Mergers & Acquisitions 2022 Annual Review

16 MORRISON FOERSTER We see little to suggest that shareholder activism will diminish in 2023, although several prominent activists lost shareholder votes in 2022. A few trends have emerged: ■ “Occasional activists,” including individual shareholders such as founders and current or former officers and directors, have become more common. ■ Activists continue to use ESG considerations as wedge issues in advancing their campaigns. However, the growing opposition to the overall ESG movement may impact the ability to leverage ESG themes going forward. ■ Some prominent activists have taken a more low-key approach, exemplified by Pershing Square’s announcement that it would cease running public campaigns and focus instead on constructive stakes in well-performing companies. ■ Other activists have pursued large acquisitions, often in combination with private equity firms, such as Elliott Management and its Evergreen Coast Capital private equity arm. M&A Activism Continues to Affect Dealmaking M&A-focused activism generally falls into two categories: proactive campaigns that put the company into play or promote a break-up, including where the activist makes its own hostile offer, and reactive strategies that oppose an announced deal because the activist prefers a standalone strategy or alternative transaction or seeks to force an enhanced deal (so-called “bumpitrage”). We may see more of the proactive variety given current market conditions, as activists seek to generate opportunities rather than capitalizing on the competitive dynamics (such as potential jumping bidders) of more buoyant equity and M&A markets. Use of Universal Proxy Card Becomes Mandatory Historically, in an election contest, the company and dissident shareholder distributed separate proxy cards, and shareholders voting by proxy were generally unable to vote for a combination of director nominees from the competing slates. With the SEC’s new rule requiring a “universal proxy card” in contested elections, each side will provide a proxy card that includes both sets of nominees and refer shareholders to the other party’s proxy statement for information about the other party’s nominees. This rule change will likely bring important consequences: ■ With shareholders able to “mix-and-match” nominees from competing slates, dissidents may be more likely to win minority representation. Conversely, election of a control slate may be less likely unless shareholders perceive the need for radical change or the dissident is proposing an acquisition favored by the shareholders. ■ The enhanced ability to elect a minority slate might be attractive to smaller or occasional activists who might have otherwise shied away from the expense of a proxy contest given the uncertain outcome. ■ The ability to choose individual nominees instead of entire slates will likely result in greater focus on individual nominees’ skills and credentials. This may encourage companies and dissidents to resort to more personal attacks on the opposition’s nominees, making proxy contests even more contentious. Companies may want to reexamine their proxy materials and related disclosures and processes, including director biographies and skill matrices, as well as their standard director nominee questionnaire. ■ The influence of proxy advisory firms could increase further, as some shareholders may search for additional guidance in making their voting decisions from among a broad array of choices rather than the previous binary decision. 6. SHAREHOLDER ACTIVISM CONTINUES TO BE A CENTRAL CONSIDERATION