The Ideas Report For Serious Investors

Corporate law firm Schulte Roth & Zabel LLP writes in a client update:

"In response to no-action requests by Eastbourne Capital Management LLC (“ECM”) and certain entities affiliated with Carl Icahn (the “Icahn Funds”) (collectively, the “Dissident Shareholders”), the staff in the Division of Corporate Finance of the SEC (the “Commission Staff”) granted no-action relief under the “short slate rule”1 permitting the Dissident Shareholders to not only solicit votes for their own nominees, but also to seek authority to vote for nominees of an unrelated dissident. The Commission Staff strictly conditioned this relief on the Dissident Shareholder’s representations that they have not, and would not, agree to act or act as a “group” as determined under Section 13(d)(3) and in Regulation 13D-G. The Commission Staff’s response also indicates that, to exercise this right, the dissident may not actively recommend the election of each other’s nominees, but may only state their intention to vote for each other’s nominees, except to the extent otherwise stated in the Dissident Shareholder’s respective proxy cards."

The client brief concludes:

"The Commission Staff’s grant of relief to ECM and the Icahn Funds will further enable soliciting stockholders who are seeking to elect a short slate to “round out” their slate with candidates from the full selection of nominees, even those proposed by another dissident. This new interpretation will allow activists to pursue their goal of achieving better shareholder representation, will allow shareholders to vote for the directors of their choice, and will keep management slates from gaining an advantage when there are multiple dissident slates nominated by unrelated shareholders. Going forward, this scenario may become more common in the activist community. However, activist investors must be careful not to run afoul of the Commission Staff’s response by acting as a group or otherwise engaging in any activities that would be deemed to cause the formation of a “group” as determined under Section 13(d)(3) and in Regulation 13D-G."

Bottom line: Shareholders may have an easier time circumventing companies' poison pill provisions when it comes to forcing change at the Board level, as long as there is more than one activist investor involved in a particular situation.