"Adopting a Poison Pill Amid COVID-19" from Clermont Partners reports on the spike in poison pill adoptions relative to the past ten years, and provides examples of pills adopted in response to market volatility/depressed stock valuations (see, e.g., Spirit Airlines and Dave & Buster's Entertainment) and hostile takeover threats/attempts (see, e.g., Occidental Petroleum Corporation and Woodward, Inc.). As of April 21, 47 pills have been adopted in 2020 compared to the 10-year full year annual high of 31 pills in 2019. Based on current trends, the firm anticipates that 154 pills will be adopted by year-end. Of 27 pills adopted in Q1 2020, 16 are short-term, i.e., one year or less - likely based on positions expressed by proxy advisors and some institutional investors. The post also recaps ISS's and Glass Lewis's approach to poison pills in light of COVID-19, and advises companies that are aiming to adopt a rights plan to provide good disclosure supporting the decision and ensure any renewal is subject to shareholder approval.
Freshfields' "Not so fast! A revealing look at the data behind recent poison pill adoptions and what boards should be doing now" - which presents the results of its deep-dive analysis of the 27 pills adopted across five major indices (covering small-, mid- and large-caps) since February 15, 2020 - portrays the recent uptick of pill adoptions in a different light based on company-specific circumstances that are not pervasive (at least not yet) in the COVID-19 arena. More specifically, of the 27:
- 13 are attributable to specific publicly disclosed threats to control. Five of those cited the pandemic as contributing to the board’s thinking, but in the context of activists or other significant stockholders having recently filed or amended Schedule 13Ds.
- Three adopted their pills expressly to protect net operating losses.
- 11 companies adopted pills in response to market volatility and depressed market caps. Of those, 10 lost 50% or more of their market cap since mid-to-late February, just one was in the S&P 500, and six had market caps below $1 billion in the context of a current and very relevant HSR size-of-transaction threshold of $94 million, which - as companies near $940 million in market cap - would allow for acquisition of more than 10% of a company's voting power without being subject to the HSR reporting requirements.
Based on its analysis, the firm concludes that the uptick in poison pills is generally attributable to circumstances expected to be associated with relatively few companies overall. The memo also offers a series of sound considerations for boards to ensure they are well informed and prepared to act expeditiously if/when appropriate.
See our report below for BlackRock's view; these prior reports: "Glass Lewis Spells Out Conditions for Support of Poison Pills and "ISS Issues COVID-19 Policy Application Guidance"; and numerous additional resources on COVID-19-prompted pill adoptions here. This post first appeared in the weekly Society Alert!