Favorable market conditions appear to be producing a substantial increase in shareholder activism and hostile takeover activity this year. Led by pension funds and hedge funds, activist investors have been emboldened by recent changes in corporate governance. As boards of directors and management teams address demands by regulators as well as heightened attacks from shareholder activists, directors need to be fully prepared with state-of-the-art plans ready for immediate use. When facing increased hostile takeover activity, directors should keep in mind that the fundamentals remain unchanged: the business judgment rule still applies, and takeover defenses, especially of the structural variety, are as effective as ever when used appropriately.
Current Climate
Last month, a prominent and successful activist investor commented that recent changes in corporate governance such as majority voting and other changes to corporate election rules have provided activists with more tools with which to pressure companies, even those with market capitalizations over $50 billion.1 Previously considered “untouchables,” such mega-companies are now seen as potential targets providing even larger profit opportunities.
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