Proxy fights to bolster takeover prospects

Feb 12, 2014
<p><span>With proxy season upon us and companies busily reaching out to shareholders to appeal for support for management proposals versus those of activists, it will be interesting to see how companies respond to activists' demands.</span></p>

There is undoubtedly great interest in whether Time Warner Cable may be more inclined to reconsider Charter Communications' most recent takeover bid, which offered shareholders $132 per share, now that the would-be acquirer has announced plans to nominate a full slate of directors for the cable company’s 13-member board. As reported in the Wall Street Journal this week, a similar effort by Men's Wearhouse to bolster the chances that its $1.6 billion takeover offer for Joseph A Banks Clothier will be accepted by nominating two directors for its board is much less threatening. That's because Joseph A Banks’ staggered board would force Men's Wearhouse to win additional seats at next year's annual meeting in order to take control.

Of the 50 objectives publicly disclosed by activist shareholders targeting 31 companies in January, 18 focused on gaining board representation, while two aimed at removal of the CEO or another board member, according to data released this week by UK-based Activist Insight. Five of the activist objectives concerned spinning off or selling a business division.

The number of proxy contests focused on installing activist directors on boards more than doubled from nine in 2010 to 19 last year. As we reported in our December proxy season preview, the Governance & Accountability Institute expects to see more assessments of directors' performance this year, with a particular focus on director tenure.

Meanwhile, the push by Harvard's Shareholders Rights Project to get companies to de-stagger their boards continues. Last year, declassification proposals at companies of all sizes that held their annual meetings between January 1 and May 23 received no less than 97 percent approval by shareholders, according to ProxyPulse. But with annual election of directors having swept across the large-cap universe, more than three quarters of declassification proposals in 2013 occurred at mid-cap or smaller companies. Even management proposals to declassify boards increased from 41 in 2012 to 60 last year, according to Georgeson.

Still, worried companies facing the incursion of activist campaigns for board seats should be encouraged by the fiduciary duty the board has to independently assess any takeover bid without regard for the interests of the shareholder who nominated them. Remember Air Products & Chemicals' failed bid to acquire Airgas a few years back? Even the three directors Air Products placed on the Airgas board ended up opposing the takeover.

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