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- William Ackman
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HLS Faculty & Senior Fellows
The Delaware Law Series
Statement Regarding the Activision Amendments
Michael Hanrahan is Director at Prickett, Jones & Elliott, P.A. and Litigator in the Delaware Court of Chancery. This post is based on his recent statement and is part of the Delaware law series; links to other posts in the series are available here.
In 2024, Delaware enacted extensive amendments to the Delaware General Corporation Law to overrule three recent opinions by the Delaware Court of Chancery. Many of these hurriedly written amendments attack the Court’s February 29, 2024 Activision opinion.
In Activision, the Delaware Court of Chancery held that the plaintiff, a former Activision stockholder, had stated a claim that Activision and its board of directors had not complied with the requirement of Delaware’s merger statute, 8 Del. C. § 251, which requires that the board approve an agreement of merger that contains specified items, such as the merger consideration and the terms of the certificate of incorporation of the surviving corporation.[1] Because a merger is such a fundamentally important transaction affecting the ownership of the corporation, Section 251 imposes mandatory steps for the protection of the stockholders.[2]
The Activision opinion was preliminary. There had been no discovery, trial, final decision or appeal. However, within days, rushed efforts began, not only to overturn the Court’s Section 251 analysis of a draft merger agreement, but also to drastically diminish the standards for other board approvals and actions. Unlike the careful process and consideration Delaware usually employs for DGCL amendments, the multiple statutory changes directed at Activision were hastily concocted. As a result, the Activision Amendments are overbroad, imprecise and undermine the Court of Chancery and the DGCL’s protection of stockholders.
Delaware and a Close Look at Independence
Subodh Mishra is Global Head of Communications at ISS STOXX. This post is based on an ISS-Corporate memorandum by Alyce Lomax and is part of the Delaware law series; links to other posts in the series are available here.
Key Takeaways
- A Delaware judge’s decision to void $55.8 billion in compensation for Elon Musk was a noteworthy event for shareholders and corporate issuers, not only regarding compensation, but also the complexities around evaluating director independence.
- Traditional measurements used by major exchanges and proxy advisors seem to show that board independence in the U.S. is robust, but some less obvious non-independent traits may lurk beneath the surface.
- Our research indicates that Delaware courts could more frequently consider non-traditional/nonfinancial factors in evaluating board independence, process, and fair dealings with shareholders than widely believed.
Proposed DGCL Amendments Depart From Delaware’s Historical Approach to Activism and Takeover Defense
Keith E. Gottfried is Founder and CEO of Gottfried Shareholder Advisory. This post is based on his Gottfried memorandum and is part of the Delaware law series; links to other posts in the series are available here.
When Delaware Governor John Carney applies his signature to Senate Bill 313, which is expected to occur shortly, the market practice amendments to the Delaware General Corporation Law (the “DGCL”) will officially be incorporated into the DGCL. Thereafter, if things work as intended by the drafters, the market practice amendments will mitigate much of the uncertainty created by the Delaware Court of Chancery’s decision in West Palm Beach Firefighters’ Pension Fund v. Moelis & Co. (Feb. 23, 2024) (“Moelis”) with regards to whether shareholder, governance, and activism settlement agreements unlawfully limit the discretion of a company’s board of directors in violation of Section 141(a) of the DGCL.
Recent Updates in Delaware Disclosure Law
Arthur R. Bookout and Edward B. Micheletti are Partners at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on their Skadden memorandum and is part of the Delaware law series; links to other posts in the series are available here.
The Delaware Supreme Court recently issued two opinions weighing in on the scope of disclosures involving board advisors in connection with M&A transactions that warrant close attention. In both rulings — each written en banc — the Delaware Supreme Court reversed the lower courts’ dismissals of all claims because (among other reasons) certain material information about the target companies’ advisors was not disclosed. The Delaware Court of Chancery recently cited both rulings in denying motions to dismiss disclosure claims against directors and aiding and abetting claims against financial advisors. Companies and financial advisors alike should be aware of the court’s rulings and changes to Delaware law, as they will undoubtably have an impact on disclosures with regard to advisors’ prior and current engagements, as well as any proprietary equity holdings of merger parties.
Delaware Court Denies Dismissal of Claims Based on Controller and Financial Advisor Conflicts
Edward B. Micheletti, Joseph O. Larkin, and Arthur R. Bookout are Partners at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a Skadden memorandum by Mr. Micheletti, Mr. Larkin, Mr. Bookout, and Gregory P. Ranzini and is part of the Delaware law series; links to other posts in the series are available here.
On May 31, 2024, the Delaware Court of Chancery issued an important decision addressing several key areas of Delaware law related to merger litigation. The opinion indicates that the court will continue to closely scrutinize potential conflicts of interest in M&A transactions involving controlling stockholders and financial advisors, particularly as to disclosures concerning their fees and relationships.
Background
In Firefighters’ Pension System of the City of Kansas City, Missouri Trust v. Foundation Building Materials, Inc., Vice Chancellor Travis Laster granted in part and denied in part six separate motions to dismiss arising from the sale of Foundation Building Materials (the Company) to a subsidiary of American Securities LLC (American).
