Key Points
- Informal settlements between activist investors and their corporate targets can be a means to resolving activist situations quickly.
- But informal agreements generally only work where the company and the activist can find enough alignment on the strategic priorities for the company, and the company can trust the activist to abide by their informal deal.
- Informal settlements also work best where a board and management have prepared for the possibility of an activist campaign, regularly engage with their other shareholders, have undertaken a rigorous self-assessment and have proactively considered various strategic options so the company is positioned to quickly evaluate the activist’s demands on their merits.
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Recent, high-profile announcements involving engagement between the activist investment firm Elliott Management and two companies, Phillips 66 and PepsiCo, have drawn renewed interest in whether a company should consider an informal settlement as a means of resolving an activist campaign instead of a formal, written agreement.
While not without risks, these arrangements can deliver swift, cost-effective resolutions that serve the best interests of shareholders and minimize disruption to the business. Yet deciding whether to pursue an informal settlement or not depends largely on whether the company can find common ground with the activist on the strategic priorities for the company and can trust the activist to honor its informal commitments.
What Do Informal Settlements Look Like?
Unlike formal settlements, which are governed by fully executed agreements — often containing binding standstill provisions, voting commitments and nondisparagement clauses — informal settlements rely largely on either public pressure to perform or fear of public backlash for not abiding by the informally brokered compromise.
Most informal settlements involve the company issuing a press release agreeing to effect board change or implement specific initiatives such as a business review or capital allocation changes. In exchange, the activist may privately communicate that it will not nominate directors at the next annual meeting and either issue a public statement supporting the company’s announcement or agree to be mentioned in the release, noting its constructive engagement.
Why Might a Board Choose an Informal Settlement?
Several factors can drive a company and activist to opt for an informal settlement over a formal, binding agreement.
Where there is a history of constructive dialogue, both sides may feel comfortable relying on informal commitments. The track record of the activist at other companies where it informally settled will also be important in assessing whether an informal arrangement can be trusted.
Efficiency is another consideration. Formal agreements can take time to negotiate, sometimes without delivering significantly greater benefits than an informal understanding.
Cost also weighs heavily. Based on data from FactSet, the average cost for companies of a proxy contest that went the distance last year exceeded $7 million, with some high-profile campaigns costing much more. Both sides are generally motivated to avoid these costs and the associated distractions, and an informal settlement offers the fastest path to resolution.
Finally, companies are becoming increasingly proactive, undertaking regular reviews of their business and strategy, and incorporating feedback from their shareholders regarding strategic priorities. As a result, companies are able to respond quickly and credibly to activist approaches.
In many cases, the company has already explored the same strategic options advocated by the activist, making it easier to reach alignment with the activist without the need for a formal agreement.
Phillips 66’s relationship with Elliott shows potential risks with informal agreements. When Phillips 66 announced in a March 2026 press release that it was adding two new directors, it included a supportive statement from Elliott about the appointments and the company’s focus on execution, capital return and other strategic actions, suggesting an informal settlement had been reached to avoid a proxy fight.
But an earlier informal settlement between the parties in 2024 did not work to avert a full proxy fight the next year. In exchange for Elliott agreeing to withdraw its nomination of directors at the 2024 annual meeting, Phillips 66 announced in a press release that it had appointed a new director following constructive dialogue with Elliott and would work with Elliott to identify a second mutually agreed upon director.
Yet in 2025, Elliott claimed that Phillips 66 had reneged on its promise to work together to appoint the second director and did not believe the company was doing enough to improve its performance.
A proxy contest ensued in 2025, with Elliott’s director designee from the prior informal settlement publicly taking the side of the incumbent board after Elliott targeted him for replacement by its competing slate. After a protracted, hard-fought election contest, Elliott won just two of the four board seats up for election at the meeting while failing to unseat its director designee.
Despite this history, it appears the parties were open to another informal settlement this year, perhaps because neither side was eager to go through another proxy fight. Also, by this year, the board had undergone multiple rounds of refreshment.
Similarly, in December 2025, PepsiCo announced that it would review its North American supply chain and go-to-market systems, aggressively reduce costs to drive growth and continue board refreshment, among other things. It cited continued and constructive engagement with Elliott, signaling that Elliott would not proceed with a proxy contest at PepsiCo’s 2026 annual meeting.
The Importance of Board Preparedness
Informal settlements continue to be a viable method for resolving activist situations and may become more common. But they work best when boards and management teams prioritize preparedness and engagement. A board that has already undertaken a rigorous self-assessment and proactively considered various strategic options will be far better positioned to evaluate an activist’s demands on their merits and respond decisively — whether that means pursuing an informal understanding or insisting on a formal agreement with binding protections.
Ultimately, there is no one-size-fits-all answer. Each activist situation presents its own dynamics, and the decision whether to pursue a formal or informal resolution should be guided by a clear-eyed assessment of the risks, the strength of the parties’ relationship and the board’s confidence that the commitments being exchanged will be honored.
This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.