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13D Monitor Real-time Activist Newsfeed


General Electric (GE), which dropped its pursuit of SLM Solutions on Wednesday following opposition from Elliott Advisors, has announced new pushes into 3D printing. The U.S. industrial conglomerate on Thursday elevated its bid for Swedish 3D printer maker Arcam and confirmed a deal to buy privately held German 3D printing firm Concept Laser. GE upped its bid for Arcam from 285 crowns per share to 300 crowns, valuing the Swedish 3D printer maker at 6.2 billion crowns ($696 million). GE reportedly owns 46% of Arcam shares; and Elliott holds about 10% of Arcam, according to a disclosure notice issued this month. Meanwhile, GE is paying $599 million for a 75% stake in Concept Laser, in a move that will eventually allow it to take full ownership. Arcam, Concept Laser, and SLM are three of the world's top makers of machines for metals-based 3D printing. GE abandoned its bid for SLM after Elliott, which owns 20% of SLM, rejected its bid.

Tata Sons former chairman Cyrus Mistry, dethroned on Monday, has accused the company of governance failures that he said eroded billions of dollars in shareholder value. In a letter leaked to the press, he also alleged wrongdoing by Ratan Tata, the family patriarch who has come out of retirement to run the business in a caretaker role. The Indian conglomerate stated Thursday called the allegations "unsubstantiated" and "malicious" and said it will respond in an appropriate manner, suggesting the fight could escalate into a legal battle. Public confrontations of this nature are rare in corporate India. Shares in all the group's major listed companies fell on Thursday. India's two largest stock exchanges also demanded clarity from Tata's listed units, possibly leading to future scrutiny over why investors were not informed of Mistry's concerns earlier. Mistry remains a director of Tata Sons and could only lawfully be removed by shareholders after being given due warning. He also chairs several listed units and his Pallonji family owns almost a fifth of Tata Sons.

Samsung Electronics said Thursday that it is weighing Elliott Management's proposals for a radical corporate overhaul and will address them by the end of next month. Its response will accompany broader shareholder returns plans, according to Robert Yi, Samsung's head of investor relations.

On Oct. 26, General Electric (GE) said its offer to acquire German 3D printer maker SLM Solutions for 683 million euros ($745 million) had lapsed after failing to reach its minimum acceptance threshold of 75%. A spokesman said, "GE has no plans to revisit the offer. The deal is over." Elliott Advisors, which owns 20% of SLM, had said it would reject the bid, and GE had refused to extend or change its 38 euros per share offer for SLM.

South Africa-based KWV is facing dissent from minority shareholders over the sale of the company's operational assets to Vasari Global, a company controlled by Vivian Imerman. Shareholder Albie Cilliers argues the R13.47 per share he is being offered is nowhere near the real value of KWV, saying the shares are worth at least R20-R21 each. He is now preparing to go to court for a determination of the "fair value." Cilliers is using Section 164 of the Companies Act to secure a "fair value" payment for his KWV shares, which gives minority shareholders an appraisal right to force the company to buy back shares at fair value when the majority of shareholders have approved a fundamental transaction. Ahead of the sale to Vasari, KWV’s major shareholder was Niveus Holding, majority owned by Hosken Consolidated Investments (HCI). Niveus is the controlling shareholder in La Concorde, against whom Cilliers’s claim is being made. Cilliers' situation as a minority shareholder in an unlisted company where there is a majority shareholder is the exact type of case Section 164 was designed to address.

Brazil's JBS SA announced Wednesday it was cancelling a corporate reorganization plan due to opposition from one of its major shareholders, the government's BNDESPar investment bank. BNDES Participações SA, the investment arm of Brazil's state development bank BNDES, exercised its veto power over the plan by JBS to move its international division headquarters abroad. Common shares of the company plummeted after it announced the cancellation of the plan. JBS SA is the world's largest beef exporter.

Paul Singer is optimistic about Samsung Electronics Co., noting the company's public comments that its leaders are warming up to ideas recently proposed by his Elliott Management Corp. Singer made his remarks at The Wall Street Journal's WSJDLive 2016 global technology conference on Tuesday. Earlier this month, Elliott unveiled a campaign to push Samsung to simplify its complicated ownership structure and also proposed a U.S. stock listing for the South Korean company. Elliott disclosed its effort after Samsung announced a recall of the Galaxy Note 7 but before its move to kill the product altogether. Singer said Elliott's campaign was unrelated to the product problems, which does not “shake or shatter our belief” about the potential of changes that could benefit shareholders. Elliott is also part of a recent effort with other investors called the Council for Investor Rights and Corporate Accountability to make the case to lawmakers and the American public that its investment strategy is beneficial to companies and the U.S. economy. Singer insisted the short-term image is misplaced when applied to his firm. Elliott typically holds stakes in companies for two years, compared with the 1.5 years he said other institutional investors average.

