When beer titan Anheuser-Busch Cos. set up its bylaws to allow shareholders to act by "written consent," it probably did not expect the measure would be used by a rival in a campaign to take control of the brewer in an expedited manner. But, in fact, that is exactly what appears to be happening with InBev SA's plan released Monday to use the measure to
replace 13 board members,
according to a Securities and Exchange Commission filing.
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Some corporations permit written consent provisions in their bylaws because they want procedures in place to give investors the ability to quickly endorse debt refinancing programs in cases when shareholder approval is required for those actions. But having such a provision in place also makes the company vulnerable to dissident shareholders seeking to bring in their own director candidates.
Unlike most corporations, Anheuser-Busch has a bylaw provision permitting "written consent solicitation."
To employ written consent solicitations, the activist distributes proxy documents to other shareholders asking them to sign a card saying they want to vote their shares to remove certain directors from the board and replace them with candidates nominated by the dissident. Typically, if investors with more than half of the total shares outstanding vote to remove the incumbent directors, the activist wins and his nominees are installed on the board. The campaign is different from a traditional proxy contest because it does not take place on the day of the company's annual meeting. As a matter of fact, no meeting must take place for the consents to be approved and for the directors to be removed and replaced.
It's likely Anheuser-Busch set up its bylaws to permit written consent solicitations thinking its double-digit billion dollar stock market capitalization would discourage hostile bidders and proxy contests.
But after removing its classified board, it looks increasingly like Budweiser should have killed the written consent solicitation bylaw a long time ago. The majority of other public corporations have already removed this measure from the bylaws. - Ron Orol
See related story about InBev from Dealscape
See Dealwatch: Brewers for more
Ron Orol is a Washington-based reporter for The Deal and author of Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World.
