BLUE STATE BLUES: In Proposing Move From Delaware To Nevada, This Corporation Cites The Burden Of MFW.
Earlier this week, The Trade Desk, Inc. filed preliminary proxy materials for a special meeting of stockholders. The purpose of the meeting is to approve the reincorporation of the corporation from the State of Delaware to the State of Nevada by conversion. This particular proxy statement caught my eye because it specifically calls out several Delaware court decisions:
“The increasingly litigious environment facing corporations with controlling stockholders has created unpredictability in decision-making and has started to impede our ability to act quickly. For example, the Delaware Supreme Court recently determined in In re Match Group, Inc. Derivative Litigation, 315 A.3d 446 (Del. 2024), that all transactions involving a controlling stockholder receiving a non-ratable benefit are presumptively subject to entire fairness review (i.e., Delaware’s most stringent standard) unless the transaction complies with the strictures set out in Kahn v. M&F Worldwide Corporation, 88 A.3d 635 (Del. 2014) (“MFW”). The Match Group decision confirmed what corporate and legal communities had viewed in recent years as an expansion in Delaware of the application of MFW, a case originally establishing the requirements that must be followed to lower the standard of review for freeze-out merger transactions between a controlled corporation and its controlling stockholder from entire fairness to the less-stringent business judgment standard. In Tornetta v. Musk, 310 A.3d 430 (Del. Ch. 2024), a Delaware Chancery court found that an incentive stock award to the company’s co-founder and CEO, which was approved by the company’s stockholders in 2018, was not “entirely fair” to stockholders. That court rescinded the award, determining that the co-founder and CEO was a “controller” even though he only held 21.9% of the company’s stock because he “wielded the maximum influence that a manager can wield over a company” and “occupied the most powerful trifecta of roles within a corporation-CEO, chair, and founder.” Following the court’s rescission decision, the company’s stockholders ratified the CEO’s incentive stock award in 2024, affirming their desire from 2018 to keep their co-founder and CEO incentivized.”
Trade Desk goes on to explain that despite its efforts to satisfy MFW, it was nonetheless sued in Delaware based on allegations that it failed to follow the requisite process, that its independent committee members were conflicted, and that its disclosures were supposedly deficient.
Delaware spent a century or two building a reputation as a safe place to headquarter your company — and reaped the benefits. Now they’ll reap the whirlwind.