Unocal Corp. v. Mesa Petroleum Co.

Judicial review of defensive tactics adopted in response to a hostile takeover bid.

Mesa Petroleum launched a two-tier hostile tender offer for Unocal. Unocal's board concluded that the offer was coercive and inadequate, then adopted a selective self-tender/exchange offer that excluded Mesa as a bidder.

The court recognized enhanced scrutiny for takeover defenses, asking whether directors had reasonable grounds to perceive a threat and whether the response was proportionate.

The court reasoned that takeover defenses create a structural conflict because directors may be protecting shareholders or entrenching themselves. Directors therefore had to show good faith and reasonable investigation, a threat to corporate policy and effectiveness, and a defensive response reasonably related to that threat.

1. Which corporate actor gains authority or bears monitoring responsibility under the rule?
2. How does the rule affect agency costs without unduly impairing informed business judgment?