Keeping Hostile Bids At Bay

Boards would do well to lay considerable focus on protecting shareholder interests.

 Recent years have seen the return of hostile or unwelcome bids, which provides such great entertainment to the impartial observer and a chance for the financial public relations people to shine. They often go down to the wire and frequently fail, decided by government intervention, the courts, or the shareholders.

Last year saw assaults on so-called national treasures such as Unilever, known for consumer packaged goods; Akzo Nobel, a Dutch paints and coatings business; and GKN, a UK-based engineering firm with a 259-year history. The bidders have been characterised as asset strippers, break-up artists, and cost-cutters who will rob the targets of their R&D capacity, deplete management, and create redundancies. However, despite most of these bid approaches failing, the target ultimately has to change its ways. In effect, they have to acknowledge that shareholders do have an interest and if they do not see some sort of return on their shares, then they will sell should the right bid arrive. Bids are often taken as a warning that shareholders’ interests have not been adequately reflected in the way the business is run. All three of the above targets have had to promise to improve margins, sell off under performing non-core businesses, and increase distributions to shareholders. Why does it need a bid to ensure that shareholders’ interests are more fully considered? What are the nonexecutive directors—appointed to ensure that boards remember shareholders—doing? Why do shareholders have such a weak voice, particularly in some countries?

Activist shareholders