Public Companies and Unrealistic Shareholders – How to survive 50% yields By Gary Wolfe, Partner, Seward & Kissel LLP P erhaps The mosT amazing conTainer shipping companies involve a sale, or may noT TargeT’s Board of DirecTors even consequence of The recenT are Trading aT a fracTion of neT involve a sale. The Board will if The acquirer purchases a precipiTous drop in The drybulk asseT value (NAV). ThaT is whaT decide. In eiTher case, having majoriTy of The shares. The markeTs and The relaTed drop in makes Them poTenTial TargeTs for effecTive anTiTakeover measures prospecT of such delay provides The sTock prices of The publicly eiTher going privaTe or enables The Board To make The The acquirer wiTh a subsTanTial Traded drybulk companies has unfriendly acquisiTions. The required analysis wiThouT risk incenTive To negoTiaTe wiTh The been The exTraordinary yields aT “absurd” relaTionship of NAV To ThaT The Third parTy will TargeT’s Board in order To reach which The full and high divi - currenT cash flow is also reflecTed compleTe a purchase of a an accepTable deal. dend payouT companies are in The high yields ThaT The full conTrolling inTeresT, and There - now Trading. As of This wriTing, and parTial dividend payouT fore force The Board To Poison Pills Yahoo Finance shows one of The companies are producing. surrender The Company’s inde - Poison pills, more formally full dividend payouT companies pendence, wiThouT The Board’s known as shareholder righTs as Trading aT a 73% yield while Presumably, The Time will come approval. In shorT, The anTi - plans, are mechanisms ThaT one of The parTial dividend when The markeT reTurns To Takeover devices enhance The assure ThaT an unwanTed Third companies is Trading aT “only” a focusing on cash flow or Board’s power To negoTiaTe or To parTy cannoT exceed a cerTain 60% yield. income aT decenT mulTiples. choose noT To negoTiaTe. Threshold of ownership wiThouT However, unTil Then, The Board approval. If The hosTile In This conTexT, some invesTors publicly Traded shipping The besT anTiTakeover device, of Third parTy crosses The line, iT have demanded assurances from companies need To ask Them - course, aT leasT in The shipping auTomaTically “swallows The The full and parTial dividend selves The following: world, is To Trade aT a posiTive poison pill”. The resulT is ThaT payouT companies ThaT Their mulTiple of NAV. AbsenT ThaT, The hosTile parTy is Tremen - dividends are “sacrosancT”. AT Do we have effective The Two mosT effecTive anTi - dously diluTed boTh economi - The same Time, when The prices antitakeover devices? Takeover devices are “sTaggered cally and in voTing power, as all of Their shares have fallen as The cynic’s view of anTiTakeover Boards” and “poison pills”. The oTher shareholders geT The much as 90%, company devices is ThaT They “enTrench opporTuniTy To buy shares aT a Staggered J managemenTs have begun To ask managemenT”. The counTer To significanT discounT. a Themselves why They should noT ThaT claim is ThaT anTiTakeover Boards n Take Their companies privaTe. devices enhance a Board’s STaggered Boards are usually There are a number of oTher u abiliTy To do whaT iT is supposed divided inTo Three classes, wiTh anTiTakeover measures ThaT a The common, unsTaTed facTor, To do when confronTed by a one-Third of The members companies can build inTo Their r in boTh The amazingly high Third-parTy offer. ThaT is, elecTed each year for Three-year consTiTuTive documenTs. y yields currenTly prevailing in The decide in an educaTed manner Terms. UlTimaTely, having a 2 markeT and The aTTracTion of whaT course of acTion benefiTs sTaggered Board means ThaT iT To whom will our anti - 0 going privaTe is ThaT shares of The shareholders as a whole. will Take a hosTile Third parTy takeover devices apply? 0 publicly Traded drybulk and ThaT course of acTion may Two years To acquire conTrol of a InTeresTingly enough, mosT 9 42 Marine Money www.marinemoney.com anTiTakeover measures apply Denmark, Hong Kong, Panama, A Board ThaT approaches The paying a 60% yield. noT only To ouTsiders buT also To NeTherlands) To The adopTion quesTion of lowering or elimi - insiders. 1 and use of These devices. naTing The dividend in The Generally, The U.S. courTs do proper way can minimize iTs noT inTerfere wiTh The judgmenT Suppose a company’s CEO One common Theme, aT leasT in liTigaTion risk Tremendously. of The Board of DirecTors, so wanTs To organize a group To The UniTed STaTes: IT is always long as ThaT judgmenT is buy The company aT a premium beTTer To adopT an anTiTakeover Does the Board have the raTional and The Board appears To The currenT very depressed device when a company is noT power? To have made an educaTed judg - sTock markeT price, buT aT a under a ThreaT. When a In Delaware, Liberia, Marshall menT wiTh due consideraTion. fracTion of NAV? If The Board company has adopTed an anTi - Islands and Bermuda, The