The Securities and Exchange Commission (SEC) on Wednesday will consider allowing investors to select directors from a single ballot, in the latest attempt to open up the governance process of large companies. Reformers want to let corporations use a "universal proxy card" in contested director elections, which would allow shareholders to choose candidates from a single form rather than from multiple ones. Proponents have argued it would help both companies and shareholders because each nominee would stand on their own merit rather than be part of a slate put forward by the corporation or by a challenging activist firm. Opponents counter that it would facilitate proxy fights by individual shareholders trying to advance their own agendas. Some executives worry the changes could make their boards vulnerable to disruptive activist campaigns, according to Blair Petrillo, an attorney at the law firm of Reed Smith LLP, who says there has been enough momentum that some changes will probably go through eventually. The SEC also on Wednesday will consider rules related to "disclosure about voting options and voting standards" on board elections, which could require companies to provide more details about their voting results.

Crystal Amber has increased its stake in STV to about 14% after purchasing two sizable allotments of shares in as many days. The fund reportedly is dissatisfied with the Scottish broadcaster's share price performance. Crystal Amber also has a 6.74% stake in Johnston Press, publisher of The Scotsman.

Superior Industries International Inc.'s (SUP) board of directors has amended the company's by-laws to implement proxy access, reflecting an ongoing commitment to corporate governance best practices. The amended by-laws allow a stockholder or group of no more than 20 stockholders that has maintained continuous ownership of 3% or more of Superior's common stock for at least three years to include in Superior's proxy materials for an annual meeting of stockholders a number of director nominees up to 20% of the directors then in office. Separately, the company has appointed Ellen Richstone to its board, effective immediately.

Chipotle Mexican Grill Inc. (CMG) continues to have difficulty enticing customers almost a year after an E. coli outbreak affected locations in Oregon and Washington. Same-store sales declined a worse-than-anticipated 21.9% in the third quarter, the company announced Tuesday. Analysts had forecast a decline of 18.7%. Meanwhile, profit was down 95% in the quarter. However, the numbers are better than they were. "While we're on the road to recovery, we're not satisfied," Chipotle co-CEO Steve Ells told investors. The company is implementing several new initiatives to accelerate recovery, including order-taking tablets in restaurants to bypass the lines and new mobile ordering technology. The company also said it may sell its ShopHouse chain, which has failed to attract enough customers to warrant further investment and expansion. Mark Crumpacker, the marketing chief who recently returned to the company after taking leave following a drug arrest over the summer, apologized to investors. He said the company is reviewing ad agencies for a new spring advertising campaign. William Ackman's Pershing Square Capital Management LP has a 9.9% stake in Chipotle.

A former top executive at Corvex Management, Nick Graziano, has secured early-stage financing from Constellation Seeding to put his new hedge fund on track to begin trading Nov. 1. A presentation viewed by Reuters indicates that Greenwich, Conn.-based Venetus Partners LP will invest in mid-sized North American companies, buying stakes in underperforming companies and pushing management to make improvements. It is uncertain how much seed money was invested by Constellation. After working at Corvex for more than four years, Graziano left in early 2015 to set up Venetus, joining a small but growing group of managers who left established activist funds to create their own. However, as raising money for hedge funds grows more difficult as investors withdraw cash, more managers are willing to let potential investors become owners through seeding deals, often in exchange for an ownership stake. For instance, another seeder, Protege Partners, recently forged deals with former Baupost managing director Miguel Fidalgo's Triarii Capital Management and former Macquarie manager David Meneret's Mill Hill Capital.

PL Capital LLC is demanding changes at Banc of California (BANC), arguing the lender is facing a “crisis of confidence and credibility.” Banc of California’s stock plummeted the most in a decade on Oct. 18, after an anonymous short-seller’s report claimed the bank’s senior managers had ties to an imprisoned con man. The lender’s stock rebounded the next day when the company denied the claims. PL Capital, which has been pressuring Banc of California to improve its governance since mid-2014, brought its stake up to about 6.6% after the report, noting it still believes the bank is undervalued. In a letter to the bank, PL Capital principal Richard Lashley wrote that the recent actions by the company are “completely inadequate to restore confidence.” Lashley called for the lender to replace the law firm investigating the claims, and for the bank to replace its board of directors, among other changes. In the Oct. 21 letter, disclosed Monday in a regulatory filing, Lashley said he was able to confirm some of the facts in the anonymous short-seller's report, which called the bank “un-investible” because of the alleged ties to Jason Galanis, a California financier. Yet Lashley said he does not agree with the short-seller's conclusion “that the Banc of California is in effect a criminal enterprise secretly controlled by Jason Galanis.” “We clearly do believe significant changes are needed,” Lashley wrote.

