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13D Monitor Real-time Activist Newsfeed


Two shareholders of Sabra Health Care REIT (SBRA) on Monday opposed the company's proposed acquisition of Care Capital Properties (CCP), calling the deal too costly. During a presentation, Hudson Bay Capital Management, which owns about 3.4% of Sabra, called on shareholders of the healthcare-focused real estate investment trust to reject the merger at a shareholder meeting next month. Sabra was overpaying for Care Capital's assets by up to 30%, according to Hudson Bay. And in a letter, Eminence Capital, which owns about 3.9% of Sabra, said the deal would reverse the company's efforts to reduce exposure to skilled nursing facilities. Sabra owns real estate properties that serve the healthcare industry in the United States and Canada, while Care Capital has a portfolio of healthcare properties focusing on the post-acute care sector. In March, Sabra, which has a market valuation of about $1.6 billion, said it would buy Care Capital in an all-stock deal that would value the combined company at about $4.3 billion. Sabra said it would benefit from lower costs of capital by merging with Care Capital and that the deal would add to its earnings immediately.

Small shareholders are pushing for a board seat in Alembic to ensure better investor returns. Sources in the investor community say that most of these minority shareholders (around 440 of the total 1,000) were "created" in the last three days. The shareholders have moved a resolution to appoint a director, Murali Rajagopalachari, vice president of Unifi Capital, on the board of Alembic on their behalf at the company's annual general meeting on July 28. Unifi Capital has a 3% stake in Alembic. Shareholders have the right to raise their voice if they feel that value can be unlocked, says Shriram Subramanian, managing director of proxy advisory and corporate governance firm InGovern Research Services. "Although this is something new for India, it happens quite often in the United States," he said. Alembic de-merged Alembic Pharmaceuticals in 2011 with the intention of pursuing growth in formulations and export business. The holding company Alembic, which has interests in real estate (it has unused land assets), also has a market capitalization of Rs 1,190 crore, but it holds 30% in Alembic Pharmaceuticals, which has a market capitalization of more than Rs 10,304 crore.

BHP Billiton (BBL) is defending its fertilizer project in Canada against "deep concerns" by Elliott about the Jansen potash mine, given the saturated potash market. BHP, though, said on its Prospects blog that it would only develop the mine if it met strict investment hurdles and was in the best interests of shareholders. "We have an option in Canada to develop a potash mine that could support attractive shareholder returns over decades," stated BHP senior potash analyst Paul Burnside. "We're excited to have this option in our portfolio, and there are many ways we can realize value from it. Above all else, we would only proceed if it passed our strict investment hurdles and was in the best interests of our shareholders." Burnside stated that the potash market is rebalancing and new mines will be needed as supply and demand come into line. Elliott has a 4% stake in BHP.

Investment funds managed by Oaktree Capital Management L.P., which beneficially own 19.9% of the common stock of Tembec Inc., today announced that they fully support the proposed acquisition of Tembec by Rayonier Advanced Materials Inc. (RYAM) on the revised terms announced yesterday by Rayonier Advanced Materials and Tembec, and have committed to vote in favor of the transaction at the upcoming special meeting of Tembec shareholders. The increased consideration represents a 17% increase in equity value relative to the terms of the original agreement and a premium of 61% to Tembec's closing price on May 24, 2017, the day immediately before the initial announcement concerning the transaction. Pursuant to a voting and support agreement entered into with Rayonier Advanced Materials, Oaktree has irrevocably agreed to vote all of the Tembec common shares held by Oaktree's investment funds and entitled to vote in favor of the transaction. "We appreciate the constructive engagement we have had with Rayonier Advanced Materials and are pleased that its Board has responded with this higher offer price—we now fully support the transaction," said Patrick McCaney, managing director and portfolio manager for Oaktree's Value Equity strategy. "The revised offer presents compelling value to Tembec shareholders and enables shareholders to participate in the significant value creation opportunity of the combined entity."

Northern Oil & Gas Inc. (NOG) announced Monday it will add Life Time Fitness CEO Bahram Akradi to its board of directors, following Akradi's months-long campaign to become a director. The energy company said it expanded its board from seven to eight members to accommodate Akradi's addition. Previously, Northern Oil Chairman Richard Weber had resisted Akradi's pursuit, declaring the company would not increase its board size. Akradi, who owns a 9.7% stake in Northern Oil, wants to take the company in new directions in an effort to grow the struggling business. Northern Oil has been struggling to adjust to declining energy prices that hit its holdings in North Dakota's Bakken oil fields. Its shares, which traded as high as $30 in 2011, now trade under $2.

Elliott Management on Monday demanded an urgent response from Akzo Nobel's board regarding its concerns over the nomination of a new CEO.  Elliott has been unsuccessfully pushing the Dutch paintmaker to engage with rival PPG Industries (PPG) over a takeover bid it spurned multiple times.  The hedge fund pressed Akzo to verify the date of a general shareholder meeting to vote on the appointment of Thierry Vanlancker as the new CEO and to confirm shareholders will be given the right to add resolutions to the next meeting.  Vanlancker took the helm last week after former CEO Ton Buechner stepped down for health reasons.  Elliott said it was making its questions public after Akzo Nobel refused to engage and after it abruptly canceled a recent meeting with the hedge fund.  Elliott also called on Akzo Nobel to clarify the views of the new CEO and the supervisory board on the separation of the special chemicals business and the reliability of Akzo's 2020 targets.  Elliott, Akzo's biggest shareholder with a 9.5% stake, is currently pursuing court action to unseat Chairman Antony Burgmans over the rejected PPG bid.

