Facebook Inc co-founder Mark Zuckerberg has to explain in court why he dropped a plan to create non-voting shares, which would’ve allowed him to retain control of the world’s largest social-media company after selling most of his stake to fund charitable works. Delaware Chancery Court Judge Travis Laster ordered Zuckerberg to testify November 19 in a lawsuit brought by investors to recoup legal fees incurred in stopping the plan. Zuckerberg abandoned the push for the new shares last year.
The investors’ lawyers are seeking $129 million from the company. Facebook officials say they only deserve $20 million. Laster wants to hear from Zuckerberg to help him decide the value of investors’ efforts to oppose the new claims of shares. Another group of investors sued Zuckerberg and other Facebook directors in the same court this week, saying board members should be held accountable of the chummy way they considered the founder’s request for the creation of non-voting shares.
“The reclassification proposal has been withdrawn,” Vanessa Chan, a Facebook spokeswoman, said in a statement. “The only issue still being litigated is compensation for plaintiffs’ lawyers, who are seeking the second-highest fee in the history of the court. We continue to oppose their efforts to recover a windfall at the expense of stockholders.” The judge scheduled three consecutive days for Zuckerberg’s testimony in his September 6 order. The billionaire, who was scheduled to travel to Delaware last year to testify about the proposed non-voting class, scrapped those plans on the eve of trial.
“Over the past year and a half, Facebook’s business has performed well and the value of our stock has grown to the point that I can fully fund our philanthropy and retain voting control of Facebook for 20 years or more,’’ Zuckerberg said in September 2017. Facebook directors had approved the new class of shares and a majority of the company’s shareholders had backed the move before Zuckerberg decided to drop the effort.
Objecting investors claimed victory after Zuckerberg nixed the proposal. They said they “challenged the reclassification in this hard-fought litigation’’ and deserved to be rewarded for achieving “the outcome they were seeking at trial.’’ Lawyers for investors say the key issue is how much value should be attached for Zuckerberg’s control of Facebook. Experts have valued his control as being worth as a minimum of $1.29 billion and a maximum of $5.2 billion according to court filings.
Either figure would justify the fee award Facebook investors’ lawyers are seeking, according to their filings. If awarded, that fee would be one of the largest in Delaware Chancery Court history. The company’s lawyers have countered in court filings that those numbers are flawed because Zuckerberg has no plans to relinquish control of Facebook in the foreseeable future. Zuckerberg’s decision to pull the plug on the non-voting shares gambit made the shareholders’ suit moot and left them with no way to show the real value of their efforts to stymie it, Facebook argues.
Investors can’t “establish any benefit to stockholders” from their opposition to oppose the non-voting shares, so they can’t justify a request for more than $120 million in fees, the company said.