CHAPTER 04 Shareholder Activism Abates, but Not for Long: Significant Activity and Developments in 2020
In Focus (Cont'd)
1 Assess the vulnerabilities of your transaction. Almost any public M&A transaction has potential areas of vulnerability. Shareholders will, without fail, analyze the consideration offered under the deal and can be expected to uncover any issues that might suggest value is being transferred to others at the shareholders’ expense. Executive compensation in the form of golden parachutes, option payouts and other transfers of value to management may also come under scrutiny. Transactions involving related party acquirers also attract special attention. Although shareholders will development, it is selling at a depressed price compared with its potential long-term value, or that a better deal would have been available with a more robust sale process. The risks of criticism are heightened when the issuer is seeking to execute a sale in the midst of continuing and substantial economic uncertainty. Issuers can consider the following steps to maximize the likelihood that the transaction passes muster in the eyes of both courts and regulatory authorities, as well as in the court of public opinion. ISSUER CONSIDERATIONS: BULLET- PROOFING THE DEAL An issuer pursuing a change of control transaction often faces criticism, deserved or not, whether it be that it is selling at the wrong time in the company’s
inevitably come to their own conclusions regarding value, a robust review process (accompanied by equally robust public disclosure of that process) by a special committee of independent directors would help mitigate the risk that a shareholder could successfully challenge or delay the transaction in court or before a securities regulator. Our discussion in Chapter 1, Special Committees: Governance Safeguards for Conflict of Interest Transactions and High-Stakes Situations provides further best practices for issuers setting up special committees in a variety of contexts, including M&A. 2 Consider transaction structures in light of potential activist interventions. Many factors will drive the appropriate transaction structure, including tax and approval considerations; however, some transaction structures provide more opportunities for shareholder intervention. For example, a plan of arrangement provides activists with a ready-made forum for challenging the transaction through the court fairness hearing. Of course, this factor alone should not necessarily be determinative; however, if a transaction has a high proportion of vulnerabilities, an issuer would be well-advised to enhance its process as necessary, recognizing that the deal could be subject to heightened scrutiny by a court.
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Davies | dwpv.com
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