What Delaware case established the enhanced scrutiny standard for defensive measures in takeovers?

The Delaware case that established enhanced scrutiny for defensive takeover measures is Unocal Corp. v. Mesa Petroleum Co.

The Delaware Supreme Court decided Unocal in 1985 after Mesa Petroleum launched a two-tier tender offer for Unocal. The first tier offered cash for a controlling block, while the second offered securities of lower value for remaining shares. Unocal’s board responded with a defensive exchange offer that excluded Mesa.

The court held that directors could respond to a takeover threat, but they had to satisfy a more demanding review than ordinary business-judgment deference. The board first had to show that it reasonably perceived a threat to corporate policy or effectiveness. It then had to demonstrate that its defensive response was reasonable and proportionate to that threat.

The case is often confused with Revlon, which concerns a board’s duties when a company is effectively for sale, or Blasius, which addresses actions affecting shareholder voting. Unocal’s two-part approach became a central framework for reviewing poison pills and other takeover defenses.