TECHNIC AL
Shareholder Activism The big trends in 2013 and what’s coming next Extracts from the Activist Insight Activist Investing Review 2014 in association with Schulte Roth & Zabel LLP
2013 IN REVIEW While much activism is practiced out of the public eye, Activist Insight has observed an increase in public actions, whereby activists play a clear role in changing the strategy or governance of companies they have invested in. Public actions were launched at 237 companies in 2013, compared to 218 in 2012. As well as this measure of growth, there are also signs that activist campaigns are becoming more forensic, with an average of two actions per campaign in 2013, compared to 1.6 in 2012.
Activists maintained a relatively high level of success in 2013, achieving their objectives in 59% of resolved cases – a figure that rises to 78% when partially satisfied objectives are included. With 36% of campaigns ongoing – some 83 decisions waiting to be made at companies around the world – 2014 is already looking busy.
The year of the proxy battle Increasing numbers of activists set out to prove themselves by winning proxy battles in 2013, with 67 activists seeking board representation, compared to 58 last year. In contrast to 2012, when only a third of efforts to gain board representation saw activists threaten a proxy contest, 46% of campaigns saw activists threaten or fight a proxy contest in 2013.
Asking companies politely may be the safer approach for activists, however, with negotiated board seats accounting for around 86% of all successful outcomes. ValueAct, which notably gained a board seat at Microsoft in the past year, is said to request references from companies it has targeted. Activists regularly say that expensive and time-consuming proxy battles are a “last resort,” and the evidence suggests this might be true. Of the campaigns tracked by Activist Insight, only 11 proxy fights went to a vote and saw the activist win, but 21 proxy contests were called off with a settlement – often one favourable to the activist.
Larger and better established activists mostly had less need for proxy contests in 2013, with Bulldog Investor’s Phil Goldstein telling Activist Insight it had become easier to gain board representation without a fight. Meanwhile, Carl Icahn added directors to the boards of six companies this year without a proxy fight. JANA Partners surprised observers by going all the way to a vote for the first time in its history, and though it failed to gain board seats at Canadian fertiliser giant, Agrium, sources said it was satisfied with the changes the company was forced to make to win over institutional shareholders.
Regional splits
US companies continued to account for 71% of all companies publicly targeted by activists in 2013, while European companies rose from 14% of the
56 S
chulte Roth & Zabel partners Marc Weingarten and David E. Rosewater, co-heads of the firm’s Shareholder Activism practice, on what they expect for 2014. Schulte Roth & Zabel’s Shareholder Activism practice was deeply involved in the industry in 2013, advising clients in a number of proxy contests. These are their observations from a busy year.
Rapid growth with many new entrants By almost any measure, shareholder activism became more popular in 2013 than ever. With assets under management quickly growing and returns consistently outperforming the average hedge fund, the activist sector has seen an influx of new activist-oriented funds. As activist investors have appeared on the cover of Time magazine and filled the pages of Vanity Fair throughout the year, it is clear that investors and boards are not the only ones interested in learning more about shareholder activism.
Size is no longer a deterrent A shareholder activist targeting a large-cap company with deep pockets used to be a one-off event that would dominate headlines for months. A few years ago, almost no one would have predicted that giants such as Apple, Procter & Gamble and Hess would become attractive targets for activists. Over the past year, however, such activist activity has become the norm rather than the exception. Today, almost one-third of shareholder activism takes place in companies with market capitalisations of more than $2 billion. While activists have long recognised that a greater variety of strategic alternatives are likely available for large companies, the persistent targeting of such companies has only been made possible by the influx of capital into activist funds over the past few years and the ever-increasing willingness of passive investors and institutional shareholders to side with the concerns of activists.
More majority slates Activist campaigns seeking a majority of seats on a board have historically been, and continue to be, difficult to win. Incumbent boards have long argued that such campaigns are ploys by activists to gain control of the company without paying shareholders a control premium. This argument, however, appears to be losing ground with shareholders, as majority board campaigns in 2013 have garnered significant shareholder support in contests such as the ones between TPG-Axon and SandRidge Energy, or Clinton Group and Stillwater Mining Company.
Activists incentivise nominees In proxy contests involving Hess and Agrium in 2013, activist shareholders offered their nominee slates compensation arrangements with payouts tied to the targeted company’s performance, launching an intense debate over the propriety of such arrangements. A number of boards have since adopted by-laws that purport to prohibit nominee compensation. In November, ISS entered the fray and recommended that shareholders withhold votes from directors at Provident Financial Holdings after the company adopted a by-law prohibiting such arrangements.
What lies ahead in 2014 Given the consistently high returns for the activist sector, one could expect the flow of capital into activist funds to continue to grow. More asset managers are likely to dip their toes into activism as portfolio managers who are value investors can unlock additional shareholder value – and increase returns – by serving as catalysts for their investment theses. Ultimately, it seems likely that 2013 will prove to be more akin to “the end of the beginning” of the first phase of an invigorated age of shareholder activism rather than just the peak of a brief trend.
total to 19%. Canada, described as a ‘promised land’ for activism, was consistent at around 6%. While the much anticipated growth in Japan has yet to be statistically significant, the optimism for activism outside of the US is growing.
Two high-profile campaigns How-to and how-not-to-be an activist became the question every columnist sought to answer when referencing Bill Ackman’s abortive campaign at JC Penney. The Pershing Square CEO left the board after differences emerged over pricing strategies, and
long-time foe Carl Icahn wasted no time in saying that Ackman had got too involved in the company’s day- to-day business. Ackman himself said the disastrous choice of Ron Johnson as CEO of the retailer was more of a collective decision by the board than he got credit for, but the sense that activists are more suited to discussing questions of capital allocation and governance than strategy will be hard to shake off.
Carl Icahn’s campaign to prevent Michael Dell from taking the technology company he founded in the 1980s private felt like it might never end. Indeed, we
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72