A bitter pill for Burkle: as dispensed by Vice Chancellor Strine, a prescription worthy of directors' study.

• Author: Kaback, Hoffer
• Position: QUIDDITIES

IN HENRY IV, PART 1, the mystical and fiery Welshman Owen Glen-dower boasts that "I can call spirits from the vasty deep." Hotspur retorts, "Why, so can I, or so can any man; but will they come when you do call for them?"

In the early 1980s, every corporate lawyer in town was searching for effective tactics to defend against hostile, front-end-loaded tender offers. It was Martin Lipton of Wachtell Lipton who conjured up the then-revolutionary "rights plan" (familiarly now known as the "poison pill").

[ILLUSTRATION OMITTED]

The pill has been a staple of takeover defense ever since its validity was upheld by the Delaware Supreme Court in the 1985 landmark Household Intl. case. Naturally, it has gone through many refinements since its birth.

On Aug. 11, 2010, Delaware Vice Chancellor Leo E. Strine Jr. ruled, in the Yucaipa case, on an unusual variation. The pill there in question (a) grandfathered the 29% Barnes & Noble holding of the Riggio brothers, though it froze the ability to increase that stake, but (b) created unpleasant consequences for a dissident shareholder that, alone or acting in concert with others, increased its position above 20%.

Yucaipa is an investment firm controlled by investor Ron Burkle. Barnes & Noble was founded by Leonard Riggio ("Riggio"). Riggio some years ago participated in an investment with Burkle; that experience left a sour taste in Riggio's mouth. Thus, he was not thrilled when, as of November 2008, Yucaipa had bought 8% of B&N stock. Nor was he impressed with several strategic ideas and suggestions that Burkle proffered at a meeting in March 2009.

And he certainly was not serene when, over a four-day period last November, Burkle essentially doubled his position in B&N to 18%. Within days, Riggio--and the B&N board--took action.

That board is less than pristine from the standpoint of independence. For example, in addition to his brother Stephen (and himself), the B&N board contains two other directors with close ties to Riggio. Thus, out of a board of nine, four members are of questionable independence vis a vis Riggio.

The B&N board initially adopted its rights plan on Nov. 17, 2009. By early February, the situation had become more complex because a second investment firm, Aletheia, disclosed that it had acquired more than 17% of B&N stock, an increase from its former position of 6%. And Aletheia had a history of having followed Burkle in at least three prior investments.

Burkle brought suit in May 2010 in...