After Section 122(18), What Happens To The Merger Recommendation
The Honorable J. Travis Laster is Vice Chancellor at the Delaware Court of Chancery. This post is based on his LinkedIn post and is part of the Delaware law series; links to other posts in the series are available here.
If enacted, the market practice amendments of 2024 will create uncertainty about the law governing board recommendations, including the extent to which a contract can require a board to recommend a merger under Section 251 of the DGCL. I’ve pondered the language of the bill, and I’m not sure how it works.[1]
Let’s envision a standard reverse triangle merger in which the target will merge with and into the acquisition subsidiary, emerging as a wholly owned subsidiary of parent buyer. Assume the buyer demanded and secured a provision in the merger agreement stating that the board would not change or withdraw its recommendation in favor of the deal.
Developments and Trends in Delaware Officer Exculpation Charter Amendments
Andrew J. Noreuil is a Partner and Andrew J. Stanger is a Professional Support Lawyer at Mayer Brown LLP. This post is part of the Delaware law series; links to other posts in the series are available here.
In August 2022, the Delaware General Assembly amended the Delaware General Corporation Law (“DGCL”) to allow corporations to adopt charter provisions exculpating certain officers from personal liability for monetary damages for breaches of the duty of care. Since that time, corporate boards, stockholders, practitioners, and other observers have considered to what extent Delaware public company boards would propose officer exculpation amendments (also referred to here as “OEAs”) to their stockholders and whether stockholders would approve them. Now in the second proxy season since the DGCL was amended, we examine the latest data with respect to Delaware public companies proposing and adopting OEAs, recent judicial developments relating to OEAs, and the results of OEA proposals in light of proxy advisor recommendations.
Letter in support of the proposed amendments to § 122 DGCL
Lawrence A. Hamermesh is an Emeritus Professor at Widener University Delaware Law School. This post is based on his letter to Senator Townsend and Representative Griffith, and is part of the Delaware law series; links to other posts in the series are available here.
Dear Senator Townsend and Representative Griffith:
I write in support of S.B. 313, and in particular the proposed amendments to Section 122 of the Delaware General Corporation Law (DGCL) that validate corporate power to enter into agreements that grant stockholders significant governance rights. These amendments respond to a recent decision by the Court of Chancery in the Moelis case, which invalidated a stockholder agreement giving the corporate founder the right to require, among other things, that the board of directors recommend the election of his director nominees. The proposed amendments validate such agreements as a general matter, but leave the courts with the ability to invalidate any such agreement if its adoption or use violates the directors’ fiduciary duty.
Section 122(18) DGCL: A proposed compromise
Marcel Kahan is the George T. Lowy Professor of Law and Edward B. Rock is the Martin Lipton Professor of Law at New York University School of Law. This post is part of the Delaware law series; links to other posts in the series are available here.
Delaware finds itself in a post-Moelis crisis. On the one hand, the Chancery Court’s opinion is a well-supported interpretation of current Delaware law. If DGCL § 141(a) imposes any restrictions at all, the stockholder governance agreement at issue in that case – an agreement that gave founder Ken Moelis almost complete control over corporate decisions and governance – must violate those limits.
On the other hand, there are a host of existing stockholder governance agreements drafted by lawyers following current market practice whose validity has been called into question by the Moelis holding. The resulting uncertainty has led the DSBA’s Corporation Law Council to propose an amendment to DGCL § 118 that provides “bright-line authorization” for provisions of the sort at issue in Moelis.
This proposed amendment, in turn, has elicited opposition by us and others (here, here and here) because of its potentially far reaching effects on Delaware law, as well as because of the uncertainty that it introduces. This controversy, in turn, has complicated the normally smooth process of amending the DGCL.
(More) Observations on the Universal Proxy Card
Ele Klein and Sean Brownridge are Partners at Schulte Roth & Zabel LLP. This post is part of the Delaware law series; links to other posts in the series are available here.
In our previous article, (Much Too Early) Observations on the Universal Proxy Card, we reviewed what had occurred in the months immediately following the efficacy of the universal proxy rules, including by providing select observations regarding the first three contests in the universal proxy era. As our concluding observation, we noted that the more things changed, the more they stayed the same. That is, despite the universal proxy rules’ refinement of the mechanics by which directors are elected, the purposes and objectives of proxy contests involving board representation had not yet evolved. That can no longer be said, in light of the 2024 proxy season.
The universal proxy era has, in recent months, welcomed numerous firsts, including, among others, the first (i) proxy fight constructed with an E&S focus (the Strategic Organizing Center’s campaign at Starbucks), (ii) multiparty proxy fight (the concurrent campaigns run by Trian and Blackwells at Disney, which were accompanied by ValueAct’s solicitation in support of the company), and (iii) control contest to go to a vote at a U.S.-based company subject to the universal proxy rules (Ancora’s campaign at Norfolk Southern). In each instance, the activist fell short of its board-related objectives but nonetheless walked away with significant ancillary successes. READ MORE