Private equity company KKR & Co. LLP (KKR) will announce on Monday that it has inked a deal to pay $66.50 per share in cash to purchase WebMD Health Corp. (WBMD) It was first reported over the weekend that KKR was nearing an agreement to purchase WebMD.  The U.S. online health publisher's stock closed on Friday at $55.19, giving it a market capitalization of $2.1 billion. Blue Harbour Group in March boosted its stake in WebMD to 8.99%.

WidePoint Corporation (WYY) announced July 21 that it has reached an agreement with Nokomis Capital, L.L.C.—which owns about 15.4% of the company's outstanding common stock—to add two new directors to the board.  The two sides agreed to nominate Alan Howe and Philip Richter as Class II members of the board at the 2017 annual shareholders meeting, and they will also serve on the board's Nominating & Corporate Governance Committee and Compensation Committee.  Per the agreement, Nokomis will vote its shares in favor of the board's recommendations regarding director elections and other matters to be voted on at the 2017 annual shareholders meeting.  Nokomis also agreed to standard standstill commitments.  WidePoint Chairman Steve Komar said the company appreciates the continued support of Nokomis and welcomes the expertise and insights of the two newest directors.  Brett Hendrickson of Nokomis said the company believes the addition of Howe and Richter will further strengthen the board and ultimately enhance value for all WidePoint shareholders.

Telecom Italia's board plans to discuss on Monday the departure of CEO Flavio Cattaneo, the company said in a statement July 21. Cattaneo plans to leave the company within days, sources told Reuters, following clashes with top shareholder Vivendi. The statement noted that Telecom Italia's remuneration and appointments committee would also meet on Monday to talk about "a proposal to end the relationship (with Cattaneo) by mutual consent." Amos Genish, a top Vivendi executive, will be appointed Telecom Italia's managing director, the sources said.

A rebound in Honeywell's (HON) aerospace business and ongoing demand for its home and building technologies helped the company deliver another quarter of robust results. It also increased its full-year sales and earnings guidance. The strong results and upbeat outlook should boost new CEO Darius Adamczyk's defense against Dan Loeb, who has been calling for the company to spin off its aerospace business. Net sales rose 1% to $10.1 billion in the second quarter, easily surpassing the $9.88 billion that Wall Street was expecting. Net income rose 5.5% to $1.4 billion during the quarter, also ahead of analysts estimates of $1.36 billion. "We expect continued momentum in organic sales growth throughout 2017, supported by strong order rates and a growing backlog across many of our businesses," says Adamczyk.

Hudson's Bay Co. (HBC)—under pressure from shareholder Jonathan Litt—is unlikely to take its vast real estate holdings public any time soon, according to the head of RioCan Real Estate Investment Trust, a partner in a venture that holds some of those assets. Initial public offerings (IPOs) of two joint ventures with billions of dollars in U.S., European, and Canadian real estate are "unlikely at this point" because market conditions are poor, RioCan founder and CEO Edward Sonshine said in an interview on Thursday. The retailer formed those ventures in February 2015, one with RioCan and another with U.S.-based Simon Property Group Inc. (SPG). It said at the time the combined value was $3.8 billion. Sonshine, whose firm owns 12% of the Canadian real estate venture, said an IPO was not realistic. "The prevailing narrative is that retail is dead," said Sonshine, who disagrees. He added that HBC had many other options to get cash from its properties, including sale-leasebacks, financing, or subleasing. "It shouldn't be hard because it's great real estate," he said. HBC is under pressure from Litt to consider options including repurposing its real estate, closing stores, or taking the company private. Litt revealed a 4.3% stake in the company in June.

Australian institutional investors have welcomed Ken MacKenzie's rare step of meeting with large shareholders before becoming BHP (BBL) chairman in September, and have urged him to improve BHP's capital management and communication with shareholders. His decision to hold meetings reflects the pressure from institutional shareholders, including Elliott Management, to improve the miner's performance. MacKenzie's focus as chairman will be on capital allocation, ensuring return hurdles for investments and acquisitions are met, and board renewal. Paul Xiradis, Ausbil's executive chairman and chief investment officer, said it was a "little unusual" for a chair-elect to meet shareholders before starting in the job but "given the intensity of what's happening with Elliott and others I think it was the right move, and also institutional investors were keen to catch-up with Ken." Aside from better capital management, Xiradis also stressed the need for better communication and engagement with shareholders from BHP's board and management. MacKenzie's numerous meetings with institutions were considered an important step in that direction. BT Investment Management's head of equities Crispin Murray was another shareholder who met with Mackenzie and said the "chat was very good." "He's focused on things we think are important: capital allocation, returns on capital, and making sure they can make a difference," he said. "Ken's a good choice as chairman. He did a good job at Amcor."

