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Summary
:: Challenges for corporate control have entered a new era that is driven by $1 trillion in hedge fund capital.
:: How your company anticipates and responds to activist hedge funds can determine your corporate direction and, perhaps, survival.
RA Capital Advisors
RA Capital Advisors (formerly Relational Advisors) is a private investment bank specializing in mergers and acquisitions, financings, restructurings and complex shareholder matters – such as dealing with activist investors.
For over 20 years, RA Capital’s principals have been deeply involved in the activist investing arena—as targets, as activist investors, and as advisors to target boards of directors. These boards recognize the value of not only our unique perspectives on minimizing vulnerability to activist funds, but also our ability to predict activists’ likely moves.
Contact Us
12340 El Camino Real
Suite 450
San Diego, CA 92130
Ph: 858.704.3200
Fax: 858.704.3201
www.raca.com |
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Challenges for Corporate Control |
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Challenges for corporate control are not new. Unsolicited offers for all or a majority of a company’s outstanding stock, while not predominant, have generally been effective – with only 40% of targets escaping a change of control transaction.
Now, the $1 trillion hedge fund industry has awakened to a fact that other activist investors have known for the past two decades—control of a company’s direction can be accomplished with ownership of significantly less than a majority of its outstanding shares.
Recent Hedge Fund Activity
An analysis of recent targets of activist hedge funds tells the story. Hedge funds can move with lightning speed to achieve near-term returns. Long-term shareholder value is, at best, a secondary consideration.
If a company is publicly targeted by an activist fund, the odds of a change of control transaction, CEO replacement or other major corporate transaction are high.
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Traditional Shareholder
Protection Measures are Ineffective |
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Corporate strategies to protect against disruptive takeover attempts have historically centered on structural defenses such as staggered boards, super majority provisions, poison pills, etc. While these mechanics play a role in protecting against inadequate, coercive offers, they are ineffective against today’s “aligned“ but not “in concert” actions by activist funds.
The Best Defense is a Proactive Offense
Minimizing the risk that a company is targeted by activists funds offers the best protection for shareholders.
The three pillars of this strategy are communication, performance and vigilance.
Communication—Effective, credible communication with shareholders, analysts, shareholder services firms.
Performance—Establish realistic targets, then deliver.
Vigilance—Continuously assess means of delivering greater shareholder value. |
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The Most Common Mistake...Waiting
Many corporations fail to take appropriate proactive steps ahead of any threat by activist funds. Further, when early signs of activists begin to show, all too often managements and boards believe that they will be able to effectively manage the relationship with activists. A low-key or even supportive initial posture by the activist funds may contribute to this illusion. Unfortunately, corporate complacency is generally a fatal mistake for companies who seek to maintain control of their corporate agenda, even though that agenda may be appropriately focused on growing long-term shareholder value.
Our Best Advice
No corporation in America is immune to activist funds. Management and boards should take this challenge seriously by:
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Seeking the input of legal counsel and financial advisors who are deeply experienced in dealing with activist funds, |
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Becoming educated on activist hedge funds and their tactics, and |
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Proactively developing and executing a plan that will minimize the company’s risk exposure. |
If you are interested in learning more about the services provided by RA Capital Advisors please contact Joel Reed at (858) 704 3202.
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