October 16, 2023

Fiduciary Duties: Thinking Strategically About Strategic Alternatives

This recent Cooley blog provides guidance on how boards should approach assessments of multiple strategic alternatives and offers up 13 principles that directors should keep in mind when engaging in that process.  This excerpt says that a sophisticated understanding of potential alternatives allows a board to create leverage when dealing with counterparties:

Challenges are presented when different types of available strategic alternatives would necessarily evolve on different execution timetables. Experienced advisers, especially if utilized early, can help companies manage timelines and processes to minimize situations where a decision needs to be made on one pathway before another potentially compelling pathway is ripe for consideration – and even create leverage by working to keep competing alternatives alive.

Transaction counterparties often try to use speed and a sense of urgency to drive outcomes (e.g., “accept my offer at a premium to your trading price now, or it’s off the table”). A board that proactively educates itself on a “clear day” regarding the company’s available strategic alternatives (and the time and key steps necessary to implement each) will be able to react more nimbly to unsolicited approaches, which can help mitigate the first mover advantage for the party making the unsolicited approach.

Other matters addressed in the blog include the importance of a sound process, duty of loyalty considerations, the appropriate use of board committees, and the need to understand stockholder approval requirements and the potential for stockholder challenges.

John Jenkins