DEF 14A: Dillards Seeks Texas Reincorporation for Stability

Dillards, Inc. proposes reincorporating from Delaware to Texas to align with its operational base, reduce litigation risk, and achieve cost savings.

Summary

• Dillards, Inc. is seeking stockholder approval to reincorporate the Company from the State of Delaware to the State of Texas by conversion.
• The Special Meeting of Stockholders to vote on this proposal is scheduled for Tuesday, August 19, 2025, at 9:00 a.m. CDT.
• Only stockholders of record as of July 25, 2025, are entitled to vote.
• The Board of Directors unanimously recommends voting FOR the reincorporation.
• The reincorporation is anticipated to become effective on August 31, 2025, if approved.
• The Company's Class A and Class B Common Stock will automatically convert on a 1:1 basis to Texas Corporation Class A and Class B Common Stock, respectively, with no exchange of physical certificates required.
• The reincorporation is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes, meaning no gain or loss for stockholders and a carryover of tax basis and holding period.
• The Company will continue to be publicly traded on the NYSE under the symbol DDS and will maintain its SEC reporting obligations.

Sentiment

Score: 8

Explanation: The filing outlines a strategic reincorporation aimed at reducing costs, mitigating litigation risks, and aligning corporate domicile with operational nexus. While acknowledging some risks, the overall tone and detailed rationale suggest a well-considered move expected to benefit the company and its stockholders, leading to a positive sentiment.

Positives

• The reincorporation reflects Dillards' strong operational nexus to Texas, where it operates 55 stores and derives more revenue than any other state, contrasting with no meaningful connection to Delaware.
• Stockholder economic and voting rights are preserved, with an expansion of rights to call a special meeting (by holders of 50% of shares) and to act by unanimous written consent.
• The move may reduce the potential for opportunistic and frivolous litigation against the Company, its directors, and officers, as Texas law is considered more protective.
• The Texas Charter includes a 3% ownership threshold for plaintiffs to initiate derivative claims, which is expected to limit litigation by those without a material economic interest.
• Reincorporation will eliminate the Company's annual Delaware franchise tax, which was over $250,000 in fiscal year 2024, leading to cost savings.
• The Company will be freed from the expense and distraction of frequent unclaimed property audits from Delaware.
• Texas's statute-focused approach to corporate law is expected to foster more predictability than Delaware's case-law based approach.
• Recent 2025 amendments to the Texas Business Organizations Code (TBOC) provide greater certainty regarding the standard for directors and officers in fiduciary duty actions, including codifying the business judgment rule.
• The establishment of the Texas Business Court and TBOC amendments validating exclusive forum selection for internal claims are seen as beneficial.

Negatives

• There is a possibility that the expected benefits of the Texas Reincorporation may not be fully realized.
• The decision to leave Delaware might subject the Company to potential litigation, regardless of merit, leading to additional expense and distraction.
• The Company will lose the benefit of Delaware's extensive body of case law and well-established court system; the newly created Texas Business Court will need time to develop a comparable reputation and case law.
• The Company may face criticism from stockholders or advisory services (e.g., ISS, Glass Lewis) who may prefer Delaware incorporation or draw adverse comparisons on specific governance points.
• The Texas Charter elects into a new Texas shareholder proposal law that requires shareholders to hold at least $1 million in market value or 3% of voting shares, with a six-month holding period and 67% solicitation requirement, if the Company's principal office moves to Texas or it lists on a Texas-based/approved exchange (though the Company has not determined to make these changes).
• Texas law places certain limitations on stockholder derivative lawsuits, such as requiring a demand on the corporation and a 3% share ownership threshold, and prohibiting books and records demands in connection with active derivative proceedings.

Risks

• The Texas Reincorporation may not result in all or any of the expected benefits described in the proxy statement.
• The Texas Reincorporation might still subject the Company to potential litigation regarding its decision to leave Delaware, which may result in additional expense and distraction.
• The newly created Texas Business Court is still developing its reputation and body of case law, which may not provide comparable levels of guidance to directors and officers as Delaware's established system.
• The Company may face criticism from stockholders or advisory services (e.g., ISS, Glass Lewis) over its decision to reincorporate in Texas due to perceived differences in governance standards.
• The Texas Charter's adoption of new shareholder proposal requirements (e.g., $1M market value or 3% ownership, 6-month holding period, 67% solicitation) could limit shareholder activism, although these are contingent on future company actions regarding its principal office or exchange listing.
• Limitations on stockholder derivative lawsuits in Texas, such as the 3% ownership threshold and restrictions on books and records demands, could be viewed negatively by some investors.
• The Company will incur non-recurring costs, including legal and other transaction costs, in connection with the Texas Reincorporation, some of which are difficult to accurately estimate.

Future Outlook

The Company anticipates the Texas Reincorporation to become effective on August 31, 2025, if approved by stockholders. It expects no interruption in NYSE trading or SEC reporting obligations. The reincorporation is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes. The Company continues to evaluate whether to move its principal office to Texas or list on a Texas-based/approved exchange, which would trigger certain shareholder proposal requirements under Texas law.

