Defeating Poison Pills Through Enactment of a State Shareholder Protection Statute

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As published in Delaware Journal of Corporate Law, Volume 25, No. 3, Pp. 651-682, 2000

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Addison D. Braendel
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In 1978 the Supreme Court held that state usury laws were preempted by the National Bank Act and that out-of-state banks could charge credit card interest rates as high as permitted by the state in which they were located. This caused a flood of bank relocations in the 1980's to Nevada and South Dakota to take advantage of usury laws more favorable to lenders. Given the absence of any substantive federal corporate regulation akin to the National Bank Act, there seems to be no reason why a single state shareholder protection statute, as described herein, could not protect resident shareholders from dilutive corporate practices by prohibiting selective and discriminatory stock purchase rights that accompany shareholder rights plans. Tender offerors could then relocate to that state before conducting a tender offer. If it is possible to enact such a law, and to sufficiently tailor it to withstand constitutional scrutiny, it could neutralize all poison pills.