Opt-Out Vote

An opt-out vote is a shareholder vote undertaken to determine if certain laws and regulations regarding corporate takeovers are to be waived during a particular corporate action.

An opt-out vote allows shareholders to vote on whether or not to adhere to state laws regulating anti-takeovers. If successful, the vote will remove certain legal restrictions that would have prevented a corporate takeover from occurring or allow the takeover to occur sooner than it otherwise would have.

An opt-out vote deals with state statutes. Some states have incorporation laws that protect companies against takeovers, known as anti-takeover laws. Although corporate-takeover laws may vary from state to state, they are typically structured to provide limits on the ability to acquire shares to exert too much influence on takeover targets.

For example, regulations typically require corporate takeovers or extensions of tender offers to obtain a super-majority of shareholder votes in order to be approved. These regulations can be waived with an opt-out vote, however, with the target company "opting" out of the regulatory coverage. In most cases, an opt-out vote must be approved by the corporation's board of directors before it is successfully implemented.

A takeover is when one company looks to buy another company. The actual takeover bid is when a company takes the offer, or bid, to the company’s shareholders. Takeovers come about when a company is looking to create synergies, diversify or create tax benefits with the purchase of another company.

Opt-out votes are for statutes and state laws, not company mandated anti-takeover measures. Companies employ anti-takeover measures to help prevent unsolicited takeovers. Sometimes management may prefer to keep the company independent, or believes the offer undervalues the company.

Company anti-takeover measures may include Pac-Man Defense, Macaroni Defense, adding a fair price clause to the company bylaws, or implementing a poison pill. As well, preemptive attempts to discourage hostile takeovers can include a staggered board of director member elections.

Statues are state laws, but for the most part, the company-level anti-takeover measures are more powerful than state laws. The statutes do little to actually prevent a takeover. Opting out of the laws can speed up a takeover.

For example, if Company ABC is looking to purchase Business XYZ, Company ABC may call for a shareholder vote among Business XYZ to propose an opt-out vote. If Business XYZ approves the opt-out, one hurdle is cleared for Company ABC to complete the takeover.