Is An Unsolicited Takeover In Your Company's Future? July 02, 2009
As a corporate educator, you may need to start educating your board of directors about a looming danger—the unsolicited takeover.
The Conference Board Governance Center issued a report last week providing board members with a checklist of issues they should consider when facing unsolicited takeover offers. The report is the fifth in The Conference Board series on the oversight role of the board of directors in the current economic crisis.
Hostile offers have accounted for 47 percent of the merger and acquisition transactions that took place in the U.S. during the first few months of 2009, compared with 24 percent in all of 2008, and 7 percent in 2004. "Today's market conditions permit some companies to be 'put in play' more easily than before," says Frederick H. Alexander, a partner at Morris, Nichols, Arsht & Tunnell LLP in Wilmington, DE, and author of the report for The Conference Board.
The concern particularly applies to companies with undervalued stock prices, surplus assets, or constrained performance—often resulting from short-term liquidity issues—that invite bargain hunting by acquirers capable of obtaining financing or using their equity currency to pursue growth opportunities. Over the last few years, in response to pressures from proxy advisory groups and activist shareholders, some of those companies have reduced their structural takeover protections, by repealing "poison pills" and declassifying their boards, and may now be particularly vulnerable.
The Conference Board report encourages directors to become familiar with the corporation's governance profile and the tactics that can be used to protect shareholders' interests from opportunistic behaviors in the marketplace. "The tactics discussed in the report are not about thwarting unsolicited offers," says Alexander. "They are about ensuring directors are given enough time to fulfill their fiduciary obligations and obtain the information necessary to make a rational business decision with respect to the offer, as well as to explore all alternatives."
Among the recommendations included in the report: reviewing existing organizational (charter and bylaw) provisions; monitoring shareholder base and intentions; maintaining proactive external relations; and understanding how investors and gatekeepers (proxy advisors and governance rating agencies, in particular) could perceive and react to possible amendments to the company's governance profile.
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