Analysts believe Bunge Ltd.'s (BG) cost cutting and restructuring plans may give it a reprieve as it deals with a takeover bid from a bigger rival. Amid a downturn in the commodities market, the global grain trader's moves could lop $250 million off overhead costs by the end of 2019.  "We believe that management wanted to assure investors that the company does not need to be acquired, that it can deliver these savings that might have been synergies," says Ann Duignan, an analyst at J.P. Morgan.  "Also, it can deliver them on its own and increase returns to shareholders without needing to be acquired.  I believe that this plan buys management time."  Bunge in May spurned a takeover bid from Glencore PLC.  The company's restructuring announcement is viewed as a defense against both Glencore and Carlson Capital—which owned 1.24% of the company as of last quarter, according to securities filings.

BHP Billiton (BBL) appears to be preparing for a big move in the oversupplied potassium fertilizer business, but Elliott Management is unimpressed.  After BHP's chief potash analyst wrote a bullish blog item on the commodity's outlook, Elliott warned that the comments sounded "alarmingly familiar," considering the miner just wrote off more than $10 billion in U.S. shale investments.  Deutsche Bank estimates the massive Jansen mine the company is building in Canada could ultimately cost $13 billion to develop.  The amount of money involved could make BHP's potash move its most important strategic decision over the next five years.  Potash is a risky bet; however, it is incorrect to draw a direct analogy between it and shale.  BHP's main mistake there was investing at the top of the commodity bubble in a new, highly technical sector in which it had little experience.  By contrast, potash prices are down by more than half from their 2008 and 2009 peaks, and the mining technology is well established.  The main worry with potash is not demand, but supply: the market is expected to be saturated for the next decade, driven by major producers in Canada and Eastern Europe.  BHP's project would not come online until the mid-2020s, but margins might be unimpressive for the first few years.  Potash in 2017 makes more sense than shale in 2011, but it is still a risky gamble.

According to Germany's Manager Magazin, Nestle (NSRGY) CEO Mark Schneider is not ruling out larger acquisitions in health-science operations to bolster sales. Schneider was responding to a question about whether plans to increase sales of the health-science division to 10 billion Swiss Francs ($10.41 billion) from 2 billion required bigger purchases. He noted that the company is "acting prudently." When asked about investor Daniel Loeb's push to get the company to sell a stake in L'Oreal (LRLCY), Schneider said, "Nestle has performed exceptionally well with its engagement in L'Oreal for more than 40 years. I have nothing to add to this." Among other things, he said the company has no plans to spin off slower-growing businesses outside its four defined growth areas.

Jana Partners, which played a key role in sparking Whole Foods' (WFM) relationship with Amazon (AMZN), is cashing out.  Jana said June 19 in a Securities and Exchange Commission filing that it is exiting its position of 26 million shares, or about an 8.2% stake in the supermarket operator, making a profit of nearly $300 million.  Jana first reported its stake in Texas-based Whole Foods back in April.  At the time, the hedge fund urged the struggling grocery chain to either accelerate its turnaround strategy or put itself on the selling block.  Jana became Whole Foods' second-largest shareholder, initially accumulated its interest in Whole Foods by purchasing stock priced between $29 and $32 a share.

Elliott Management has warned against BHP Billiton's (BBL) plans to approve a $4.7 billion potash project in Saskatchewan.  "We share the deep concerns raised by analysts and shareholders that expanding into potash could be a severe strategic misstep," an Elliott spokesman said.  The hedge fund, which says it owns a 4% stake in BHP's London-listed shares, has been pushing to scrap the miner's dual listing and sell U.S. shale assets, saying the company has underperformed over the past decade.  This is the first time Elliott has spoken against the Jansen potash project, which has the potential to become BHP's largest-ever single investment decision.  "This sounds alarmingly familiar and comes as the company proclaims the dubious strategy of 'Thinking Big'—a concept that has been disastrous for BHP shareholders" the Elliott spokesman said.  "'Thinking Big' led BHP down the fateful path of diversifying into the U.S. shale market—investing $30 billion in assets that are today worth just $6.5 billion," Elliott added.  "With that track record, shareholders are correct in asking: Is potash the next U.S. shale?"

U.S. investment management firm Oaktree Capital Management is turning to both the Ontario Securities Commission and Quebec's Autorité des marchés financiers to address some of its concerns about Rayonier Advanced Materials' proposed takeover of Tembec Inc., saying there are disturbing questions about the role of Fairfax Financial Holdings Ltd. in the deal. Fairfax is based in Toronto while Tembec's headquarters are in Montreal. Los Angeles-based Oaktree is Tembec's biggest shareholder with a nearly 20% stake. The complaints come amid souring prospects for the US$807 million transaction. Oaktree and Restructuring Capital Associates, another Tembec shareholder, have both said the offer is too low, a view supported by proxy advisory firm Glass Lewis & Co., which is recommending Tembec investors vote against the deal. Oaktree's appeal to regulators centers on the declaration, made by Tembec and Rayonier when they announced their friendly merger May 25, that Fairfax, a major Tembec shareholder, "is supportive of the transaction." Fairfax subsequently sold its position in Tembec in the days that followed. However, because it was an investor as of the so-called record date—the cutoff used by companies to establish who their shareholders are—it might be entitled to vote the stake it held at that time despite the fact it has since cashed out.

