Union Pacific Corp. asked a judge on Thursday to block Santa Fe Pacific Corp. from using a “poison pill” takeover defense to ward off the larger railroad company.
Union Pacific’s request for a preliminary injunction in the Delaware Chancery Court strengthens a complaint it filed Jan. 18. At that time, Santa Fe said the lawsuit was without merit. The companies are battling in Delaware because they’re incorporated in that state.
The poison pill is a shareholder rights plan intended to block a hostile suitor such as Union Pacific from acquiring more than 10 percent of Santa Fe’s stock without board approval.
If a hostile party should acquire more than 10 percent of Santa Fe’s stock, other shareholders would be allowed to buy additional stock at a low price, diluting the hostile party’s stake and sharply increasing the cost of a takeover.
Santa Fe, based in the Chicago suburb of Schaumburg, has agreed to be acquired by Burlington Northern Inc. of Fort Worth, Texas, for $3.8 billion in cash and stock. It has rejected Union Pacific’s $3.6 billion all-cash bid.
The prize is Santa Fe’s Chicago-Los Angeles route and dominance of U.S. western rail service.
Union Pacific, based in Bethlehem, Pa., is the nation’s largest railroad in terms of revenue. Burlington is No. 2; Santa Fe is No. 7.