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13D Monitor Standstill Analysis

By Kenneth Squire - The Activist Report - Volume 2 Issue 5 - May, 2012

Standstill vs. No Standstill. 13D Monitor has tracked 167 situations in the past six years where an activist has gained a board seat. Of those 167 situations, the activist entered into a standstill agreement 118 times (70.7%). However, of those 118 standstill agreements, 66 just prohibited the activist from commencing a proxy fight or opposing management’s slate at the upcoming meeting. I do not consider this to be any real restriction on the activist since the activist would not settle with the company on a board seat and then challenge its own settlement terms. So, of the 118 situations, there were only 52 (44.1%) where the activist was either restricted beyond the current meeting or had material restrictions beyond supporting management’s slate at the current meeting.

Voting Restrictions. 40 (33.9%) out of the 118 standstill agreements provided for the activist to support management’s proposals beyond the slate of nominees. Of those 40, 31 were only through the current year (not much of a sacrifice since the activist already knows what is going to be voted on and what management’s position is) and only 9 times (7.6%) did this restriction apply beyond the current year.

Corporate Governance Restrictions (i.e., proxy fights, etc.). In 103 (87.3%) of the 118 standstills, there was some sort of a corporate governance restriction. 60 of the 103 were for the current year only, which is not much of a sacrifice since an activist is not going to settle a proxy fight only to start another proxy fight at the same meeting. In 28 (23.7%) of the standstills did the corporate governance restriction extend to the next annual meeting and rarely (12.7%) did it extend beyond the next annual meeting.

Stock Acquisition Restrictions. In only 41 of the 118 standstills did the activist restrict itself from acquiring common stock. Those provisions were somewhat evenly split over a term extending to the current meeting (36.6%) and a term extending for a year beyond the current meeting (43.9%), with fewer provisions (19.5%) having a longer term.

Conclusion. In conclusion, it seems standard that in connection with being granted Board representation, activists agree to corporate governance standstill provisions for the upcoming meeting. While longer standstill periods, voting agreements (beyond the slate at the upcoming meeting) and stock purchasing restrictions are negotiated and agreed to from time to time, they certainly are not standard. The attached chart gives more detail on their frequency.