Arming Corporations Against Activist Groups: Strategies for Businesses
In the fast-paced world of business, companies sometimes find themselves under the spotlight of hostile takeovers or activist shareholders. For companies operating in Germany, effective strategies focus on three key areas: communication, negotiation, and defense mechanisms.
Communication Strategy
Transparent and proactive communication is crucial in such situations. Companies must engage in clear messaging that explains their strategic vision and the risks associated with a hostile bid. This approach can help rally support internally and externally.
A prime example of this strategy is Commerzbank's response to UniCredit's hostile bid. The bank's public declarations of strategic independence and emphasis on national economic sovereignty rallied political and regulatory opposition to UniCredit's takeover attempt.
Moreover, engaging regulatory bodies and leveraging political channels can be effective, especially in Germany where government involvement is significant in strategic industries.
Negotiation Tactics
Companies often seek to negotiate directly with the bidder to explore mutually beneficial alternatives or to delay hostile intent. Engaging in stakeholder coordination (shareholders, government, employee representatives) strengthens the company’s negotiation position and can create obstacles to the hostile bid.
The German political stance described in the UniCredit-Commerzbank case shows how coordinated mergers or alliances may be preferred over hostile takeovers. In this case, the government insisted on “coordinated mergers” rather than hostile attacks.
Defense Mechanisms in German Takeover Law and Practice
German takeover law provides several tools to slow or complicate hostile takeovers. For instance, the 30% threshold triggering mandatory offers can be used to delay a takeover.
Companies can also employ financial strategies like share buybacks and dividends to boost share price and shareholder loyalty, reducing the attractiveness of a hostile bid.
The German government's stake in key companies, like Commerzbank, allows leveraging political support to block unsolicited bids deemed contrary to national interest.
Defensive mechanisms like shareholder rights plans or restructuring can be considered within legal boundaries, although they are less common in Germany than in the US.
Responding to activist shareholder pressure may involve dialogue, concessions, or strategic adjustments to align with activist demands, preventing escalation into hostile actions.
A Holistic Approach
German practice emphasizes a holistic approach blending legal defense, shareholder engagement, and strategic communication, often backed by political support to maintain corporate sovereignty. The recent high-profile UniCredit–Commerzbank case illustrates these approaches in action, highlighting the importance of coordinated shareholder and governmental roles alongside financial strategies like share buybacks to defend against hostile or activist pressures.
- In the UniCcrezbank-Commerzbank case, the bank's emphasis on national economic sovereignty, transparent communication, and engagement of regulatory bodies served as a strong defense against a hostile bid, demonstrating the effectiveness of strategies that combine strategic communication, negotiation, and defense mechanisms in business.
- In Germany, companies under the spotlight of hostile takeovers or activist shareholders can employ financial strategies such as share buybacks and dividends, as well as legal defensive mechanisms and shareholder rights plans, to boost shareholder loyalty, slow or complicate takeovers, and leverage political support to maintain corporate sovereignty.
