Takeover Defenses in the Era of Shareholder Activism

This paper examines the interplay between takeover defenses and shareholder activism. Using a comprehensive sample of shareholder activism events between 2006 and 2014, I find that a staggered board or a dual-class structure deters activism whereas firms with a poison pill in place are more likely to become targets. In terms of demands, activists are more likely to demand removal of takeover defense measures and/or sale of the target firm if the firm has a staggered board or a poison pill in place, suggesting that when takeover defenses block the market for corporate control, activists promote changes through their interventions. I also find that target firms with takeover defenses are more likely to remove those defenses and more likely to be acquired following activism, which suggests that activism can act as an antidote to takeover defenses. Finally, while many target firms adopt a poison pill in response to activist approach, it does not turn out to make for an effective defense.