Corporate boards should be in a constant state of readiness to extract maximum shareholder value in the event of a takeover, according to Tyndall head of equities Bob Van Munster.
He said because of their responsibilities to shareholders, boards needed to have a better understanding of company value.
Van Munster pointed to a number of recent examples of management buy-out situations that have highlighted the need for “strong and competent independent directors … invaluable in these situations and also in time of company crisis”.
“To determine the best course of action, a board must be well equipped to extract value for shareholders …there is not enough continuous assessment by boards of the value of a company, or protection of that value.
“Some boards still do not have the composition that allows them to do this adequately, making them captive to the executive team and advisers,” Van Munster said.
Some of the different types of merger and acquisition offers boards currently receive are scrip offers, which he said are more complex than many appreciate, management buy-outs and schemes of arrangement.
He said management buy-outs could put independent directors at an information disadvantage relative to management, which could limit alternatives and often result in opening the company to auction and selling to the highest bidder.
On schemes of arrangement, he said it lowers the threshold of acceptances required, making it easier for the takeover company to hold shareholders to ransom, expressing the Tyndall view that in a change of company control a majority of shareholders should be in agreement.
Van Munster also addressed break fees, corporate advisers’ success fees and disclosure of takeover approaches.
He said break fees should be minimal, with onerous conditions imposed, large success fees should be discouraged because they are often tantamount to standover tactics and that there needs to be an established protocol for dealing with disclosure of takeover approaches in order to give directors guidance in this regard.
He also reminded boards not to give undue focus to hugely popular private equity, but to consider other alternatives such as public equity.
