Keith E. Gottfried is partner at Morgan, Lewis & Bockius LLP. This post is based on his Morgan Lewis white paper. Related research from the Program on Corporate Governance includes Dancing with Activists by Lucian Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch (discussed on the Forum here).
The primary focus of many retailers in the near term will likely be on staying afloat and addressing their liquidity needs, the health and safety of their employees and customers, the overall health of their businesses, and how best to pivot their business models to adapt to shifting consumer preferences and expectations in the wake of the ongoing coronavirus (COVID-19) pandemic. However, as the retail industry has been upended by the pandemic as never before, and taking into consideration that almost all well-known activist investors have a longstanding interest in the retail sector, retailers should also be concerned with how the turmoil caused by the pandemic has made them attractive targets for activist investors. It is also likely that the recent proliferation of special purpose acquisition companies (SPACS), particularly SPACS with an expressed interest in consumer-facing companies or SPACS formed by well-known activist investors with retail industry experience, may be a strong catalyst for increased shareholder activism in the retail industry.
Current Situation
The retail industry is clearly one of the industries most impacted by the ongoing COVID-19 pandemic. Since March 2020, when heightened concerns about the pandemic began to take hold, retailers have had to cope with government-mandated business closures and, later, slow and inconsistent guidance on reopening, as well as the need to implement new social distancing and health and safety protocols. In addition, retailers have had to pivot their business models and reimagine their businesses in ways that allow them to service their customers in a new normal and take into account a new paradigm of not only government-imposed social distancing, but also consumers’ increased wariness for public spaces and crowds, particularly indoors.
READ MORE »
