Some US corporations are quietly ditching traditional cooperation agreements and standstills and offering less formal arrangements to activist investors as they seek to resolve clashes. This trend isn’t without risks, but it can allow companies to swiftly resolve campaigns and save potentially millions of dollars in adviser fees, all while giving activists an opportunity to preserve flexibility.
If both sides are sufficiently aligned on how to resolve their differences for the time being and if neither side has the appetite to negotiate a written agreement, an informal resolution presents an alternative, noted Goodwin partner Leonard Wood.
But certain trends in this space are gaining momentum, in part because the high volume of annual campaigns virtually guarantees that a company will face an activist engagement within a five-year window. Among some companies, there is an openness to considering alternative ways to resolve an activist situation — as if it were more of a routine business item rather than an unprecedented “world on fire” crisis, Wood explained.
For Wood, acknowledging the activist or thanking them for productive conversations in a press release demonstrates to the broader shareholder base that the board and the investor engaged in constructive dialogue. Giving the activist a public nod can provide a practical — albeit potentially temporary — sense of closure, allowing the company to move forward with its ordinary business, he noted.
Notably, larger funds may also be willing to absorb their own campaign costs and forfeit formal expense reimbursements in exchange for bypassing standard standstill agreements, allowing them to retain a “freer hand,” Wood explained. Ultimately, boards must critically evaluate each activist’s thesis on a case-by-case basis and mount a rigorous defense when a campaign doesn’t serve the broader stockholder base, Wood said.
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