The poison pill is becoming less common as corporate boards become more comfortable working with activist investors instead of adopting an automatically confrontational stance, and no one knows it better than Jana Partners managing partner Barry Rosenstein, who recently wrote about his experiences for The Financial Times.
“An increasing number of companies are adopting this more constructive approach. According to FactSet Research, in 2006 34 percent of S&P 500 companies still had poison pills and 41 percent had staggered boards, compared with 7 per cent and 11 per cent in 2013, respectively,” Rosenstein writes.
Activist hedge funds outperform
Of course, boards haven’t become more cooperative because they like other people interfering with their work, but activist hedge funds have outperformed in 2013 and big name investors like Carl Icahn have been touting the importance of activism to whoever will listen.
According to Rosenstein, this high profile success has made it less possible for management teams to resist activist ideas. While they might have described someone like Rosenstein or Icahn as a corporate raider in the past, now other investors are less concerned with who is making the proposal and more concerned with whether or not it will drive shareholder value.
“Much like the case with private equity decades ago, the fights should steadily fade into the background and the debate about value should increasingly take center stage,” writes Rosenstein.
Poison pills: stealing activists’ thunder
Corporate boards are also protecting themselves from investor activism by simply instituting the types of polices that a hedge fund might propose without waiting for the confrontation to start. This gives the management team an opportunity to both look progressive and avoid negative publicity, while making shareholder value a top priority, which is supposed to be true anyway. Rosenstein argues that investors reward good policies and punish bad ones, and don’t usually care where the idea actually originated
“More and more companies are realizing that if you are going to act on someone else’s idea, there is not much point in waiting,” writes Rosenstein. “If a company truly believes an activist’s proposals will not create greater value, it enhances its argument by relying on facts rather than strategic ploys.”