Delaware court allows TripAdvisor to reincorporate in Nevada

© Reuters. FILE PHOTO: The logo for a travel website company TripAdvisor Inc is shown on a computer screen in this illustration photo in Encinitas, California May 3, 2016. REUTERS/Mike Blake/File Photo

By Jody Godoy

(Reuters) -TripAdvisor can proceed with its planned move to Nevada but shareholders can seek damages, a Delaware judge ruled on Tuesday in a case billionaire Elon Musk highlighted as an attempt to “lock the doors” on firms leaving the state.

Two shareholders had sued directors at TripAdvisor (NASDAQ:) and its parent company last year and asked the court to block the move, claiming it was designed to benefit Greg Maffei, CEO of parent company Liberty TripAdvisor, at their expense.

They argued it would let Maffei, the online travel advice site’s controlling stockholder, avoid accountability for potential self-dealing because Nevada sets a lower bar for such transactions, without offering compensation to minority shareholders.

The directors argued that they complied with the Delaware law, which required a majority vote of shareholders to convert the company to a Nevada corporation. They said the shareholders were improperly seeking to limit TripAdvisor’s right to reincorporate in another state.

Delaware Vice Chancellor Travis Laster wrote that while Delaware’s Chancery Court has the power to block companies from reincorporating elsewhere, he called it an “extreme” measure not warranted in the case.

While Laster said the move can go forward, he found that it will be subject to a review for “entire fairness” to shareholders, which he called the “most onerous standard” under Delaware law.

The judge suggested that shareholders may seek damages if TripAdvisor’s stock sinks on its reincorporation.

But the directors can also try to show that Nevada law does not benefit Maffei as shareholders claim, he said.

Attorneys the shareholders declined to comment. A TripAdvisor spokesperson did not immediately reply to a request for comment.

The case has gotten publicity from Musk, who has blasted Delaware after a judge there ruled to invalidate his $56 billion pay package from Tesla (NASDAQ:).

The carmaker’s CEO has said on social media that companies should leave Delaware, which is home to much of corporate America, “before they lock the doors, as they just did with Tripadvisor .”

Musk has said Tesla would hold a shareholder vote to move its legal home from Delaware to Texas.

The TripAdvisor ruling comes as a committee of the company’s board explores a potential sale to an undisclosed bidder.

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