Court Says Holders Can Revoke ‘Poison Pill’ Defense

A federal appeals court has ruled that, at least in Oklahoma, shareholders have the right to overrule company directors and revoke “poison pill” takeover defenses.

The Denver-based 10th U.S. Circuit Court of Appeals last week found in favor of the International Brotherhood of Teamsters, which had sued national grocery distributor Fleming Cos. in order to put such a resolution before other shareholders.

The ruling had been expected since January, when Oklahoma’s Supreme Court told the federal panel that the measure didn’t conflict with law in that state, where Fleming is incorporated.

The 10th Circuit ruling is a victory for shareholder activists, who view poison pills as a weapon entrenched directors use to protect themselves. It affirms the first federal opinion on the issue, from a lower court in the Oklahoma case, and could be applied elsewhere because Oklahoma law is identical to Delaware law, under which most Fortune 500 companies are incorporated.

For now, the ruling is binding in only the six states covered by the appeals panel, but activists are filing anti-poison pill resolutions that may test the point elsewhere.

At Fleming, the issue is moot: The company has replaced its chief executive and dropped its poison pill.

Under the ruling, there are two exceptions to when shareholders can forcibly prevent poison pills. One is when a company’s charter gives only directors control. The other exception is when state law expressly gives directors the right to create pills, which are known formally as shareholder rights plans.

By the Oklahoma court’s count, 24 states have such statutes, including New York. Oklahoma, California and Delaware do not.