Preparing for a Hostile Takeover Bid Starts NOW!

Regardless of whether you believe your company could one day become the target of a hostile takeover bid, it’s never too soon to prepare.
 
Although the markets have staged a bit of a comeback from recessionary levels, “When stocks sell for well below their peak prices, more companies find themselves in the crosshairs for unsolicited takeover bids,” say M&A attorneys Frank Aquila and Samantha Lipton from Sullivan & Cromwell, in Practical Law (The Journal).
 
Icahn and Lions Gate; Kraft and Cadbury; Sanofi and Genzyme: these well publicized battles help illustrate the current appetite for takeovers.
 
While this blog post will not help you make a decision about whether a takeover bid is the right move for your company and its shareholders, it should help you avoid some common pitfalls of being caught unprepared.
 
According to Aquila and Lipton, and based on our own experience at PondelWilkinson and with numerous client companies, boards should have fundamental plans in place to “lay the groundwork for an appropriate response” long before an unsolicited bid surfaces. Among basic steps:
 

  1. Be alert to potential hostile situations from existing shareholders, particularly those that have increased their positions.
     

  2. Know your shareholders and their histories.
     

  3. Engage with your largest shareholders, and foster open dialog.
     

  4. Review your company’s current defensive stance and strategic plan.
     

  5. Look at change-in-control restrictions and financial alternatives.
     

  6. Assemble a team from a wide range of disciplines, not only to ensure you have a full understanding of current legal, regulatory and market developments in M&A, but to ensure you have process in place to evaluate the situation calmly and unemotionally.  The team, which should include key company officers, legal counsel, a financial advisor, and an investor relations firm, can be called to action immediately after a questionable inquiry is made and certainly if a bid is received.

 
Being prepared will allow you to respond quickly and decisively in the
event of a takeover bid, which will, ultimately, instill shareholder confidence
and help you achieve the company’s long- term objectives.

 

Laurie Berman, lberman@pondel.com
 
 

Be Prepared for Seismic Activity

At home, our family has a plan for when the big one comes.  The emergency earthquake backpack is filled with the necessities:  We have extra water, our First Aid kit is complete and there is a hidden stash of cash.  We are debating whether to buy a small utility generator.
 
The very definition of a crisis means that it is not planned.  But that does not mean that we should not have a plan to guide us in the event of a crisis.
 
>A recent article in The New York Times devoted a lot of ink to reviewing how companies deal with a crisis, and used three timely examples to represent how NOT to handle things.  In the story, Goldman Sachs, Toyota and BP were all slayed for their missteps and PR luminaries espoused their opinions and advice.  While the merits of each approach could be debated for some time, my general takeaway is this:  Have a crisis plan in place.
 
Create the plan now.  Don’t wait.  Make it thorough and review it every six months for any necessary updates.  It’s not as daunting as it might seem, and it is one of the best investments a company can make.  Every company has employees, customers and shareholders that expect quick, decisive, informed and coordinated leadership in a crisis.  A ready-made plan provides a sound blueprint for action.
 
Let us know how we can help.  In the meantime, I’m off to Home Depot for that generator.  You just never know.

 

PondelWilkison, investor@pondel.com
 
 

Dodd-Frank Act Defined for Public Companies

With more than a month since the Dodd-Frank Act was approved and signed in to law by President Obama, the interpretative dust is beginning to settle.
 
According to Skadden Arps, The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 affects almost every aspect of the U.S. financial services industry.  Its goal is to restore public confidence in the financial system and prevent another financial meltdown.  Put simply, it significantly increases regulation.
 
But, from a practical standpoint, what does it really mean?
 
Among other things, regulators will have the authority to take control of and liquidate troubled financial firms if their failure would “pose a significant risk to the financial stability of the United States.”  The Federal Reserve will have the authority to extend credit in “unusual and exigent circumstances.”
 
Most important from a public company standpoint, the SEC’s enforcement program will be enhanced, disclosure of executive compensation will become mandatory, and shareholders will have the right to a “say-on-pay” vote on executive compensation.
 
SEC Enforcement
 
New SEC enforcement programs will effectively “increase the flow of enforcement tips from potentially knowledgeable insiders.”  Skadden Arps recommends “robust compliance and self-evaluative programs for all entities that are subject to SEC regulation.”  The Act also expands the SEC’s authority to bring enforcement actions against those who aid and abet violations of the securities laws.
 
Corporate Governance
 
One likely outcome of the Dodd-Frank Act is increased contesting of annual director elections.  Activist investors will have more leverage to pressure companies to take short-term-focused actions rather than allow boards to focus on the long term.  Skadden Arps notes that this could keep qualified directors from continuing to serve on public company boards.  In keeping with PondelWilkinson’sview of investor communications, public companies should work to increase engagement with shareholders now, to develop and maintain long-term, mutually beneficial relationships.
 
Cravath, Swaine & Moore notes that public companies will also need to disclose in their annual proxy statements the reasons why the positions of chief executive officer and chairman are filled by the same person or by different people (although the SEC has already adopted rules requiring this disclosure).  In a follow on to last year’s New York Stock Exchange ruling, which eliminated broker discretionary voting with regard to director elections, the Act also prohibits broker discretionary voting with regard to shareholder votes on executive compensation matters.
 
Executive Compensation (Say on Pay)
 
During a recent speech, SEC Chairman Mary L. Schapiro said that investors’ “concerns must be addressed to fully modernize our system and ensure that our markets continue to foster capital formation and serve as an efficient engine for turning savings into jobs and economic growth.  And, I believe that the recently-enacted regulatory modernization legislation goes a long way to addressing them.”

 

Laurie Berman, lberman@pondel.com
 
 

Hurd on the Street

This past weekend, Hewlett Packard’s head honcho Mark Hurd abruptly resigned as CEO of the world’s largest technology firm, amid a firestorm of controversy involving actress-turned-marketing consultant Jodi Fisher. Surprisingly, it’s not Fisher’s 2007 sexual harassment case against Hurd that led to his ouster; it was filing faulty expense reports.
 
Following news of Hurd’s resignation, H-P’s stock has lost more than eight percent of its value. In his five plus years as CEO, Hurd restored H-P to profitability, more than doubling the stock, mostly due to his no-nonsense approach to business.
 
Hurd’s predecessor
Carly Fiorina, now a candidate for the U.S. Senate, also was ousted by the company’s board.  Fiorina’s departure, however, was tied to poor performance, a long-standing issue while she was CEO, and primarily due to her inability to fully leverage the company’s acquisition of Compaq in 2002.
 
The trick now for H-P is to find a successor to Hurd, and the challenge is managing the transition with effective communications.   Could H-P’s recent stock drop have been mitigated with a better communications plan?  That’s debatable.  Hurd had a positive influence on the company’s performance.
 
Indeed, it’s hard for any organization to manage a crisis, and strategic public relations is essential in these matters, especially when a company has to communicate contentious news to its constituencies, i.e. investors, employees, and the general public.  Even a tactful tweet can go a long way, but it has to be smart and sincere. We’ll see how H-P investors react when the company reports on August 19.

 

George Medici, gmedici@pondel.com