February 24, 2020
M&A Activism: Working With Activist-Affiliated Directors
This IR Magazine article by Sullivan & Cromwell’s Melissa Sawyer and Marc Treviño offers some practical guidance on working with an activist-affiliated directors pushing an M&A agenda:
Activist-affiliated directors have a staff of financial analysts at their disposal to generate data and reports. As a result, a company needs to be prepared to respond to a series of detailed requests that may include raw data that senior management has not had the opportunity to vet. The incumbent directors, in turn, should be prepared to review new cuts of data presented in unfamiliar ways, which the activist-affiliated director may present in a board meeting without prior notice.
Some companies hire an employee to assist the corporate secretary with collecting and organizing responses to requests from activist-affiliated directors. In addition, some companies require that all materials be provided to all directors in advance of a meeting.
Practically speaking, attempting to marginalize an activist-affiliated board member who is pushing for an M&A deal can create a hostile environment that is counterproductive. This strategy may also be prohibited by the settlement agreement as activist funds often negotiate for membership on key committees.
While trying to freeze-out an activist-affiliated directors is a bad idea, ensuring that the whole board provides oversight M&A activities is a very good idea in these situations. In order to accomplish that objective, the article says that companies should consider enhancing governance guidelines to prevent a lone wolf director from exploring strategic alternatives without prior board consultation.
– John Jenkins