Schulte Roth & Zabel is pleased to present the 2012 edition of Shareholder Activism Insight, published in association with mergermarket. Based on a series of interviews with corporate executives and activist investors, this report highlights emerging trends in shareholder activism, as well as insights into the changing corporate landscape investors and executives will face in the coming years.

Corporate executives should expect to see increasing opposition from shareholders during next spring’s proxy season, according to the 78% majority of overall respondents. Using poor financial performance and the need for management or operational change as motivation, hedge funds, pensions and unions will continue the growth of shareholder activism. A significant increase in shareholder proposals will result, according to 84% of respondents.

The financial services sector is expected to see the greatest amount of shareholder activism as investors look to repair the still recovering industry after the crash of 2008. Distant runners-up, the industrials and chemicals, technology, and energy sectors are also expected to see more disputes with investors.

Half of respondents believe an active dialogue between shareholders and management can be the most effective defense tactic against activism. When a company prefers to be more active in preventing shareholder disputes, respondents cite offensive litigation, poison pills and staggered board elections as the likely defense tools.

…continue reading: 2012 Shareholder Activism Insight Report

This study updates our firm’s Summer 2011 Deal Study in three important ways:

• First, we have supplemented our Deal Study by taking into account the relevant deal terms from the 5 private equity buyer/public company target all-cash merger transactions involving consideration of at least $500 million in enterprise value [1] entered into during the third calendar quarter of 2011.
• Second, we have added a comparative element to our Deal Study by comparing the treatment of certain key deal terms in the 20 transactions entered into between Jan. 1, 2010 and Dec. 31, 2010, which we refer to as the “2010 Transactions,” with the treatment of the same key deal terms in the 11 transactions entered into between Jan. 1, 2011 and Sept. 30, 2011, which we refer to as the “2011 YTD Transactions.”
• Finally, we have added several new topics to this Deal Study, including a more detailed analysis of “go shop” provisions.

Please note that: (i) our findings described in this survey are not intended to be an exhaustive review of all transaction terms in the surveyed transactions — instead, we report only on those matters that we believe would be most interesting to the deal community; (ii) our observations are based on a review of publicly available information for the surveyed transactions — the surveyed transactions accounted for only a portion of M&A activity during the survey period and may not be representative of the broader M&A market; and (iii) our observations from the comparative analysis are affected by the two data sets not being of the same sample size (11 transactions in 2011 to date vs. 20 transactions in 2010) or average deal size ($2.0 billion mean for 2011 YTD Transactions vs. $1.6 billion mean for the 2010 Transactions).

…continue reading: Updated Private Equity Buyer/Public Target M&A Deal Study

We conducted our survey, in part, to observe any notable trends or themes based on our review of the 25 transactions. Please note, however, that in our experience, particularly in terms of deal-making post-2008 credit crisis, these deals are often sui generis due to a number of factors, including the marketability/prospects of the target, the regulatory profile of the transaction, whether the agreement is the product of dedicated one-on-one negotiations, a formal auction or somewhere in between, the state of credit markets and the recent historical track record of the buyer. Accordingly, undue weight should not be placed on this study — it is intended to help identify “market practice” for individual deal terms and assist on negotiations, but does not purport to establish what is appropriate for any given transaction.

…continue reading: 2011 Private Equity Buyer/Public Target M&A Deal Study

Many companies have enacted special bylaw provisions regulating the ability of shareholders to nominate directors or place items on the agenda for consideration at a company’s annual or special meeting or by consent, typically referred to as advance notification bylaws (“ANBs”). Historically, most ANBs have been straightforward, and typically advanced the date by which a shareholder was obligated to notify the company to 60 or 90 days prior to the expected meeting date. These ANBs, or First Generation ANBs, also typically required the proponent shareholder to include in the notification the same basic information about the shareholder, and if applicable the nominees, as required by the proxy rules.

More recently, however, many companies, at the urging of counsel “defending” against activist investors, have adopted new forms of ANBs, or Second Generation ANBs, that demand far more extensive disclosure from, and in some cases purport to establish eligibility qualifications for, proponent shareholders. This article describes these new provisions, which include not only longer advance notice requirements, but also requirements for the completion of company-drafted director nominee questionnaires, submission of broad undertakings by nominees to comply with company “policies,” minimum size and/or duration of holding requirements, continuous disclosure of derivative positions, disclosure of otherwise confidential compensation information, and even information regarding shareholders with whom the proponent has merely had conversations regarding the company.

First Generation ANBs were upheld by the courts because they simply provided an orderly procedure for shareholder action that helped to give the company and the other shareholders adequate time to evaluate proposals. This article analyzes the new Second Generation ANB provisions, many of which we believe are designed not to elicit the relevant information a company reasonably needs to know months in advance of a proxy contest to ensure an orderly process, but rather to erect barriers in the path of shareholders seeking to exercise their rights in an attempt to disqualify them. We believe such provisions should, and will, be declared invalid when their legitimacy is challenged. Unfortunately, shareholders will be forced to bear the expense of challenging the validity of these provisions—which no doubt was part of the calculus when companies adopted them in the first place.

Advance Notice Periods
In a 2005 article addressing First Generation ANBs, [1] we noted that courts had determined that 90-day advance-notice requirements had become commonplace. [2] Since then, some companies have adopted ANBs requiring notice of 150, or even 180, days prior to the annual meeting (in some cases keyed off the mailing date of the prior year’s proxy statement).

…continue reading: Second Generation Advance Notification Bylaws