Safeway Adopts Poison-Pill Bylaw

Safeway Inc. has reached an agreement with Harvard Law School Professor Lucian Bebchuk to adopt a bylaw provision for limiting the adoption of shareholder rights plans, also known as poison pills.

The proposed bylaw is based on a shareholder proposal that would amend Safeway’s bylaws, which Bebchuk put forward for the company’s upcoming annual meeting. Under the new provision, an extension of a poison pill not endorsed by shareholders must be approved by at least 75 percent of the board, and a pill not extended would expire one year after its adoption or last such extension, according to Bebchuk. Safeway’s board, as a result of the agreement, adopted the new bylaw and Bebchuk in turn withdrew his shareholder proposal.

Safeway is the fourth company – the second this proxy season – to adopt a poison-pill bylaw that Bebchuk has proposed. Last month, he reached a similar agreement with CVS Caremark, whose now-adopted bylaw is based on a model bylaw Bebchuk developed that was the basis of a court decision in a case with CA Inc., during which CA abandoned its attempt to exclude Bebhcuk’s shareholder proposal from the corporate ballot. The bylaw model basically requires directors to establish a poison pill only upon a unanimous vote, and every director would also need to vote in favor of such an amendment in order to extend a pill beyond one year.

Meanwhile, Walt Disney Co.’s board last summer adopted a bylaw amendment based on a revision of a proposal Bebchuk submitted in the Fall of 2006 that won 57 percent of the votes cast during that year’s annual meeting. He also reached an agreement with Bristol-Myers Squibb.

Bebchuk, in his pursuit of having his proposals adopted by such companies, says there hasn’t been much friction on the road thus far in approaching them. “I have found companies in this proxy season to be relatively open to adopting my pill bylaw proposals,” he says. “This might be partly due to companies' recognition that investors are likely to support these proposals in the event they would come to a vote. It might also be partly due to companies' natural tendency to be more willing to adopt arrangements already present in other companies.”