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13D Monitor Real-time Activist Newsfeed


CtW Investment Fund, an adviser to CtW Investment Group, on Friday launched a campaign to revamp Wells Fargo's (WFC) board and clawback some of the pay given to Carrie Tolstedt, an executive in charge of a division that created unauthorized customer accounts. CtW Investment Fund is calling on the bank to add two directors to its board who understand human capital management. The fund advises pension funds representing approximately 12 million Wells Fargo shares. If the bank fails to respond to the demands, a "just vote no" campaign could be launched, or institutional investors could decide to install their own dissident director candidates. Earlier this month Wells Fargo was fined $185 million by the Consumer Financial Protection Bureau for fraudulently opening more than two million unauthorized consumer credit card and savings accounts.

Elliott Management Corp. said in a June 13D filing that it had acquired 9.8% of security-software firm Imperva Inc. (IMPV) and entered into talks with the board about “strategic and operational opportunities.” Elliott increased its stake to 10.9% as of June 28, according to an updated regulatory filing. Imperva, which is seeking a buyer, has attracted interest from Cisco Systems Inc. (CSCO), International Business Machines Corp. (IBM), and Forcepoint, according to unnamed sources. Bids are due in approximately two weeks, according to one source. Security companies have become hot acquisition targets, given the high-profile data breaches in recent years.

TCI hedge fund manager Sir Chris Hohn is calling for a new pay strategy at Volkswagen. Hohn says managers should not be paid bonuses if the earnings per share is below €20. In 2015 VW reported losses of €1.6 billion—largely tied to the emissions scandal—yet paid current and former board members €63.2 million in bonuses.

Rolls-Royce Holdings PLC's management has been given approximately two years to show it is making positive changes after ValueAct Capital Management LP became its largest shareholder. Rolls-Royce CEO Warren East is replacing CFO David Smith following a number of profit setbacks and a dividend cut. Stephen Daintith will replace Smith, who will exit the company next year after a transition period. Daintith is CFO at Daily Mail & General Trust PLC, a British newspaper and magazine publisher. He is expected to join Rolls-Royce early in 2017. Neither East nor Daintith has much manufacturing experience, which initially troubled investors; news of Daintith's appointment sent shares of the British aircraft-engine manufacturer down 2% in early trading. To help shore up the deficit in operational experience, East has hired Simon Kirby to be the chief operating officer. He currently runs HS2 Ltd., a government-owned firm that is building a new high-speed rail system in the United Kingdom. Bradley Singer, ValueAct’s chief operating officer, was named to the Rolls-Royce board in March. He agreed not to push for changes in the company strategy until at least the 2018 annual shareholder meeting.

SpringOwl Asset Management, which helped oust Viacom's (VIAB) chief executive this year, intends to launch a new fund in the fourth quarter, according to co-founder Jason Ader. The fund will invest in real estate, financial services, consumer, and technology companies. SpringOwl has more ideas than cash, Ader says. "We've written lots of white papers on our ideas and then we go talk to our investors, and with the structure of a new fund, we can commit that much more quickly," he notes. However, raising money for an activist fund may be difficult, because the activist space is crowded with relative newcomers and veterans alike. Furthermore, assets allocated to the funds declined about 8% in the first half of the year to $112.4 billion, according to Hedge Fund Research. "Activist strategies are out of favor right now because funds got too big, were mostly investing in the United States, had poor liquidity terms, and are volatile," Ader acknowledged. "We tried to address all of that." Many of SpringOwl's investments are international in scope.

The Court of First Instance of Hong Kong's High Court has set an April 7 date to decide whether Elliott Management Corp.'s legal proceedings against Bank of East Asia will go trial. The two parties have been given a series of deadlines to present their views and produce documents related to Elliott's unfair prejudice petition against BEA. Elliott, which has a 7% stake in BEA, started the legal proceedings in July over a share placement BEA made to Japan's Sumitomo Mitsui Banking Corp.

