Elliott Investment Management delivered another letter to Crown Castle’s board, saying it believes the company adopted “extraordinarily shareholder-unfriendly” amendments to its bylaws that Elliott believes are prohibited under Delaware law. According to the Wall Street Journal, the amendments act like a so-called poison pill that would group investors together and penalize them for allegedly teaming up against the company. Elliott called this a “minefield” for shareholder communications.
Elliott Investment Management L.P. (“Elliott”), which manages funds that collectively have an investment of approximately $2 billion in Crown Castle Inc., on Wednesday submitted a Section 220 demand and accompanying letter to the Crown Castle Board, requesting inspection of the company’s books and records. This request follows the company’s adoption of shareholder-unfriendly amendments to its bylaws that compromise the fundamental tenets of the shareholder franchise: to nominate directors and seek change in the boardroom.
The letter, sent on Tuesday, took aim at the board’s adoption in 2021 of expansive “Acting in Concert” provisions, which Elliott called “an inappropriate and aggressive form of corporate entrenchment with the clear purpose of disenfranchising shareholders.”
The letter is keeping the pressure on Crown Castle, a day after the activist disclosed another letter regarding Crown Castle concerns as reported by Wireless Estimator where they asked for the removal of Crown Castle CEO Jay Brown.
Elliott said it believes the company adopted “extraordinarily shareholder-unfriendly” amendments to its bylaws that Elliott believes are prohibited under Delaware law.
According to the Wall Street Journal, the amendments act like a so-called poison pill that would group investors together and penalize them for allegedly teaming up against the company. Elliott called this a “minefield” for shareholder communications.
In its letter, Elliott contended, “the overarching issue is Crown Castle’s track record on corporate governance,” which Elliott had recommended improving in 2020. Rather than adopting best-in-class governance, however, the Crown Castle Board subsequently approved the problematic bylaw amendments, which were designed to have the effect of stifling “even the most basic forms of shareholder communication and at the very least were designed to weaken the shareholder franchise,” the letter said. Elliott wrote further, “we note that the Board adopted these bylaws less than six months after the Delaware Court of Chancery very visibly struck down a virtually identical ‘acting in concert’ provision.”
In its letter, Elliott wrote, “the Board’s actions constitute a classic form of entrenchment,” and stated its belief that the provisions “are prohibited under Delaware law and that, in implementing them, members of the Board breached their fiduciary duties.”
The letter concluded by stating, “It is time for Crown Castle’s Board to be reconstituted with directors who share a commitment to best-in-class governance.” Elliott, the letter said, “look[s] forward to receiving the documents requested in our Section 220 demand to better understand the Board’s process and will evaluate our next steps.”
The full text of the letter follows:
November 28, 2023
Board of Directors
Crown Castle Inc.
8020 Katy Freeway
Houston, TX 77024
Dear Members of the Board:
We are writing to you again on behalf of Elliott Associates, L.P. and Elliott International, L.P. (together, “Elliott” or “we”), which have an investment of approximately $2 billion in Crown Castle Inc. (the “Company” or “Crown Castle”). As stated in our prior letter, we believe the Crown Castle Board adopted extraordinarily shareholder-unfriendly amendments to its bylaws in 2021 that compromise the fundamental tenets of the shareholder franchise: to nominate directors and seek change in the Boardroom. Not only did the Board’s actions constitute a classic form of entrenchment, we believe the Board adopted provisions that are prohibited under Delaware law and that, in implementing them, members of the Board breached their fiduciary duties. Today, we have submitted a Section 220 demand to allow us to inspect the Company’s books and records related to these actions.
The Board’s adoption of expansive “Acting in Concert” (“AIC”) provisions is an inappropriate and aggressive form of corporate entrenchment with the clear purpose of disenfranchising shareholders. These provisions would deem any person to be “acting in concert” with any other shareholder that nominates directors if the person supports the nomination and engages in any “parallel” activity, regardless of whether any agreement or understanding has been formed with the nominating shareholder. Even worse, the AIC provisions adopted by this Board include a “daisy-chain” feature, which would classify any third person as “acting in concert” with the nominating shareholder even if the nominating shareholder and third person have never communicated or even know each other exist. Taken together, these provisions create a minefield for entirely appropriate shareholder communication in the context of a shareholder election.
