Kai Haakon Liekefett is partner and head of the Shareholder Activism Response Team at Vinson & Elkins LLP. This post is based on a publication authored by Mr. Liekefett and Lawrence Elbaum. The opinions expressed in this article are solely those of the authors and not necessarily those of Vinson & Elkins or its clients. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here), and Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy by Lucian Bebchuk, Alon Brav, Robert J. Jackson Jr., and Wei Jiang.
The vast majority of activist situations result in a negotiated settlement between the activist and the target company. The problem is that—more often than not—settlements fail to secure long-lasting peace between the parties. This post examines why many companies have “buyer’s remorse” post-settlement and why a proxy fight is not the only alternative to settling with an activist.
The tide of shareholder activism keeps rising in the U.S. and elsewhere around the world. At the beginning of this era of shareholder activism, target companies fought back. For example, 15 years ago in 2001, more than 60% of the proxy contests in the U.S. went to a shareholder vote and only 20% settled prior to the shareholder meeting. Times have changed dramatically. In 2016 to date, only approximately 30% of the proxy fights in corporate America went the distance while 47% of them ended in settlements. And these numbers understate the prevalence of settlements because the vast majority of activist situations never reach the proxy contest phase. Many activist situations settle in private, confidential negotiations before any public agitation by the activist begins and long before the shareholder meeting.