White Tale Holdings has boosted its stake in Clariant AG from 7.2% to more than 10%, adding uncertainty to the Swiss company's proposed merger with U.S.-based Huntsman Corp. (HUN) to create a $14 billion chemicals giant.  White Tale is made up of investment funds 40 North Latitude Master Fund Ltd., controlled by David Winter and David Millstone, and Corvex Master Fund Ltd., run by Keith Meister.  "The U.S. activist investors' step makes a counterbid more likely," speculate analysts at Baader Helvea Equity Research.  "Clariant is the most obvious takeover target among European chemical companies due to an interesting portfolio and a relative low valuation."  The shareholder group first revealed a Clariant stake earlier this month and blasted the proposed merger with Huntsman.  "We believe shareholders ought to reject this value-destructive merger," the funds said July 4, adding that the proposed deal "significantly undervalues Clariant's shares and that far more value could be created for shareholders through any number of alternative transactions."

ABB's chief executive, Ulrich Spiesshofer, is under pressure to address lower profitability at the Swiss engineering company after higher raw material prices and overcapacity issues pinched its quarterly earnings.  The company reported a smaller-than-predicted gain in net profit on Thursday, sending its shares down 3% and putting pressure on Spiesshofer, who promised last year to boost the stock.  Spiesshofer said he did not feel under particular scrutiny from Cevian, ABB's second-biggest shareholder, which last year campaigned for a split of ABB's Power Grids business and which joined ABB's board earlier this year.  "The Cevian relationship is a very good one, we are working very well together," he said.  Cevian owns more than 5% of ABB stock.  Spiesshofer was speaking after ABB reported that net profit rose 29% to $525 million for the three months ended June 30 from $406 million a year earlier, missing forecasts of $580 million in a Reuters poll.  The earnings shortfall means investors' patience could now be running low with Spiesshofer, who became CEO in 2013, analysts said.  "Investors are getting more concerned about the decline in profitability," said Richard Frei, an analyst at Zuercher Kantonalbank.  "There has been a lot of restructuring at the company, which has yielded results, but now the effects are getting smaller."

In the wake of reports of illnesses contracted at a Chipotle Mexican Grill (CMG) restaurant in Virginia, Bill Ackman tweeted June 19 from one of the chain's locations.  The tweet included a photo of himself at the restaurant and the statement, "Eating our own cooking @ ChipotleTweets and making my own mix at"  Ackman's Pershing Square engaged Chipotle last year and won new board seats in December.  It had a 10% stake as of the end of March, according to FactSet.  The chain has been burdened by a number of food safety events that affected sales.  Shares have declined more than 9% this year and were little changed at midday Wednesday despite Ackman's photo.  The hedge fund manager joined Twitter under the handle @BillAckman1 at the end of June, and his office has confirmed that is actually him.

Ansaldo STS CEO Andrew Barr said the Italian rail-signaling company is seeking small acquisitions to offset a slowdown in the sector. However, it sees no quick solution to its battle with investment funds, led by Paul Signer's Elliott Management, holding nearly a third of the company. The investment funds have been in a feud with Ansaldo STS's controlling shareholder Hitachi since it bought the company in 2015, challenging the price paid, governance, and strategy. Elliott is Ansaldo STS's second-biggest shareholder, with a 22.5% stake, an option to buy another 8.8%, and three board seats. Hitachi initially acquired 40% of Ansaldo STS from Italian defense conglomerate Leonardo but later raised its stake to 51% through a mandatory buyout of minorities. However, it failed to reach the threshold required to delist Ansaldo STS and fold it into its own operations. Elliott made several complaints to the market regulator and filed a lawsuit that is now before the European Court of Justice, arguing that the bid price was too low. Elliott alleges that Hitachi underpaid by colluding with the seller and questions the independence of Ansaldo STS's board.

Glass Lewis & Co. has given its support to Oaktree Capital Group LLC's (OAK) attempt to block a proposed takeover of Montreal-based Tembec Inc. by Rayonier Advanced Materials Inc. (RYAM). The shareholder advisory firm urged investors in the Canadian lumber and paper producer to vote against the deal, arguing that the purchase price is too low. In its report, Glass Lewis also noted that there has been a significant increase in Rayonier Advanced's shares since the deal was announced, which indicates that it is underpaying and could afford to share more of the potential value with shareholders. "Putting these factors together, we believe there is reasonable basis for shareholders to expect more for their shares," Glass Lewis said. Oaktree, which owns 19.9% of Tembec, issued a statement agreeing with the advisory firm's conclusions. It sent a letter to the boards of both companies on July 14 stating that it would vote against the deal if the purchase price is not increased. Tembec's second-largest shareholder, Restructuring Capital Associates LP (RCA), which holds about 17.1% of the company's outstanding shares, has also come out against the deal. According to Glass Lewis, Oaktree and RCA have sufficient voting power to block the transaction, as a two-thirds majority is required to approve it. However, Institutional Shareholder Services Inc. has recommended that shareholders support the deal because it offered them flexibility to benefit from the upside of the combined business.