Carl Icahn is no longer the top investor in Chesapeake Energy Corp. (CHK), disclosing in a filing Monday that he chopped his stake by more than half to 4.6%. The billionaire investor said in a statement on his blog that the move was driven by tax reasons and that he remains confident in the company's leadership. “We believe that over the last few years Doug Lawler and his team have done an admirable job, especially in light of the circumstances,” Icahn wrote. “We reduced our position to recognize a capital loss for tax planning purposes.” Chesapeake, the second-biggest U.S. natural gas producer, is suffering from a heavy debt load and sluggish energy prices. Icahn began acquiring significant amounts of Chesapeake stock during the second quarter of 2012 and helped lead the shareholder revolt that removed Chesapeake's co-founder, Aubrey McClendon, in 2013.

Wells Fargo (WFC) shareholder Gerald Armstrong, who has a "significant" personal investment in the company, is pushing for a board overhaul. "I think it should be rejuvenated, reactivated and made into a very intense entity that is monitoring the managing of the corporation. That is a board's duty," he said in an interview with CNBC's "Closing Bell" on Monday. Armstrong also accused Wells Fargo Chairman and CEO John Stumpf of refusing to take responsibility for the opening of unauthorized accounts and declared that he must go. Wells Fargo was recently fined a total of $190 million for creating accounts for customers without their knowledge in order to meet sales goals. Armstrong is also critical of the auditors for not detecting the problem sooner. Stumpf, who has been called to testify Tuesday in front of the Senate Banking Committee, has said he does not intend to step down. Wells Fargo is also under investigation by the House Financial Services Committee and is being sued by customers for fraud and negligence.

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Bill Ackman’s Bite of Chipotle Is Part of a Larger Trend
" Fortune (09/23/16) Kell, John"

Shareholders at Buffalo Wild Wings (BWLD) and Chipotle Mexican Grill Inc. (CMG) must decide whether they want to embrace engagement by Marcato Capital Management and Bill Ackman's Pershing Square Capital, respectively. At Buffalo Wild Wings, same-store sales are falling after years of consistent growth; Marcato is advocating a change in management and a keener focus on the core brand. At Chipotle, its “Food with Integrity” image became a liability after a prolonged E. Coli crisis, and revenue has fallen 20% to $1.83 billion for this year. Pershing Square hasn’t disclosed its plan for change. However, in the past activists have successfully engaged restaurant chains. Still, observers say activism should be viewed on a case-by-case basis—not judged by industry. “Activists don’t do anything but offer shareholders a choice,” says Ken Squire, founder of 13D Monitor. Squire says activists can help both Buffalo Wild Wings and Chipotle, but he notes that both situations are “totally different.”

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Activist Investors Double Chance of CEO Exits, Study Shows
" Bloomberg (09/21/16) Basak, Sonali; Jinks, Beth"

Activist hedge funds settled for, or won, board seats in 46% of the more than 300 contests monitored from 2011 to 2015, according to advisory firm FTI Consulting. "When activists attain board seats, we found that CEOs leave their posts at twice the normal rate," said Steve Balet, head of corporate governance and activist engagement at FTI. Average CEO turnover was 16.6% within a year for a firm without such an investor, and 30.9% over two years, FTI said, using a set of 2,500 companies, and data provided by S&P Capital IQ and PriceWaterHouseCoopers. When an activist gained board seats, CEOs left their firms 34.1% and 55.1% of the time in those respective periods. "It seems natural that there would be an increased rate of CEO turnover, but activists generally don’t publicly target the CEO for replacement," Balet said. "Even in cases where activists do not gain board seats, CEOs leave their post 71 percent greater than the normal rate."

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Shareholder Activism Is in 'Phase Three,' Debevoise's Rosen Says
" Bloomberg (09/19/16) Fournier, Elizabeth"

Companies are now engaging with activist shareholders and are more welcoming, according to attorney Jeffrey Rosen of Debevoise & Plimpton LLP. The so-called "third stage" of shareholder activism is based on a more dynamic engagement between corporations and shareholders than earlier phases. In the first stage of activism, shareholders often enter a company with a regulatory filing disclosing their stake and a strongly worded letter. In the second stage, companies and investors begin to exchange strategies more openly. "The structure of the engagement was overtly somewhat hostile and corporations responded very strongly," Rosen says of early activist interactions. "It was confrontational."

