From Moelis to Miller: How to Settle with Activists

Jim Woolery is Founding Partner at Woolery & Co. This post is based on his Woolery & Co. memorandum. Related research from the Program on Corporate Governance includes Dancing with Activists (discussed on the Forum here) and The Long-Term Effects of Hedge Fund Activism (discussed on the Forum here) both by Lucian A. Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch; and Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System (discussed on the Forum here) by Leo E. Strine, Jr.

  • The case before Vice Chancellor Travis Laster is Theodore B. Miller, Jr., et al. v. P. Robert
    Bartolo, et al. C.A. No. 2024-0176-JTL [Excerpt Attached]
  • On February 23rd, Vice Chancellor Laster issued his decision in Moelis and warned that an activist settlement agreement which binds the decisions of directors irrespective of future events, specifically with respect to director recommendations and the size of the board/committees, may violate Section 141(a) of the Delaware Code
  • On March 8th, Vice Chancellor Laster further held in the Miller case that Elliott’s substantial use of derivatives in its Crown Castle position, combined with the fact that the Crown settlement agreement was struck prior to the window for shareholder proposals, presents a colorable claim under Unocal

What do Moelis and Miller mean for boards and activists going forward?


Under Unocal, the response to an activist threat needs to be reasonable and proportional to the threat that the activist presents to the corporation. If unreasonable and disproportionate, the board’s response may be subject to enhanced scrutiny in Delaware.

Companies have adopted advance notice by-laws that set forth proposal windows during which shareholders can bring forth director nominations and other proposals. In response, activists have announced target investment positions in the Fall in an effort to (1) publicly position and protect their trading strategies around target companies and (2) strike settlements with company boards prior to or during these shareholder windows (which typically terminate in February) for Spring annual meetings. This market-oriented structure may lead to front-running by activists of the shareholder proposal window/process to lock up the company’s forward path before the board may give good-faith consideration to competing proposals or internal, company-developed strategies.

Further, activists are able to put artificial pressure on boards and companies by announcing large economic positions in target companies, comprised principally of derivative instruments such as options, cash-settled swaps, index investments and hedges which (1) can be accumulated, adjusted and/or sold off quickly, (2) require minimal capital outlay upfront relative to the headline number, (3) move differently from (and in some cases inversely to) stock and (4) are often not subject to the same reporting requirements as stock.

Vice Chancellor Laster’s move to advance Miller on the timing and derivative combination means that boards are encouraged to (1) consider activist settlements, particularly those that include material governance rights regarding the board and its functioning, following the expiration of the shareholder window for proposals and closer to the timing of the upcoming company annual meeting and (2) handle derivative instruments with care with a view towards understanding their potential differences to stock over time relative to the specific governance rights granted by the board to the activist in the settlement.


In order to ensure the application of the business judgment rule, in the wake of Moelis and Miller, boards should strongly consider the following:

  • Waiting to sign an activist settlement until after the shareholder proposal window is closed, ensuring that no party is given a premature board recommendation endorsement, while allowing the board to consider different sets of nominees and/or shareholder proposals during the window
  • Tethering any special governance rights (seats, board size, committees, etc.) given to activists to (1) their economic position in the company and (2) a mechanism to provide relevant reporting of that position from time to time by the activist to the board, if it is not publicly available
  • Granting special committee or trading rights to the activist with extreme care and otherwise relying on the normal committees, policies and functioning processes of the board
  • Subjecting any special governance rights given to an activist, particularly those pertaining to director recommendations and board/committee size requirements, to a unencumbered fiduciary out that allows boards to freely exercise their business judgment over time

These measures ensure continued alignment between activists and shareholders by conforming the calendar for activist announcements and settlements with the Delaware calendar for shareholder proposals and annual meetings. Further, Vice Chancellor Laster’s opinions encourage boards to focus on the reasonableness of their responses to activist pressure relative to shareholders and shareholder rights. The total effect is to tighten the time period between settlements and shareholder action at annual meetings and provides boards with further time and space to negotiate reasonable settlements with activists that are aligned with shareholders.

Vice Chancellor Laster’s guidance will not, and is clearly not intended to, preclude activists from initiating campaigns, nor does it in any way remove derivative instruments or settlement agreements from the activist “tool-kit”; rather Miller ensures that these tools may not be used to (1) front-run other shareholder proposals too far in advance of annual meetings or (2) permit activists, who have been afforded substantial governance rights, to shift out of economic alignment with shareholders without relevant protections for the corporation.


