DealLawyers.com Blog

One of the key regulatory changes expected to be made by the Trump Administration is a move toward more lenient antitrust enforcement. This was one of a few reasons cited by this Sidley article that activists openly endorsed Trump for president — pointing to the fact that shareholder activist funds depend on a liquid M&A market for their business model.

This anticipated shift — plus, as this V&E article notes, reduced interest rates — may mean more companies facing activist pushes for breaking up divisions, spinning off subsidiaries, or selling themselves outright. This post in the HLS Blog by Patrick Ryan of Edelman Smithfield says activists with “varying track records of success” in this area nonetheless “regularly push companies to disclose a sales process,” but companies need to consider the potential downsides of public disclosure.

With the M&A market showing signs of life, activists are increasingly pushing companies to sell themselves, often via a public process. Beyond the outcomes described above, directors should understand the common consequences of such an announcement. …

In fact, two-thirds of companies disclosing strategic reviews receive no offers within the following year, causing double-digit share price declines on average. While the prospect of a deal sends a company’s shares higher in the days following an announcement, the stock gives back these gains and more as the process drags on. An announcement that the company will continue as a standalone can send the stock into freefall.

And the issues go well beyond the company’s stock price. For example:

– Putting up a “For Sale” sign conveys that a company has problems. Employees, customers, vendors, and other partners react as you would expect.

– An announcement puts pressure on directors to accept any deal.

The blog says that boards need to weigh these risks carefully, especially since the benefits to announcing a sales process — more bidders, higher premiums and better returns — are only really benefits if the company is successfully acquired. When the decision is made that public disclosure is the way to go, see this discussion of how to craft a well-planned communication strategy focused on preserving shareholder value.

Programming Note: This blog will be off tomorrow and Friday, returning next Monday. Happy Thanksgiving!

– Meredith Ervine