Corporate Update

Delaware Chancery Court Confirms Validity of Barnes & Noble’s Shareholder Rights Plan

On August 12, 2010, Vice Chancellor Strine issued his opinion in Yucaipa American Alliance Fund II, L.P. v. Riggio, in which the court affirmed the validity of a shareholder rights plan applying the Unocal standard of review. The opinion is noteworthy because it reaffirms the standard to be applied in reviewing the adoption of shareholder rights plans, addresses whether, in adopting a defensive measure, a board of directors acted reasonably in concluding that a large shareholder presented a threat even though that shareholder had not proposed a takeover, confirms that existing large shareholders may be subject to higher triggering thresholds as compared to other shareholders and provides directors with helpful guidance when considering the adoption of rights plans in the future.

Background

The case was brought by Yucaipa American Alliance Fund, a fund controlled by Ronald Burkle, against Barnes & Noble, Inc. (“B&N”) and the members of B&N’s board of directors alleging that the board of directors had breached its fiduciary duties in adopting a shareholder rights plan in November 2009. In 2008 Yucaipa acquired 8% of B&N’s common stock and met with Leonard Riggio, B&N’s founder and largest shareholder controlling an approximately 30% stake in B&N. At this meeting, Burkle presented to Riggio his ideas for improving B&N’s financial performance, including certain strategic alternatives for B&N. B&N did not implement any of these ideas and in August 2009 announced its acquisition of an independent college bookstore company owned by Riggio.

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