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A recurring question in deal litigation is when a handful of large investors who roll over their equity in a take-private become a “control group” subject to entire fairness review. In Le Clair v. KnowBe4, Inc., C.A. No. 2024-1143-KSJM (Del. Ch. May 27, 2026), Chancellor Kathaleen St. J. McCormick answered that question against the plaintiffs and dismissed a stockholder class action arising out of the 2023 acquisition of KnowBe4, Inc. The opinion is a useful refresher on two doctrines that frequently decide whether merger claims survive a motion to dismiss: the pleading standard for a stockholder control group, and the cleansing effect of a fully informed, uncoerced stockholder vote.
Background
KnowBe4, Inc. is a publicly traded cybersecurity-awareness company. In 2022, the private equity firm Vista Equity Partners expressed renewed interest in acquiring it, having explored and then abandoned a potential deal two years earlier. The board formed a special committee, retained independent advisors, and negotiated. After back-and-forth, Vista agreed to pay $24.90 per share, contingent on two large institutional investors (funds affiliated with KKR and Elephant Partners) and KnowBe4’s CEO and founder, Sjoerd Sjouwerman, rolling over equity collectively worth roughly $682 million into the post-merger entity. The transaction was conditioned on approval by a majority of the minority stockholders, and the merger closed.
A class of former stockholders, led by Bill Le Clair and Joseph Pospisil, sued. They advanced two principal theories. First, they alleged that the rollover investors and the CEO formed a control group that breached fiduciary duties owed to the class. Second, they alleged that the KnowBe4 directors breached their fiduciary duties. The defendants moved to dismiss under Court of Chancery Rule 12(b)(6).
Analysis
Chancellor McCormick began with the control-group theory. Under Delaware law, to plead that a group of stockholders collectively exercises control, a plaintiff must allege that the members are “connected in some legally significant way,” by contract, common ownership, agreement, or other arrangement, to work together toward a shared goal. There must be some indication of an actual agreement, though it need not be formal or written. Absent a written agreement, a plaintiff must plead an “array of plus factors,” such as historical ties, that give rise to a reasonably conceivable inference that the alleged group struck an actual agreement to work together in connection with the challenged transaction. Applying that framework, the Chancellor held that the amended complaint fell short. The allegations did not support a reasonable inference that KKR, Elephant, and Sjouwerman agreed to act together as a control group with respect to the merger, and the control-group count was dismissed.
The director claims required a different analysis. The court assumed for purposes of the motion that the entire fairness standard applied, because a majority of the board had either rolled over shares or lacked independence from investors who did. That assumption, however, was not the end of the matter. As Chancellor McCormick explained, where entire fairness applies due to board-level conflicts, as opposed to a controlling stockholder standing on both sides, the transaction can still be cleansed by either a fully empowered, independent special committee or a fully informed, uncoerced stockholder vote. The defendants relied foremost on the stockholder vote under the Delaware Supreme Court’s decision in Corwin v. KKR Financial Holdings LLC.
That reliance shifted the burden to the plaintiffs to plead a disclosure deficiency sufficient to render the vote uninformed or coerced. The plaintiffs argued, among other things, that the proxy failed to disclose various relationships among directors and the rollover investors. For instance, one director sat on boards of Vista- and KKR-affiliated companies, and another had invested in KKR-affiliated funds and was friendly with KKR- and Vista-affiliated individuals. The court found these alleged omissions immaterial. Delaware law presumes directors are independent and disinterested, and the alleged ties were not the kind of information that would have altered the total mix available to stockholders.
The plaintiffs also challenged the proxy’s treatment of Morgan Stanley, the special committee’s financial advisor, which held roughly $200 million in KKR and $350 million in KKR portfolio companies that the proxy did not disclose. Chancellor McCormick distinguished Brookfield and PLX, cases in which the advisor’s undisclosed holdings or fees ran to a controller or a counterparty. Here, KKR was neither. It was a minority stockholder that rolled over its shares, and the special committee had quarantined the rollover stockholders from its negotiations with Vista. On those facts, the advisor’s KKR holdings did not alter the total mix of information.
With no well-pleaded disclosure deficiency, the fully informed stockholder vote restored the business judgment standard. Because the plaintiffs conceded that their director claims could not survive under business judgment review, that count was dismissed. A third count had been abandoned in briefing and was dismissed as well.
Key Takeaways
Le Clair is a reminder that the control-group label is not handed out lightly. Rollover equity, shared advisors, and parallel economic incentives are common features of sponsor-led take-privates, and on their own they do not transform independent investors into a control group. Plaintiffs must plead a genuine agreement to act in concert with respect to the specific transaction, supported by concrete plus factors, and not merely the observation that several investors happened to benefit from the same deal.
The decision also underscores the continued power of Corwin cleansing where the conflict is at the board level rather than with a true controlling stockholder. A well-run process remains the most reliable defense to post-closing fiduciary claims: an independent special committee, a real majority-of-the-minority condition, and a complete proxy. The disclosure analysis is where these cases are won or lost. Alleged director or advisor relationships will not defeat a vote’s cleansing effect unless a plaintiff can explain why the omitted facts would have mattered to a reasonable stockholder. As I previously discussed in connection with Delaware’s recent amendments to its controller-transaction framework, the General Assembly and the courts continue to refine the safe harbors that govern conflicted deals, and disciplined deal planning around those safe harbors continues to pay dividends at the pleading stage.
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