Takeover Defenses in the Era of Shareholder Activism

• In Event: Governance Gatekeepers

Abstract

This paper examines the interplay between takeover defenses and shareholder activism. Using a comprehensive sample of shareholder activism events between 2006 and 2014, I find that a poison pill in force draws more activism whereas firms with a dual class structure and a staggered board are less likely to be targeted by activists. Boards are more likely to adopt a poison pill following activist approaches, especially when the activists hold large ownership and make takeover-related demands. However, poison pill adoption does not seem to serve defensive purposes. Activists are more likely to demand removal of takeover defense measures and/or sale of the target firm if the firm has a staggered board or a poison pill in place. This finding suggests that when takeover defenses block the market for corporate control activists promote changes through their interventions. Finally, I find that target firms with takeover defenses are more likely to be acquired following activism, which suggests that activism can act as an antidote to takeover defenses.

Author

• SaPyung Shin, Harvard University Business School