Monday, November 21, 2011
Validus' efforts to acquire Transatlantic Holdings have taken another turn. When we last checked in on this hostile acquisition attempt, we found out that Chancellor Strine is a fan of Hillbilly Handfishin'. Oh, and the Chancellor also ruled on the appropriateness of standstill provisions in confidentiality provisions, deal protections and fiduciary outs (In re Transatlantic Holdings). It's worth reading.
Now, we have a new turn. Validus has put forward its own directors in a proxy contest. In addition to asking shareholder to vote for its three nominees adn to oust the current directors, Validus is asking for shareholders to vote on an amendment to Transatlantic's bylaws. The bylaw change would permit the shareholders to set the number of directors on the board. By doing so, it would prohibit the incumbent board from increasing the size of the board and thereby maintain control. OK, all well and good.
But, Transatlantic has filed a suit against Validus seeking a declatory ruling from the court that Validus' proposed bylaw amendment is illegal. Specifically, Transatlantic's certificate of incorporation reads:
Article Fifth, para 1: The number of directors of the Corporation shall be such as from time to time shall be fixed solely by the Board of Directors.
The Transatlantic board is arguing that only the board has the right to set the size of the board, and that an effort by shareholders to set the number of directors is contrary to the articles and thus not permisssible. In that regard, the directors have the better argument. Of course, if the incumbent board were simply to increase its size for the sole purpose of thwarting outsiders from obtaining control via a proxy contest, that would raise all sorts of Blasius-related issues. For that reason, this case is an interesting one to start to follow. Here's the complaint in the bylaw litigation.