TripAdvisor started 24 years ago and was an amazing tool. It had reviews of almost every hotel. And it hosted real guest photos of the hotels, too. You couldn’t always trust the reviews, because people complain about different things (you’d always see bashing of the Ritz-Carlton Central Park for high room service prices) but you could (1) look for consistent themes across reviews, and (2) look at the photos – if you saw dilapidated rooms and mold frequently that was a bad sign.
Then TripAdvisor was acquired and became part of the same company as Expedia. It was later spun off as a public company. It earns most of its revenue from Expedia and Booking.com, selling eyeballs of customers searching hotels to those platforms. Even reviews got de-prioritized. It stopped being primarily a tool to help customers figure out where to stay.
Now there’s corporate intrigue over where TripAdvisor itself should find lodging. Can it move from Delaware incorporation to Nevada? And what a judge says there may decide whether Tesla can leave Delaware, too, after a judge struck down Elon Musk’s $55 billion compensation package.
- elaware has specialized judges, non-jury trials, and a tremendous history of caselaw for corporate disputes. That provides tremendous certainty and low costs, and businesses like it. The state makes 62 times the national average in incorporation fees.
- Texas has a new court being created September 1 to take on Delaware. Nevada has already been aggressive attracting corporate registrations.
- Elon Musk wants to leave Delaware after its court struck down his $55 billion incentive pay package. His pay was approved by shareholders, and it’s a small percentage of gains made by stockholders. But a small group of shareholders sued, arguing that the approval wasn’t a fully-informed one, sought by conflicted directors. Musk now says he wants to move to Texas.
TripAdvisor wants out of Delaware for potentially similar reasons as Musk. While the state is considered very business-friendly, Nevada is better for self-dealing where directors are harder to sue. The move was basically approved by chairman Greg Maffei, whose holdings put him in a dominant position. (Only 5.4% of shareholders other than Maffei supported the move.)
A majority of smaller shareholders don’t like the TripAdvisor move to Nevada:
Maffei also has a history of being sued over allegations of seeking to benefit at the expense of minority shareholders, the plaintiffs argued, pointing to a half-dozen cases alleging conflicts of interest in recent years in which Delaware’s Chancery Court ruled against the executive. Settlements yielded about $300 million in four of those cases, the lawsuit says.
Matt Levine explains that TripAdvisor says any shenanigans are purely theoretical, and that Delaware’s court should therefore defer to the business judgment of its directors. They shouldn’t intercede under precedent where majority shareholders owe a duty to minority shareholders, since there’s no showing their rights are being violated.
However, this defense may not be available to Elon Musk when he tries to move to Texas. He’s clearly talking up leaving because Delaware courts said his $55 billion pay package wasn’t in the best interests of minority shareholders.
It seems wrong to me that a Delaware judge struck down a pay package approved by shareholders, and where shareholders clearly benefited (based on appreciation of Tesla stock under Musks’s leadership). It would seem even stranger for a Delaware judge to block the company from leaving the state and re-incorporating in Texas.
However Delaware law protects minority shareholders, and the reason for the move would be to benefit an insider at what has already been determined by a judge to be actions that harmed minority shareholders.
TripAdvisor, on the other hand, began its decline when it was acquired by IAC/InterActiveCorp. Spinning it off from Expedia a dozen years ago hasn’t made it better (shockingly, because distance of anything from Expedia should make that thing better). So I’m torn.
- Delaware law hasn’t protected TripAdvisor, so no harm in leaving?
- Current management of TripAdvisor have made it worse, making it even easier for them to self-deal with its assets seems like a bad idea?
Ultimately, if TripAdvisor is stopped from leaving Delaware then Tesla won’t be able to. But the case against Tesla leaving could be stronger. Even if judges stopping companies from leaving a state to re-incorporate in another state isn’t something that usually happens.