By Dan McDermott
One of the primary responsibilities of public company board members is to make decisions designed to maximize shareholder value. In their fiduciary obligation to investors, boards are required to review, consider, and take appropriate action on matters that impact shareholder value. Knowing that, you might assume that boards would receive an unsolicited bid as a welcome opportunity to instantly deliver increased value to shareholders — but in reality, an unsolicited bid to purchase a company can be a very complicated and disorienting experience for boards and management alike.
Receiving an unsolicited bid generally comes as a surprise and instigates a series of challenges and considerations for the board of directors. Properly navigating this scenario is critical to complying with legal and regulatory requirements, as well as managing critical relationships with all stakeholders, particularly investors. How and when the company communicates around an unsolicited bid can have almost as large of an impact on the company’s future as the decision itself.
An unsolicited bid creates tremendous uncertainty and anxiety among multiple stakeholder groups, such as employees, customers, and vendors. For shareholders, it can immediately create separate camps: those who are in favor of a transaction versus those who are opposed — each with different views based on their investment strategy, longevity as a holder, cost basis, and confidence in the management team and its strategy, among other factors. The announcement of an unsolicited bid can also instantly shuffle the shareholder base as arbitrage investors buy in to wager on the potential outcome.
In this situation, there is much uncertainty and little that can be communicated to address these parties’ questions and concerns, but in the absence of hard facts, it is critical to communicate process. Acknowledging receipt of the proposal and communicating the plans and steps for a thorough evaluation process will reassure shareholders and minimize distraction for other stakeholders.
Regardless of the board’s ultimate decision about the unsolicited bid, all public unsolicited bids must be publicly acknowledged. The board is a fiduciary to shareholders and must assure shareholders that it evaluates all ideas to enhance shareholder value. The board must indicate that it has received the bid — generally by issuing a press release in addition to an 8-K filing — and intends to give it a thorough and independent review. That process may ultimately include hiring a financial advisor to conduct a strategic review process, forming a special committee of independent directors to review the bid, both, or neither, depending on the situation.
The board may take steps to negotiate on the offer or even solicit an alternative “white knight” bidder, but ultimately it will need to publicly communicate its intention to accept or reject the bid.
Accepting the bid: In the event the board accepts the bid, there is a series of communications that must follow, which may include but is not limited to a press release, employee communications, partner/supplier communications, proxy solicitation materials, and an investor deck. The company needs to articulate a clear rationale for why the board chose this bid rather than others or continuing to execute the business as a standalone entity. These communications are critical to solicit the necessary investor support for the deal to go through (investor support may also be required of the acquirer if it is another public company).
Ultimately, the company will file a proxy that details the actions and steps taken to reach the decision, so companies must acknowledge that these facts will eventually become public.
To keep the business running smoothly and enable stakeholders like employees, partners, and/or suppliers to remain focused on their day-to-day duties, make sure to provide regular updates on the progress of the deal and how it may affect them.
Rejecting the Bid: In the event the board rejects the bid, there is a different series of communications that must follow, which may include but is not limited to a press release, employee communications, and partner/supplier communications. The board must clearly articulate why continuing to execute as a standalone entity is the right decision and best way to enhance shareholder value. Those communications should anticipate the following questions from investors and other stakeholders:
Failure to clearly answer those questions — ideally preemptively in the company’s announcement — will likely invite more questions about overall leadership decisions and possibly invite engagement from a shareholder activist.
Regardless of which path the board takes — accept or reject — the acknowledgement of the offer and the decision of the board requires a thoughtful and integrated communications plan.
While an unsolicited bid is technically unexpected, all companies should plan for this possibility — especially those companies that, due to a stock price decline or other underperformance, may be more likely to be the target of an unsolicited proposal. Developing a “break the glass” communications plan that anticipates a number of different scenarios — unsolicited bid, hostile takeover, activist engagement, etc. — will equip the board and management to react more quickly and effectively when the situation arises. A proper plan should include media statements, press releases, and stakeholder communications for a number of different scenarios.
Almost all companies will encounter transactional opportunities as they evolve though various business cycles. For most, it’s a matter of when, not if — so it’s worth the effort to prepare now, so you can communicate effectively when the stakes couldn’t be higher.
In the event of a successful deal, your company will need a distinct communications plan to ensure the success of the resulting merger or acquisition. For guidance on how to successfully plan and execute that strategy, download our eBook, “M&A Communications: 5 Keys to Success.”
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