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Chapter 32 "Sell The Company"

§ 32.01 Introduction

§ 32.02 Typical Proposal

§ 32.03 The Debate Over "Sell the Company" Proposals

§ 32.04 "Sell the Company" Proposals — Most Common Grounds for Exclusion

Chapter 32 "Sell The Company"

§ 32.01 Introduction

In "sell the company" proposals, shareholders ask a company's board of directors to "sell the company," "auction the company" or "explore strategic alternatives." The first step recommended in most of these proposals is the retention of an investment banker.

§ 32.02 Typical Proposal

RESOLVED: That the stockholders of Huntington Bancshares Incorporated, assembled at the annual meeting in person and by proxy, hereby request that the Board of Directors immediately engage the services of an Investment Banking firm to evaluate alternatives that could enhance shareholder value including but not limited to a merger or outright sale of Huntington Bancshares Incorporated.[fn1]

[fn1] Definitive Proxy Statement of Huntington Bancshares Inc. filed on Mar. 12, 2001.

§ 32.03 The Debate Over "Sell the Company" Proposals

Although proposals seeking a sale or other transaction are extremely company-specific, there are a few common themes. Proponents often point to underperformance relative to the company's peers, at times singling out particular management initiatives, as justifying a sale or exploration of strategic alternatives.[fn2] Increased consolidation or competition in the company's industry may also be cited.[fn3]

opposing "sell the company" proposals, companies frequently state that the current stock price does not reflect the long-term value of the company.[fn4] Some companies predict that operating results will improve as a result of acquisitions, investments or the realization of the company's long-term strategy.[fn5] Most relate that their boards already continuously evaluate strategic alternatives in accordance with their fiduciary duties to shareholders.[fn6] Shareholders are often cautioned that adoption of the proposal and its "fire sale" mentality could make it difficult to obtain the highest price possible for the company.[fn7]

[fn2] See, e.g., Definitive Proxy Statement of FirstMerit Corporation filed on Mar. 9, 2001 (underperformance); Definitive Proxy Statement of Huntington Bancshares Incorporated filed on Mar. 12, 2001 (restructuring).

[fn3] See, e.g., Definitive Proxy Statement of Union Planters Corporation filed Mar. 19, 2001.

[fn4] See, e.g., Proxy Statement of Crown Cork & Seal Company, Inc. filed Mar. 27, 2001; Proxy Statement of Great Atlantic & Pacific Tea Company, Inc. filed May 21, 2001.

[fn5] See, e.g., 2001 Union Planters Proxy Statement.

[fn6] See, e.g., Proxy Statement of Chemed Corporation filed Mar. 28, 2001; Proxy Statement of McKesson HBOC, Inc. filed June 1, 2001.

[fn7] See, e.g., Proxy Statement of Occidental Petroleum Corporation filed Mar. 21, 2001; Proxy Statement of National City Corporation filed Mar. 9, 2001.

§ 32.04 "Sell the Company" Proposals — Most Common Grounds for Exclusion

A proposal that mentions a non-extraordinary matter or transaction such as a stock buyback may be attacked under Rule 14a-8(i)(7), relating to ordinary business operations, even if it also mentions one or more extraordinary transactions such as a merger or spin-off.

A company may claim that a proposal that purports to value the company is false and misleading and thus excludable under Rule 14a-8(i)(3) if the statements about valuation are not made in good faith and on a reasonable basis, or are not accompanied by disclosure which facilitates shareholders' understanding of the basis for — and the limitations on — the projected realizable values.

A company may argue that it has substantially implemented a proposal seeking to sell the company and that the proposal may thus be omitted under Rule 14a-8(i)(10) if the company has taken a serious step toward implementing the proposal (usually hiring an investment banker); however, past compliance may not pass muster, nor may action not adhering to the process requested in the proposal.

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