Jonathan Litt, who last week publicized his letter to Taubman Centers Inc. (TCO) calling for big changes, said Monday that Taubman’s decision to keep the number of board directors at eight after a ninth resigned is a “clear entrenchment maneuver.” The investor alleges the company could face a U.S. Department of Justice (DOJ) investigation after it violated its charter and reduced the number of directors on its board. “We see in these actions a stubborn and ongoing pattern of entrenchment aimed at insulating the Taubman family and other incumbents from their disgruntled shareholders,” Litt wrote. “In fact, we wonder whether a thorough investigation may lead to uncovering serious breaches of fiduciary duty and corporate wrongdoing ... we intend to explore whether the violation of the (Taubman) Charter should be directed to the DOJ for investigation.” In response, a Taubman spokesman said the board is searching for a highly qualified new director.

Randstad said Tuesday that if it can get its offer for Monster Worldwide (MWW) accepted by more than 50% of shareholders it will succeed; it has been competing with rival bidder MediaNews Group Inc. (MNWG), which is controlled by Alden Global. Alden Global has amassed a 11.5% stake in Monster and has urged other shareholders to resist Randstad's bid. "We have made a pretty good offer and we have the agreement of the board of Monster," said Randstad CFO Robert Jan van de Kraats after reporting positive quarterly earnings. He added that Randstad would "ultimately" not accept owning Monster while MediaNews remains a large minority shareholder. "But we think if we get 50.1% of the shares, that will bring us eventually to owning 100% of the shares." Randstad made a $3.40 per share bid for Monster in August. The offer expires at midnight Friday. Meanwhile, MediaNews has made a $3.70 per share bid for another 10% of Monster shares, should the Randstad bid fail.

Just five months after Luis Amaral's Western Gate Investments emerged victorious in a battle to shake up Stock Spirits' board, it is embroiled in another clash with the distiller for excluding the two non-executive directors it succeeded in appointing in May from all four of the company's board committees governing audit, remuneration, director nominations, and disclosure. Western Gate Investments, the vodka-maker's biggest shareholder at almost 10%, also criticized the company's decision to add another three directors to its board. Amaral succeed in ousting Stock Spirits CEO Chris Heath after the company's market share slumped in its most important country, Poland, and its share price fell; Heath took early retirement in April. The following month, he won the backing of other shareholders to have Heineken and Cadbury Schweppes veteran Alberto Da Ponte and former PepsiCo manager Randy Pankevicz appointed to the board as independent non-executives. "Stock's board now has nine directors, just two short of Diageo, a company that is some 180 times larger," said a spokesman for Western Gate. "Today's announcement also confirms that the two new independent non-executive directors appointed in May 2016 have not been allowed to join any of the four board committees. This ignores the wishes of shareholders that those new directors play a full role in helping to turn the company's fortunes around." Western Gate added that it has been about two years since the company's first profit warnings, and its share price is about half of what it was before that warning. "We look forward to the forthcoming November 2016 trading statement to see whether the board has spent that two years wisely in turning its business around," Western Gate said.

The board of salt-to-software conglomerate Tata Sons removed Chairman Cyrus Mistry in a surprise move on Monday, replacing him with Ratan Tata, patriarch of one of India's most influential families. Tata, who had stepped down as chairman and was replaced by Mistry in late 2012, will lead the group as interim chairman for four months while the company seeks a replacement. While the board gave no detailed reason for the change, some media reports said there has been discontent with some of Mistry's actions, including asset sales. The 48-year-old has struggled with various issues in recent months, including a costly settlement with Japanese telecom operator NTT Docomo and the sale of Tata Steel's loss-making U.K. business, which has now been put on hold. Mistry's ouster still caught many off guard, though analysts and investors saw Ratan Tata's appointment as interim chairman as a way to ease concerns. "The impact will be a little softer with Ratan Tata taking over," said Gaurang Shah, analyst at Geojit BNP Paribas. The board made its decision at a meeting on Monday, with six of the nine board members backing Mistry's ouster, said a source. Mistry, who could not vote, remains a board director. News reports suggested that Mistry's Shapoorji Pallonji family, one of the largest shareholders in Tata Sons, may legally contest the move.