While we can only assume that the Board was advised by its lawyers in the adoption of these provisions (and chose to proceed anyway), we note that the Board adopted these bylaws less than six months after the Delaware Court of Chancery very visibly struck down a virtually identical “acting in concert” provision. In the February 2021 Williams Cos. v. Wolosky decision, the Court concluded that a substantively identical AIC provision in a shareholder rights plan contained an “extreme, unprecedented collection of features” that rendered the AIC provision unreasonable on its face. The Court criticized the “broad language” of the AIC definition, which “sweeps up potentially benign stockholder communications ‘relating to changing or influencing the control of the Company.'” The Court also criticized the same “daisy chain” provision that has been adopted by the Crown Castle Board, noting it “operates to aggregate stockholders even if members of the group have no idea that the other stockholders exist.” These offending provisions, the Court concluded, have a “stifling impact…on stockholder communications,” and “impede a stockholder’s ability to launch a proxy contest by cutting off private communications in advance of proxy contests.”
The Court also credited an academic analysis identifying several problems with AIC provisions like those adopted by this Board, which noted that:
- “[The provisions] do not clearly specify what activities would result in aggregation…such vague provisions would have a chilling effect on an activist’s ability to communicate with other shareholders”; and
- “[T]hese sorts of provisions threaten to chill the sort of shareholder interaction upon which sound corporate governance depends and that decades of reform have sought to encourage.”1
To demonstrate the absurdity of the expansive AIC provision like the one adopted by the Crown Castle Board here, the Court used the following example of hypothetical, unaffiliated stockholders—Remus and Lupin—each of which owned 3% of Williams’s stock:
“Remus sends a letter to Williams asking for ESG initiatives and threatening to buy up stock and run a proxy contest if the Board does not adopt his proposal. Lupin has reviewed and agrees with Remus’s proposal. Can Lupin meet with the Board, Remus, or other Williams stockholders to discuss Remus’s ESG proposal without triggering the Plan? Probably not. Can Remus communicate with other stockholders to determine whether there is support for his ESG proposal before launching the proxy context without fear of triggering the Plan? Not without risk of aggregating those stockholders under the AIC Provision.”
Virtually identical AIC provisions were also litigated in 2019 in In re Versum Materials, Inc. Stockholder Litigation. There, the Court did not have an opportunity to issue a decision on the merits of the shareholder challenge because the company decided to “remove[] the acting-in-concert provision” at issue. However, Vice Chancellor Laster expressed concern with the “truly expansive” provision, explaining that “[w]hat the act[ing]-in-concert provision attempts to cut off, or at least threaten, is all of the activities that lead up to the giving of the revocable proxy.”
While we believe these legal issues are of critical importance in assessing the validity of Crown Castle’s bylaws and whether members of the Board breached their fiduciary duties, the overarching issue is Crown Castle’s track record on corporate governance. We remind you of Elliott’s recommendation during our 2020 engagement that the Crown Castle Board adopt “best-in-class” corporate governance. A year later, this Board approved bylaw amendments that had the effect of stifling even the most basic forms of shareholder communication and at the very least were designed to weaken the shareholder franchise. As the academic article cited by the Williams court expressly recognized, “Thirty years of corporate law reform has been aimed at encouraging shareholders to become more active and to consult with other shareholders…[I]n an effective corporate democracy, shareholders meeting together is a necessity, not a danger.” Yet, this is precisely what this Board’s bylaw amendments sought to prevent.
It is time for Crown Castle’s Board to be reconstituted with directors who share a commitment to best-in-class governance. We look forward to receiving the documents requested in our Section 220 demand to better understand the Board’s process and will evaluate our next steps.
Best regards,
Jesse Cohn
Managing Partner
Jason Genrich
Senior Portfolio Manager