There is a wide range of issues that a board and management team must face in considering an M&A transaction in the normal course.
Increasingly, however, a company that is considering a potential merger or acquisition, or asking its shareholders to consider such a transaction, needs to be aware of the motivations of the stakeholder community that will also be evaluating the prospects of any such transaction, whether at a shareholder meeting or in the court of public opinion.
Stakeholders who do not like the merits of a transaction that is being proposed are increasingly actively and publicly campaigning against the deal, or advancing their own strategic alternatives to present to shareholders (known as "M&A activism"). This can be achieved in various ways, including through a direct change to the board by way of a traditional proxy contest, submitting a shareholder proposal or launching a hostile bid.
So how can a company prepare in the face of increased M&A activism? Here are our top 3 tips:
1. Formulate an M&A strategy
Having a well-defined strategic plan that is shared publicly is critical to stakeholders understanding how a proposed deal will fit in with the company's overall strategy. Shareholders are increasingly taking their own proposed strategic M&A opportunities directly to boards for consideration as a first step in a board engagement strategy. While such a step seemed like a very bold move as recently as a few years ago, the frequency of this tactic is increasing along with the sophistication and resources of the shareholder community. On the corporate side, companies are proactively focusing on potential targets or M&A strategies to accelerate their response to potential challenges that may be presented by stakeholders. Therefore, it is wise to have already considered potential M&A opportunities when a shareholder comes calling.
2. Actively engage with key stakeholders
Engaging with key stakeholders on a regular basis will help overcome communication hurdles and facilitate getting up to speed once a potential deal is announced. A public issuer must, of course, at all times be aware of the risks of selective disclosure, and should consult with counsel to ensure that it adequately protects itself in this regard, and understands which of its stakeholders will agree to be restricted from trading if the company wishes to share material non-public information. Key corporate messages can be communicated publicly by working with a communications firm to coordinate industry news interviews or articles, or by releasing investor presentations that are shared with the company's other public disclosure documents and on its website.
3. Monitor stakeholder activity
Regardless of whether stakeholders are approached before the public announcement of a potential M&A opportunity, a company with sophisticated investor relations functions will have the benefit of having an educated idea of how its key stakeholders will react even before its announcement. Know that a traditional shareholder activist approach of taking a toe-hold position in a company, or pushing for changes to a board, may make it more likely that M&A opportunities for the target may present themselves, particularly if there was a sentiment that the target was not "friendly" or open to considering potential M&A activity. Therefore, it is critical to work with key advisors (including legal counsel, transfer agents and proxy solicitation firms) and monitor public filings to evaluate changes in a company's shareholder base that may signal an immanent activist M&A approach.
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