The South Korean proxy advisory firm Sustinvest has advised shareholders of Samsung Electronics to oppose the nomination of Vice Chairman Lee Jae-yong to the company's board of directors. The shareholders' meeting on Lee's nomination, which has been supported by a major shareholder of Samsung Electronics and other foreign proxy advisory companies, is scheduled for Oct. 27. In a letter to shareholders, Sustinvest wrote, "Lee is not qualified to be an internal director because he is a beneficiary of (an unfair business practice) which gives a lump sum of business to affiliates including Samsung SDS and Everland (currently Samsung Engineering & Construction). Such business action can damage a company's value because it basically excludes the possibility of better transactions." Sustinvest indicated that Samsung SDS' business transactions with the group's affiliates accounted for more than 85% of its total sales last year. With Samsung SDS' sales dependence on Samsung Electronics at about 35% on average over the last decade, Sustinvest believes the dependence is highly likely to have damaged the shareholder value of Samsung Electronics.

In an Oct. 24 letter to Taubman Centers Inc. (TCO) shareholders, Land and Buildings Investment Management LLC declared that Taubman's directors likely violated the company's charter by voting to approve reduction of board size. The investor said it intends to explore whether the violation should be directed to the Department of Justice for investigation.

Crystal Amber has amassed an 11% stake in Scottish television channel STV, and is said to be aiming to buy up to 20% of the channel amid rising frustrations over the company’s dwindling share price. A bleak outlook for advertising revenues means STV, along with many of its peers, has been sold off this year, with fears growing since the UK’s vote to leave the European Union. STV has lost about 22% in value. Crystal Amber recently drew attention for its campaign at Pinewood film studios, which ended after the studio was sold to property fund Aermont Capital in July. The £323 million deal closed earlier this month.

Jonathan Litt, co-founder of Land & Buildings Investment Management LLC, continues to press Taubman Centers Inc. (TCO) to make big changes to boost what he sees as a severely under-performing stock. Last week, he publicly stated that a shake-up of the Michigan-based mall operator's board of directors to make it more diverse should be part of the remedy. He has floated the names of three possible board candidates when the next shareholder meeting is held in 2017: R. Scot Sellers, ex-CEO of Archstone-Smith Trust; Dana Hamilton, co-founder and president of Ameriton LLC; and Jon Fosheim, co-founder of Green Street Advisors. The Taubman board currently has one open seat. Litt is further pushing to reduce the average board tenure from 14 years to less than seven, separate the board chairman and CEO roles, and appoint a lead independent director.

MediaNews Group Inc. (MNWG), already the top shareholder of Monster Worldwide Inc. (MWW), on Friday sought to nearly double its holding in the job-posting company. The investor launched an effort to buy a further 10% stake in Monster at $3.70 a share. MediaNews cannot surpass a 25% stake without tripping Monster’s change-of-control mechanism in a credit agreement. The offer from MediaNews represents an 8.8% premium to the share price in Monster’s pact with Dutch recruitment firm Randstad Holding NV, which MediaNews opposes. In August, Randstad agreed to buy Monster for $429 million, or $3.40 a share. MediaNews has criticized the Randstad deal, and last month said it planned to nominate seven members to replace Monster’s entire board, citing a lack of confidence in Monster’s current management. Also on Friday, Monster reported a surprising third-quarter loss and a bigger-than-expected decline in revenue. Monster said it swung to a loss of $180.5 million, or $2.03 per share during its third quarter compared with a profit of $175.8 million or $1.98 a share a year earlier. Revenue slid 13% to $144.8 million, led by a 16% decline in its North American business.

General Electric Co. (GE) Chief Financial Officer Jeff Bornstein said on Friday the company has other options to build its 3D printing capacity, and does not need to bow to opposition from Elliott Advisors by increasing its takeover offer for Germany's SLM Solutions. GE refused to extend or change its 38-euro-a-share offer for SLM on Friday after Elliott, which owns 20% of SLM, said it would reject GE's offer. The offer expires on Monday. Bornstein noted that SLM's share price had dropped below GE's 38 euro offer price, which values the company at 683 million euros ($742.49 million). Shareholders representing 31.5% have already pledged to support GE's bid. The offer requires a minimum 75% acceptance to succeed, so Elliott's reported holdings alone would not be enough to halt the deal. GE also has alternatives to purchasing Sweden's Arcam AB, for which it has bid 5.86 billion crowns ($685 million). Both companies make industrial-scale 3D printers used in aerospace, healthcare, and other industries, and each count GE as their biggest customer.

