Delaware merger bill is bigger than Musk
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Illustration: Sarah Grillo/Axios
Earlier this week, a bill was introduced in the Delaware General Assembly that could create a pathway for Elon Musk to get back his 2018 Tesla CEO pay package.
Why it matters: For once, this is a story that is about more than just Musk.
The big picture: This proposal could make it harder for investors to sue their majority shareholding executives, and potentially easier for a company to get a contested acquisition or merger approved.
Context: Currently, transactions that involve a controlling shareholder require approval from both a majority of minority shareholders, and from an independent committee.
- The proposed law would require only one of the two.
Background: Paramount is currently facing a high-profile lawsuit in which investors are challenging its $8 billion deal with Skydance, alleging that Shari Redstone had "conflicting interests."
- The plaintiffs may have a steeper hill to climb under the proposed new Delaware rules, says Chris Harvey, a lawyer at Harvey Esquire.
Between the lines: The law carves out "going private" transactions from these potentially relaxed rules — or any deal in which the minority shareholders' stake is canceled or acquired.
- So it could be argued that the law's impact on the M&A market will be muted.
Yes, but: "The boundary of what constitutes a 'going private' transaction is almost laughably slippery, so a good transactional attorney can set up any number of transactions to dodge that boundary," says Columbia Law School professor Eric Talley.
- The proposed law also makes it possible for companies to pad the independent committee with friendlies.
The bottom line: Where there's a multi-billion dollar will, there's a way.
