Thursday, June 2, 2011
There's been a lot of clarification on the use of the shareholder rights plan over the past year - among others, see Chancellor Chandler's opinions in Air Products v. Airgas and eBay v Newmark, as well as the Surpeme Court's opinion in Versata v Selectica (all now available via the Google), . Bab and Neenan at Debevoise & Plimpton have posted Poison Pills in 2011 to review the current state of pills:
Abstract: Having been buffeted by sustained attacks from activists and proxy voting advisers in past years, the shareholder rights agreement is no longer as prevalent as it once was - a phenomenon that has been documented by many corporate governance observers like The Conference Board. However, the most recent case law confirms the validity of poison pills that are properly structured, adopted, and administered. This report discusses these new trends and provides guidance to boards considering whether to adopt a pill and how to formulate its terms.
Bab and Neenan focus, correctly, on the importance of the effective staggered board/shareholder rights plan combination. In the chart below they show that the recent trend of destaggering boards and dropping pills has continued. However, it's worth remembering that the ability of boards to adopt a pill very quickly at almost any point makes counting the number of firms with pills currently in place something less than a useful exercise. Best to simply assume that every company has a pill or could have one easily. The focal point for the effective defense is the staggered board. That's harder to implement.