Alcoa (AA) is trading around $27, or 20% less than its 52-week high, as the aluminum company issued disappointing third-quarter earnings earlier this month with both top-line revenue and bottom-line income down from the second quarter. Even so, Alcoa saw its earnings per share rise significantly from $0.06 in the third quarter of 2015 to $0.33 in the third quarter of 2016. A major turning point in the company's 128-year history will occur on Nov. 1, when it offers a 1-to-3 reverse stock split as it spins off its value-added business into a new company, Arconic (ARNC). Elliott Management supports the split, which comes as the two companies have strengthened and can independently pursue their own strategic directions. There are concerns, however, about whether the two businesses really are strong enough to operate separately, given Alcoa's disappointing third-quarter results. The split is intended to break out the high-margin manufacturing operation from the slow-growth community business of its legacy upstream business, and the major risk is whether shareholder value will actually be created once the companies trade separately. There are questions about whether value-added, high-margin Arconic will be able to trade at levels high enough to absorb the dismal performance of the legacy upstream business, Alcoa.

An attempt by General Electric Co. (GE) to acquire a pair of European 3-D printing companies appears set to fail after Elliott Management Corp. intervened. Two Elliott funds unveiled a more than 20% stake in SLM Solutions Group AG and indicated they would reject GE's bid on the grounds that it undervalued the German firm. GE on Friday refused to bow to pressure from the activist, declaring it would not sweeten its offer for SLM. Since the deal hinges on 75% of shareholders tendering their shares, Elliott's opposition is a serious obstacle that will likely derail the transaction. Meanwhile, Elliott also unveiled a 10.14% stake in Sweden's Arcam AB—the other company GE recently proposed to buy. As a result, GE will be unable to meet the minimum acceptance threshold of at least 90% of shareholders approving the deal. It announced its $1.4 billion move to purchase both companies early last month.

Samsung Electronics Vice Chairman Lee Jae-yong next week will join Samsung's board of directors, pending a favorable vote at Thursday's shareholders' meeting. Analysts say plans to turn the electronics firm into a holding company structure—a change pushed by U.S. investor Elliott Management—are likely to take shape after that happens. Lee is the only son of ailing Samsung Electronics Chairman Lee Kun-hee. Joining the board suggests he will take formal responsibility for Samsung's business decisions for the first time.

Sandon Capital has declared that the $11.3 billion merger of Tatts Group and Tabcorp sells Tatts investors short because it does not properly value the company's lotteries business. "This is a terrible deal for Tatts shareholders," said Sandon managing director Gabriel Radzyminski, even though they have received a 20% premium for their shares and will emerge with 58% of the new entity. Radzyminski has long campaigned for Tatts to spin out its lotteries business to unlock its value. He said comments by Tabcorp CEO David Attenborough that the lotteries business could be spun out within three or four years were proof that the company recognized its high value. "He knows exactly what that business is worth," said Radzyminski. "My only criticism is that if he spins it out in three or four years' time, we've had to give up 42% of the value to Tabcorp." Sandon, which has a small stake in Tatts Group, plans to talk with existing Tatts shareholders and investors who could be convinced to buy into the company and push for a better deal. However, such large Tatts shareholders as AustralianSuper and Perpetual have already backed the deal.

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SEC Offers 'Universal' Proxy Card Rules
" Reuters (10/26/16) Kerber, Ross"

On Oct. 26, in a 2-to-1 vote, the U.S. Securities and Exchange Commission (SEC) backed proposed rules to allow so-called "universal" proxy cards for investors to use in contested corporate elections. Under the rules, shareholders would be required to receive a card listing both management and dissident nominees to a company's board, and investors would be allowed to vote for the combination of nominees of their choice. SEC Chairman Mary Jo White said the proposals "would strike the appropriate balance." SEC Commissioner Michael Piwowar opposed the rules.

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Investor Nelson Peltz Says Boards Victim to Too Much Information
" Wall Street Journal (10/25/16) Clark, Don"

Information overload has given more power to management in board meetings, Nelson Peltz suggested Tuesday at WSJDLive, The Wall Street Journal's global tech conference.  At one time, he recalled, directors would receive a FedEx package containing paper documents giving them the information needed ahead of upcoming board meetings.  With the rise of email, computers, and iPads, directors get many more pages of documents in electronic form than they can possibly read beforehand, he said.  The board meeting becomes a “show and tell” where management spends much of the time explaining key facts and issues that board members must consider, according to Peltz. He said his firm tries to counter the trend, conducting extensive research that allows its board representatives to come to meetings prepared to put forward their arguments forcefully.  “We think good debate brings good decisions,” he said.  Peltz, whose Trian Fund Management LP acquires stakes and board seats at big publicly held companies, rejects the label of activist investor, which has come to have negative connotations.  “We now think of ourselves as highly engaged shareholders,” he said.

