5.3.3: Cases Specifically Involving Dilutive Recapitalizations

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Abstract

There are a handful of useful precedents in which grievants specifically attacked transactions as excessively dilutive. However, it is necessary to weed out those precedents that, while containing language apparently relevant to the issue under discussion, are in fact driven by other legal imperatives. For example, defensive tactics employed by target corporations to ward off hostile raids occasionally involving dilutive financing aimed at watering down the voting power of the insurgent. There is, to be sure, general learning obtainable from the decisions (mostly emanating from the Delaware Court of Chancery and Supreme Court) which have considered the conflicts created between management and shareholder interests in companies under attack during the hostile takeover craze of the 1980s. For present purposes, it is important to note that the burnout or cramdown financing that this Article discusses ordinarily is not designed to frustrate controlling influence.[2] Control on the hypothesized facts already