When activist directors join a board, they should adhere to the same fiduciary duties as other directors and put the company ahead of personal interest or those of the funds they manage. Incumbent directors should also beware of deferring to an activist who may induce them to violate their fiduciary duties by pursuing a rushed sale of a company that’s not in the best interest of all shareholders. That’s according to a memo written by Edward D. Herlihy and Sebastian V. Niles, Partners at Wachtell, Lipton, Rosen & Katz, following recent Chancery Court opinion regarding PLX Technology’s 2014 sale to Avago (now Broadcom). While the court did not award damages, it found that the activist, Potomac Capital Partners, had “divergent interests” and essentially engineered a quick sale of the business. The matter was further complicated because Deutsche Bank, PLX’s financial advisor, was concurrently advising Avago on another deal and knew how much the buyer was willing to pay for PLX.
In an interview with IPO Edge, Mr. Niles said, “well-advised companies should take a less reactive posture to activist attacks and instead find opportunities to control the narrative, strengthen their positioning and leverage with key investors and stakeholders and understand investor views beyond the activist.” He added that when it is appropriate to engage with an activist, negotiations should take place from a position of strength rather than fear or weakness. “Real readiness for activist attacks requires integrating preparedness into strategic planning, crisis preparedness and board governance — it’s not a check-the-box exercise. CEOs, directors, GCs and management teams should be prepared to deal with takeover bids and activist approaches as well as handle requests from institutional investors and activists to meet directly with directors and management. Ultimately, deep self-reflection and self-help will identify opportunities for strengthening the company and increasing sustainable value for all stakeholders, mitigating potential vulnerabilities, getting ahead of investor concerns and ensuring that the company’s strategy and governance are well-articulated, updated and understood,” he said.
Cited in The Wall Street Journal and The American Lawyer for his activist defense work, Mr. Niles focuses on rapid response shareholder activism & preparedness, takeover defense and corporate governance in addition to M&A, special situations and crisis preparedness and response.
John Jannarone, Editor-in-Chief