The case was to be heard in Delaware Chancery Court in Wilmington. Google, like more than half of all Fortune 500 companies, is incorporated in the state. The court specializes in corporate litigation and judges hear the cases without juries. Page and Brin were to testify in person about the stock reclassification in a five-day trial.
Chief Judge Leo Strine had been asked to decide whether the company’s push to create the new share class falls under review standards that defer to executives’ business judgment on operational matters or whether the proposal must be shown to be “entirely fair” to all Google investors, Hamermesh said.
Google agreed to postpone the reclassification until after Strine “had the opportunity to consider the legal issues following a full trial on the merits,” according the court filings.
Under Google’s existing stock structure, its Class A common shares carry one vote while Class B shares carry 10 votes, according to court filings. Page and Brin hold Class B shares that carry more than 56 percent of the company’s voting rights, the filings said. The pair own about 15 percent of the company’s outstanding equity.
Google wants to create Class C shares, which carry no voting rights. All investors would receive a dividend in the form of Class C shares in what amounts to a 2-for-1 stock split, according to the filings.
Attorneys for the Brockton, Massachusetts Retirement Board contend Google directors erred in backing the reclassification plan because it would allow Page and Brin to reap millions in stock sales without any effect on their voting control.
The Massachusetts pension fund has about $500,000 invested in Google’s shares, the Brockton Enterprise newspaper reported in May 2012.
The company made its voting structure clear in an “Owners Manual” issued during the company’s 2004 initial public offering and on its website, lawyers for Page and Brin said in court papers. The Class B super-voting shares were set up to “make it harder for outside parties to take over or influence Google,” according to the filings.
To protect common-stock holders from harm, directors structured the reclassification in a way that barred Page and Brin from selling Class C shares unless they sell an equal number of Class B super-voting shares and bars Class B holders from receiving change-of-control premiums, the directors’ attorneys said.
Over the years, the Delaware courts have deferred to directors’ and executives’ judgment about the utility of “corporate acts like the recapitalization,” the lawyers said. The stock move is “eminently fair” to common shareholders and should be allowed to proceed, they added.
The case is In re Google Inc. Class C Shareholder Litigation, CA No. 7469, Delaware Chancery Court (Wilmington).