The report, titled ‘Proxy season wrap-up: successful activism dismantles takeover defenses,’ released by GovernanceMetrics International (GMI), indicates that the prevalence of ‘poison pills’ used by S&P 500 companies to discourage ‘hostile’ takeovers declined to 16 per cent last year – a significant reduction since 2002 when more than half of companies used this technique.
‘The changes in takeover defence proposals appearing on proxy statements seem to be driven by several factors,’ says Beth Young, senior research associate and author of the report. ‘In addition to successful shareholder activism, companies may be more willing to settle takeover defence proposals rather than allow them to appear on the proxy statement.’
Conversely, Sanjay Shirodkar, of counsel to DLA Piper’s public company and corporate governance practice, points out that there has been a marked increase in the number of ‘hostile’ approaches since the beginning of last year. ‘Potential dismantling of a company’s takeover defenses is an issue that can have a serious impact on a company’s long-term success. Such decisions merit thoughtful and thorough analysis of many different issues and are best undertaken with the assistance of competent advisers.’
Shirodkar adds: ‘Over the course of the past 10 years or so, pills and other takeover defenses have come under increasing scrutiny and many large-cap companies have reassessed their takeover defenses.’
Another key finding from the report reveals that only one-third of boards are ‘classified’, meaning that directors serve terms usually lasting between one and eight years. This remains the lowest proportion since GMI started tracking the data.
‘Boards may feel uncomfortable being too far outside governance norms, so as more companies declassify, pressure increases on the holdouts to follow suit,’ the report says.
Shirodkar compares this finding to his review of annual meetings over the past year. ‘Based upon information we have reviewed for annual meetings scheduled between June 30, 2010 and June 23, 2011, we believe that over 51 companies have faced shareholder proposals to eliminate classified boards.’
Moreover, the report provides an overview of trends in shareholder proposals related to takeover defenses over the last three years. The number of proposals asking companies to give shareholders the right to call special meetings has also declined, and investors have turned to taking action by written consent much more than they have in the past.
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