DealLawyers.com Blog

Kevin Wells of RiskMetrics recently blogged this:

Though not as prevalent as they once were, shareholder rights plans, commonly referred to as poison pills, remain a fixture of the corporate governance landscape. As the global economic crisis took a toll across U.S. and international capital markets over the past year, companies continued to adopt pills, albeit with more shareholder-friendly provisions. Indeed, an analysis of regulatory filings, proxy voting trends, and other data finds that companies are incorporating more shareholder-friendly provisions into their pills; moreover, companies are putting such plans to a shareholder vote in greater numbers than ever before.

Perhaps as a consequence of increased management votes to ratify or adopt pills, shareholder activism, as measured by filings of shareholder proposals to terminate or allow shareholders to vote on pills, has declined. However, those shareholder proposals appearing on ballots generally received high levels of support in 2009.

Amid the recent economic turmoil, 2009 has also seen the emergence of NOL poison pills, which are meant to protect companies’ tax assets rather than to deter acquisition offers. It was an NOL pill, in fact, that became the subject of controversy in Selectica v. Versata, pending in Delaware Chancery Court, which may significantly affect future uses of poison pills by Delaware companies.

Select key findings from the report include:

– Newly Enacted Pills: Thirty-three S&P 1,500 Index companies enacted pills between July 1, 2008, and July 1, 2009. Their average term was 7.6 years, and 10 were for terms of three years or less. Four of those were enacted for a period of 12 months or less.

– Pill Usage Among S&P 1,500 Companies Declines for Third Straight Year: The number of S&P 1,500 companies that maintained a poison pill declined for the third straight year in 2009, from 34.5 percent in 2008 to 27.5 percent in 2009. In 2007, 42.5 percent maintained a pill.

– Poison Pill Trigger Thresholds: In 2009, 69.2 percent of the S&P 1,500 companies that maintained a pill employed a 15 percent trigger. Another 19.6 percent employed a 20 percent trigger, and 7.9 percent employed a 10 percent trigger.

RiskMetrics’ clients can contact their account managers to obtain a copy of 2009 Corporate Governance Background Report – Poison Pills. To purchase a copy, please visit our online bookstore.