A company’s agreement allowing an activist investor some say in appointing board members in order to stave off a looming proxy fight was not a defensive measure subject to enhanced scrutiny under Unocal v. Mesa Petroleum. However, the board’s unilateral adoption of a series of bylaws in its wake did trigger a heightened level of judicial review, the Delaware Court of Chancery ruled earlier this month.
The board’s decision to negotiate the settlement, a director nominating agreement, was a “strategic decision” to compromise with Barington Capital Group after it threatened to replace four of the six directors of Ebix Inc., a Delaware corporation based in Atlanta, the court said. As such, the court reviewed the move under the director-friendly business judgment rule.
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