A recession nearly always heats up M&A as valuations tumble, along with share prices, and acquirers go shopping for great buys. When that happens, you can count on at least some activist investors to apply pressure to mid-sized companies to sell to big behemoths with deep pockets.
For some companies, selling makes strategic sense. But those for those CEOs who, after careful consideration, determine that a sale would not be in the best interest of shareholders, resistance is worthwhile.
The key to making a successful stand against that pressure is a good, close relationship with the board, says Don Knauss, whose experience fending off Carl Icahn during the Great Recession holds valuable lessons for today. “This was back before everyone was getting bombarded by activists,” he recalls. “Everybody said, ‘Why the hell is Carl Icahn going after Clorox? It’s a well-run company.’
“But it wasn’t a matter of being well run. Carl Icahn’s vision was that, if you’re the best mid-sized asset left standing, you just need to sell yourself to one of the big guys—Procter & Gamble, Kimberly Clark, etc.,” says Knauss. “My position to him was, we’ve got a strategy and we’re not changing that. If any of those companies want to buy us, they know my telephone number. They can call me, but I’m not going to start a process just because you think I should.”
The board formed a subcommittee to help Knauss deal with the Icahn offers and ultimately, to deal with the proxy fight when Icahn attempted to replace the board and sell shareholders on the deal. During that time, Icahn sweetened the offer several times, getting as high as $80 a share at a time when Clorox’s stock, then in the mid-$60s, had been relatively flat through the recession, like most other CPG companies.
That might have been tempting to the board, says Knauss, if he hadn’t maintained a practice of engaging the board deeply in strategy. “So because of that, they believed in the strategy and they believed it would do a better job of generating shareholder wealth over time.”
As a result, Icahn couldn’t get traction with either the board or the shareholders and in September of 2011, he dropped his bid for control.
Knauss and the board were ultimately proven right. By September 2014, with the country still limping out of its slump, Clorox stock had risen to over $90 a share.
Today, it’s worth $235.
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