Highlights and Excerpts from Hearing Held on March 8, 2024 re Motion for Expedition in Theodore B. Miller, Jr., et al. v. P. Robert Bartolo, et al. C.A. No. 2024-0176-JTL

  • Plaintiffs point out the Cooperation Agreement’s failure to require that Elliott maintain and report an equity stake in Crown Castle as part of their Unocal claim that the Company’s response to the perceived threat of Elliott was excessive and unreasonable.
    • Miller v. Bartolo, et al., C.A. No. 2024-0176-JTL (Attorney Heyman; 30-31)
    • “Unlike other activists, who take substantial equity stakes in the company and can truthfully tell a board that their interests are aligned with other shareholders, Elliott took a tiny equity interest, holding only about one-quarter of 1 percent of the company as of December 31, 2023, and retained freedom to dispose of its investment; which we understand it did. [T]his arrangement permitted it to promptly take advantage of the stock price pop when the cooperation agreement was announced, and Elliott has not disclosed what its direct or indirect equity ownership in the company is at this time. So the board seats and governance rights were granted to an almost entirely nonaligned hedge fund, and whatever threat the board believed it faced from Elliott, its response was excessive and would be an unfortunate precedent, if upheld.”
  • Plaintiffs assert that Crown Castle mooted its own advance-notice bylaw by agreeing to terms with Elliott ahead of the timeline for shareholder proposals.
    • Miller v. Bartolo, et al., C.A. No. 2024-0176-JTL (Attorney Woolery; 34-35)
    • “This structure moots the advance-notice bylaw because the slate is preset and preagreed before any other proposals can even be known. And this is the activist calendar for contest, Your Honor, not the Delaware calendar that is at issue here; because this contract goes further and beyond the problem of binding in advance, inappropriately, the board against other proposals and mooting the bylaw Miller relied on in preparing his business proposal for six months and aiming for the proposal to go to the board on January 1st, consistent with the bylaw.”
  • Plaintiffs further explain why arrangements such as that between Elliott and Crown Castle result in a front-running process, whereby activist proposals are considered and implemented prior to the window in which stockholders can bring proposals.
    • Miller v. Bartolo, et al., C.A. No. 2024-0176-JTL (Attorney Woolery; 36-38)
    • “[W]hat this does is it creates a subsidized-by-the-board total economic exposure concept that is not stock by definition — it is not. But the directors keep their seats and make it self-dealing under the agreement because they grant special governance rights — we haven’t asked for governance rights – – to Elliott ahead of the window for proposals. And they only know now, because of this contest and our complaints, that over 90 percent of Elliott’s position is still in derivatives. And those derivatives move differently value-wise, by definition, than a share of stock. But the directors don’t know how Elliott’s nonstock position moves differently. And the contract doesn’t require any reporting to the board of the position…It is a black box to the board. And so future Miller proposals, Your Honor, will not be brought for stockholders to see and choose from, because a very efficient nonstock trading holder can front-run the process and be rewarded by the board and protected with special rights that stockholders do not enjoy, in exchange for board seats. And more and more elections, Your Honor, will be settled up-front, before windows open for stockholders to propose anything, because it is efficient for the market, it costs less.”
  • Vice Chancellor Laster holds that the amended Cooperation Agreement does not moot plaintiff’s Moelis claim with respect to the recommendation requirement and therefore upholds plaintiff’s motion for expedition on the basis of resolving this claim.
    • Miller v. Bartolo, et al., C.A. No. 2024-0176-JTL (Vice Chancellor Laster; 66-67)
    • “The [provision] that I think is still live is this question of the obligation to recommend the incumbents, including the new directors. And here, after the modification by the fiduciary out, I’m not saying that it’s invalid. I’m saying that I’m not sure. What Elliott and the company did to modify this provision was to allow the directors to withdraw their recommendation of a specific individual if the directors determined, after consultation with counsel, that their fiduciary duties required it. That is a common formulation that’s used in M&A agreements, so that starts out with a lot going for it. As you-all know from Moelis, but also from my earlier Primedia decision…I distinguish between a termination right and a recommendation right. The termination right is what, to me, more obviously implicates third-party contractual interests. The recommendation right is something that, to me, is strongly internal and connected to the board’s duties to its stockholders… I think that there continues to be a colorable challenge to the recommendation obligation as made subject to the fiduciary out.”
  • Vice Chancellor holds plaintiffs’ claims under Unocal are colorable and may move forward.
    • Miller v. Bartolo, et al., C.A. No. 2024-0176-JTL (Vice Chancellor Laster; 67-69)
    • “Now I move to the Unocal issues. And here I also think the plaintiffs have cleared the colorability threshold, if barely so. The defendants rely on Ebix to say that this cooperation agreement can’t give rise to a Unocal issue because the board added directors and thereby diluted the incumbents’ voting power, rather than doing anything to entrench themselves. I think that misses the point and looks at the wrong comparison…. The issue [in Ebix] is that the original threat was that four of the six [directors] would lose their jobs and be out. And they came up with a solution in which all six kept their jobs and two more were added. That is the comparison. Not with status quo, it’s the comparison against the threat. Here, I think we have a similar dynamic. It’s at least alleged Elliott came in threatening five out of ten — I guess five out of eleven — which is a substantial portion of the board. I agree with the defendants that there isn’t a suggestion that this is coercive or preclusive. The question is whether it falls within a range of reasonableness. I think there is some reason to think that this is reasonable on its face, but I do think that the plaintiffs have raised enough of a colorable issue about the timing of the agreement in advance of the January nomination window, and the potential differences that stem from Elliott’s use of derivatives, rather than common stock, to at least allow the Unocal claim to go forward. I think, in other words, that there are colorable claims here as to those issues.”
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