Dialectic Capital Management LLC, one of the largest shareholders of Covisint Corp. (COVS) with beneficial ownership of approximately 7.7% of the company's outstanding shares, has issued a public letter to shareholders announcing its intention to vote against the proposed acquisition of Covisint by Open Text Corp. at the company's July 25 special meeting. "Following years of mismanagement under the leadership of the board of directors and management team resulting in a depressed valuation, we believe it is wholly irresponsible for the Company to be sold now after posting its first quarter of profits," the letter stated. "Plain and simple, we believe the $2.45 per share price that is being offered to Covisint shareholders is completely inadequate. The current offer is seemingly representative of a company in secular decline with no growth opportunities, low margins, and no proprietary technology—none of which is the case with Covisint." Dialectic Captial added, "If the Company were to focus its sales efforts on the auto end market with an emphasis on existing customers, adjust its cost structure to be run profitably and look to grow responsibly either through small acquisitions or internal development, we believe the Company could be sold in the future for a much higher price."

CSX Corp. (CSX) shares are tumbling after CEO Hunter Harrison revealed on a Wednesday morning earnings call that he does not plan to stay at the company for too long. "I'm a short-timer here," Harrison told analysts. "I'm the interim person that's going to try to get this company to the next step and good foundation." Harrison's statement, along with declines in overnight trading, overshadowed the railroad company's strong second quarter. CSX netted $510 million in earnings, $65 million more than the same time last year. CFO Frank Lonegro attributed the growth to increases in coal pricing and efficiency savings of $90 million. Efficiency is a key focus of Harrison, who is implementing a precision scheduled railroading model. The railroad's operating ratio—an important measure of efficiency—improved from 69.4% for all of last year to 67.4% for the quarter, while revenue increased 8%. There was also an 8% decline in expenses since the last quarter, the result of CSX reducing its locomotive fleet, workforce, and hump yards. Harrison noted that more cuts are ahead, saying increased efficiency will attract more customers. For investors, Harrison's emphasis on efficiency brings hopes of faster future earnings, said Edgar Jones analyst Dan Sherman.

Harte Hanks Inc. (HHS) has reached an agreement with Sidus Investment Management, which owns 2.5% of the direct-mail marketing company's shares, to appoint Sidus managing partner Alfred V. Tobia Jr. and Melvin Keating to the board. "We look forward to working closely with Harte Hanks' management team and our fellow board members with the common goal of maximizing value for all shareholders," Tobia said in a statement. Harte Hanks and Sidus have entered into a "cooperation agreement." The agreement will be disclosed at a later time. Meanwhile, Harte Hanks has accepted the resignation of Stephen Carley from its board. The company has been struggling as digital advertising increasingly replaces traditional print advertising. In April, the company revealed it was slashing $10 million in annual costs and selling its 3Q Digital subsidiary as part of a move to enhance Harte Hanks' "strategic position and financial flexibility." Harte Hanks' annual meeting is scheduled for Aug. 17.

Dutch paint giant Akzo Nobel NV announced Wednesday that CEO Ton Büchner has stepped down for health reasons.  The move follows a months-long battle to fend off a takeover attempt from U.S. rival PPG Industries Inc. (PPG) and a campaign led by Elliott Management Corp. to push the company into sale talks.  Akzo is in the midst of spinning off its specialty-chemicals business from its paints-and-coatings operations, having promised shareholders that the strategy would generate more value than selling itself to PPG.  Thierry Vanlancker, head of Akzo's chemicals business, has been appointed as the company's new CEO; and said he has no plans to deviate from the current strategy.  PPG dropped an improved $28 billion takeover bid for Akzo in June after failing to initiate takeover talks.  Akzo rebuffed the offers as too low, while Elliott argued the company did not sufficiently engage with PPG.  In May, Elliott—which owns 9.5% of Akzo—lost an initial legal fight in the Netherlands to try to oust Akzo Chairman Antony Burgmans.  The hedge fund was betting then that Burgmans' removal would pressure Akzo into sale talks with PPG.  Although PPG has since dropped its bid, Elliott still wants the chairman gone because of the board's handling of PPG's advance.  Earlier this month, it filed a joint petition to call a general meeting of shareholders to vote on Burgmans' dismissal.

More than one-fifth of FirstGroup Plc shareholders voted against re-election of director Richard Adam at the annual general meeting (AGM), citing concern about his track record at builder and engineer Carillion Plc, which recently suffered a $1.1 billion charge against problem contracts.  Before retiring as Carillion's finance chief in late 2016, Adam approved a December trading update that said the company would make "further progress" in 2017.  But Carillion lost 71% of its market value last week following the disclosure of cost overruns on public-private construction deals in the United Kingdom and contracts in the Mideast and Canada.  FirstGroup revealed Tuesday that 22.7% of voters opposed retaining Adam, who joined the FirstGroup board in February.  However, the U.K. train operator pledged to stand by Adam, acknowledging the shareholder opposition but noting that fellow directors remain confident that his experience is of benefit to the company.  The magnitude of the shareholder rebellion at the AGM came as a surprise, since Institutional Shareholder Services had supported Adam in a note to subscribers.  The Canadian fund West Face Capital recently disclosed a more than 5% stake in FirstGroup.

