Shareholder Activism

Protecting Companies

We have entered a new age of shareholder activism. The statistics on activism are daunting. Over the last five years, activists have prevailed in 45% of disputes with companies. In many of the recent proxy contests and activist campaigns, companies have found themselves caught off-guard and vulnerable to the latest tactics employed by hedge funds and other activist shareholders seeking to exert substantial pressure and influence over the company’s day-to-day operations, with the “stated” overall goal of enhancing shareholder value.

There is not much you can do to prevent an activist shareholder from accumulating a significant position in your company’s stock. However, your ability to forestall or prevail in a contested solicitation or other campaign depends on whether you have received insightful, strategic, and practical advice.

Blank Rome’s shareholder activism practice includes a dedicated, multidisciplinary team of attorneys from our New York, Washington, D.C., Philadelphia, and Wilmington, Delaware, offices—focused on assisting clients in developing a comprehensive strategy to prepare for and respond to these threats. Our team can offer your company experienced counsel on how to avoid being targeted by activist shareholders and how to respond to their threats—whether by performing a comprehensive assessment of a company’s vulnerabilities to shareholder activists, advising a company’s board and management on the best response to shareholder demands and proposals, or defending a company engaged in a proxy contest or consent solicitation initiated to replace a board of directors.

Preparation and Planning

One of the key determining factors of a successful defense in a threatened or contested solicitation is early planning and thorough preparation.  The starting place is understanding what about a company might make it both vulnerable and attractive to an activist investor. We comprehensively examine your company’s vulnerabilities and develop recommendations that are practical and realistic.

As part of this review, we not only examine a company’s structural vulnerabilities which may exist in its bylaws and certificate of incorporation, but also nonstructural vulnerabilities that may result from its corporate governance practices or its investor relations and public relations programs.  In the assessment, we work closely with management and, as appropriate, a company’s other external advisers, including its investment banking firm, public relations firm, and investor relations firm.

After we complete our assessment, we provide a detailed report of vulnerabilities and various options to eliminate or mitigate them.  We then review the report with the company and assist in developing appropriate strategies.

The Right Team

The future of the company can be at stake in a contested solicitation. It is critical for the entire team to provide the company correct and coordinated real-time responsiveness. The right team would include not only sophisticated counsel and company representatives, but also investor relations, public relations, and proxy solicitation firms with experience in contested solicitations. Blank Rome has strong working relationships with leading investor relations, public relations, and proxy solicitation firms, which we make available to our clients.

We also develop litigation strategies to ensure that a company’s rights are aggressively pursued and protected. As many of these litigation battles are fought in the Delaware state courts, Blank Rome’s Delaware litigators are valuable resources.

In many cases, shareholder activist campaigns are waged on the basis of who has the better messaging to shareholders. In addition to Blank Rome’s very experienced in-house crisis-communications team, we have close working relationships with many leading crisis-communications firms to help your company win the “hearts and minds” of your shareholders.

Our Experience

Our attorneys have assisted companies with:

  • Drafting disclosures for proxy statements and other securities filings for changes to certificates of incorporation proposed for shareholder approval, and intended to eliminate or mitigate vulnerabilities.
  • Making presentations to boards of directors on appropriate responses to the demands and proposals of an activist shareholder.
  • Defending companies against proxy contests and consent solicitations that sought to replace boards of directors with slates of nominees selected by activist shareholders and preparing the appropriate disclosure and other documents.
  • Reviewing a company’s corporate governance documents for structural vulnerabilities and advising specifically on the options available for eliminating or mitigating such vulnerabilities.
  • Advising companies on how to deal with shareholder proposals made under Rule 14a-8, including seeking no-action letters from the SEC.
  • Advising boards of directors on their fiduciary duties in responding to activist shareholder situations.
  • Advising companies on how to respond to “white papers,” notices of nomination, requests for shareholder lists, and other communications from activist shareholders.
  • Advising companies on the adoption and implementation of shareholder rights or “poison pill” plans.
  • Reviewing Schedule 13Ds and proxy and consent solicitation statements filed by activist shareholders with the SEC to assess compliance with applicable securities laws.
  • Reviewing and responding to shareholder demands for the right to inspect shareholder and other corporate records.
  • Counseling clients with respect to the new e-proxy rules adopted by the SEC.
  • Reviewing investor presentations, media releases, and other shareholder communications prepared for a pending proxy contest or consent solicitation.
  • Assisting clients with drafting and negotiating proxy contest settlements, their public disclosure, and the related securities filings.
  • Assisting companies in planning and scripting meetings where activist shareholders are anticipated.

Experienced Attorneys, Recognized in Their Fields

Many Blank Rome lawyers have spent part of their careers working for such key regulatory agencies as the SEC and the National Association of Securities Dealers (NASD). In addition, Blank Rome’s shareholder activism group includes numerous former attorneys from the Department of Justice.  Their in-depth knowledge of the regulatory agencies and the way these agencies operate gives companies confidence that their matters are in good hands. Our well-rounded backgrounds enable our clients to follow the most appropriate courses of action, given their objectives.  Prominent corporate partner Fred Lipman has taught in the Wharton MBA program and routinely is sought by the media to comment on shareholder activism and related issues. Our attorneys have authored and edited a number of popular books regarding public companies, including Corporate Governance Best Practices: Strategies for Public, Private, and Not-for-Profit Organizations and The Complete Guide to Employee Stock Options, and have written extensively on the topic of shareholder activism. Our attorneys are frequently called upon to comment on key issues and developments concerning shareholder activism and are quoted in the press.