The plaintiff, a stockholder of Block, Inc., filed this derivative suit challenging Block's acquisition of TIDAL a music streaming company associated with rapper, producer, and entrepreneur Shawn Carter. Block facilitates payment processing and helps individuals transfer money electronically; it had never ventured into the music streaming industry and, at the time it acquired TIDAL, had no plans to do so. The idea for the acquisition came to Jack Dorsey Block's founder, CEO, and Chairman-when he was summering with Carter in the Hamptons. From his Hamptons retreat, Dorsey joined a videoconference meeting of Block's board and proposed that Block acquire TIDAL. The board formed a transaction committee to consider the proposal.
Over the ensuing months, the committee learned that TIDAL was failing financially, losing its major contracts, and facing an ongoing criminal investigation. The committee also learned that Carter personally loaned TIDAL $50 million to help the troubled company through its difficulties and that Dorsey was the sole Block management member in support of the acquisition. Despite the obvious problems with the deal, the committee approved the transaction for $306 million. It seemed, by all accounts, a terrible business decision.
Under Delaware law, however, a board comprised of a majority of disinterested and independent directors is free to make a terrible business decision without any meaningful threat of liability, so long as the directors approve the action in good faith.
The defendants moved to dismiss the complaint for failure to plead demand futility. That motion hinges on whether the plaintiff adequately alleges that the committee members would face a substantial likelihood of liability for approving the transaction. The plaintiff did not meet that pleading burden.
The case is dismissed.
0.35% of Block’s $100 billion market cap in May 2021, and was probably seen as a rounding error in their marketing budget than a transformative acquisition, but the pdf gives a pretty good insight into how a company like Block operates when it comes to acquisitions.
[link] [comments] https://www.reddit.com/r/stocks/comments/13d9khn/block_ceo_jack_dorsey_acquired_tidal_as_a_favor/
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