Rights Plans: Current Developments in the Application of Derivative Arrangements and Parallel Action by Share Accumulators

Summary

This practice note, which assumes the application of Delaware law, will discuss trends in rights plans and how they are impacting the design and implementation of rights plans. First, this note will discuss the increased use by activist investors and others of derivative arrangements, swaps, and other synthetic equity positions, which replicate the economics of share ownership while avoiding "beneficial ownership," allowing these parties to (i) circumvent or delay reporting obligations under Sections 13(d) and 16 of the Exchange Act, (ii) influence the voting of shares held by their "short" counterparties as hedges and (iii) convert such derivative positions to actual share ownership very quickly. Additionally, this practice note will discuss the increasingly common parallel action by activist investors and others under circumstances that would not necessarily result in aggregation of their share ownership for reporting purposes under either of Sections 13(d) or 16 of the Exchange ...