Companies that grant seats to activist investors in settlements typically trail the broader market, and the presence of an insurgent investor doesn’t make a company significantly more likely to sell itself, an analysis of 14 years of US cooperation agreements, released on Monday, Feb. 2, found. Corporate defense advisers, meanwhile, said that the report serves as a warning against capitulation. It provides an additional datapoint to rebut activist narratives and supports a cautious approach when evaluating activist demands for board seats, said Goodwin partner Leonard Wood. “Empirical evidence that helps boards get more comfortable, stiffening the backbone, when they are skeptical about an activist agenda can be helpful,” Wood added. “Most settlements adding director seats are compromises. They’re not structured as business transformations,” he said. Typically, an activist gets one or two seats or committee participation, he continued, noting that settlements rarely involve binding written commitments to execute major changes. Instead, settlement agreements commonly commit a company to explore a specific action rather than to actually do it, he said. Wood added that activists could also argue that generalized historical data isn’t dispositive because every campaign represents a unique “new flip” of the coin.
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