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Jana Master Fund, Ltd. v. CNET Networks, Inc., 954 A.2d 335, 33 Del. J. Corp. L. 565

Facts

JANA Master Fund, an investment fund owning approximately 11% of CNET Networks' stock, aimed to replace two directors due to perceived poor financial performance. JANA notified CNET of its intention to solicit proxies and requested access to stocklist materials under Delaware law. CNET denied the request, citing a bylaw that required shareholders to hold stock for at least one year to nominate candidates or transact business at the annual meeting. JANA filed a complaint seeking a declaration that the bylaw was inapplicable to its situation.

Plaintiff JANA Master Fund, Ltd. (“JANA”), an investment fund, owns with its affiliates approximately eleven percent of the outstanding common stock of defendant CNET Networks, Inc. (“CNET”). CNET has a staggered, eight-member board, and two of the current directors are up for reelection this year. Motivated by what it perceives to be poor financial performance on the part of CNET stock, JANA seeks to replace the two current directors, expand the size of the board from eight to thirteen, and nominate five individuals to fill the newly created positions.

Issue

Does the bylaw prohibiting shareholders from nominating candidates for director unless they have held stock for at least one year apply to a request for shareholder information in support of a proxy solicitation?

Does the bylaw prohibiting shareholders from nominating candidates for director unless they have held stock for at least one year apply to a request for shareholder information in support of a proxy solicitation?

Rule

The court determined that the bylaw only applies to shareholder proposals intended to be included in the corporation's proxy materials, specifically under Rule 14a-8 of the federal securities laws.

The language of the Notice Bylaw leads to only one reasonable conclusion: the bylaw applies solely to proposals and nominations that are intended to be included in the company's proxy materials pursuant to Rule 14a–8.

Analysis

The court analyzed the language of the bylaw and concluded that it was unambiguous, indicating that it only applied to proposals and nominations intended for inclusion in the company's proxy materials. The court emphasized that the bylaw's requirements were tied to the submission of proposals for management's proxy, and since JANA intended to finance its own proxy solicitation, the bylaw did not apply to its actions.

The language itself is key here, particularly the predicate of the sentence: may seek to transact … business. Thus, the bylaw says that a qualified shareholder may seek to transact an election—in other words, may seek to put an issue or nominations up for an election.

Conclusion

The court ruled in favor of JANA, concluding that the bylaw did not apply to its request for shareholder information and allowing JANA to proceed with its proxy solicitation.

Because JANA does not request CNET to include its proposals or nominations in the corporate proxy materials, JANA need not comply with the Notice Bylaw's requirements.

Who won?

JANA Master Fund prevailed in the case because the court found that the bylaw in question did not apply to its request for shareholder information, allowing it to move forward with its proxy solicitation.

JANA Master Fund prevailed in the case because the court found that the bylaw in question did not apply to its request for shareholder information, allowing it to move forward with its proxy solicitation.

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