Page 27 - Delaware Lawyer - Fall 2022

of ESG investing, the Delaware share- holder primacy model focuses generally on only one type of capital: the equity capital represented by the common stockholders’ long-term investments. In In re Trados Inc. Shareholder Litigation,18 the Court of Chancery upheld a merger transaction af- ter conducting an entire fairness analysis. Trados was acquired for $60 million, of which the lion’s share was applied to satisfy a large preferred stock liquidation prefer- ence. The common stock was out of the money. Although the plaintiff proved that the sale process was not entirely fair to the common stockholders, the Court agreed with the defendants that the company could not generate stand-alone value for the common stockholders going forward, therefore justifying the fairness of a zero valuation for the common stock. In his analysis, Vice Chancellor J. Travis Laster reasoned that, while the duty of loyalty required corporate directors to maximize value for common stockholders over the long term, the board must do so in good
faith and on an informed basis in view of obligations to contractual claimants, such as the preferred stockholders in Trados.19
One other Chancery Court decision deserves mention for addressing ESG-type factors. In eBay Domestic Holdings, Inc. v. Newmark,20 then-Chancellor Chandler considered the validity of three defensive measures that the board and controlling stockholders of privately held craigslist asserted against eBay when eBay refused to sell its minority stake in craigslist. The Court noted eBay’s desire to compete with craigslist’s online classifieds business and to monetize its investment, while craigslist itself did not seek to maximize profit in the classifieds business. One of the three defensive measures was a rights plan that hamstrung eBay’s efforts either to acquire more craigslist stock or to sell its shares to third parties.
In ordering rescission of the rights plan, the Chancellor rejected craigslist’s prof- fered business justification, given eBay’s desire to maximize the value of its craigslist
holding. Applying the enhanced scrutiny standard of Unocal, the Court found that the defendants had failed to prove a valid corporate purpose for the rights plan, con- cluding that they had not proved a “dis- tinctive corporate culture”: “Indeed, I per- sonally appreciate and admire [the defen- dants’] desire to be of service to communi- ties. The corporate form in which craigslist operates, however, is not an appropriate vehicle for purely philanthropic ends, at least not where there are other stockhold- ers interested in realizing a return on their investment.”21
One Recent Chancery Decision and One Brand-New Complaint
To date, only one Delaware opinion refers expressly to ESG: Chancellor Mc- Cormick’s post-trial ruling in In re Wil- liams Cos. Stockholder Litigation.22 In that case, the Chancellor enjoined a poison pill with a 5% trigger, holding that a general- ized corporate concern about “stockhold- er activism” did not constitute a sufficient
WHERE YOU BANK MATTERS.
T THANKS ITS PRIME PARTNERS
THE DELAWARE BAR FOUNDAT
I
The Bar Foundation thanks Delaware’s Prime Partner Ban
listed below, that have elected to offer a premium rate on
Accounts, going above and beyond the rule requirement
I
I
O
n
k
k
O
N
s
s
O
,
,
N
f IOLTA Program. The IOLTA Program supports Delaware’s civil legal aid agencies, who last year helped over 15,000
t
Delawareans in need.
Artisans Bank
First Citizens Community Bank
First Shore Federal Savings and Loan Franklin Mint Federal Credit Union M&T Bank
Provident State Bank
n
I
A
t
O
h
h
e
e
L
L
T
T
d
A
t
s
s
a
a
n
nd
partnering with the Foundation to ensure the success of
DELAWAREBARFOUNDATION.ORG
FALL 2022 DELAWARE LAWYER 25