Unocal Corp. v. Mesa Petroleum Co.
1985 Delaware Supreme Court case
Unocal v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985) is a landmark decision of the Delaware Supreme Court on corporate defensive tactics against take-over bids.
Until the Unocal decision in 1985, the Delaware courts had applied the business judgment rule, when appropriate, to takeover defenses, mergers, and sales.
In Unocal, the Court held that a board of directors may only try to prevent a take-over where it can be shown that there was a threat to corporate policy and the defensive measure adopted was proportional and reasonable given the nature of the threat.
This requirement has become known as the Unocal test for board of directors (as later modified in Unitrin, Inc. v. American General Corp., which required the tactics to be "coercive" or "preclusive" before the court would step in).
Facts
Mesa Petroleum had made a front-end loaded two-tiered hostile bid for Unocal Corporation in which the front end was $54 in cash, and the back end of the deal was $54 in junk bonds. Because most shareholders would prefer to receive the cash instead of the bonds, shareholders were expected to tender their shares into the deal, even if they did not think $54 was a fair price.
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