On March 4, we predicted in a Sidley Update that COVID-19 would act as this season’s most effective “poison pill” that would chill activist activity. This proved largely to be the case. According to Bloomberg, the value of new global activism campaigns decreased 47 percent year over year. In the U.S. the number of activist campaigns at companies valued at more than $1 billion was down 54 percent. This partly reflects a reluctance by activists to make significant investments given Q2 market volatility.
But the 2020 proxy season was not limited to metaphorical poison pills. Actual shareholder rights plans, or “poison pills,” came back with a vengeance. With ISS and Glass Lewis both indicating their acceptance of such adoptions in certain circumstances, more than 60 companies adopted “poison pills” between March and June. To put this number in perspective, only 25 S&P 1500 companies had a poison pill in place at the end of 2019, according to FactSet.
However, the pace of poison pill adoptions has tapered along with the increase in price and decrease in volatility in the equity markets. In each of March and April more than 20 poison pills were adopted. Adoptions decreased to 10 in May and only three in June. It remains to be seen whether this surge in poison pills may turn out to be simply “Phase 1” if we experience another market downturn. But, for now, adoptions of rights plans have to a large degree normalized.
The chilling effect of COVID-19 that we predicted in March is similarly losing its impact. We have already seen a number of clients approached by activists behind the scenes and an even larger number interested in ramping up their activism preparation activities (including drafting update-to-date shelf poison pills). Absent another significant retrenchment in the equity markets, we expect robust activist activity in the fall and winter seasons, with earlier approaches from activists, more proxy contests at companies with annual meetings in the fall, and more proxy contests (and threats of proxy contests) through special shareholder meetings and actions taken by written consent. 2009 was the last record year for proxy contests in the U.S.; we expect a similar bounceback here.
