How a Board Portal Supports Directors in Takeover Bids

The context of directors’ roles in takeover bids has become complex and challenging. First, the number of takeovers in the UK is increasing; and the legal climate governing takeovers is changing. These factors have focused on the importance of directors’ actions in the takeover process, and directors must carefully weigh fiduciary duties and responsibility for the company’s best interests. All of this leads to much discussion and debate among board and management, and a board portal makes this interaction secure and efficient.

Takeovers are still on the rise in the UK. The total value of completed mergers and acquisitions involving UK companies almost doubled in the second quarter of 2017 (latest statistics) from the previous year, according to the Office of National Statistics. A total of 155 M&A deals worth £30 billion ($40.03 billion) involving UK companies were completed in the second quarter.

Many experts had forecast a decline, however, as Brexit was expected to cause companies to hold back on spending. Brexit does raise a number of issues that complicates UK M&A: UK agreements with trading partners need to be redefined, and, until there is clarity from the government on this, potential M&A deals become complex and challenging to negotiate, as Deloitte points out in a recent study.

What’s more, the UK Government is hoping to tighten its grasp on merger and takeover deals after Brexit, setting out fresh rules. Business and energy secretary Greg Clark has proposed new laws aimed at enabling the Government to intervene in deals in certain strategic sectors. Currently, the Government only has the power to block a deal if a business has a UK turnover of more than £70 million ($93.59 million), or where the UK market share of the merged outfit would be more than 25 per cent. Clark wants to scrap the latter rule and drop the former figure to just £1 million.

There is already complexity because of the different regulators who may intervene in a UK takeover. The Panel on Takeovers and Mergers is the body that regulates takeovers and mergers in the UK. But other regulators like the Financial Conduct Authority, the Prudential Regulation Authority (responsible for banks and insurers) or the Competition and Markets Authority may all weigh in if their area of oversight is affected by a takeover bid.

Directors’ Duties in Focus

In this challenging context, recent takeovers have focused attention on the duties of directors when recommending takeover bids.

For example, directors at the UK commercial laundry firm Berendsen convinced shareholders to hold out for a higher price when French competitor Elis proposed a takeover in May 2017. Although the company had gone through several bad quarters, directors insisted that the price offered by Elis undervalued the company. Their careful stewardship kept negotiations going over seven months, when Elis offered a share price the company could accept.

Actions like these go to the responsibility that UK directors have to carefully consider their fiduciary duties under general common law principles and, if the target company is public, duties indicated in the City Code on Takeovers and Mergers.

The purpose of takeover bid preparation is to ensure the board and senior management are in a position to demonstrate the highest underlying value for the company’s shares, so that if control is to pass, transfer occurs on acceptable terms.

The continuing independence of the company may result from a successful takeover defence, but that is not the objective. Getting clarity on this point among a board and senior management team up-front (and hopefully before any bid emerges) can sometimes be a key to a successful takeover defence. Many boards have grappled with this dilemma in public takeover situations (the “defend at all costs” mode). Clarity of intent needs to be agreed before a bid emerges.

In summary, preparing for a takeover requires a single-minded focus on value. Bid preparation reduces the offeror’s advantage of surprise and increases the company’s ability to demonstrate the optimal value of the company. It also assists in controlling perceptual momentum from the company’s viewpoint and its value proposition among investors/opinion influencers. A company is more likely to retain the support and confidence of shareholders if it is perceived to be acting in their best interests.

Communication With Stakeholders – the Board Portal

For directors trying to manage complex takeover bids, in which communication with management, shareholders and other stakeholders is key, the board portal becomes an indispensable tool.

Investors and other observers will be dissecting the board’s every action. And it falls to the company secretary to ensure that processes are followed, proper documentation is kept and information flows smoothly between all parties. The Board Portal makes this process efficient and secure.

To mount a successful takeover response, a company needs to be able to immediately respond to any hostile bid – in the strongest and most compelling way. The company’s board and senior management team must immediately be in a position to provide a clear and compelling articulation of performance and future prospects. Board or senior management indecision can paralyse a bid defence. This means safe and rapid communication among board members – a board portal provides the environment they need.

Diligent Boards Provides the Support Directors Need

The role of a board portal during a takeover bid is critical.

In a world where overnight delivery isn’t fast enough, email isn’t secure enough and sharing PDF files isn’t easy enough, a board portal provides a compelling solution that is:

• Secure and mobile: With a board portal, information is encrypted and stored on a highly secure external server. Authorised users access the material securely through a tablet app or internet browser on a device of their choosing.
• On the same page: The use of a centralised hub for data ensures the latest information is made available instantaneously, eliminating challenges in distribution and version control, and accommodating last-minute updates.
• Decisive: Some portals enable electronic signatures for written consents. Easy voting features let members quickly respond to resolutions and approvals, track how others have responded and see how close they are to consensus.
• Prepared: The portal can already be loaded with crisis management plans, previous board and committee minutes, and governing documents, such as bylaws and committee charters.
• Informed: A board portal can also provide a central location for summaries and links to news reports, blog posts, Twitter feeds and investor commentary. Even the most well-run companies should count on being tested by unforeseen disruptions. CEOs, boards and company secretaries can minimise the damage – and possibly even turn a crisis into an opportunity to shine – with thorough preparation that includes the establishment of a reliable communications infrastructure.