SYDNEY and WASHINGTON, July 17, 2013 /PRNewswire/ -- Law firm Corrs Chambers Westgarth has cautioned Australian companies to stay alert and vigilant for signs of shareholder activism.
Corrs corporate partner, Jonathan Farrer, said Australian companies should be prepared for increased pressure from shareholders following a spike in shareholder activism globally, particularly in the United States. "There has been a very significant increase in shareholder activism recently, in particular board spill proposals, where an activist seeks to replace existing directors of a company with a new set of directors," Mr Farrer said. "We expect to see an increase in shareholder activism and board spills for both small and large ASX-listed companies. The experience from the United States shows that companies which have performed poorly or have large cash holdings are particularly vulnerable."
Mr Farrer noted three major drivers for an increase in board spills. "Firstly, the legal framework is tilted toward shareholder activists rather than incumbent directors. In Australia, shareholders who own as little as 5% of a company or who have the support of 100 or more shareholders can requisition a board spill," Mr Farrer said. "Secondly, activists often have deep pockets and are ready for a proxy fight, while directors usually want to avoid this type of publicity. Finally, board spills can be used as an alternative path to traditional hostile takeover bids."
Mr Farrer said companies exposed to the possibility of a board spill should take precautions. "Companies need to closely monitor who their underlying shareholders actually are and what they are thinking. That involves sending regular beneficial tracing notices out to shareholders and ongoing communications with key shareholders," Mr Farrer said. "Companies should also be encouraged to take a best-practice approach to defence preparation, including extending takeover response manuals to cover the rules around board spills and response tactics."
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SOURCE Corrs Support Services Trust