Over the next several weeks, LEVICK Daily will share selected interviews from our recent NACD Directorship article entitled “What’s Next? The Top Issues of 2013 and Beyond.” Today, we feature a discussion on mergers & acquisitions with William Wynne, a Partner in the New York office of White & Case.
Mr. Wynne represents principals in major corporate transactions and financings, mergers and acquisitions, international corporate debt restructurings, and public and private securities offerings. As lead counsel for principals in mergers and acquisitions transactions, Mr. Wynne is involved in all aspects of structuring, negotiating, and documenting deals.
At the conclusion of the interview, you can find LEVICK’s own communications best practices appended.
How can boards best serve a company seeking to make itself attractive to potential buyers?
William Wynne: The fastest way to derail a sale process is to have a compliance problem “discovered” in the course of a buyer’s due diligence. Given the ever-increasing size of the penalties being extracted by governments, even routine compliance issues take on a disproportionate dimension. A board contemplating a sale process is well advised to update its compliance review and have well-prepared answers to any questions that may be uncovered.
What steps can boards take to convince shareholders that they got the best deal in the wake of a major transaction?
William Wynne: The board must be seen to have asserted itself to control the transaction process. If the board is seen to have been reactive, activist shareholders are more likely to question and challenge the transaction. Shareholders, and indeed the general public, are questioning management’s motives more aggressively. There is also growing malaise about corporate governance. Again, it is imperative that the board be seen to take charge. That means forming a committee of independent directors; participating in the retention of financial and legal advisors; and requiring periodic updates on the transaction process.
How can boards of directors effectively prepare for inadequate hostile takeover bids?
William Wynne: Boards should periodically review their companies’ structural defenses to an unsolicited offer: a staggered board, ability of shareholders to act by written consent, poison pills, etc. Just as important, however, is being comfortable with the transaction process and not panicking upon receipt of a hostile offer. A team of advisors that has the board’s confidence should be immediately available. This team should not just include bankers and lawyers, but public relations professionals and proxy solicitors as well.
Boards should also review what similar companies in their space have done in response to hostile transactions. This will let directors know what to expect and allow them to learn from their competitors’ successful tactics and missteps.
Finally, maintaining good relationships with major shareholders is always good business; but it pays particular dividends once a hostile offer is made. A shareholder who is familiar with management’s strategy and aware of the board’s involvement in setting that strategy will be much more receptive and supportive than the shareholder who only hears from the board once the hostile offer has arrived.
What’s next with regard to M&A law? Are there issues or opportunities on the horizon of which all public companies need to be aware?
William Wynne: Merger-related litigation has reached epic proportions. In 2007, 53 percent of mergers valued at $500 million or greater attracted litigation. In 2011, almost all deals (96 percent) attracted litigation. The reality is that parties to a merger will get sued and need to be prepared.
Process is paramount. Boards should hold meetings to discuss and decide all materials issues, and careful minutes should be taken. Courts will hesitate to overturn board decisions if there is a solid record. In particular, boards need to be acutely aware of conflicts of interest, both actual and perceived. Boards should record their deliberations over the pros and cons of each potential conflict in the context of how the proposed relationship will bring value to the shareholders in spite of the conflict. Without evidence that such conflicts have been considered by the board, exposure to shareholder litigation increases significantly.
BEST COMMUNICATIONS PRACTICES:
1. Boards need to ensure that every employee understands the confidential nature of M&A transactions – and that they know what can and cannot be said, especially in the social media (and then be certain aggressive monitoring is in place to detect even a hint of a leak).
2. Boards that are seen as in control of the transaction process are best positioned to deflect criticism and defend against the inevitable litigation.
3. Directors that demand strong investor relations in peacetime will build a trust bank among stakeholders that will serve the company well, especially if a hostile offer is made.
This post is excerpted from Richard Levick’s recent NACD Directorship feature “What’s Next? The Top Issues of 2013 and Beyond.” To read the full article and learn more about the most significant issues impacting boardrooms today, click here.