Staggered Boards and Company Value

by Steven M. Davidoff for DealBook NYTimes, November 12th, 2010.

A background issue in the battle between Airgas and Air Products and Chemicals is the effectiveness of staggered boards and what academic research has to bear on the issue.  Academics have speculated that the staggered board is an entrenching device. It makes a hostile takeover more difficult and protects underperforming management, reducing the value of the corporation.

If this theory is true, then you would expect the staggered board to result in a decrease in stock prices by companies adopting such a device. Without the fear of a takeover, companies with staggered boards would also be more likely to make bad decisions and be less willing to adjust exorbitant executive compensation. This is what studies have largely found.

However, while value may be reduced by the adoption of the staggered board, this reduced value may be exceeded by higher premiums that bidders may pay to overcome the stronger hostile defense. In other words, the reduction in value from a staggered board may be acceptable because shareholders reap the benefits of a higher premium in a takeover.(continue reading… )



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