The market’s recent collapse leaves many public companies and their longterm investors highly vulnerable:

• Depressed share values create all kinds of opportunities for those with available cash or a strong equity currency. The substantial loss of market capitalization across all sectors presents buying or consolidation opportunities for financial and strategic acquirors, and creates a real risk that many companies could be approached with transactions, either for cash or stock consideration or both, that do not reflect the inherent long-term value of the company.

• Poor stock performance gives substantial credence to activists pushing Boards to complete business combinations “arranged” by the activists, to sell divisions for less than inherent long-term value, or for Board representation disproportionate to their holdings.

• Although the older-vintage hedge funds are distracted by redemption and other concerns, the newcomers are as aggressive as their predecessors and are likely to be active this year.

In this environment, directors should undertake a thorough review and assessment of their company’s charter, by-laws, compensation program, and director and officer insurance coverage. A carefully crafted survey of options and available defense tools, including poison pills, carefully reviewed and understood by the Board with the assistance of legal and financial advisors prior to receipt of any unsolicited offers, will be easier to defend and should provide the Board with greater flexibility if defensive steps are later needed in response to hostile action.

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