Secretary of State Michael Harkins said the only takeover attempt that he's aware of that will be affected by the legislation is the one involving Texaco Inc.
"The situation with Texaco is no secret," Harkins said, referring to the chairman of Trans World Airlines Inc., Carl C. Icahn, who has been increasing his shares in Texaco.
Icahn reported to the Securities and Exchange Commission on Jan. 19 that he had acquired 14.5 percent of Texaco stock. Once the legislation becomes law, Icahn will be subject to its provisions.
Senate Majority Leader Thomas Sharp, a Democrat who is floor manager for the bill, said there was no need for further debate on it.
He called for an immediate vote because "I don't know what else can be said," referring to two lengthy public hearings last week and an appearance in the Senate on Tuesday by Texas oilman T. Boone Pickens, who discussed the legislation with lawmakers and Castle.
Sharp cast the only dissenting vote, while Majority Whip Harris McDowell abstained.