Krishna Veeraraghavan, Corporate Partner at Paul Weiss Rifkind Wharton & Garrison, USA
It starts with contacting your key staff and advisors and assessing the activist and the situation – who the activist is, what their equity or derivatives ownership position is or could be, what their typical behavior is, and what their d likely investment. At this time, it is also important to know where the company is in its calendar of annual meetings and, more specifically, if the deadline for the nomination of directors has recently passed or is fast approaching. An activist’s most important tool is being able to nominate directors and conduct a proxy contest at the annual meeting, so an upcoming nomination deadline may signal a more pressing situation when the he company and its advisors can breathe a little easier if the deadline is in the rearview mirror.
The company and external advisory teams should meet immediately to jointly assess the situation. The IR and Corporate Secretary teams will be important in this process as they have frequent contact with investors, know what issues have been raised, and may be able to read between the lines in terms of investor sentiment. What happens next will be determined based on the specifics – there is a wide range of possible next steps. But without a doubt, it is imperative for management to keep the board informed early and often and to follow their directions every step of the way.
Frank Aquila, Partner at Sullivan & Cromwell, USA
Don’t overreact. Summon your team, both insiders and key advisors. Learn all you can about the activist investor and how they are likely to act based on how they have acted in similar situations in the past. Inform your board of directors and ensure that the company speaks with one voice. Recognize that activist investors are well prepared and do thorough research before making a major investment. If the activist investor presents a proposal, listen and be open. Don’t get defensive and give the activist sound clips that they can use against you in a proxy fight.
Most importantly, the corporate message must be clear and well understood by your shareholders, analysts and the financial media. Be sure to communicate the company’s strategy and outlook. Your shareholders need to understand the company’s vision for growth, current and future value drivers, and capital allocation. If the company’s message is credible, consistent and transparent, your shareholders will be more likely to support you in the face of an activist investor campaign.
Tom Matthews, Partner at White & Case, UK
1. Seek to understand the intentions of the activist. Think ‘engage’, not ‘defend’ – at least in the beginning. Do not provide immediate answers to the activist’s proposals: discuss them first with your legal and financial advisers. Ask yourself if a negotiated settlement is more pragmatic than a public battle. If the activist is seeking a board seat, draft an appropriate relationship agreement.
2. Communicate clearly. Consider whether to prepare a public relations campaign and appoint a sufficiently experienced public relations agency. Ensure that all public statements are factually accurate and verified, without defaming the activist. Engage with your other key shareholders. If the activist asks you to broadcast anything to your shareholders, draft appropriate responses.
3. Use all available legal tools. Serve a Section 793 Notice: Depending on the response received, determine if disenfranchisement of the activist is desirable. Carefully review any requisition notice for process or schedule deficiencies. Using the Tender Offer Code and the Listing Rules, challenge shareholders who act together.
This article originally appeared in the IR Magazine Summer 2022 issue.