(Previously.) Here is one company’s method for avoiding inclusion:

Service. They’re contesting service.

I’ve previously blogged a couple of times about SPVs as a vehicle for investing in private companies. They not only skirt the law regarding the number of investors a company can have before it is required to make public disclosures, but they also may layer on high fees and suspect valuations – and that’s if they aren’t outright fraudulent.

Anyway, I post because Bloomberg had a nice feature on this yesterday, pointing out both the risk of fraud, and simply the risk of losing one’s shirt.  (It references two lawsuits that have been filed in Delaware over these vehicles; if I’m right, one I blogged about before, and the other is this one, where a fund put $10 million into an SPV that was supposed to acquire SpaceX shares, and doesn’t seem to be able to get any financial reports.)

But even aside from actual fraud cases, the SPV may only have shares in another SPV that somewhere down the line has shares, and leaving aside valuation and fee questions, when the company does go public, those shares might be locked up and nontradeable for some period of time, leaving the SPVs holding illiquid investments that could go down as easily as they go up.

Well, let’s just say if/when there are disappointed investors, you might think Delaware would have some interesting LLC interpretation to do, but, realistically, the arbitration clauses in those documents may prevent Delaware courts from ever getting ahold of it.

And another thing. New Shareholder Primacy podcast!  Me and Mike Levin talk about the EngageSmart opinion, and about proxy advisors and executive comp.  Here at Apple; here at Spotify; and here at YouTube.

Earlier today Pershing Square filed an S-1 seeking to raise “between $5 and $10 billion . . . consisting of the $2.8 billion in the PSUS Private Placement and between $2.2 billion and $7.2 billion, respectively, in the PSUS IPO.”

The IPO market is another key area to watch for jurisdictional competition. I’m working up some month-by-month statistics and materials for tracking this year’s IPO trends. The draft sheet is back with the research assistant team for some tweaking now, but January is nearly ready and should be out soon. It appears that the Caymans will take the crown for January IPOs when SPACs are included. If we exclude SPACs, Delaware again dominates.

If you want coverage of the Exxon proposal to shift from New Jersey to Texas, Ann has covered that one already. My only thought to add on it is that it’s consistent with what we’ve been seeing for corporations with a substantial Texas nexus already to shift to Texas–as Ann noted. This is how Exxon put it:

ExxonMobil is a Texas corporation in all but name, with most senior corporate executives and all corporate functions based in the state for the last 35 years. Our global headquarters are in Texas; approximately 30% of our global employees are based in Texas. Of the company’s U.S. employees, approximately 75% work in Texas and our U.S.-based research facilities are in Texas.

Here are some quick notes on the S-1 for Pershing.

Jurisdiction

The planned IPO is notable on the jurisdictional competition front because the company “will convert into a Nevada corporation by means of a statutory conversion and change its name to Pershing Square Inc.” before the registration statement becomes effective.

Counsel

In terms of lawyers on the IPO, it includes Simpson Thacher & Bartlett LLP, Washington, D.C. (Issuer Counsel), Brownstein Hyatt Farber Schreck, LLP, Las Vegas, (Nevada Counsel), and Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York (Underwriter Counsel). Sullivan & Cromwell LLP also appears, but I’m not sure where to sort them at this time.

Bench Trial Election

Pershing looks to take advantage of last session’s amendment to the Nevada law and opt into bench instead of jury trials. This creates a degree of parity with Delaware’s Chancery bench trials.

Controlling Stockholder Provision

Nevada’s controlling stockholder statute applies. This is how the S-1 describes it:

Pursuant to NRS 78.240 (as amended effective May 30, 2025, pursuant to Assembly Bill No. 239), no stockholder (other than a “controlling stockholder” as discussed below) has any fiduciary duty to us or any other stockholder, and each stockholder (other than a “controlling stockholder”), regardless of such stockholder’s relative ownership of shares, is entitled to exercise or withhold the voting power of such shares in such stockholder’s personal interest and without regard to any other person or interest.