The fate of a planned takeover of Quebec-based Tembec Inc. by Florida-based Rayonier Advanced Materials (RYAM) is in the hands of investors, who must cast at least two-thirds of votes in favor at the upcoming shareholders meeting for the deal to proceed.  However, Tembec's largest shareholder—Oaktree Capital Management, which owns a 19.9% stake—and others are resisting the deal.  Under the US$807 million agreement, shareholders can accept $4.05 in cash or 0.2302 of a Rayonier share.  Oaktree, which calls the transaction "flawed," plans to solicit proxies from those opposed to the deal.  It also raises the issue of empty votes, as Fairfax Financial—which had been Tembec's largest shareholder when the transaction was announced on May 25—has since sold off its 19.99% stake and "no longer beneficially owns, or has control or direction over any of the outstanding share," according to a filing.  Fairfax received a higher price than Tembec's shareholders stand to when they vote on the takeover on July 27.  Meanwhile, Restructuring Capital Associates L.P., Tembec's second-largest shareholder with a 17.1% stake, said it expects to vote against the takeover unless Rayonier sweetens its offer.  It added that its support hinges on whether "Rayonier responds more appropriately to the points made by Oaktree ... Oaktree makes a compelling case that Rayonier can and should improve its offer."  With opposition from both Oaktree and Restructuring, observers say it is impossible for the deal to reach the required two-thirds support threshold.

BHP Billiton Ltd. (BBL) said it plans to increase activity in the U.S. oil and gas shale fields that some shareholders—led by Elliott Management Corp.—want it to offload.  The move is expected to revive waning onshore production volumes even as BHP continues to invest in traditional energy operations and exploration in the Gulf of Mexico and other basins while angling to sell some unwanted U.S. shale acreage.  Elliott has led a campaign at BHP in recent months, calling for an extensive overhaul of the mining company and criticizing the billions of dollars spent on acquisitions and poorly timed share repurchases.  The shareholder pressure has drawn BHP's petroleum division into the spotlight and revived questions about the billions spent picking on onshore U.S. assets at the height of the natural gas boom.  BHP on Wednesday predicted a rise in overall production across its operations for the 2018 fiscal year, as steady growth in iron-ore output and a rebound in commodities including copper offset a further drop in petroleum volumes in the 12 months through June.  The company anticipates having up 10 rigs operating in its U.S. shale fields in the coming year, twice the number currently drilling for oil and gas, CEO Andrew Mackenzie said.  That will see it spending roughly US$1.2 billion—the majority of its US$2 billion petroleum expenditure budget for fiscal 2018—which is expected to deliver a 35% hike in shale production the following year after an expected decline in the current period, the company said.

Tesla Inc. (TSLA) on Tuesday named two new directors to its board, heading off criticism from some investors that the electric car maker's board members are too closely linked.  Joining the now nine-member board are 21st Century Fox CEO James Murdoch and Linda Johnson Rice, chair and CEO of Johnson Publishing Co.  The former has held several leadership roles at Fox and started a foundation that supports environmental sustainability.  The latter heads Ebony Media Operations and has served on a number of corporate and charitable boards.  Some Connecticut pension funds earlier this year called for annual elections of board members, pointing out that Tesla CEO Elon Musk's brother serves on Tesla's board. However, shareholders sided with Tesla, which advocated three-year terms.

Elliott Management has beefed up its campaign engaging retail shareholders of BHP Billiton (BBL) in an effort to make further change and maximize value at the company. The New York-based hedge fund is playing on BHP's new marketing slogan "Think Big" by urging shareholders to "Think Smart" about their investment in the world's largest miner. These retail investors account for about 30% of BHP's 600,000 shareholders. Elliott has rolled out a new website,, and a digital campaign targeting Australian retail shareholders. The new website alleges that decisions by BHP's current management, including outgoing Chairman Jac Nasser, have destroyed US$40 billion worth of value in the company. The campaign—which focuses on abolishing BHP's dual listing to stop the destruction of franking credits, exiting shale, reviewing petroleum assets, and reforming the board and asking for improved dividend and share buyback policies to deliver more to shareholders—calls on shareholders to sign a petition supporting the changes. "A unified BHP with smart dividend and buyback policies could deliver twice as much return over five years on a $10,000 investment in BHP—effectively doubling Australian shareholders' yield," indicates the presentation.

Shareholders in Ericsson AB (ERIC) were reminded that fixing struggling companies is difficult and takes time when the Swedish company warned on July 18 that demand for its telecoms gear would remain weak and more cost cuts were needed in its turnaround. The company's shares fell 13%, reversing the gains since CEO Borje Ekholm assumed the top post in January. Observers believe Ericsson's board, controlled by long-term shareholders Investor AB and Industrivarden AB, is to blame for the sense of drift after allowing the company to become bloated and unfocused. They believe the only reason for optimism is the arrival of Cevian Capital, which has built a 5.9% stake in the company since November. However, it controls only 3.5% of the voting rights, compared with the nearly 37% held collectively by Industrivarden and Investor. Cevian managing partner Christer Gardell publicly chastised the Ericsson board over its complacency soon after disclosing his fund's stake in late May, but more recently the fund has been working with Ericsson and signaled its support for Ekholm's planned revamp. Meanwhile, Chairman Leif Johansson said he will step aside before the 2018 annual shareholder meeting, after holding the position of chairman for the past six years. However, observers point out that Cevian is supposedly a patient activist that is now invested in a company where the Swedish model of patient capitalism has failed.

