Friday, March 20, 2009

Takeover Preparedness and the New Hostile M&A Environment

Eduardo Gallardo and Matthew Walsh from Gibson, Dunn & Crutcher have issued a client memo which discusses the recent increase in hostile takeover activity and what companies should do about it.

Here are a few salient points from the article:

  • Depressed stock prices coupled with companies flush with cash - particularly in the technology and pharmaceutical sectors - have made companies more vulnerable to hostile overtures.
  • In 2008 there were 17 large-cap hostile takeover attempts of U.S. targets, compared to only 5 in 2007. As of the end of February 2009, hostile takeover accounted for over 38% of 2009 publicly announced M&A deals.
  • Mid cap companies are not immune to unsolicited bids, which are coming from both strategic and financial players.
  • At the same time that companies are facing an acceleration in hostile activity, activist investors have become a fixture of the corporate landscape.
  • In the last few months, spin offs, share buyback programs and detailed proposals to improve operational efficiency and review business plans are among the alternatives to outright sales that have gained increasing favor among activists.
In light of these recent trends, public companies and their boards can take a number of practical steps to better prepare for, and respond to, a hostile bid or activists campaign.

These include:
  1. Keep the Board Engaged and Informed.
  2. Revisit the Company's Defensive Profile.
  3. Explore Implementing an "On the Self" Shareholder Rights Plan
  4. Review Advance Notice Bylaws
  5. Know Your Shareholder Base
To read the entire client memo Click Here

Posted by Damien Park, Hedge Fund Solutions