A “controlling stockholder” is defined as a stockholder of a corporation having the voting power, by virtue of such stockholder’s relative beneficial ownership of shares or otherwise pursuant to the articles of incorporation, to elect at least a majority of the corporation’s directors. The only fiduciary duty of a controlling stockholder of a corporation, in such person’s capacity as a stockholder, is to refrain from exerting undue influence over any director or officer of the corporation with the purpose and proximate effect of inducing a breach of fiduciary duty by such director or officer, for which breach the director or officer is liable pursuant to NRS 78.138, and which breach:

• directly relates to the initiation, evaluation, negotiation, authorization or approval by the board of directors, or a committee thereof, of a contract or transaction to which the controlling stockholder or any of its affiliates or associates is a party or in which the controlling stockholder or any of its affiliates or associates has a material and nonspeculative financial interest; and
• results in material, nonspeculative and non-ratable financial benefit to the controlling stockholder, which benefit excludes, and results in a material and nonspeculative detriment to the other stockholders generally.

However, the exercise or withholding of voting power by a controlling stockholder, or the indication or implication by a controlling stockholder as to whether or to what extent such voting power may be exercised or withheld, does not, by itself, constitute or indicate a breach of this limited fiduciary duty. A controlling stockholder is presumed to have not breached its fiduciary duty with respect to any contract or transaction if it is authorized or approved, or recommended to the board of directors, by a committee of the board consisting only of disinterested directors.

Due to the anticipated aggregate voting power of our capital stock by ManagementCo (including its holding of the Special Voting Share) at the time of this offering, ManagementCo would be deemed, at such time, to be a “controlling stockholder” under the statutory provisions described above.

Hustling off to teach, but wanted to get this out and keep an active eye on the IPO space going forward.

Sorry, Ben, I’m jumping on this one.

Exxon is proposing to move its domicile to Texas.

It’s an obvious move for Exxon; their headquarters are there so they’re not exposing themselves to lawsuits in a different venue, and they also perhaps expect, shall we say, a friendlier judicial reception in Texas.

But Exxon isn’t a Delaware company. It’s a New Jersey one, old school from when it was Standard Oil and New Jersey dominated the market for corporate charters. Right now, they’re the subject of a couple of lawsuits in New Jersey over their retail shareholding program, and they’re fighting to transfer those to Texas.

But Exxon doesn’t have a controlling shareholder; its shareholders are normie institutions like BlackRock and State Street.

Perhaps to placate them over the move, it’s explicitly not going to opt in to the Texas provisions that would allow ownership thresholds on shareholder proposals and derivative lawsuits – provisions that did not exist when, say, Tesla asked them to vote on a move.

But, it’s also not committing in the charter not to adopt those provisions in a unilateral director-passed bylaw in the future (compare, for example, ArcBest, which promised in the charter not to adopt ownership thresholds). (Exxon does, however, argue that even under New Jersey law, it would be free to adopt a bylaw limiting shareholder proposals – an untested proposition, but one Mohsen Manesh has advocated)

But there is a provision of Texas law Exxon (and ArcBest) would be bound by: Texas prohibitions on imposing any liability on corporate directors or officers for anything short of fraud, intentional misconduct, an ultra vires act or a knowing violation of law. Notably, these protections of Texas law extend even to director initiated lawsuits – i.e., not just shareholder derivative lawsuits, but ones that the board voluntarily chooses to bring.

All of this, I think, puts the BlackRocks of the world in a political bind. They generally express a preference against diminishing shareholder rights in meaningful ways, but they’re also under heavy pressure to demonstrate that they support the fossil fuel industry.

I’d ask what they plan to do but I …. assume … Exxon wouldn’t have offered this proposal in the first place if it hadn’t put out a few feelers first (in full compliance with the rules on proxy solicitation of course).