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BNY Mellon CEO: Bank Embraced Criticism From Activist Investors
" Bloomberg (09/18/16) Wille, Klaus"

Bank of New York Mellon Corp. (BK), under pressure from shareholders, has met or exceeded targets set in its program to boost profitability, according to CEO Gerald Hassell. The executive says the bank's cost-cutting program has been effective and that investors appreciate the efforts. “The active investors have now seen those improvements pull through our earnings, and our stock price has been reflecting it,” Hassell said in an interview on Saturday. “The trick is to embrace the criticism, adopt a program to really improve your company structurally and sustainably, and show your investors that you can do it.” Hassell has sold the bank's Wall Street headquarters, reduced the real estate occupied by employees, and streamlined technology operations. The “business improvement process” will continue, he said. Trian Fund Management, which has representation on the board of directors, owns about 3% of BNY Mellon. Trian accumulated its stake in 2014, seeing potential for improvement at a company that had underperformed competitors in profitability.

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Hedge Fund Crystal Amber Sees Post-Brexit Vote Opportunities
" Reuters (09/13/16) Keidan, Maiya"

Crystal Amber Fund Ltd. suspects that U.K. companies, faced with a difficult market and economic outlook, could be more receptive to investor engagement following Britain's decision to exit the European Union. "We believe the fallout from Brexit has created a number of activist opportunities as companies are forced to adjust to inevitable changes," the hedge fund said on Tuesday as it reported full-year results. Despite the sense that Brexit has opened up opportunities for its brand of activist investing, Crystal Amber remained cautious on the market outlook. The fund's most profitable investment for the year was a 5.7% stake in filmmaker Pinewood Group, which earned it 6.1 million pounds after a takeover deal by Aermont Capital.

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A Fitter Perrigo Is in Activists' Interest
" Wall Street Journal (09/12/16) Grant, Charley"

Starboard Value, which acquired a 4.6% stake in Perrigo (PRGO) and is pushing it to consider selling certain assets, may want to rethink its campaign. Perrigo's stock is down more than half from last year's high, and the company has cut its earnings forecasts three times since shareholders snubbed a hostile takeover bid from Mylan NV (MYL) last year. In order to reduce leverage and better streamline the company's portfolio, Starboard wants Perrigo to consider selling the generic drugs business or royalty rights to the Biogen drug Tysabri and focus on its main business of store-brand over-the-counter medicines. The challenge in this argument is that Perrigo actually is performing fairly well. Market value, adjusted for net debt, trades at almost 12 times earnings before interest and taxes plus depreciation and amortization. While well below the valuations of the past two years, which were inflated due to the merger mania, Perrigo's current valuation is hovering near its 10-year average. In addition, analysts at RBC Capital Markets say the generics business and Tysabri make up nearly half of operating income. A smaller pie with a higher valuation may not necessarily result in a better outcome for shareholders. Although Perrigo could use a jolt, overhauling the portfolio seems less important for shareholders than turning around the deteriorating trend in core businesses.

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Bill Ackman Finds Gold in Air Products
" Morning Call (09/02/16) Salamone, Anthony"

In a recent letter to Pershing Square Capital Management shareholders, billionaire investor Bill Ackman praised the performance of Air Products (APD), the industrial gases giant that has been a highlight of his portfolio. Air Products' recent quarterly earnings marked the eighth consecutive quarter of double-digit growth in earnings per share, Ackman wrote. Ackman also noted the company has made "significant progress" improving its operating margin from 15.5% to 23% since Pershing's investment. He also likes management's recent guidance suggesting Air Products can extract another $225 million of "operating efficiencies" during the next three years. Ackman—whose hedge fund is Air Products’ largest shareholder with a nearly 10% stake—led the campaign to cut costs at Air Products and trim underperforming areas. Ackman credits CEO Seifi Ghasemi for its growth; Ghasemi became CEO in 2014 after joining the board of directors the previous year to satisfy Ackman. Under Ghasemi, Air Products has so far slashed about $300 million in expenses. Other major changes to reshape the industrial gases giant include plans to spin off its electronics materials division and sell its performance materials division. Pershing shares were down 17.8% for the year through July 31, but according to reports Friday, climbed nearly 6% in August.

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