In the current climate of market volatility prompted by the COVID-19 pandemic, more and more public companies with valuable US tax assets (e.g., net operating loss carryforwards) may, or at least should, consider adopting a shareholder rights plan in order to preserve those tax assets.  These plans are commonly referred to as “NOL rights plans” (or “NOL poison pills”).
Continue Reading Is Now a Good Time to Adopt an NOL Rights Plan?

Last month, we described the increased threat of activists and acquirors seeking to capitalize on the COVID-19 sell-off to build positions in high-value companies at depressed prices.  Even before the current crisis emerged, we recommended that all U.S. public companies regularly review their defense profile and have a shareholder rights plans “on the shelf.” For companies uniquely impacted by the crisis—especially those whose market capitalization has fallen below $1 billion—we suggested they re-assess their vulnerabilities in this new environment and consider whether now was the right time to adopt a rights plan to ward off potential opportunistic behavior. Some companies have done just that—since March 1, 2020, 24 U.S. public companies have adopted a defensive shareholder rights plan (6 other U.S. public companies have adopted NOL rights plans).
Continue Reading ISS and Glass Lewis Issue Guidance for Poison Pills in COVID-19 Pandemic

On March 30, 2019, Paul Shim and Jim Langston joined Patrick Ramsey, Global Head of M&A at BofA Securities, and Amy Lissauer, Global Head of Activism and Raid Defense at BofA Securities, on a conference call panel titled “The Impact of COVID-19 on Shareholder Activism and Hostile M&A.”

The panelists shared their views on the state of activism and hostile attacks in the current environment, how the activism playbook may evolve, when and how the next wave of activism and hostile attacks is likely to emerge, and what companies can do today to prepare for the storm.

Dial-in Details are as follows:
U.S. toll-free: 888 203 1112
International: +1 719 457 0820
Passcode: 1219818

The replay will be available from Monday, March 30, 2020, at 4:00 p.m. through Wednesday, April 29, 2020, at 2:00 p.m. Eastern.

Continue Reading The Impact of COVID-19 on Activism and Hostile Attacks: Key Takeaways

Amidst a market-wide sell-off of public equities in the face of coronavirus uncertainty, companies across nearly every industry have witnessed significant declines in stock prices. As the market turbulence shows no signs of abating in the near term, public companies should consider turning to shareholder rights plans (or “poison pills”) to protect against hostile attacks.

Institutional investors are howling for US public companies to focus more on the long-term.[1]  This is unsurprising. Long-term focused companies produce significantly better results over time, reporting far greater revenue growth with less volatility, far higher levels of economic profit, and greater total return to shareholders.[2] So if you are holding stock for a long time, a long-term focus for your portfolio companies is critical.
Continue Reading Finding Friends is Hard: Long-Term Investors’ Relationship with Proxy Advisors, Activists and Long-Term Private Equity Funds

If your experiment needs statistics, you ought to have done a better experiment.”  Ernest Rutherford

Sometimes you need to get into the fundamentals to understand if your belief system is sound.  In corporate governance literature of the last two decades, there is no more fundamental concept than Tobin’s Q, which legions of law professors have used as a proxy for firm value.  Based on regression analyses examining variations in Tobin’s Q, they have made definitive pronouncements about any number of corporate governance topics, from staggered boards to the value of activism.  Yet tracing the evolution of Tobin’s Q to its current state—a state completely alien to the original conception—reveals a twisted tale, proceeding like an epidemiological disaster in which Tobin’s Q transforms from an innocent and useful organism in macroeconomics to an unrecognizably mutated and widespread disease in corporate governance literature, infecting policies and practices throughout the corporate governance world.
Continue Reading Mutant Q – The Superbug Infecting Foundational Studies on Entrenchment, Staggered Boards, and Activism

Beyond the cacophonous din of voices calling for companies to serve a “social purpose,” adopt a variety of governance proposals, achieve quarterly performance targets, and listen to (and indeed even “think like”) activists, there is now, most promisingly, a call from genuine long term shareholders for public companies to articulate and pursue a long term strategy.[1]  This latest shareholder demand directly supports the achievement of traditional corporate purposes, and seems, more than any other shareholder demand of the last decade, the most likely to increase shareholder value.  Yet in current circumstances, where all corporate defenses have been stripped in the name of “good governance,” boards and management have been given zero space in which to formulate and implement a long term strategy.  Indeed, the very fact that shareholders must demand corporations focus on long term strategy demonstrates just how effectively the governance movement has been co-opted by market forces to serve the interests of short term activists and traders to the detriment of long term investors.  It is time for long term investors to recognize that aspects of the good governance movement have in fact come at significant cost to their own investors, to be perhaps a bit more wary of partnerships with activists, and to actively create the conditions that will allow boards and management to focus on the long term.  Exhortations are not enough. The first step should be to bring back staggered boards.
Continue Reading Long-Term Investors Have a Duty to Bring Back the Staggered Board (and Proxy Advisors Should Get on Board)

Directors of UK companies which are “for sale” are not (unlike directors of Delaware companies) subject to Revlon type duties to take active steps to obtain the best price reasonably available to shareholders.

However, directors of UK companies are subject to a duty to act for proper purposes, which has been interpreted by UK Courts as requiring strict board neutrality when battles for corporate control arise.  (This duty to act for proper purposes, which originated in common law principles, applies in addition to the restrictions on frustrating action applicable to listed companies under the UK Takeover Code.)  The UK proper purposes duty would for instance likely prohibit directors of UK companies from taking actions permitted under the Delaware Unocal principles, such as the establishment of a poison pill in response to an unsolicited offer which posed a threat to corporate policy.
Continue Reading Staying Neutral – UK Supreme Court Re-emphasizes Primacy of Board Neutrality When Battles for Corporate Control Arise

On May 2, 2014, the Delaware Chancery Court denied a motion to preliminarily enjoin Sotheby’s annual stockholder meeting based on allegations by an activist stockholder, Third Point LLC, that the Sotheby’s board of directors violated its fiduciary duties by adopting a rights plan (or “poison pill”) and refusing to provide a waiver from its terms in order to obtain an advantage in an ongoing proxy contest. 
Continue Reading Rights Plans and Proxy Contests: Chancery Court Denies Activist’s Motion to Enjoin Sotheby’s Shareholder Meeting

As widely reported, a vehicle formed by Pershing Square and Valeant Pharmaceuticals acquired just under 5% of Allergan’s shares after Allergan apparently rebuffed  confidential efforts by Valeant to get Allergan to negotiate a potential acquisition.  The Pershing Square/Valeant vehicle then crossed the 5% threshold and nearly doubled its stake (to 9.7%) over the next ten days, at which point it made the required Schedule 13D disclosures regarding the accumulation and Valeant’s plans to publicly propose an acquisition of Allergan.  The acquisition program has raised a number of questions. 
Continue Reading The Schedule 13D Ten-Day Window and Other Issues: Will the Pershing Square/Valeant Accumulation of a 9.7% Stake in Allergan Lead to Regulatory or Congressional Action?