USA LAW AND PRACTICE Contributed by: George Casey, Heiko Schiwek, Elena Rubinov, Kristina Trauger, Pierre-Emmanuel Perais, Clara Pang, Gregory Gewirtz and Vinita Sithapathy, Linklaters
expand the board’s ability to defend against a takeo - ver. Examples include the following. • Poison pills: shareholder rights plans or “poison pills”, when triggered, cause rights to be issued to all shareholders (other than an acquiring per - son), when an acquiring person crosses a speci - fied threshold (generally between 10% and 20%). These rights would allow each shareholder (other than the acquiring person) to acquire stock of the target company at a substantial discount, thereby substantially diluting the ownership of the acquiring person. • Control share acquisition statutes: limit the abil - ity of acquirers to vote more than specified per - centages (eg, 20%, 33% and 50%) of the target company’s shares, unless the acquisition of the shares was approved by the other target company shareholders. • Interested shareholder or business combination statutes: prevent acquirers from entering into business combinations with a target company or acquiring more shares of the target company if they have exceeded a specific ownership thresh - old (typically 15%) unless that acquisition received prior board approval or the acquirer receives a super-majority vote of the other shareholders of the corporation. • Fair price statutes: a bidder is required to pay all shareholders a “fair price”, usually defined as the highest price the bidder paid for any of the shares it acquires of a target company during a specified period before the commencement of a tender offer. • Constituency provisions: permit a target’s board discretion in discharging their director duties by allowing it to consider other corporate constituents (eg, employees, customers, suppliers and credi - tors) and other community and societal considera - tions in responding to a takeover proposal. Provisions Against Bidder Control Additionally, the organisational documents of the tar - get company may contain various provisions allowing a board to defend against a takeover: • restricting shareholders from taking action (eg, removing the board) by written consent or calling a special meeting;
• requiring shareholders to provide advance notice of business that they intend to present at a share - holders’ meeting; • providing for a classified or “staggered” board and cumulative voting for election of directors; • allowing the board sole authority to fix the size of the board and fill vacancies; • imposing a “fair price” requirement; • requiring a supermajority vote for various actions such as amending constitutional documents or approving a merger; and • allowing for issuance of blank check preferred stock. Additionally, a target company may make the hostile takeover less attractive to the bidder by: • increasing the regulatory risk through its engage - ment with regulators; • incurring additional debt, providing for additional stock issuances and other changes to its capital structure; and • soliciting bids from other potential acquirers or even suing the bidder. 9.4 Directors’ Duties See 8.3 Business Judgement Rule . 9.5 Directors’ Ability to “Just Say No” Subject to directors’ Revlon duty (sale or break-up of the company) and other fiduciary duties (see 8. Duties of Directors ), directors generally have the authority to “just say no” to a proposed business combination (but not “just say never” under certain circumstanc - es). Although the board of directors’ use of defensive measures may be subject to heighted review, the deci - sion to say no should likely fall within the protections of the business judgement rule; see 8.3 Business Judgement Rule .
10. Litigation 10.1 Frequency of Litigation
Litigation by shareholders is very common for acquisi - tions of public companies in the United States; how - ever, it is relatively uncommon for such litigation to completely derail transactions, due in part to:
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