The Commission and Access: The Interrelationship with Delaware Law

For now, our last comment is to look at access in the context of developments in Delaware law.  For many companies, access requires a certain amount of organization.  Groups of shareholders will need to put together blocks designed to meet the 3% threshold.   Doing so meets the requirements of Rule 14a-11 but also provides a mechanism for building support in advance of the shareholder vote.  Aware of this, the Commission amended Rule 14a-2 to exempt organizational activities that do not involve actual proxy solicitations but relate to the formation of a nominating group. 

This authority, however, must be considered in light of Yucaipa v. Riggio, a case we will discuss soon on this Blog, and Selectica.  Selectica allowed companies to set triggers on a poison pill as low as 5%.  Yucaipa (the primary materials are here) upheld the right to use poison pills to prevent shareholders from organizing and agreeing on a common slate of directors, at least where the collective ownership of those in the group exceeded the poison pill trigger. 

We can forsee, therefore, an attempt by companies to limit access not through bylaws but through poison pills.  First, companies may try to set them at less than 5%.  Second, a low trigger will mean that nominating groups that exceed the 3% threshold may find themselves at risk for triggering the poison pill. 

It remains to be seen what will happen but the potential is clear.