BERMUDA Law and Practice Contributed by: Natalie Neto, Rachel Nightingale, Hannah Tildesley and Marah Smith, Walkers
9. Defensive Measures 9.1 Hostile Tender Offers Hostile bids are permitted under Bermuda law but are still relatively rare in Bermuda. 9.2 Directors’ Use of Defensive Measures Bermuda does permit directors to use defensive measures in a hostile takeover; such measures are most effective when prepared in advance. However, the directors must ensure that they have regard to their fiduciary duties when deciding whether or not to implement a defensive measure, as well as with respect to their handling of bids generally. The directors do not generally have a duty to advise individual shareholders on the merits or otherwise of a bid, and are not generally obliged to give sharehold - ers advice on whether to accept or reject a bid. The courts have held that directors do not generally owe shareholders the duty to obtain for them the opportu - nity to accept or reject the best bid reasonably obtain - able, but they must not do anything that prevents the shareholders from considering and accepting an offer. If directors take it upon themselves to give advice to shareholders with respect to a takeover bid, they have a duty to advise in good faith and not to mis - lead, whether deliberately or carelessly. When seek - ing shareholder approval of transactions or recom - mending particular courses of action, the directors are obliged to make full (as well as honest) disclosure. Directors could be held liable if shareholders were to suffer loss by relying on negligent mis-statements made by the directors. 9.3 Common Defensive Measures Common defensive measures that have been imple - mented by potential Bermuda target companies include the adoption of poison pills, also referred to as shareholders’ rights plans, often limiting the amount of the company’s shares that can be acquired by a shareholder or a group of shareholders. There are typically two approaches, commonly known as:
• “flip in” – these rights are usually contained in a company’s bye-laws and provide that existing shareholders have the right to subscribe for more shares in the target company at a discounted price where a hostile bidder reaches a certain percent - age of ownership in the target company, or where a bid is made; and • “flip over” – these give current shareholders the right to purchase shares in the target company from the bidder once the takeover has taken place. Such plans are often adopted for a specific time period (eg, 364 days) as an aggressive attempt to prevent a hostile takeover by making the acquisition expensive or making the target seem less attractive to a bidder, and potentially slowing down any future attempts at a hostile takeover. Other defensive mechanisms that could be adopted in the bye-laws of the target in order to make it more difficult for the bidder to take control include: • staggered terms for the directors; • advance notice of shareholder proposals to nomi - nate candidates and the election of directors; • requiring a supermajority for mergers and amalga - mations and/or amending the bye-laws; and • permitting the issuance of “blank cheque” pre - ferred stock, with terms determined by the board. There is generally no objection to a target company’s board seeking an alternative offer for the target com - pany from a third-party “white knight”. 9.4 Directors’ Duties See 8.1 Principal Directors’ Duties . 9.5 Directors’ Ability to “Just Say No” If the target has not adopted defence mechanisms already, it will be difficult for the board of directors to “just say no” in the face of a determined bidder. Directors will be required to discharge their fiduciary duties by acting honestly and in good faith, with the best interests of the company in mind. This does not prevent directors from sharing their views with share - holders; however, the advice must be based on full information, fairly presented and not influenced by personal interests. The Bermuda courts will not inter -
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