Hostile suitors use proxy battles again
During the current wave of mergers, reluctant targets are frequently facing a a double threat: Danger from within from dissident shareholder action and danger from without as suitors launch their hostile takeover bids.
With each passing day it seems, aggressive suitors, takeover experts and dissident shareholders are finding new ways to unseat directors or effect other changes via proxy votes of their targets’ shareholders. Even more disturbing to their targets, in many cases these experts don’t even have to wait for the annual meeting when boards come up for re-election and stockholders can sponsor proposals.
At present a number of companies are in the same predicament, encountering the threat of direct shareholder action. Corporate strategist Kirk Kerkorian is expected to move ahead with some kind of attempt to either assume control or unseat board members at Chrysler Corp. Kerkorian’s Tracinda Corp. controls 14% of the stock and just retained IBM Vice-Chairman Jerome York and could at any point obtain a shareholder vote to remove the board, put York on the board or in some other way require Chrysler to increase the stock price.
RJR Nabisco Holdings Corp. is in similar straits thanks to takeover expert Bennett LeBow’s New Valley Corp. which has requested regulatory approval to purchase as much as 15% of RJR’s shares. He is suggesting a combination of RJR’s tobacco business with his Liggett tobacco unit, and a spinoff of its food business.
Dissident shareholders of Mesa Inc. are flexing their corporate muscles and have obtained votes for a special meeting to remove the board and sell the company. Some beleaguered companies such as Younkers Inc. and Teledyne Inc. ended up losing board seats to possible acquirers.
However, it should be noted that skillful dissidents like Lebow or Kerkorian are not automatically granted success. To the contrary, often many shareholders refuse to back a change in control with a simultaneous proposed bid for the company’s shares.
Although a number of companies revised their bylaws during the past decade to fortify themselves against takeovers, quite a few are still vulnerable to direct shareholder action. “It’s turning out to be more common than you would think,” according to Judith Thoyer, a partner and co-director of the mergers and acquisitions practice at Paul, Weiss, Rifkind, Wharton & Garrison.
As a case in point, while a poison-pill antitakeover tactic does make a hostile takeover extremely costly, removing incumbent directors to win approval for a takeover bid is a strategy to bypass the bitter pill.
Often what determines whether a company is susceptible or not is state law and earlier mandates by the board or management to eliminate any weaknesses. In Delaware, for example, shareholders are entitled to act “by written consent” unless of course the company’s charter definitely prohibits it. In many cases, of course, company charters do not allow it and dissidents are forbidden from unseating the board since the election of directors is held at periodic intervals. These “staggered boards” thwart hostile takeovers since in most cases only one-third of the board comes up for reelection each
As opposed to the annual meeting, written consent allows the shareholder to initiate action at any time. For example, a bidder such as IBM or dissident such as Tracinda employs a proxy firm to poll shareholders on whether they would like to supplant the current board with one which desires to sell the company. Thereafter, a company or shareholder has exactly 60 days in which to interview shareholders and give the results to the company. Thus, a bidder would be forced to wait for a period of at least two years in order to control the board.
Copyright Quality Services Company Sep 18, 1995
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