Shareholder Activism in a COVID-19 World: Past, Present and Future
"All it takes is a single activist to have a more optimistic view than the market and a belief that their ideas will help to close a perceived gap between price and value," write Sidley Austin's Derek Zaba and Kai Liekefett. "With this backdrop, general counsel and their legal teams would be wise to consider how prepared they are for activism in a COVID-19 world."
July 30, 2020 at 01:54 PM
6 minute read
As the COVID-19 pandemic began to unfold in early March, it quickly became clear that the crisis would act as a "poison pill" that would sharply reduce shareholder activism in the spring. Initially, many activists were preoccupied with their own survival and/or attracting new capital rather than launching new campaigns. Additionally, it became difficult to obtain shareholder support for public activist campaigns at a time when boards and management teams were focused on managing through the immediate crisis.
In addition, conditions were ripe for a surge in adoptions of poison pills, formally known as shareholder rights plans. For many companies, responding to stock prices that had collapsed 50% or more in a matter of days was a component of managing through the crisis. At the same time, equity trading volumes had increased and thus an activist or potential hostile acquirer was able to accumulate a large stock position quickly. Additionally, the increased volatility and general upheaval in the equity markets resulted in atypical trading patterns (and other behaviors), diminishing the effectiveness of traditional stock watch methods to identify activist accumulations that rely on pattern recognition.
In the first few weeks of the crisis, more than a dozen pills were adopted. Shortly thereafter, proxy adviser firms Institutional Shareholder Services (ISS) and Glass Lewis both published guidance indicating greater acceptance of short-duration poison pills in the current circumstances. For example, ISS's April 8 guidance specifically noted that "[a] severe stock price decline as a result of the COVID-19 pandemic is likely to be considered valid justification in most cases for adopting a [one-year] pill." As a result, approximately 50 companies adopted "poison pills" by mid-May. To further put this number in perspective, only 25 S&P 1500 companies had a poison pill in place at the end of 2019, according to FactSet.
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
NOT FOR REPRINT
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Law Firms Mentioned
Trending Stories
- 1The Law Firm Disrupted: For Big Law Names, Shorter is Sweeter
- 2Wine, Dine and Grind (Through the Weekend): Summer Associates Thirst For Experience in 'Real Matters'
- 3'That's Disappointing': Only 11% of MDL Appointments Went to Attorneys of Color in 2023
- 4What We Know About the Kentucky Judge Killed in His Chambers
- 5'I'm Staying Everything': Texas Bankruptcy Judge Halts Talc Trials Against J&J
Featured Firms
Law Offices of Gary Martin Hays & Associates, P.C.
(470) 294-1674
Law Offices of Mark E. Salomone
(857) 444-6468
Smith & Hassler
(713) 739-1250