October 6, 2020
Activism & Hostile Bids: The Vacation’s Over
In the early days of the pandemic, it seemed that activism & hostile activity took a bit of a holiday. Market volatility made activists unwilling to commit to long-term hold positions, and the valuation hits that many companies took led to greater investor support for defensive measures, such as short-term rights plans, designed to thwart opportunistic moves by activist hedge funds or potential acquirors. That was then, but according to this Sidley memo, this is now:
Activists and potential suitors have returned. Many activists are building positions and are reaching out to the companies that are next on their current hit list. It is not necessarily the case that strong stock price performance protects you. Certain industries, such as many in the technology sector whose businesses are largely insulated from the most deleterious effects of a continued COVID-19 crisis, offer safe(r) haven to investors, including activists. Potential acquirors are similarly emerging in force.
The memo reviews how the environment has changed since the spring, and has some recommendations about preparations that should be made to address potential activism and hostile M&A in the Covid-19 era, including:
– Understand the attractiveness to an activist or potential acquirer of your business in the current environment. Has your stock price been disproportionately impacted versus your business? Has your stock performed reasonably well but the crisis changed the strategic appeal of the company to a potential suitor?
– Understand your governance vulnerabilities. Beyond understanding your business, strategic and financial vulnerabilities, what are possible attacks on your board, compensation, ESG and other governance issues? Has an activist law firm reviewed these issues from a proxy fight perspective?
The memo also recommends developing an activism response plan and assembling a team, having an up-to-date rights plan on the shelf, and reviewing corporate charter documents to ensure the company is adequately prepared to respond to evolving activist tactics.
– John Jenkins