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Trends and Predictions in Canadian Proxy Contests
" Mondaq (10/24/16) Lau, Matthew"

Kingsdale Shareholder Services' latest annual Proxy Season Review discusses trends from 2016, makes predictions about the future, and offers strategic recommendations for Canadian companies. According to Kingsdale, 2016 trends include activist activity returning to pre-2015 levels due to strong share performance, increased adoption of defense tactics by vulnerable firms, and political and economic activity resulting in "market prudence and skepticism"; the rise of minority slates, with activists using minority slates winning 80% of battles where board seats were sought, compared with 11% for activists using a majority slate; and an increase in insider activism, where former CEOs, directors, and founders increasingly target companies they once led. Looking forward, Kingsdale predicts there will be a rise in "reluctavists" who "begrudgingly adopt activist tactics when all other avenues are exhausted," with traditionally passive institutional investors adopting activist-like tactics, and the emergence of short-seller activists, who look to make money by highlighting the alleged overvaluation of a company. In addition, Kingsdale set forth three recommendations for Canadian companies: distinguishing the activists from the "ankle-biters," paying close attention to retail investors, and engaging with shareholders at the board level.

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Britain's Advisory Group Eyes More Power for Retail Investors
" Reuters (10/25/16) Jessop, Simon"

Investor advisory firm ShareSoc is demanding greater influence be given to individual shareholders as part of a government plan to revamp Britain's corporate governance regime.  U.K. Prime Minister Teresa May has said she wants to improve the way companies are run, capping the pay of top executives after the country's vote to leave the European Union, which was in part due to anger at growing social inequality.  In a list of recommendations to the government on Tuesday, ShareSoc backed plans by May for a binding vote on a firm's pay report, and supported disclosure of pay ratios between a CEO and the average worker.  The group, which advises individual private investors in British companies, also said it supported plans for a shareholder committee to oversee payouts, and repeated its calls for average FTSE 100 CEO compensation to be reduced by about half.  ShareSoc also wanted the government to support groups to educate individual shareholders on their rights, and to toughen up regulation of the smallcap AIM market.  "Individual investors do not have effective power to curb directors' pay," ShareSoc said.  "It is time for a strong input from government and regulators of the London Stock Exchange to change the framework in which we are currently operating.  The goal should be to get more power back to the ultimate investors."

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Faith-Based Investor Group Calls for Drugmakers to Be Transparent on Pricing
" Wall Street Journal (10/24/16) Loftus, Peter"

A group of 300 institutional investors, members of the New York-based Interfaith Center on Corporate Responsibility (ICCR), is calling on 17 drug companies to be more transparent about when and why they raise prices. The investors are concerned that rising costs are making it harder for patients to access prescription drugs, which could create long-term challenges for the companies. "The health of the economy depends on the health of the people," said Donna Meyer, director of shareholder advocacy for ICCR member Mercy Investment Services Inc. of St. Louis. "We can't afford these escalating costs." The investors have submitted shareholder proposals asking 11 U.S. companies to issue reports listing average annual price increases for their top-selling drugs between 2010 and 2016; the rationale for the hikes; and assessments of the various risks associated with price increases, including potential damage to corporate reputations and legislation targeting drug prices. The ICCR would like the proposals listed in company proxy statements and put to shareholder votes at annual meetings in spring 2017. In addition, ICCR members are sending letters in lieu of shareholder proposals to six drugmakers outside the United States that detail concerns about drug prices and seek further discussions with the companies.

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Meet the New Corporate Power Brokers: Passive Investors
" Wall Street Journal (10/24/16) Krouse, Sarah; Benoit, David; McGinty, Tom"

Observers say the pioneers of passive investment funds that track indexes, rather than try to beat the market, increasingly have leverage over America's corporate boards. According to a Wall Street Journal analysis of data from Morningstar Inc. and S&P Global Market Intelligence, U.S.-based mutual funds and exchange-traded funds that track indexes owned 11.6% of the S&P 500 at the end of June, up from 4.6% a decade ago. Vanguard Group's U.S.-based passive funds, for instance, owned 5% or more of only three S&P 500 companies at the end of 2005, but that number jumped to 468 companies, or about 94% by the end of June 2016. With their new power, passive funds are exerting pressure on takeovers and the fate of CEOs, among other things. "As more and more capital flows to index funds, the seriousness with which these funds approach governance issues becomes even more critical for U.S. and global corporate competitiveness," William Ackman wrote to his hedge-fund investors earlier this year. Meanwhile, Daniel O'Keefe of the investment firm Artisan Partners Ltd. argues that "the tyranny of passivity is you have large pools of money that are unengaged in their investments," which is "a far greater risk than the tyranny of activism." According to a study by researchers at Boston College, Washington University, and the University of Pennsylvania's Wharton School, higher ownership by passive investors leads companies to shed tactics seen as defensive against shareholders, such as staggered-elected boards, and to increase the independence of board members.

