CHAPTER 04 Shareholder Activism Abates, but Not for Long: Significant Activity and Developments in 2020
In Focus (Cont'd)
SHAREHOLDER CONSIDERATIONS: KNOW YOUR OBJECTIVE AND TRANSACTION TIMING
target’s shareholders, providing further opportunity for skeptical shareholders to try to scuttle a deal. As most shareholders are unlikely to hold sufficient shares to block a transaction, gaining allies among other investors is critical. Knowing the makeup of the shareholder base, including the presence of large blocks and the distribution between institutional and retail shareholders, is key to developing a communications and solicitation strategy to build that support. Reports published by Institutional Shareholder Services Inc. (ISS) and Glass, Lewis & Co. (Glass Lewis), as well as historical voting records, may also reveal whether the shareholder base includes other investors that have been at odds with management or may be receptive to the activist’s thesis. 2 Evaluate the best means to achieve your objective. A shareholder has a number of options, depending on the challenge it wishes to mount. At one end of the spectrum, a shareholder may be content to air its grievances in a press release in the hope that other like-minded shareholders will take up the mantle of challenging the transaction. A shareholder might also engage formally with the board or special committee to achieve its objective. At the other end of the spectrum, a skeptical shareholder may seek redress in the courts or before a securities regulator or launch a proxy contest. A shareholder may also build up its equity stake in the target or the acquirer to bolster its leverage,
Given the continuing economic uncertainty and market turbulence, shareholders can be expected to evaluate M&A transactions more carefully with an eye on value and, in some cases, may be more inclined to raise challenges, especially if the deal appears to be opportunistic. Public M&A activity also often attracts event-driven traders into the stock and, while their motives may be different, their objectives could align with those of long-term shareholders. Whether a shareholder’s view is long or short term, the shareholder needs to consider a number of key factors when assessing whether, when and how to challenge a transaction. 1 Know the shareholder base and the vote threshold. The voting threshold required by a target’s shareholders to approve a change of control transaction is often two-thirds of the votes cast “for” – meaning a dissident must secure one-third of the votes cast “against” to defeat the transaction. In some cases, the acquirer may also require two- thirds or majority approval by its shareholders for the deal. In addition, in cases involving material conflicts of interest, Multilateral Instrument 61-101 – Protection of Security Holders in Special Transactions and related guidance 88 may require an additional “majority of the minority” shareholder approval by the
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