Tesla Inc. (TSLA) on Monday named 21st Century Fox Inc. (FOX) CEO James Murdoch and Ebony Media CEO Linda Johnson Rice to the board, expanding it to nine members.  The move comes after a group of shareholders in April called for improved corporate governance at the automaker, including a request for two new directors with no prior personal or professional ties to CEO Elon Musk.  Murdoch serves on the board of News Corp. (NWSA), is the chairman of Sky PLC, and took over at Fox in 2015.  Rice, along with running Ebony Media, has also served on the boards of Omnicom Group Inc. (OMC) and GrubHub Inc. (GRUB).  She becomes Tesla's second female director.  Dieter Waizenegger, executive director of CtW Investments Group—a signatory to the April letter—applauded Rice's appointment for adding diversity to the board.  He raised concerns about Murdoch, however, citing his handling of a phone-hacking scandal at the U.K. newspaper unit of News Corp. in 2011 as well as a recent controversy involving sexual-harassment claims at the Fox News Channel.  Waizenegger believes those issues make Murdoch a poor candidate "for a board that really needs to prove that it wants to take up shareholder accountability several notches."  CtW represents union-sponsored pension funds that own about 200,000 Tesla shares, while another pension fund that signed the April letter—the California State Teachers' Retirement System—owns approximately 248,000 shares, or 0.15% of Tesla.

BNY Mellon (BK) has selected the banker who led a digital move at Visa (V) to lead a technology-driven shake-up. Newly appointed CEO Charles Scharf plans to bring a "fresh set of eyes every day" to BNY. Scharf is joining BNY with immediate effect. Investors have been encouraging BNY to make a greater effort to handle the profit-dampening effect of chronically low interest rates. Nelson Peltz's Trian Partners won a board seat in 2014 and is BNY's eighth largest shareholder. "Technology is changing almost any industry across the world today—anyone who doesn't think so hasn't caught up with reality," Scharf said. "It's certainly true for this company." He added that, "There's even more opportunity to use technology in different ways—for incumbents and newcomers." Some analysts expressed surprise at the quick change of leadership and the bank's decision to select an external candidate. When questioned about the possibility of acquisitions and disposals, Scharf said he did not have "any preconceived notion that something [a part of the business] needs to go, or that we need to do something else," adding that BNY should "continue to not rest on the past."

In a CNBC interview on Monday, Nelson Peltz said he spoke with former Gillette employees who said they wouldn't have let online rivals Dollar Shave Club and Harry's gain as much of a foothold as Procter & Gamble (PG) did.

Nelson Peltz on Monday announced he would seek a single board seat in a shareholder vote at Procter & Gamble Co.'s (PG) annual meeting, making P&G the largest company to ever face a proxy fight.  Peltz's Trian Management Fund argues that P&G failed to capitalize on a five-year savings plan that shrank the company by tens of thousands of employees, more than a dozen factories, and hundreds of brands.  Trian questions whether a second $10 billion savings plan announced by P&G last year will produce results.  On Monday, P&G began mounting its defense, first citing a series of metrics outlining the company's improved profit margin, leaner structure, and healthy cash generation.  Trian, in meetings with P&G CEO David Taylor and other managers, offered no specific suggestions on how the company could better optimize cost savings, and was largely complimentary, according to sources.  P&G ultimately saw no value in adding Peltz to the board, they said.  The investor is not saying explicitly it wants more cost cuts than the $10 billion P&G has targeted, and is not giving specifics on how it would tackle the costs.  But Trian is concerned about whether the goal will be reached.  Trian says years of P&G's underperformance in revenue and the stock market have raised questions about why the board should be given another year to execute without Peltz in the boardroom to help guide management.  Central to Trian's case is the fate of about $3 billion of the $10 billion in P&G's previous cost reductions.  Trian argues that if P&G were operating efficiently, the $3 billion would have shown up in increased sales and profit growth, both of which have been stalled for years.

Nelson Peltz revealed on July 17 that he is seeking a board seat at Procter & Gamble (PG). Observers say the move is further proof of the growing power of top investors, who have successfully challenged ever-larger corporations into altering their corporate strategy.  In a regulatory filing, Peltz's Trian Fund Management contends that the consumer products giant has underperformed financially and is in dire need of a shake-up. Trian has called for Procter & Gamble to reduce costs and pare down its bureaucracy. The investment firm revealed in February that it had taken a $3.5 billion stake in the company. "As a member of the board, Mr. Peltz would seek to help the company increase sales and profits, regain lost market share, and address the company's structure and culture, and we believe that he can contribute far more value operating from within the company's boardroom than by merely advising the company from the outside," the firm stated in its proxy materials. It said it was not seeking to break up Procter & Gamble or replace CEO David S. Taylor, who has been at the helm for less than two years.

