WILMINGTON, DEL., FEB. 2 -- Legislation that could affect more than half of the Fortune 500 companies by severely limiting hostile corporate takeovers was signed into law today and faced an immediate court challenge.
Black & Decker Corp., attempting a $1.8 billion takeover of American Standard Co., filed suit in U.S. District Court here, saying that the new law was "unconstitutional on its face."
The law, retroactive to Dec. 23, forces a hostile bidder acquiring 15 percent or more of a Delaware company's stock to wait three years before completing the deal.
There are exemptions under certain conditions, including a buyer acquiring 85 percent of a target's stock in one transaction.
In signing the bill, Delaware Gov. Michael N. Castle said today that it was "the single best piece of legislation any state has ever adopted. I think we have adopted a piece of legislation that we think is fair to all parties. It makes management stay on its toes, but still provides them some protection."
Named as defendants in the Black & Decker suit are American Standard, Delaware Attorney General Charles M. Oberly III and Secretary of State Michael E. Harkins.
In addition to seeking to have the law declared unconstitutional, the Towson, Md., power tool and household appliance manufacturer also wants an injunction against American Standard to prevent the New York maker of plumbing, heating and air-conditioning equipment from enforcing or applying the new law.
State officials have said consistently that they expect the law to be upheld in court.
A number of states adopted antitakeover laws since the Supreme Court upheld Indiana's statute last year.
Critics contend the state laws create too many standards in different jurisdictions.
They contend the differing standards hinder corporate activity and infringe on existing federal legislation.
American Standard, which is incorporated in Delaware, has also been sued in the state's Chancery Court by two of its stockholders, who allege that its managers are illegally blocking the takeover and instituting "golden parachutes" that provide substantial benefits for themselves in the event of a change in control.
The shareholder suit, filed late last week, names as defendants American Standard Chairman William B. Boyd and executive vice presidents James C. Huntington, Nicholas M. Georgitsis and James C. Workman.
American Standard is among the 184,000 companies incorporated in Delaware, including 56 percent of the Fortune 500 companies and 45 percent of the companies on the New York Stock Exchange.
Black & Decker and its B&D Acquisition Inc. subsidiary, plaintiffs in the lawsuit, both are Maryland corporations.