Jim Hanks, partner at Venable LLP, participated in a video interview during REITwise 2022: Nareit’s Law, Accounting & Finance Conference held in Orlando, Florida on March 23-25.
Hanks said that for REIT boards facing a merger, regardless of whether they are on the buy or the sell side, their duties must always be abided by: employing good faith; acting in the best interest of the company; and taking the care of an ordinarily prudent person.
Hanks also said that macro issues like climate risk, the war in Ukraine, and the pandemic raise concerns for REIT boards with respect to M&A. He said litigation has come out of the pandemic involving the ordinary course of business covenant which requires the contract seller to carry on its business in the ordinary course between signing and closing.
“[But] the last two years have not been the ordinary course for most businesses,” he added.
Turning to activist investors, Hanks said that in Maryland there are two ways to take over a company: a hostile tender offer or a hostile proxy contest.
“The best defense against a hostile tender offer is a rights plan,” Hanks said. “As far as a hostile proxy contest is concerned, the best protection there is a classified board.”