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How Our Biggest Companies Are Beating Trial by Proxy This AGM Season
" Australian Financial Review (10/21/16) Durkin, Patrick"

Numerous Australian firms faced proxy votes at their annual general meetings (AGMs) this year and received a first "strike" on their remuneration reports. A strike at the AGM is not only embarrassing for the management and board, but it also hurts the companies financially, with research by Macquarie Wealth Management indicating that trading is 35% higher on the day of the AGM and companies that receive a negative surprise see their share price fall during the following six weeks and underperform by an average 2.63% in the 30 days after the meeting. After a record 80% protest vote, Peter Ritchie, outgoing chairman of Mortgage Choice, asked, "How, and why have we allowed these remote advisers to have so much influence in the Australian business community?" He noted that "thoughtless," "cookie cutter" recommendations have resulted in boards that are so independent that they do not know what business they are in. According to Stephen Walmsley, managing director of board advisory firm 3 Degrees, "Anybody can be a proxy adviser and there are no rules or codes of conduct as to how they conduct their research." However, Paul Taylor, fund manager at Fidelity International, which owns about 12% of Mortgage Choice shares, notes that "80% of Mortgage Choice shareholders voted against the report, that is not the fault of proxy firms, it is a pretty clear message from investors that they are not happy with paying dividends on unvested shares. The company [is] paying dividends to executives regardless of performance. That practice has been eradicated from the market and we have been arguing against it but the company just won't budge, you saw the result."

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Activists in Europe – Adapt or Be Fought Off
" ValueWalk (10/21/16)"

The number of activist campaigns is at a record high in Europe, and even though activism is not new or even more high profile by historical standards, observers note that this year is different. They contend that activists in Europe are less likely these days to operate in isolation. For instance, U.K.-based Petrus Advisers has been around since 2009 but is becoming progressively more open about its activism, even offering advice in a recent letter to 40 North in response to a takeover bid for Braas Monier that "blatant threats and 1980's barbarian-at-the-gates behavior will fail in European markets and our legal system." According to Till Hufnagel, head of activism at Petrus, the continent is "underpenetrated" with "real opportunities" for an "entrepreneurial investor" like Petrus. However, the lack of volume makes management teams more resistant and emphasizes the importance of tact. Petrus also said in the letter, "Europe is about quality, sustainability as well as intelligent and equitable business dealings between educated and gentlemanly agents." In addition to a request for a significant increase in the offer price, Petrus gave the advice "adapt or be fought off."

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Shareholder Activism on the Wane in India
" Business Standard (India) (10/20/16) Subramanian, N Sundaresha"

Institutional shareholder activism appears to be declining in India, according to an analysis of resolutions at National Stock Exchange-listed companies. Of the 6,678 resolutions between January and Oct. 6, there was significant opposition from institutional shareholders in 616 of the cases—or fewer than 10%. Of these 616 resolutions, 606 still succeeded, mostly due to high promoter ownership; just 10 resolutions were voted down. The number of resolutions that saw stiff opposition reflects a downward trend. In 2015, there were 715 resolutions opposed in the same period and in 2014, there were 971. This year's tally represents a decline of 13% from last year and of 36.5% from 2014. Analysts believe companies have become more sensitive to investor concerns, leading to improvement in the quality of resolutions. Local institutions in recent years have also started actively participating in the voting process after the Securities and Exchange Board of India required disclosure of their voting details in portfolio companies.

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Barry Rosenstein: 'No Chance Stock-Picking Is Dead'
" CNBC (10/20/16) José Vielma, Antonio; Stevens, Pippa"

Jana Partners founder Barry Rosenstein says that there will always be a need for activism, "as long as human beings are running public companies and as long as the current board dynamic exists." He told CNBC on Thursday that reports of the death of stock-picking are greatly exaggerated, calling active management "cyclical like any other bubble." Active equity funds lost $25.4 billion in August, while passive funds gained $16.4 billion, according to Morningstar. Rosenstein said that if active-to-passive migration continues, it makes hedge fund activism "that much more important and creates great opportunities for us." Rosenstein, who recently reduced his stake and exited his position on the board of Walgreens (WBA), called that company the perfect example of where activism and corporate management can come together and create enormous value. Rosenstein shied away from the term "activism," noting that his hedge fund presents well-thought-out ideas that are empirically proven, and companies agree and are happy for their involvement.

