Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, September 11, 1994 TAG: 9409100006
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: Associated Press
DATELINE: RICHMOND LENGTH: Medium
And the judge's interpretation of the law may encourage companies to set up shop - or at least incorporate - in Virginia, said Leslie Kelleher, who teaches corporate law at the University of Richmond.
This summer's fight pitted one of the country's most aggressive players of the takeover game, Arkansas-based Tyson Foods Chairman Don Tyson, against a group of Shenandoah Valley chicken farmers who didn't want to sell the Rockingham County company of which many of them were shareholders.
In his rulings, U.S. District Judge James H. Michael rejected arguments from Tyson that a section of the Code of Virginia outlining standards of conduct for corporate directors is unconstitutional.
Michael ruled that the way to measure a board's good faith is to look at whether it followed an informed decision-making process, said Lyman Johnson, a Washington and Lee University law professor.
In the past, Delaware's pro-business law has made it a favored state for businesses to incorporate, Johnson said. About half of the Fortune 500 corporate giants are incorporated there because Delaware judges long have held that, in most cases, as long as corporate directors act in good faith, they aren't liable to stockholders for mistakes.
Now, Johnson said, ``Delaware is going to get out-Delawared by Virginia.''
The Virginia General Assembly enacted three laws in the late 1980s designed to make hostile takeovers tougher:
One law says a hostile bidder can't vote any shares it acquires unless disinterested stockholders of the target firm vote to let it. Another says a company can issue extra shares to dilute the voting power of an outsider's stock holdings - a move Wall Street calls a ``poison pill.''
Even if a hostile takeover succeeds, a third Virginia law says the target company's outside directors and stockholders still can throw up some roadblocks - it bans transactions between the buyer and target company for three years, unless outside directors and two-thirds of the target company's stockholders approve.
At the time the laws were passed, legislators were worried that the 1980s' merger mania could hurt the state's economic development and end up costing Virginia jobs, said Allen Goolsby, a lawyer who served on the advisory committee for a 1988 State Corporation Commission study on takeover law.
Virginia's approach, through the three laws, was to try to slow the rush toward takeover by forcing a bidder to take some extra steps to win approval for its offer, Goolsby said.
Virginia corporations have liked the result.
``As a general rule, Ethyl supports'' Virginia's anti-takeover laws, said Robert Buford, spokesman for Ethyl Corp. in Richmond. ``We would not favor any reading that would challenge their constitutionality.''
Many corporations have taken steps to make sure they can take advantage of the law, by setting up poison pill plans and writing corporate bylaws that incorporate the share-voting law, said Charles H. Merriman, manager of the corporate finance department at Scott & Stringfellow Inc., a Richmond-based securities company.
``There are still a few who haven't, but I would think they'd be taking another look at it now,'' he said.
Merriman said the laws are good for stockholders. Slowing down the takeover process tends to encourage bidders to offer better prices for a company's stock.
But the University of Richmond's Kelleher says the ruling in the Tyson case that a judge's review of a corporate board's decision can only consider the decision-making process removes a potentially important safeguard for corporate stockholders.
``Do we want a standard of conduct to be so low as subjective good faith, and if it is, should we reduce the standard of review so that there's no substantive review of decisions?'' she said.
Kelleher said the law may encourage companies to incorporate in Virginia but also could affect how easily Virginia companies raise capital.
``Are investors going to want to put money in corporations whose directors are less likely to be liable for their actions?'' she said. ``What you've really got to ask yourself is, `Is this something we want?'''
by CNB