by Gary Larkin for The Conference Board – Governance Center Blog, March 18th, 2011.
The recent Delaware Court of Chancery Air Products v. Airgas decision and the spate of poison pill adoptions in recent months lends credence to the theory that the anti-takeover shareholder rights plans are alive and well.
A Director Notes report entitled Poison Pills in 2011 released by The Conference Board Governance Center yesterday addresses the issue of poison pills and offers some recommendations for corporate boards to avoid becoming a hostile takeover target. The report, co-authored by Andrew L. Bab (a partner) and Sean P. Neenan (an associate) of Debevoise & Plimpton, states that while the shareholder rights agreement is no longer prevalent, recent case law shows that properly structured poison pills can be valuable anti-takeover devices.
Among the four recommendations in the report [Read March 17 press release], Bab and Neenan write that boards should:
- Consider drafting shareholder rights plans so that they satisfy standards of acceptability set by the most influential proxy voting advisors such as ISS while also taking into account such issues as derivative voting positions and net operating losses (NOL), which can be a valuable corporate asset until there is an ownership change.
- Consider having management maintain a thoughtful business plan for the corporation that the board understands and has approved.
- Consider abstaining from certain defensive tactics, such as introducing supermajority voting requirements or disallowing action by written consent or limiting the ability to call special meetings.
- Consider adopting advance notice bylaws so that directors can avail themselves of enough time to obtain the information necessary to make a rational business decision about the acquisition or merger offer. (continue reading… )