Takeover defense interlude
Why a well-advised public company that is a potential takeover target (and which one isn't?) would not have its defenses in order is hard for me to understand. A classified board is a pretty basic one. The example I always think of is First Interstate Bancorp, which got caught with its pants down big time and now answers to "Wells Fargo."
It seems to me that Yahoo! may have an intriguing defensive option that, to my knowledge, no one has mentioned. Off the top of my head, I can't think of a Delaware Law reason why they couldn't do it, although that doesn't mean there isn't one or that it might not raise interesting fiduciary duty questions (answerable by citing the business-judgment rule, most likely). Yahoo!'s certificate of incorporation authorizes so-called "blank check" preferred stock that can be issued on such terms as the board sees fit, without further stockholder approval. Yahoo! could, in very short order, designate a series of preferred stock with useful takeover protections and place a block of it in friendly hands. The new preferred could carry the right to elect additional directors, and the very existence of preferred stock could block an acquisition structured as a merger or an asset sale, since such transactions must be approved by the holders of each class of voting securities, voting separately by class. It might be elegant to have a preferred stock with a right to elect a director that would "flip in" in certain circumstances. The provision could say something like "Automatically upon the occurrence of any event or series of related events causing a change in the composition of a majority of the board of directors, and without further action by any person, the size of the board of directors shall be increased by one (1) director, and the board of directors shall be divided into two classes . . ." [drafting fatigue]. One class ("Common Directors") would consist of all the directors except the new "Preferred Director," who would be elected by the holders of the preferred stock. The participation of the Preferred Director would be required for a quorum, and the Preferred Director's vote would be required in order for the board to take any action (including waiving operation of the poison pill, necessary for a tender offer to proceed). It would work just like the protective provisions in a venture-capital preferred stock, and there could be various "flip in" events. The Preferred Director would still owe fiduciary duties to all stockholders, not just the preferred holders that elected him or her, but it seems like this setup could be a pretty powerful "block" to the plans of a would-be acquiror.
Someone please comment and let me know why this wouldn't work. It makes for a messier capital structure and maybe it removes some value from the common stock, but I'm not sure those are reasons it couldn't be done.
posted at 1:32 PM
0 Comments:
Post a Comment
<< Home