In the context of companies often electing to settle with shareholder activists in lieu of gambling on the uncertainties associated with a proxy contest or prolonged public attack, Sidley's "Help! I Settled With an Activist!" identifies numerous risks associated with settlement agreements that - at a minimum - should inform companies' negotiations and decision-making in the event they find themselves in a potential settlement mode.
Potential or probable settlement downsides that are frequently unanticipated or underestimated (in terms of impact) include substitute "bad cop" activist designees, limited duration standstills and related short-term reprieves from the disruption, adverse impacts on boardroom dynamics, extensive books & records requests, sharing of company information between activist investors and their designees, CEO attacks and premature departures, and more.
Sidley advises companies to ensure their settlement negotiations are well-informed and that they consider whether - based on the particular facts and circumstances - the potential downsides of settling might weigh in favor of assuming the risks associated with a proxy contest.
See also Sullivan & Cromwell's "Review and Analysis of 2018 U.S. Shareholder Activism" and Gibson Dunn's "2018 Year-End Activism Update" for settlement agreement terms and trends; our recent reports: "Prepare for These Shareholder Activism Trends," "Shareholder Activism: Trending Now," and "Shareholder Activism Preparedness"; and numerous additional resources on our Shareholder Activism page. This post first appeared in the weekly Society Alert!