A discredited US-created management entrenchment provision is being used in the UK.
An attempted boardroom coup at Johnston Press has been thwarted by a controversial “poison pill” defence that could hand control of the newspaper publisher to its lenders.
Christen Ager-Hanssen, the activist shareholder plotting to oust chairman Camilla Rhodes and the company’s senior management, has been forced to delay a call for an Extraordinary General Meeting after advisers discovered the tripwire in bond documents.
This weekend Mr Ager-Hanssen was in talks with lawyers at the City firm Mishcon de Reya on how to circumvent the mechanism, known as a “dead hand proxy put,” in preparation for a new attack.
Johnston Press inserted the dead hand proxy put into its bondholder agreements when it last refinanced its £220m debt pile three years ago. Such terms can secure lower interest rates but can also trigger a default if shareholders step in to appoint new directors.
In the US, the Fried, Frank law firm says about these provisions:
Judicial concern about proxy puts in debt is based on their inherent potential entrenchment effect, because a triggering of the put could make a change in control of the board more costly—as the debt (and, through cross-acceleration provisions, possibly all of the
company’s debt) could be required to be refinanced if the put were triggered. Proxy puts with a dead hand feature are more inherently entrenching than non-dead hand proxy puts as they disable a board
from approving a dissident slate to avoid the put being triggered.