Q: Do takeover provisions make shareholder activism harder?
A: Activist shareholders love to rattle the executives at companies they say could be managed better. These activists say they're just trying to help the company.
Entrepreneurs, though, think these activists are just out for short-term profit and don't have the company's longer-term interests in mind. The raging battle between Carl Icahn and eBay is a classic example. Icahn sees a windfall from eBay selling its PayPal electronics payment unit. But eBay sees PayPal as a strategic way to make its electronic commerce system more pleasing to its customers.
Not speaking of the Icahn situation specifically, most activist shareholders have one goal: Make a buck for themselves and for their investors, according to an analysis by John Hendry of the University of Reading and other authors.
Understanding the motives of activists, companies put takeover provisions in place to limit their power. Takeover provisions can make some corporate changes, proposed by activists, more difficult. Selling a company might be less cost-effective if there's a big bonus that must be paid to executives of the company. Those provisions are unpopular with investors though, and investor-friendly boards of directors are more likely to get rid of them, according to research by Shawn Howton of Villanova.
Provisions can make the lives of activists more difficult. But remember, many times activists aren't pushing for the sale of a company, but instead, a larger dividend or share buyback. These events rarely fall under the umbrella of takeover provisions.
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Follow Matt Krantz on Twitter: @mattkrantz.
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