Wednesday, January 27, 2010

Poison Pills Revisited

Eduardo Gallardo, a Corporate Partner in Gibson Dunn's  NY office (and one of our regular contributors), recently co-wrote an article titled, "Poison Pills Revisited".

The article examines a 7-year trend in which corporations have "voluntarily" terminated many of their takeover defenses.
"During the last decade, activist shareholders and corporate governance groups have been fairly successful in pressuring companies to voluntarily surrender a number of anti-takeover defenses, most notably the use of staggered boards and shareholder rights plans (also referred to as "poison pill")."
The piece goes on to discuss the recent movement by corporate boards to revisit takeover defenses in light of low market valuations and vulnerabilities to hostile advances.
"Notwithstanding recent improvements in some financial indicators, the recent global financial turmoil has left many companies with still low market capitalizations and vulnerable to hostile bids.  This has prompted many companies to reevaluate the status of their takeover defenses, particularly as activists broaden their agenda to include calls for an expansion of shareholders' rights to call special meetings and to act by written consent."
Finally, the article touches on the tension in Delaware Law as it relates to installing a poison pill defense after a corporation receives an unsolicited takeover bid.  It concludes with an example of the recent litigation between Koninklijke KPN N.V. and iBasis following iBasis's implementation of a shareholder rights plan to block KPN's tender offer.  Although the litigation was settled when KPN increased their offer from $1.55 per share to $3.00 per share,  Gallardo and his co-authors suggest that,
"It might not be long before the Delaware courts provide additional guidance given the increase in hostile M&A activity and the signaling by Delaware jurists and commentators that the time is right to bring further clarity to this subject."
Click here to read Gibson Dunn's entire Poison Pills Revisited article.