In a stunning shareholder victory on the eve of trial, Facebook announced it was dropping plans to issue a new class of stock that would have allowed CEO Mark Zuckerberg to retain a voting majority of the company’s shares even as he sold off substantial blocks of his own shares in a pledge to give away most of his wealth during his lifetime.
A class action trial on the matter was scheduled to begin on Tuesday, September 26 in the Delaware Court of Chancery, with Zuckerberg slated to face questions on the stock reclassification, which shareholders asserted conferred an unfair economic advantage to the social media giant’s founder. Stockholders were also challenging the way in which the reclassification plan had been negotiated with a special committee of Facebook’s board of directors – several of whom were expected to testify in October.
In their lawsuit originally filed in 2016 and certified as a class action this past April, shareholders were asking the Delaware court to permanently block the stock reclassification plan, even though it had been approved by clout of Zuckerberg’s control of the vote.
Instead, Facebook’s board announced today that it was withdrawing its plan to issue the non-voting C shares, resulting in an unconditional win for common shareholders, whose sole objective in bringing suit was to block the reclassification.
Leading shareholder attorney Stuart Grant of Grant & Eisenhofer, representing several institutional investors, including Facebook shareholder Amalgamated Bank, was preparing to handle cross-examination of Zuckerberg at trial.
“We’re thrilled that Facebook has dropped the reclassification,” Grant said, noting that shareholders were not seeking economic or other damages against the company. “Stopping the issuance of the non-voting C shares is all the relief we were asking for at trial. Today’s move is a total victory for stockholders.”
Also commenting was Lee Rudy, a partner with Kessler Topaz Meltzer & Check, representing co-lead plaintiff, AP7 Safa, a fund managed by Sweden’s state pension fund. “We are extremely pleased at the decision by Facebook not to proceed with the share reclassification – the board has seen the wisdom of acting equitably on behalf of all shareholders.”