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Survey: Proxy Access Continues to Gain Steam
" Compliance Week (10/20/16) Mont, Joe"

Shearman & Sterling's 14th annual "Corporate Governance & Executive Compensation Survey" reveals that proxy access adoption, board leadership, and gender diversity continue to be top of mind for corporate boards due to continued pressure from shareholders. The survey shows that during the past year, 69% of the Top 100 Companies on the NYSE or NASDAQ, 40% of the S&P 500, and 34% of Fortune 500 companies have enacted proxy access, with proposals submitted for the 2016 proxy season up from 116 in 2015 to 200 as of Aug. 31, 2016. Meanwhile, bylaw adoptions rose to 226 between September 2015 and August 2016 from 32 during the prior-year period, and 75 proposals requesting adoption of proxy access were included in proxy statements and voted on for the 2016 proxy season as of Aug. 31, 2016. Among other things, the survey found that shareholder activism has gained momentum, with seven of the Top 100 Companies faced with activist campaigns, versus eight in 2015. "Shareholder activism remains an area of significant focus for corporate boards," says Rory O'Halloran, an M&A partner at Shearman & Sterling. "Although some activist funds and companies targeted by activists have been seen as underperforming over the past year, activist funds continue to manage large amounts of capital. Consequently, any meaningful downturn in the level of activist activity seems unlikely."

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Corvex Management's Keith Meister: Blame Shareholders for Twitter's Acquisition Failure
" CNBC (10/19/16) Lovelace Jr., Berkeley"

In what he called a powerful example of activist investing, Corvex Management founder Keith Meister said a potential Twitter (TWTR) buyout failed because of shareholder resistance at the companies reportedly interested in it. "Twitter would have been bought by Salesforce, or Twitter would have been bought by Disney or any one of the number of suitors who supposedly looked at it over the last month had it not been for the shareholders of those companies saying, 'What are you doing? Why go spend $20 billion dollars to buy this?'" he told CNBC on Wednesday. Salesforce, considered a front-runner for the acquisition, revealed last week that Twitter just "wasn't the right fit." According to Meister, what really happened was Salesforce management listened to the company's investors. Today's boards and managements care what shareholders think, he noted. Meister also gave credit to Twitter, saying "it appears their board was willing, ready, and able to do the right thing for shareholders, if there had been a bid. The reality is there wasn't."

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GE's Performance Under Scrutiny
" Wall Street Journal (10/19/16) Mann, Ted"

The stock price at General Electric Co. (GE) continues to slide, casting doubt on the firm's ability to achieve this year's profit goal.  Nelson Peltz's Trian Fund Management LP revealed a $2.5 billion holding in the conglomerate about a year ago.  At the time, Trian supported CEO Jeff Immelt's leadership and his move to exit financial services.  The investor had great expectations from a streamlined GE, but thus far the company has not delivered.  Among other disappointments, it reported weak revenue in the first six months of 2016.  Currently, the outlook for big U.S. industrial companies is weakening.  Analysts forecast GE will report earnings Friday of 30 cents a share for the quarter on revenue of $29.64 billion.  Shares have fallen below $30 since Trian invested and are down 5.6% for the year.  Immelt said in July that GE would be "disciplined" about deciding whether to repurchase shares—the strategy Trian advocates—or chase more acquisitions.  Trian has also recommended the company borrow money, but Immelt says any leverage GE adds to the balance sheet "is going to be paced by the opportunities to put that capital to work, if we in fact do it, and the returns that we can generate for shareholders."

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BlackRock's Proxy Votes on Gays Are Challenged
" Bloomberg (10/19/16) Colby, Laura"

Trillium Asset Management is pressuring BlackRock Inc. (BLK) to explain why it does not support corporate shareholder resolutions to protect gay employees when its own policies promote a diverse workforce. An Oct. 14 shareholder resolution sent to the company by Trillium on behalf of the Astraea Foundation, which aims to advance lesbian, gay, bisexual, and transgender (LGBT) rights, asks the world's largest money manager to report on the "inconsistency" and detail ways to improve its approach. According to mutual fund filings data compiled for Trillium by proxy tracker Fund Votes, BlackRock has voted since 2013 against eight shareholder proposals asking major U.S. public companies to include language explicitly protecting their LGBT employees from discrimination. However, BlackRock's website indicates that "inclusion and diversity are key to our success." Brianna Murphy, vice president for shareholder advocacy at Boston-based Trillium says, "There's a real inconsistency between their internal policies and how they're voting," and the contrast between the company's internal and external policies "creates a reputational risk." BlackRock spokesman Ed Sweeney says the company prefers to communicate directly with companies on such issues and will advocate for change regardless of the presence of a shareholder proposal. He says, "We have found that engagement is the best way to drive change. Through dialogue, we can explain why we believe environmental, social, and governance issues drive long-term value for our clients. When our engagement affirms companies are working to enhance their policies, we will support them."

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