By Schulte Roth & Zabel LLP (“SRZ”)
M&A partner David E. Rosewater, 
co-head of the firm’s global shareholder activism practice, along with investment management partner Stephanie R. Breslow and litigation partner Michael E. Swartz comprised the “Shareholder Activism” panel at SRZ’s 23rd Annual Private Investment Funds Seminar in January 2014. The yearly conference covers current issues and regulatory updates affecting investment funds in the US, UK and abroad.
The following is an updated excerpt from the panel presentation, which provided “Recent Legal Developments” in activist investing.
Recent Legal Developments
1.Poison puts
(a) Indenture or credit agreement provision requiring the company to redeem all outstanding debt
at (or above) face value if a majority of the board elected was not nominated by the existing board.
(b) Can often be waived by a company’s pre-existing board of directors.
(c) Courts have recently determined that poison puts are an “immediate, irreparable harm” when
leveraged by incumbent directors to increase their chances of procuring shareholder votes in a
contested election.
(d) May be a breach of fiduciary duty not to waive if available.
2. Litigation is being used less by companies as a method of defense against an activist investor.
(a) Drains time, money and management’s attention.
(b) Opposed by long-term shareholders.
(c) Companies are more willing to negotiate and settle with activists.
3. Delaware Courts continue to protect stockholder rights.
(a) Generally interpret bylaw and charter provisions in favor of shareholders.
(b) Have upheld the sanctity of shareholders’ right to vote.
4. Bylaw amendments effectively preventing activist investors from offering director nominees
compensation arrangements. 26 companies have adopted this bylaw (including Marathon Oil, McGraw Hill Financial, Wynn Resorts and Invacare) between May and November 2013. [Note: Events subsequent to this presentation have made these bylaw amendments far less prevalent]
The whole of the 23rd Annual Private Investment Funds Seminar is available in pdf form at this link