Unitrin, Inc. v. American General Corp., 651 A.2d 1361 (Del. 1995)
Unitrin is a cornerstone Delaware corporate law decision refining the intermediate scrutiny applied to defensive measures that boards adopt in response to hostile takeover bids. Building on Unocal and Paramount v.
Under Unocal's intermediate standard of review, when a board faces a hostile bid it deems inadequate, are a poison pill and a substantial stock repurchase program impermissible "draconian" defenses because they are preclusive or coercive, or can they be upheld as within the range of reasonableness in relation to the threat posed?
Under Unocal, directors who adopt defensive measures must first show they had reasonable grounds for believing a danger to corporate policy and effectiveness existed. If they do, the burden shifts to show the response was reasonable in relation to the threat. Defensive measures that are coercive (coerce or force stockholders to accept management's preferred alternative) or preclusive (render a successful proxy contest or tender offer realistically unattainable or a near impossibility) are "draconian" and per se invalid. If a defense is not coercive or preclusive, courts assess whether it falls within a "range of reasonableness" in relation to the threat; boards are not required to adopt the least restrictive alternative. "Substantive coercion"—the risk that stockholders will mistakenly accept an inadequate offer—is a legitimate threat a board may address.
The Delaware Supreme Court affirmed that Unitrin's board identified a legitimate threat (including substantive coercion), but reversed the Court of Chancery's conclusion that the board's repurchase plan was preclusive under an overly expansive definition. It held that defenses are preclusive only if they render a successful proxy contest or tender offer realistically unattainable. Because the record did not establish preclusion or coercion as a matter of law, the Court remanded for the Court of Chancery to determine whether the repurchase program, together with the pill, fell within the range of reasonableness in relation to the threat posed.
Unitrin is a bedrock case in Delaware takeover jurisprudence. It (1) entrenches substantive coercion as a legitimate threat; (2) supplies precise definitions of "coercive" and "preclusive" defenses; (3) rejects any requirement that boards adopt the least restrictive alternative; and (4) articulates the "range of reasonableness" test that has become the backbone of Unocal proportionality review. The opinion gives boards practical room to use pills and buybacks to counter inadequate bids, while equipping courts to strike down truly draconian measures. It has been repeatedly cited in later cases (e.g., Unocal progeny and Air Products v. Airgas) and is essential for understanding modern M&A defense law and board fiduciary duties in change-of-control contexts.