In late January, VC Zurn rejected a request for an emergency temporary restraining order enjoining a merger between Fifth Third Bancorp and Comerica. The plaintiff alleged a variety of process failures, including deal protections that inhibited Comerica’s ability to seek a superior offer. It claimed that these failures violated the fiduciary duties of Comerica’s board, and also improperly restricted the board’s authority under DGCL § 141(a).

With respect to the 141(a) claim, VC Zurn wrote:

Illegality Under Section 141 and Omnicare

I begin with illegality. Under Delaware law, contracts “purport[ing] to require a board to act or not act in such a fashion as to limit the exercise of fiduciary duties” are “invalid and unenforceable.” In the merger context, a board may not “disable[] itself from exercising its own fiduciary obligations at a time when the board’s own judgment is most important, i.e., receipt of a subsequent superior offer.” For example, “[d]irectors cannot be precluded by the terms of an overly restrictive ‘no-shop’ provision from all consideration of possible better transactions.”64 Boards are required to bargain for effective fiduciary out clauses permitting them to discharge their managerial authority in fidelity to stockholders. When managerial authority is preserved, the Court will decline to craft a per se rule “that the contract is invalid simply because it delimited the range of discretion the directors otherwise had under the law to act.”…

HoldCo invokes Omnicare, Quickturn, and ACE Ltd. Those cases are readily distinguishable….The Comerica board did not “tie its own hands for a year” as HoldCo alleges. Before the vote, nothing about the Merger was a fait accompli or a mathematical certainty. Nothing prevented Comerica’s board from considering, negotiating, or pursuing alternative transactions if it believed, in good faith, that failing to do so would be inconsistent with its fiduciary duties….

After this section, VC Zurn went on to reject the plaintiff’s Unocal/fiduciary claims.

But … forgive me … after Section 122(18), isn’t the authority question dead letter? Certainly, an acquirer is a “prospective stockholder,” so doesn’t that mean the board has at least the authority to tie its own hands in a merger agreement? Whether it does so in compliance with its fiduciary obligations is a separate question, but VC Zurn did treat these as distinct issues.

I checked the briefing, and the parties made no reference to 122(18). To some extent, that makes sense – everyone was in a rush on this. And the parties – especially defendants – may very well have not wanted to introduce novel legal questions into the mix. But the defendants even cited West Palm Beach Firefighters’ Pension Fund v. Moelis & Co., 311 A.3d 809 (Del. Ch. 2024) as stating the correct standard for evaluating the validity of a contract under 141(a), and the plaintiff cited Moelis repeatedly in its reply, so 122(18) was kind of … glaring in its absence.

Anyway, I’m genuinely asking: is there a reason 122(18) wouldn’t foreclose the 141(a) argument? (Not, of course, the fiduciary argument – just the 141(a) one). I post with some trepidation because if there’s an obvious answer I’ll feel silly for missing it, but I’m a bit stumped and at some point I will have to teach this.

No other thing. Shareholder Primacy experienced some technical recording difficulties this week but we expect to be back soon!

Following up on January’s post on this topic, we have some updates. This is the list I’ve compiled so far.

Announced Moves as of February 26

We’ve got an additional seven entries since the last update with some multi-billion dollar companies announcing for Texas now, including ArcBest which came out today.

To make this easier to understand, I’ve recruited a couple of Research Assistants to help with data visualizations, so many thanks to Ethan Viator and Hunter Hawkins for helping pull these together. You can see my full data here with some notes for follow up from our two brave research assistants. I’ve also added a column to track disclosed outside counsel. We’re just looking to capture firms that have provided advice and are identified that way in the proxy statements. Our hope is that collecting this information will make it easier to then go and look at other things later. For example, I want to see whether the market reacts to these announcements.

Turning to the visuals, the first two show where companies are leaving and where they are going. Nevada, as the Silver State, obviously gets the silver coloration.

We also put together a basic pie chart to show market cap by jurisdiction. The big driver for Nevada’s market cap position is Datadog with its roughly $44 billion market cap.

