3 Establish a robust communications plan. Although price and transaction structure are focal points in any M&A- related activist campaign, having a robust process and communications plan are paramount in a successful defence. An issuer should proactively address perceived weaknesses in the lead-up to the announcement of its transaction and build a disclosure record that can withstand the scrutiny of an activist, the public and any regulator or court that may be called upon to evaluate the transaction. In many cases, issuers will be well-advised to engage public relations firms and, in some cases, government relations advisers, as well as proxy solicitation agents. Issuers should develop, in advance, a communications plan with their advisers to convey a clear and consistent message concerning the process undertaken and the benefits of the transaction. A transaction’s success may very well depend on the record created through press releases, circulars, announcements and media coverage. 4 Build public support. Issuers should seek support from major shareholders to the extent practicable, ideally through lock-up or voting support agreements. In many cases, institutional shareholders may be unwilling to commit their shares by contract; however, it can be equally important to ensure that key shareholders are willing to endorse the transaction if asked or, at a minimum, not to make any public criticism. For example, as we discussed
in Davies Governance Insights 2019 , 87 institutional investors are becoming more vocal in contentious situations, publicly throwing their support behind an issuer or an activist in M&A activism and other activist situations and, in some cases, becoming the activist themselves. Securing the endorsement of a transaction by proxy advisory firms is also increasingly essential, particularly if the shareholder base includes a number of institutional, rather than retail, shareholders. Finally, to the extent that the shareholder base is widely dispersed, a proxy solicitation agent is critical to both increase turnout and drive a higher positive vote outcome. 5 Monitor trading activity and changes in your shareholder base. In the context of any potential activism, including M&A activism, issuers should implement a stock watch program to monitor trading activity and regulatory filings, including Canadian early warning reports and alternative monthly reporting system filings, and U.S. 13F, 13G and 13D filings. Doing so will help an issuer identify potential allies or dissenting voices that may emerge during the course of a transaction. Real-time review of public filings can also reveal under-the-radar market accumulations and suspicious trading activity. Knowing in real time any significant changes in the issuer’s shareholder base will often help the issuer with the timing and substance of its announcement of the transaction.
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Governance Insights 2020
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