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Takeover Defenses Hit a Wall in 2003

Submitted by: IRRC

Categories: Business Ethics

Posted: Jan 20, 2004 – 11:00 PM EST


Jan. 20 /CSRwire/ - WASHINGTON, D.C. - The pace of adoption of most takeover defenses slowed in the last two years, says the Investor Responsibility Research Center in its recently released 2004 edition of Corporate Take-over Defenses (CTD). This may reflect heightened sensitivity in the aftermath of numerous corporate scandals, where lack of management and board accountability to shareholders were contributing factors in many cases. Nevertheless, a substantial majority of major companies are still protected by a range of barri-ers that make it difficult for a hostile acquisition to succeed.

The latest edition of CTD surveys corporate control features at a total of 1,982 public firms as of the end of 2003. As in previous years, the most prevalent defenses of the profiled firms remain blank check preferred stock, advance notice requirements, classified boards, poison pills, and golden parachutes, each of which is found at a majority of the nearly 2,000 firms tracked. The prevalence of classified boards appears to have peaked at just under 60 percent of companies, and poison pill adoptions and supermajor-ity merger vote requirements are also holding steady at about 55 percent and 15 percent, respectively.

On the other hand, companies continue to establish advance notice requirements for share-
holder proposals--prevalence of that impediment to shareholder protestation rose to 77 percent as of the end of 2003, from less than 72 percent two years earlier and only about 44 percent when these were first tracked in 1995. The only other anti-takeover feature to show significant gain in the past two years is golden parachute arrangements--typically consisting of severance based on three-times pay in the event of a change-in-control related termination--which jumped from 67.7 percent of the companies ana-lyzed two years ago to 73.4 percent today. That extends the pattern of steady expansion of these often costly benefits since 1995, when IRRC tracked them at only 53 percent of companies.

"While friendly mergers in the 1990s generally supplanted the hostile takeover attempts of the 1980s, all companies view takeovers as a legitimate corporate strategy," said Carol Bowie, Director of IRRC's Governance Research Service. "Implementation of defenses may have peaked for the moment, but corporations will continue to seek ways to shield themselves from unwanted takeovers, including those initiated by institutional activists and value investors seeking change at underperforming companies," added Bowie.

Meanwhile, shareholders are not sitting idly by as anti-takeover measures continue to proliferate. Shareholders have made it clear they object to boards using these devices to impede investor value or en-trench management at their expense. In the last few years, shareholder proposals to eliminate classified boards and supermajority vote requirements, and to eliminate or allow a shareholder vote on poison pills, have garnered support averaging at least 60 percent at the 2,000 companies where IRRC tracks voting results on an annual basis. More than a quarter of the profiled companies has faced one or more corporate governance shareholder proposals since 1984.

About the study: Corporate Takeover Defenses 2004 identifies specific takeover provisions enacted at 1,982 leading companies and highlights recent changes. The 16 types of anti-takeover provisions include blank check preferred stock, shareholder rights plans (poison pills), classified board structures, supermajority vote requirements, dual class stock, limits on shareholders' ability to act, and golden parachutes. In addition to the individual company summaries, this sixth biennial edition of Corporate Takeover Defenses provides big picture trends in the prevalence of anti-takeover provisions over the last 13 years. Individual appendices list all the companies that have enacted the major types of defenses, and a comprehensive glossary of terms pro-vides both experienced practitioners and novices an invaluable guide through the minefield of takeover de-fenses. This unique report is the most comprehensive compilation of information on the critical topic of anti-takeover devices. It is available for $995 from IRRC.

About IRRC: For more than 25 years, IRRC has been the pre-eminent source of high quality, impartial information on corporate governance and social responsibility issues affecting investors and corporations worldwide. Today, IRRC provides research, software products and consulting services to nearly 500 sub-scribers and clients representing institutional investors, corporations, law firms and other organizations.

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