This is known as The “business is of The view ThaT The company Takeover device in response To a paymenT of dividends on judgmenT rule”. This assumes will do beTTer for iTs share - hosTile offer, The courTs exercise common shares is sTricTly ThaT The Board appears To have holders by sTaying independenT, a higher level of scruTiny. wiThin The discreTion of The acTed in line wiTh iTs fiduciary anTiTakeover measures will Board of DirecTors. A disclo - duTies To The company and iTs enable The Board To resisT The Suppose we want to sure To ThaT effecT appears in shareholders as a whole, offer—wheTher iT comes from lower or eliminate our virTually every IPO prospecTus including iTs duTy of loyalTy. If managemenT or from an dividend? for a public company ThaT offers The Board, afTer due and unfriendly “predaTor”. In This This is a quesTion ThaT compa - common shares in The U.S. educaTed consideraTion, has connecTion, The Board’s duTy is nies have only begun To pose markeTs. If an IPO prospecTus concluded ThaT The company The same wheTher The offer wiTh The fall in The sTock for an offering of common musT eiTher reduce or eliminaTe comes from managemenT or The markeTs and The yields ThaT The shares in The U.S. lacks ThaT The dividend, The Board’s deci - predaTor. The Board needs To fall has produced. disclosure, There is eiTher some - sion will be upheld, noTwiTh - deTermine in eiTher case whaT is Thing special, or someThing sTanding The wishful Thinking in The besT inTeresTs of The Thinking abouT lowering or wrong going on. Even The of invesTors who believe ThaT shareholders as a whole. The eliminaTing a dividend raises a quasi-masTer limiTed parTner - They deserve To conTinue To Board musT also acT in accord number of issues: ship, or MLP-like public receive The windfall of hisTori - wiTh iTs duTy of care To The companies ThaT are corporaTions cally unprecedenTed dividend company and iTs shareholders. • Does The Board have The make clear To Their invesTors yields. For This reason, mosT Boards power To lower or eliminaTe ThaT paymenTs of dividends are will esTablish a commiTTee of The dividend? compleTely a maTTer for The In addiTion, iT will be difficulT independenT direcTors To • Does ThaT Board owe a duTy Board and ThaT The company is for shareholders To conTend ThaT consider an unsoliciTed offer, To iTs shareholders To keep iTs noT promising The shareholders The company promised Them wheTher from ouTside or inside. dividend “sacrosancT”? ThaT dividends will be paid. ThaT iT would “always” pay a • Will The Board geT inTo (MLPs ThaT are sTrucTured as dividend when iTs IPO ATTached To This arTicle is a Trouble wiTh The securiTies parTnerships may be differenT, prospecTus and repeaTed disclo - maTrix of publicly Traded ship - regulaTors if iT eliminaTes iTs buT we are noT addressing Those sure since ThaT Time sTaTed jusT ping companies ThaT have dividend? here.) The opposiTe. poison pills and sTaggered Boards. Remember, There is a As a Threshold maTTer, noThing Are dividends Will the securities whole panoply of anTiTakeover is “bulleT proof” in The world of “sacrosanct”? regulators make us devices aside from These Two publicly Traded companies. In The shorT answer is: No. The pay a dividend? J measures. In addiTion, differenT The U.S., anyone can sue. The Board is free To exercise iTs busi - NeiTher any U.S. sTock a sTandards may apply across The quesTion is wheTher The plainTiff ness judgmenT in deTermining exchange nor The SecuriTies and n Typical shipping jurisdicTions has a case ThaT can survive The wheTher iT is in The besT inTeresTs Exchange Commission (SEC) u (Marshall Islands, Bermuda, Company’s moTion To dismiss of a company and iTs share - will force a company To pay a r Liberia, UniTed STaTes, Norway, for summary judgmenT. holders To mainTain a dividend dividends on iTs common y 2 0 1Existing shareholders may be grandfathered to own higher levels of shares at the time a poison pill is adopted, but those shareholders will typically be prohibited from 0 exceeding a higher threshold without Board approval. 9 www.marinemoney.com Marine Money 43 shares. So long as The company are sacrosancT, and wanT reas - raTher for bankers and invesTor negoTiaTions wiTh The lenders? has (repeaTedly) disclosed ThaT surance ThaT They will be paid, relaTions (IR) experTs. If your This is a much harder quesTion. The paymenT of dividends is even aT The currenTly unprece - IR people cannoT help you To InsecuriTy, ThaT is, lack of defin - discreTionary, Then The denTed high yields. AT The same undersTand how your invesTors iTive news, creaTes problems in company should succeed on Time, lenders may be pressuring will reacT To news, or no news, The markeT, while aT The same any claim by a shareholder ThaT The companies To reduce or aT a given Time, consider hiring Time, incompleTe news creaTes The shareholder was misled inTo eliminaTe Their dividends.