As the barrage of media coverage and the 2013 proxy season results show, shareholder activism is proliferating. Even large corporations are no longer immune from activist pressure: Shareholders have recently made demands on Apple and Dell, among others. Activist demands are increasingly being brought to shareholders at large, as activist investors introduce proxy proposals to either force corporate governance changes or, more frequently, to replace the incumbent board with a slate of directors more sympathetic to the activists’ reform objectives.
Historically, corporations have successfully fended off activist campaigns by using defenses—such as staggered boards and poison pills—designed to thwart the activist’s agenda. However, as activism continues to evolve into the mainstream of American corporate life, courts are increasingly scrutinizing and dismantling corporate defenses deemed to be inconsistent with fundamental notions of corporate democracy. One such highly scrutinized defense is the proxy put, also known as a “poison put.” These are indenture provisions that allow lenders to demand acceleration of bond redemptions upon the occurrence of certain events, such as a change in control brought about by the election of a dissident director slate. In its March 8, 2013 Kallick v. SandRidge Energy, Inc. decision, the Delaware Chancery Court examined a proxy put and ultimately prohibited SandRidge Energy, Inc. from interfering with hedge fund TPG-Axon Capital Management’s consent solicitation to replace SandRidge’s entire board of directors with an insurgent slate.