
IN-DEPTH: Boards make more settlements with activists amid rising legal opposition

Settlements between U.S. public companies and activist shareholders increased by almost 5% in the first half of 2024, pointing to a growing willingness by both sides to seek terms rather than risk an expensive proxy fight.
According to Diligent Market Intelligence (DMI) Settlement data, 46 settlements were recorded in the period, compared to 44 in the same six-month timeline in 2023.
"We continue to see a high level of settlements, yet they are arriving faster, perhaps a function of opposing sides projecting vote outcomes sooner and preferring to avoid the expense and distraction of a drawn-out campaign if they can negotiate an acceptable outcome," Michael Fein, founder and CEO of Campaign Management, told DMI.
Yet the six-month period has also seen several major settlements challenged by shareholders arguing that boards of directors are giving too much away to activists. The outcome of those cases will likely influence the way activist campaigns are settled going forward.
Let’s make a deal
Activists gained 62 board seats via settlement, or 63% of the 99 seats initially sought in the half-year period. That’s down from 73 seats, or 78%, of the 94 such demands made in the same period of 2023.
“Settlements tend to work out better when an activist makes a broad demand like a strategic review or give us a board seat and we'll figure it out,” said Professor Mark DesJardine of the Tuck School of Business, Dartmouth College. “That way the activists can get what they want in that settlement, but then management can walk away, making some changes demanded and say they came up with the idea.”
Expense reimbursement requirements were also a critical component of settlements, with 63% of all deals featuring one, down from around 67% in the same period in 2023. Topping the list was AmeriServ Financial agreeing to a $3.25-million expense cap with Driver Management and Ventas agreeing to a $2-million expense cap with Land and Buildings. The average reimbursement limit for settlements this year came to just over $428,000, up from $405,000 at the same time last year.
One of the more notable standout settlements was unveiled on June 28 when Lifecore Biomedical announced deals with three separate activists - 22NW, Legion Partners and Wynnefield Capital. According to the DMI Settlement data, the deals included different expense reimbursements levels for each activist, with 22NW claiming up to $150,000, Legion $37,500 and Wynnefield $18,750, along with different maximum and minimum shareholding levels based on the size of their existing stakes.
Overall, the average standstill period agreed in settlements this year dropped to 415 days, down from an average 626 days in 2023. Sources told DMI the trend reflected a return to more traditional durations in the wake of the COVID-19 pandemic, when activists were more likely to give companies extra time to address any issues.
A notable exception saw Blackwells Capital agreeing to an almost unheard of 10-year standstill with U.S. luxury hotel REIT Braemar Hotels & Resorts. In turn, Braemar agreed to add an independent director and to help the activist raise its stake in the company.
Legal questions
The Braemar agreement is being questioned, however, by Al Shams Investments, which said the deal "had relieved management from the imperative’’ to enact reforms. The 9.8% shareholder warned it was considering “all options” to block the deal.
It's one of several activist settlements this year to face opposition with others including Crown Castle’s deal with Elliott Management and Disney's information sharing agreement with ValueAct Capital Management.
Meanwhile, in what is considered by many as a ground setting case, Delaware Court of Chancery Judge Travis Laster in February invalidated a stockholder agreement giving Ken Moelis veto power over many board decisions at investment bank Moelis & Co, arguing that the agreement violated the Delaware General Corporation Law principle that directors manage the business using their best judgment for the benefit of all investors. While not directly linked to activism, the court acknowledged that its ruling was made at the expense of the “new-wave agreements” by stockholders which typically “contain extensive veto rights and other restrictions on corporate action.”
“It wasn’t an issue before this case,” said Keith Gottfried, founder and CEO of Gottfried Shareholder Advisory. “Nobody was saying the standard activism settlement model in any way conflicted with Delaware law.”
The legal precedent set by the decision, which is still under appeal, quickly found applications in the activism space. Ted Miller cited Moelis when he advanced a lawsuit at Crown Castle in a bid to invalidate its December 2023 settlement with Elliott Management. While Crown Castle described the litigation as “self-serving” and without merit, it subsequently amended the settlement to reduce Paul Singer’s influence.
The Moelis ruling has been noted, with one activist telling DMI it had been reviewing prior settlement terms in case they might be challenged. The source also predicted that companies might try to cite the ruling, “as a legal backing to complain about things that activists are asking for."
The Delaware Legislature has since introduced a bill to amend Title 8 of the Delaware Code clarifying the rights and obligations of boards. At time of writing, the bill was awaiting a signature from Delaware Governor John Carney.
“The intent was to neuter [Moelis],” said Gottfried. “From the perspective of folks who spend a lot of time on activism matters and settlements, the amendments would hopefully return us to the status quo pre Moelis. But we're not really going to know how that plays out until the 2025 proxy season.”