The increasing activist stockholder demands upon boards of directors call for careful responses. The recent Delaware Court of Chancery decision In re Ebix Stockholder Litigation, C.A. No. 8526-VCN (Del. Ch. Jan. 15, 2016), provides guidance on how to respond when the activist calls. Moreover, Ebix is being overlooked by many because most of the opinion focuses on the scope of releases contained in settlements of stockholder litigation. That itself is a hot topic that is part of the increased scrutiny the Court of Chancery is now giving to disclosure-only settlements. But while Ebix‘s discussion of the scope of releases is important, Ebix is worth a closer review for its guidance on activism.
Ebix involved various bylaw amendments and an agreement with an activist stockholder that placed two of the activist’s nominees on Ebix Inc.’s eight-person board of directors (the director nomination agreement). The plaintiffs contended that both the bylaw amendments and the director nomination agreement were defensive measures designed to maintain the board’s control over Ebix in violation of the Unocal v. Mesa Petroleum, 493 A.2d 946, principles. The court first upheld the director nomination agreement and then denied a motion to dismiss the claims that the bylaw amendments violated Unocal. This different treatment of those claims is illuminating.
