Each year, leading lawyers, bankers, PR professionals and other advisors focused on M&A and shareholder activism convene in New Orleans for the annual conference of the Tulane Corporate Law Institute to discuss the latest developments and trends in the area of transactions and corporate securities law. This year’s key topics included implications from the Delaware court’s ruling on Elon Musk’s 2018 compensation package, the M&A outlook for 2024, and Advance Notice Bylaws. Here are some of our takeaways:
Delaware Incorporation
- Panelists discussed the Delaware court’s recent invalidation of Elon Musk’s 2018 compensation package, which was valued at approximately $55 billion at the time of the court’s decision. The court found that Tesla’s board of directors had breached their fiduciary duties by awarding Musk a 10-year performance-based option plan. This ruling has implications not only for Tesla but also for other Delaware companies, raising questions about executive compensation and prompting potential changes in how such packages are structured.
- The ruling has implications on executive pay scrutiny as well as the future of incorporation in Delaware. Musk is urging companies to move their incorporations out of Delaware. Companies looking to go public within the next year may listen to Musk and choose to incorporate in states like Nevada, a state pitching itself as friendlier to corporate management.
- “The decisions that are coming out of the courts are making them question the predictability of Delaware law,” said Catherine Dearlove, a partner at the Delaware-based firm Richards, Layton & Finger.
M&A Outlook
- In 2023, there was an uptick in hostile bids despite an overall down year in M&A. Some of these bids were launched without prior dialogue with the target.
- Companies with sunsetting dual-class share structures could become targets for both hostile M&A and contested director election in 2024 and 2025. Without a blocking vote, these companies become much more vulnerable.
- M&A is bouncing back so far in 2024. Global M&A volumes this year through the first week of March surged 55% to $601.79 billion, compared to the same period a year ago. There have been several more deals announced so far this year in excess of $10 billion.
- The Presidential election may impact deal flow. Deals with potential regulatory issues may be put on hold until after the election as some will wait to see who wins.
Advanced Notice Bylaws
- Advanced Notice Bylaws remains a divisive issue for activist director nominations. Dissident nominees are often required to fill out lengthy questionnaires ahead of proxy contests.
- The same questionnaires can be used to disqualify activist nominees rather than allow shareholders to vote for their preferred candidates. Some argue that companies do not provide the same scrutiny when vetting their own directors.
ICR’s Transactions and Special Situations Team has decades of experience with activism, short attacks, proxy contests, mergers, restructuring, go-privates, spin-offs, downsizings and other special situations. Want to learn more? Get in touch.
