A recent trend in corporate America that is seeing companies remove so-called takeover defenses bodes well for bondholders because it signals companies are adopting more competitive policies, according to analysts at Moody's Investors Service. They said the removal of a takeover defense is seen as an indicator of a company's direction and may precede rating action.
There is growing pressure from institutional equity holders on companies to remove these defenses, which include mechanism such as so-called poison pills that can trigger executive payoffs and dilute value if a hostile bid is launched. This is part of broader corporate governance improvements. And this appears to be a rare example of when interests of equity investors and creditors are aligned, said Christopher Mann, v.p.
Mark Watson, v.p. at Moody's, said pharmaceutical companies such as Bristol-Myers Squibb and Pfizer have recently removed such defenses (the moves did not lead to rating revisions) and Watson anticipates the trend will continue. Moody's view on takeover defenses is new and is part of its effort to consider corporate governance in the rating process.