I wanted to get this out in advance of tomorrow’s symposium at SMU. It’s titled Welcome to Ya’ll Street and should have some interesting discussion. These recent moves should inform the panels about what to expect.

In terms of what the year may hold, I know that “proxy season” usually runs from about April to June for peak activity. We’re at fourteen moves before the end of February at this point–and Delaware is the most popular destination at this moment. I still think we’ll see an uptick from last year, but I don’t know how significant it will be.

Quick Thoughts on ArcBest

The proxy just came out today, so I haven’t been able to spend as much time reading it as it deserves, but ArcBest‘s move seems different than others. Notably, it does not seek maximal protection available under Texas law:

In furtherance of the Board’s intent to preserve stockholders’ existing rights, the Texas Charter includes provisions that expressly opt out of Section 21.373 (regarding ownership and solicitation thresholds to submit shareholder proposals) and Section 21.552(3) (regarding ownership thresholds to bring derivative lawsuits) of the TBOC.  As a result, the Company will not be subject to, and cannot elect to be subject to, these provisions without an amendment to the Texas Charter, which would require separate shareholder approval.  The Board believes that Sections 21.373 and 21.552(3) not only significantly depart from shareholder rights under Delaware law, but also are inconsistent with shareholder value and preferences.

In terms of reasons for the shift, ArcLight expressed concern about Delaware’s litigation environment and a desire to have a closer connection to the incorporation jurisdiction. This is how it put it:

The Board believes that a closer geographic nexus between its operations and its state of incorporation would benefit the Company and its stockholders because, among other things, it reduces the costs to the Company for directors and officers to attend legal proceedings related to the Company, and it increases the possibility that politicians and judges making decisions about the Company have a better understanding of the effect of such decisions on the Company and its long-term value.

Back when the SEC announced it was functionally no longer going to weigh in on whether companies may legally exclude shareholder proposals, I made a prediction in a number of spaces – except embarrassingly, I can’t remember which ones. Possibly podcasts, webinars, conferences, I’m sure someone remembers.

Which was: Companies now are in a heads-I-win, tails-you-lose position. They can exclude proposals, regardless of their legal basis for doing so. They can be confident that the SEC – which is now hostile to proposals – will not sue to force their inclusion. Very few shareholders will have the resources to sue over an improperly excluded proposal, and if any shareholder bothers, the company can simply moot the action by voluntarily agreeing to include the proposal even before filing an answer to a complaint. There is no risk to the company in simply excluding proposals, and waiting to see who sues.

And – behold!

AT&T said it would exclude a proposal offered by a variety of NYC pension funds asking for the company to disclose its EEOC-1, i.e., a form AT&T is required to submit to the federal government regarding the racial and gender makeup of its workforce. AT&T claimed that such a disclosure falls under the ordinary business exclusion of Rule 14a-8.

So, NYC pension funds – a well-heeled group of investors – filed a lawsuit, arguing that their proposal was not subject to the ordinary business exclusion. If you guessed it only took eight days for AT&T to agree to include the proposal on its proxy rather than litigate – you were correct.

A similar situation just unfolded with Pepsico; within days of the filing of a complaint, Pepsico agreed to include a proposal rather than litigate its exclusion.

There remains, as far as I know, one other case along these lines; in that case, the defendant company, Axon, is litigating in response, but I suspect even if that goes on much longer, it will be an outlier. I suspect our future looks more like AT&T and Pepsico: wealthy investors will get their proposals included, either because companies voluntarily agree at the outset, or because they cave at the filing of a complaint; investors without those resources will be excluded. And note, this is not about the actual size of the investor’s stake; plenty of investors may have small stakes but resources to litigate, and that’s what will carry the day. If anything, this will make the proposal process more political, rather than less, because interest groups are more likely to have litigation infrastructure.

And another thing. In this week’s Shareholder Primacy podcast, Mike Levin and I talk about efforts to regulate proxy advisors at the state level. Here at Apple; here at Spotify; and here at YouTube.

Update:

Update 2:

Axon settles. The point is not to litigate this stuff.