The 2020 Mid-Year Economic Update_long

Legal Shifts Have Made Hostile Takeovers More Difficult

But some barriers have become easier for companies like Air Products to overcome.

In today's business world, hostile takeovers like that being pursued by Air Products in its bid for welding gases and hardgoods distributor Airgas have become fairly rare. After all, acquisitions are hard enough to complete when the target is willing to be taken over, when considering financing and integration.

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That wasn't always the case, according to Jim Hill, executive chairman of Ohio-based Benesch and chairman of the law firm’s private equity practice. "When I started practicing law in the late 70s, early 80s, you were seeing a lot more hostile takeovers," he says. "States didn't protect their domiciled corporations as much as they do now." Hill spoke to MDM about hostile takeovers, in light of Air Products' ongoing fight for Airgas, for an article in the most recent issue of MDM Premium.

Over the past few decades, changes to state laws, federal laws and internal approaches to how boards of directors are structured have created significant barriers to launching successful hostile takeover bids. But a recent measure adopted by the SEC may make at least a few of those barriers a little easier to overcome. On Aug. 25, the SEC approved a proposal allowing "proxy access" to shareholders.

What does this mean for public companies? Boards of directors will have to include competing nominees for the board in the company's proxy materials, rather than requiring the competing interests – including hostile companies – to print, mail and promote their own materials.

While having members on the board that weren't nominated by the board to begin with may not result in an automatic approval of a hostile takeover bid, it does create a different dynamic for the discussion, Hill says. "Suddenly, everyone's acting as though anything they say in a board meeting will ultimately be stated in a deposition," Hill says. "And it probably makes the company much more focused on creating value in the short-term."

Because without that value rejecting a hostile bid could lead to shareholder lawsuits.

Read my full interview with Hill in the latest issue of MDM, which looked at what goes into a hostile takeover bid as well as more on the challenges associated with it: The Mechanics of a Hostile Takeover Bid – Behind Air Products' Tactics in Bid for Airgas

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