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An agreement that activist investor Elliott Management struck with a large US telecommunications infrastructure group has been assailed as a “sweetheart deal” by another shareholder in a lawsuit that shines a spotlight on the rising frequency of such settlements.
Ted Miller, a shareholder who co-founded Crown Castle, filed his case seeking to nullify a “co-operation agreement” the company signed with Elliott in late 2023, which he claimed allowed the powerful hedge fund to select the group’s chief executive and set business strategy in exchange for “incumbent directors get[ting] to keep their jobs”.
The case filed in the Delaware Court of Chancery comes as corporate settlements with activists become more common. In 2023, three-quarters of board seats won through activist campaigns were obtained through settlements rather than winning elections at shareholder meetings, according to data compiled by investment bankers at Barclays. The data showed Elliott as the shareholder most often benefiting from such compromise board seats.
The practice is increasingly controversial, as other shareholders worry that CEOs and boards are sometimes too quick to capitulate and end up giving away too many concessions to activists.
“The affairs of Delaware corporations, however, must be managed by Boards of Directors, not backroom deals,” said the lawsuit, saying non-Elliott shareholders never got the opportunity to approve the features of the co-operation arrangement.
Elliott had first become involved at Crown Castle in 2020, arguing that the company, whose market capitalisation at the time was $70bn, had wasted too much capital in building out a fibre internet offering.
The company’s share price fall sharply between 2020 and 2023, when Elliott began to agitate again this past autumn. In December, Crown Castle replaced its chief executive and then appointed two new independent directors, including one Elliott executive.
Miller, who runs investment group Boots Capital Management, has been advocating for his own turnaround plan at Crown Castle. However, the company last week declined to support the four director candidates he had proposed to be put up at an annual meeting in May.
A person close to the company described Wednesday’s lawsuit as “sour grapes” as the board, which includes the Elliott executive, rejected Miller’s involvement at the company.
Miller’s lawsuit names Crown Castle’s board members and Elliott as defendants. Crown Castle described the Miller suit as “without merit”, while Elliott declined to comment.
One corporate governance adviser not involved at Crown Castle said Miller’s arguments seemed weak since he still retained the ability to run his own rival slate of directors.
Miller, however, said his case had been boosted by a decision last week in the Delaware Court of Chancery involving the investment bank Moelis & Co. The court ruled that a shareholder agreement that the firm’s founder, Ken Moelis, struck with the board — requiring his written approval on such areas as hiring executives or issuing debt — improperly interfered with the autonomy of directors and shareholders.
“Especially in light of the Moelis decision, boards settling with activists need to be careful not to bind themselves in a manner that constrains their ability to manage the company,” said Ann Lipton, a professor of law at Tulane University.
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