The return of the poison-pill defence
POISON pills are again being dispensed by corporate America with all the enthusiasm of an exterminator in a rat-infested basement. The metaphorical rodents nowadays are not just hostile bidders—the pests that the poison-pill defence was designed to exterminate, back in the 1980s—but in some cases shareholders simply trying to change the way companies are run.
In a typical poison-pill scheme, the board of a company makes a rule that if anyone buys more than a certain percentage of its shares, it will issue lots of stock to all other shareholders, dramatically reducing the first investor's stake. In Britain, which has long taken a more positive view of hostile bids, poison pills are all but banned. In America, the courts have repeatedly held them to be legal. But they had become scarcer in recent years, as takeovers dried up and shareholders got some schemes dismantled. Now, M&A is booming, activist investors are back on the warpath and defences are being rebuilt.
On June 28th the board of American Apparel, a clothing retailer, enacted a poison-pill scheme. It is seeking to avert a less-than-friendly takeover by its former boss, Dov Charney, whom the board had removed ten days earlier over some as-yet unspecified allegations of misconduct. Mr Charney has sealed a partnership with Standard General, a hedge fund, with the help of which he now controls a 43% stake.
The previous day a lawsuit over the poison pill adopted by Allergan, best known for its Botox anti-wrinkle treatment, was settled out of court. It had been brought by Pershing Square, a fund run by one of the most prominent shareholder activists, Bill Ackman. He won an agreement from Allergan that its defences would not be triggered by his collaboration with other shareholders to call a special meeting to elect new board members.
Pershing Square, which has just less than the 10% stake at which the poison pill is triggered, has teamed up with Valeant, another medical company, to bid for Allergan. Its defences may prevent them from pursuing their bid in the conventional way, by continuing to buy shares. But the out-of-court agreement opens the way for them to achieve their objective by putting new people on the board who would be more open to a takeover.
Earlier last month Family Dollar, a discount retailer, created a poison pill after Carl Icahn, another activist, bought just under 10% of its shares amid speculation that he was planning to engineer a merger with Dollar General, a competitor. And News Corporation renewed its poison-pill scheme, allowing Rupert Murdoch and his family, with their 39.4% stake, to fend off any attempt to take over the company now it has been split from 21st Century Fox, its former entertainment arm.
But these days some activists do not want to take over a firm, just to create a sort of “loyal opposition” to the board, leaving it largely intact while pressing it to change strategy. Earlier this year Sotheby's, an auction house listed in New York, adopted a poison pill to fend off attempts by Dan Loeb, another activist, to win representation on the board and shake up the firm.
Mr Loeb's fund, Third Point, went to court seeking a ruling that it was exempt from the 10% trigger, so it could buy more shares. In May a judge in Delaware rejected its request, arguing that a bigger stake would give the fund “negative control” over Sotheby's, whatever that may mean, even though he acknowledged it would “not have an explicit veto power”. Nevertheless, Sotheby's later agreed to give board seats to Mr Loeb and two colleagues.
Despite this and Mr Ackman's success in the Allergan legal settlement, the ruling over Sotheby's suggests that poison pills may be used to hinder not just full takeovers but attempts by activists to force a change in strategy. Lucian Bebchuk, a Harvard law professor and campaigner for corporate-governance reforms, calls this “pernicious”: the board would be seeking to stifle legitimate debate among the owners of the company by making it hard to build a majority for change. Mr Bebchuk was an author of a study that examined the roughly 2,000 activist interventions at companies between 1994 and 2007, which found that they typically led to an improvement in the companies' operating performance in the following five years.
No doubt delighted that the poison pill has made a comeback, Wachtell, Lipton, Rosen & Katz, the law firm that invented it, has also been seeking to make things harder still for activists by proposing a rule that anyone building a stake of 5% or more in a firm must disclose it within one day, not ten as now. So far the Securities and Exchange Commission is showing little interest. Indeed, its chairman, Mary Jo White, has argued that activists' attempts to jog boards are not always a bad thing.
毫无疑问地，毒丸防御强势回归，而发明了这一条款的Wachtell, Lipton, Rosen & Katz律师事务所也在持续地对外来投资者进行限制，该公司规定任何投资者只要持有股份达5%或者更多，那么这位投资者必须在一天内披露自己的身份，远比目前10%的行业标准要低。到目前为止，美国证券交易委员会对这样条款反应冷淡。实际上，委员会主席玛丽·乔·怀特早已强调投资者积极想要跻身董事会的情况，并不总是一件坏事。