Renewed Focus on Takeover Defenses

While attitudes a year ago might have suggested that 2008 would be a year of great stockholder activism with takeover defenses continuing to fade from the scene, the drying up of credit for M&A transactions and plunging stock prices and asset values actually caused public companies to re-examine their preparedness for hostile activity and, ironically, led to the re-emergence of a takeover defense that had fallen out of favor in recent years ' the stockholder rights plan (a/k/a “poison pill”). In addition, many public companies re-tooled their advance notice bylaws in response to court decisions arising from proxy contests initiated by activist investors.

Some commentators have predicted that hostile takeover activity will continue to trend upward in 2009. As public companies with depressed stock prices return their focus to protecting themselves from hostile takeover activity, it is important for their boards of directors and managements to evaluate whether their advance notice bylaws and stockholder rights plans remain effective ' or whether takeover defenses abandoned in the face of pressure from activist investors and corporate governance advisers should be reinstituted ' in view of the changes in practice and developments in case law during 2008. This article describes the more important changes impacting these two key takeover defenses.