How do you know if your company is likely to be a target for activists? And what is the best way to respond when approached by an activist?

Skadden M&A partner Ann Beth Stebbins discusses the activist’s playbook with Ted White of Legion Partners Asset Management, a veteran activist investor, and Elizabeth Gonzalez-Sussman, head of the firm’s Shareholder Engagement and Activism Practice.

Activists seek to identify companies where value can be increased. Some activists will focus on operational or governance improvements, while others will press for transactions that could release value, Ted and Elizabeth explain.

Ted and Elizabeth observe that shareholders are not always forthcoming with management, which may make it difficult of a board to understand shareholder concerns. Ted notes that, as an investor, he has observed cultural misalignment in some companies experiencing underperformance, and stresses that it may be important for board members to hear directly from shareholders.

Elizabeth says that, when meeting with activist investors, management and directors should listen to the issues that are raised. Ted says his firm will be trying to gauge if management and the board are aware of the concerns expressed in a meeting, and are willing to address, or at least consider, those. He also notes that directors should assume that the activist has talked to other shareholders about the company and the potential issues that the activist has identified.

Companies should be careful about responding defensively to activists, Ted and Elizabeth say. If the company reacts hostilely or dismissively, that may cause other shareholders to perceive that there is a problem. It could also prompt a more aggressive campaign by the activist to replace directors in the future, and cause proxy advisory firms to be more critical of the company.

If activists succeed in electing new directors, the existing board should attempt to work with them collaboratively, Elizabeth and Ted say, even though the contentious nature of a proxy fight may make cooperation challenging. Ted notes that board dissonance may encourage shareholders to seek to replace more directors at the next annual meeting.

Name: Ann Beth Stebbins

Title: Partner at Skadden

Connect: LinkedIn

Name: Elizabeth Gonzalez-Sussman

Title: Partner; Head of Skadden’s Shareholder Engagement and Activism Practice

Connect: LinkedIn

Name: Ted White

Title: Co-founder and a Managing Director of Legion Partners Asset Management

Connect: LinkedIn

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