The use of poison pills to thwart hostile takeovers may be growing, but so is opposition by shareholder activists. In the latest skirmish, the activists won handily. Witness Navistar International, which had been at odds with investors for 10 months over its staunch refusal to rescind its poison- pill provisions.
But the Chicago-based heavy-duty truck maker is far from the only company eyed by leading activist Herbert A. Denton, president of Providence Capital LC. Denton says he expects to target about a dozen companies like Navistar in which, in his estimation, the high takeover costs associated with poison pills protect management from being held accountable for poor performance. Sure, management traditionally says such defense mechanisms are designed to foil a lowball tender offer. But, says Denton, "the best defense is a high stock price." And, he adds, "When there's a discrepancy between the share price and the value of the company, there are things management can do other than take comfort in the pill."
Navistar provoked Denton's ire, and risked a possible lawsuit, because it wouldn't budge even after 83 percent of its shareholders voted in February in favor of a nonbinding resolution to drop the poison-pill measure. "Something is dangerously wrong when an overwhelming majority of shareholders are ignored," says Denton. His two-pronged approach to forcing firms to respond to shareholders includes proposing an amendment to Delaware law that would give investors the power to force a board to rescind its poison pill, and attempting to replace boards of targeted companies with a slate of directors who oppose poison pills. "We'll find a company that wants to take us on in court," crows Denton.
Navistar CFO Bob Lannert says the prospect of doing battle with Denton had nothing to do with the board's decision to remove the poison pill. Rather, it was that Gabelli Asset Management, Navistar's second-largest shareholder with 9.5 percent of shares outstanding, had filed papers to bring the poison-pill issue to a vote again. -- Stephen Barr