Preparing before a bid
Much of takeover defense is a review of what the company already has in place. Charter and bylaw provisions on director elections, special meetings, written consents, and advance notice of nominations affect how quickly a bidder or activist can act. Many companies keep a shareholder rights plan drafted and ready rather than in force, since a standing plan can draw criticism from investors and proxy advisers. Monitoring trading activity and ownership filings helps the board see an approach coming. The state of incorporation matters a great deal, because the law on defensive measures differs among states, and New York corporations do not follow the same rules as Delaware ones. Activists sometimes seek a few board seats rather than control, and the response to that kind of campaign differs from the response to a full bid.
Fiduciary duties shape every step
Directors facing a takeover attempt have to act in good faith and on an informed basis, and courts often look harder at defensive measures than at ordinary business decisions. In Delaware, measures that block a bid generally must be reasonable in relation to the threat posed, and once a sale of control is underway the focus shifts toward obtaining value for shareholders. A careful process led by independent directors, and documented as it happens, is often what holds up later. Measures that appear designed mainly to keep management in place tend to draw the closest scrutiny.
When a bid or campaign arrives
An unsolicited offer, a proxy contest, or a consent solicitation each calls for a different response, and the first public statement often sets the tone. The board does not always have to negotiate, but it usually needs to consider a serious offer with care. Disclosure obligations for public companies continue throughout, and communications should be coordinated so that management, directors, and advisers say the same thing. A first session with us usually covers the company's governing documents, its shareholder base, and any recent approaches, and settles which preparations make sense now.