Management Comments

• The Board unanimously recommends that you vote your shares FOR the approval of the Texas Reincorporation of the Company to the State of Texas by conversion.
• The Special Committee believes that the Company's state of incorporation should not significantly alter the Board process, shareholder voting rights, or business benefits and risks of transactions with directors, officers and controlling shareholders, but incorporation in Texas should provide greater protection against shareholder derivative litigation related to such transactions.
• The Special Committee concluded that the reincorporation of the Company in Texas is in the best interest of the Company and its stockholders because the reincorporation, among other benefits, (i) reflects the Company's strong operational nexus to Texas; (ii) preserves stockholder economic and voting rights with expansion of rights to call a special meeting or act by unanimous written consent; (iii) may reduce the potential for opportunistic and frivolous litigation against the Company and its directors and officers (and may therefore help the Company attract and retain qualified management and directors by reducing the risk of litigation); (iv) will lower the Company's corporate tax burden by eliminating the obligation to pay higher Delaware franchise taxes; and (v) will free the Company from Delaware unclaimed property audits.

Industry Context

The reincorporation decision is influenced by a broader trend of states, including Texas, actively encouraging companies to relocate, and by recent high-profile litigation outcomes in Delaware that have impacted companies with controlling stockholders. This move by Dillards reflects a strategic response to the evolving legal and operational landscape, seeking a more predictable and potentially less litigious corporate environment, which could be a competitive advantage in the dynamic retail industry.

Comparison to Industry Standards

• The filing highlights that many U.S. corporations have historically chosen Delaware due to its extensive corporate law experience and court system. Dillards' move to Texas, while aiming for predictability through a statute-focused approach, contrasts with this long-standing preference.
• The establishment of the Texas Business Court is presented as akin to Delaware's Court of Chancery, indicating Texas's effort to build a specialized judicial system for corporate matters, though it is acknowledged that this court will need time to develop a comparable reputation and body of case law.
• The comparison of corporate laws (DGCL vs. TBOC) details differences in areas like shareholder proposal thresholds, derivative suit requirements, and exclusive forum provisions. For example, Texas's 3% ownership threshold for derivative suits and the prohibition on books and records demands in active derivative proceedings are more restrictive than Delaware's general approach, which could be seen as less shareholder-friendly by some governance advocates like ISS or Glass Lewis.
• The elimination of over $250,000 in annual Delaware franchise tax is a specific financial benefit that could be a competitive advantage compared to companies remaining in Delaware, especially for those with significant operations outside Delaware.

Corporate Governance

Related Party Transactions

• The filing mentions a potential 'WDC Transaction' involving W.D. Company, Inc. (WDC), the largest stockholder of Delaware Corporation Class B Common Stock, which would involve a merger with the Company. The Special Committee considered how reincorporation might affect the Board's duties or stockholders' interests with respect to any such transaction. WDC owns approximately 99.99% of the outstanding Class B Common Stock.

Stakeholder Impact

• **Shareholders**: Economic and voting rights are largely preserved, with some expanded rights (e.g., calling special meetings, unanimous written consent) but also new restrictions (e.g., higher thresholds for derivative suits and shareholder proposals if certain conditions are met). Potential for reduced litigation costs and increased predictability in corporate governance could benefit long-term shareholders. Class B stockholders have appraisal rights.
• **Directors and Officers**: Expected to benefit from reduced risk of opportunistic and frivolous litigation due to Texas's more protective legal framework, potentially aiding in attraction and retention of qualified management.
• **Employees**: No expected change in jobs or number of employees as a direct result of the reincorporation.
• **Customers/Suppliers/Creditors**: No direct impact on obligations, assets, or liabilities is anticipated, ensuring business continuity.
• **Regulatory Authorities**: The Company will continue to comply with SEC reporting obligations and will make necessary filings with Texas and Delaware Secretaries of State.

Next Steps

• Hold a Special Meeting of Stockholders on August 19, 2025, to vote on the reincorporation proposal.
• If approved, make filings with the Secretary of State of Texas and Delaware to effectuate the conversion.
• The Texas Reincorporation is anticipated to become effective on August 31, 2025.
• The Company will continue to file required periodic reports and other documents with the SEC.
• Stockholders who acquired different blocks of Common Stock should consult their tax advisors regarding tax consequences.
• Stockholders who own at least 5% (by vote or value) of total outstanding stock or 1% (by vote or value) of Class B Common Stock, or stock with a tax basis of $1,000,000 or more, are required to attach a statement to their tax returns for the year of reincorporation.
• The Board will continue to evaluate whether to move the Company's principal office to Texas or list on a Texas-based/approved stock exchange, which would trigger certain shareholder proposal requirements.

Key Dates

Recommendation

The reincorporation from Delaware to Texas is a strategic corporate governance move aimed at reducing litigation risk and costs, and aligning the company's legal domicile with its primary operational footprint. While these changes are generally positive for long-term operational efficiency and risk management, they are primarily administrative and legal in nature, rather than directly impacting core business operations or financial performance in the short term. The potential benefits, such as reduced legal expenses and franchise taxes, are incremental. The risks, including potential criticism from governance groups and the developing nature of Texas corporate case law, are manageable but introduce some uncertainty. Given that the core business model and financial health are not fundamentally altered by this reincorporation, a 'hold' recommendation is appropriate, as the filing does not present a compelling reason for immediate buying or selling, but rather a long-term strategic adjustment.

Keywords

Reincorporation, Corporate Governance, SEC Filing, Proxy Statement, Delaware Law, Texas Law, Shareholder Rights, Litigation Risk, Franchise Tax, Dillards, Retail, Corporate Domicile