Sunday, March 22, 2009

SRZ Issues Winter 2009 Activist Investing Developments

Schulte Roth & Zabel recently issued the winter edition of their activist investing newsletter.
Topics covered in this issue include:

Second Generation of Advance Notification Bylaws (review this topic)
Many companies, at the urging of counsel “defending” against activist investors, have adopted new forms of ANBs, or Second Generation ANBs, that demand far more extensive disclosure from, and in some cases purport to establish eligibility qualifications for, proponent shareholders. These ANBs have been expanded to include not only longer advance notice requirements, but also requirements for the completion of company-drafted director nominee questionnaires, submission of broad undertakings by nominees to comply with company “policies,” minimum size and/or duration of holding requirements, continuous disclosure of derivative positions, disclosure of otherwise confidential compensation information, and even information regarding shareholders with whom the proponent has merely had conversations regarding the company.

Proxy Contest Settlement Agreements: An Overview (review this topic)
Although intense proxy contests are what attract attention in activist situations, most potential contests are resolved in advance of a fight through settlement agreements. Settling a potential contest allows both the activist investor and the company to avoid significant drains on their resources—both time and money—while at the same time providing additional mutual benefits.

Swaps and Section 16: Reporting and Liability Issues (review this topic)
Total return, cash-settled equity swaps, or “TRSs,” have been used by activist investors to build their economic exposure in target companies in addition to, or in lieu of, taking a direct ownership stake in the target. The use of these derivatives can give rise to complex issues for activists who find themselves subject to Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Where the potential for becoming a Section 16 insider exists, investors should understand how their TRS positions and the complexity of these instruments can impact their reporting obligations under Section 16(a), along with their potential for Section 16(b) profit disgorgement liability, lest they stumble into reporting delinquencies and/or liability exposure.

Click here to download the entire Publication.

Marc Weingarten, a Partner with SRZ and an expert on activist investing, is one of our Blog & Tacklers.