FOLLOW US

The Delaware Supreme Court on Wednesday sealed the fate of a high-stakes corporate fight, affirming the dismissal of a stockholder lawsuit that sought to derail the $10.5 billion take-private deal for Zendesk Inc. The ruling closes a long-running challenge to one of the most contested software buyouts in recent years.

In a terse two-sentence order, Chief Justice Collins J. Seitz Jr. and Justices Abigail M. LeGrow and N. Christopher Griffiths upheld Vice Chancellor J. Travis Laster’s earlier ruling. Laster had tossed the case in January from the bench, finding that Zendesk stockholders were provided all material information necessary to cast an informed vote on the November 2022 transaction.

The Corwin Shield

Laster’s decision placed the deal squarely under the protective umbrella of the state’s landmark 2015 Corwin v. KKR Financial Holdings Inc. precedent. That ruling grants directors business judgment deference when corporate actions are approved by a fully informed, uncoerced majority of disinterested shareholders.

In Zendesk’s case, the court concluded that the company’s disclosures “cleansed” the process, putting it into what Laster described as “an irrebuttable business judgment rule world.”

A Fight Rooted in Activist Pressure

At the heart of the dispute was whether Zendesk’s board and then-CEO Mikkel Svane engineered the sale to private equity firms Hellman & Friedman LLC and Permira Advisers LLC to sidestep a looming proxy battle with activist investor Jana Partners LLC.

Jana’s campaign was seen as threatening Svane’s position and those of three directors. Stockholders who sued—including a public employee union and individual investors—alleged that Svane and others accepted a $77.50 per share buyout to save their jobs, while concealing critical details.

The plaintiffs argued the proxy statement omitted a nearly finalized settlement with Jana that would have required Svane’s departure, and failed to disclose more optimistic margin and cost-cutting projections. Instead, they claimed the board slashed revenue forecasts by $13 billion “over a weekend” to justify abandoning a standalone growth strategy.

Fiery Arguments Before the Court

During September arguments, Ned Weinberger of Labaton Keller Sucharow LLP, representing stockholders, told justices the proxy failed to tell the “full and accurate story” of the board’s conflicts. “The conflict that is at the heart of this case … was not disclosed to stockholders,” he said.

Defending Svane and the board, Sandra C. Goldstein of Kirkland & Ellis LLP countered that Jana’s agitation was already “all over the proxy” and settlement talks were adequately disclosed. “I don’t think we have to literally write every term and condition,” she told the justices.

A Legal Showdown with Big-Name Counsel

The litigation featured heavyweight legal teams. Stockholders were represented by attorneys from Labaton Keller Sucharow LLP, Block & Leviton LLP, Grant & Eisenhofer PA, Friedman Oster & Tejtel PLLC, and Kaskela Law LLC.

Svane and the other defendants relied on Ross Aronstam & Moritz LLP and Kirkland & Ellis LLP.

Despite the sharp rhetoric, the Supreme Court sided with the lower court, leaving no room for appeal. The case marks the definitive end of a challenge that once threatened to unravel one of the software industry’s landmark private equity deals.