Oaktree Capital Management sent an open letter to Tembec shareholders on Friday protesting the forestry company's sale to Rayonier Advanced Materials (RYAM). The largest shareholder, with a 19.9% holding, Oaktree argued investors are not receiving fair value.  It vowed to vote against the deal unless the offer price is raised. As currently written, the terms give Tembec shareholders C$4.05 in cash or 0.2302 of a share in Rayonier.  While that is 37% higher than where Tembec's shares traded before the offer, it is below the $4.21 the shares commanded Friday on the Toronto Stock Exchange.  Patrick McCaney, Oaktree's managing director and portfolio manager, said if the offer is not increased, Tembec shareholders would be better off remaining independent.  He indicated Rayonier would benefit more from the deal by using Tembec to reposition its business away from the declining acetate market.  Meanwhile, Institutional Shareholder Services on Friday advised Tembec shareholders to approve the buyout at a vote scheduled for July 27.  The proxy firm cited "sound strategic rationale" and the flexibility of the cash/stock agreement.

Elliott Management's continuing engagement campaign with BHP Billiton's (BBL) institutional investors appears to be paying off, with top shareholders endorsing the hedge fund's push to shake up the miner's structure and petroleum division.   Elliott is believed to have backed the appointment of Ken MacKenzie as BHP chairman last month but wants to discuss how best to collapse BHP's dual-listed structure and separate the company's petroleum division.  Australian Foundation Investment Company (AFIC) and Wilson Asset Management (WAM) both said they had met with Elliott and welcomed the investor's campaign.  "I actually think they have been helpful in the sense that they have brought into the public focus the fact that BHP has actually underperformed over the last three, five to 10 years and nobody can deny that is true and management and the board aren't denying that either," said AFIC managing director Ross Barker.  WAM portfolio manager Matthew Haupt agreed that the debate prompted by Elliott had been valuable.  "I think it's healthy to have constructive debate around best use of funds," he said.  "I am supportive of those things, as long as they're constructive, and Elliott has been."  AFIC and WAM's comments mirror previous sentiments from other BHP shareholders, including Aberdeen Asset Management, Argo Investments, BT Investment Management, and Tribeca.

Canadian fund West Face Capital has raised concerns about the expansive transatlantic operations of FirstGroup, indicating it might push for a breakup of the bus and rail operator.  West Face reportedly believes the line's U.K. base is stifling the true value of its North American operations.  The hedge fund in June disclosed a 5% stake in FirstGroup, becoming its fifth-largest investor.  FirstGroup is listed on the U.K. stock market and is one of Britain's biggest transport groups.  However, the company makes more money in the United States and Canada, where it transports millions of students to school in its iconic yellow buses and manages the Greyhound coach network.  FirstGroup posted £284 million of operating profits last year, 85% of which came from North America.  Nonetheless, a source close to West Face explains, "The U.K. seems to be the tail that wags the dog, and so you have a situation where the share price is being affected by everything from Brexit to relatively small variances in the UK rail business, and that causes the whole enterprise value to trade cheaply."

Gatemore Capital Management said on July 14 that it welcomes the organizational changes at DX Group and is optimistic about its recent performance. Earlier in the day, the British mail delivery firm said its CEO and finance director would step down, and it would separate its operations into courier and freight divisions. Liad Meidar, managing partner of Gatemore, which has a 21% stake in the company, said, "Our working relationship with the board has become more productive."

Athenahealth Inc. (ATHN) CFO Karl Stubelis will resign from his post on July 1 to pursue other opportunities, with Chairman John Kane serving as interim CFO. The move comes less than two months after Elliott Management Corp. reported in a securities filing that it held 9.2% of the company's common stock and sought to engage the company's board on "numerous operational and strategic opportunities to maximize shareholder value."

The top Democrat on the U.S. House of Representatives' antitrust subcommittee on Thursday requested a hearing to investigate the potential impact on consumers of Inc.'s (AMZN) $13.7 billion plan to buy Whole Foods Market Inc. (WFM). "Amazon's proposed purchase of Whole Foods could impact neighborhood grocery stores and hardworking consumers across America," said Rep. David Cicilline. "Congress has a responsibility to fully scrutinize this merger before it goes ahead." The deal must be approved by U.S. antitrust enforcers, and although Congress plays no formal role in that process, hearings are often used to highlight the possible impact of deals on consumers. Also this week, hedge fund manager Douglas Kass of Seabreeze Partners Management Inc. said he was shorting shares of Amazon due to rumblings in Washington about the company's size and clout. "I am shorting Amazon today because I have learned that there are currently early discussions and due diligence being considered in the legislative chambers in Washington, D.C.," he wrote in a note to shareholders late Wednesday. Kass told Reuters on Friday that he has what he called a "core" short position in Amazon, meaning a significant bet based on a long-term outlook. While antitrust experts have said they expect Amazon's bid to win regulatory approval, some critics argue the deal should be blocked because it gives the retailer a significant advantage toward domination of online grocery delivery.

Jana Partners has acquired a stake in Zimmer Biomet Holdings Inc. (ZBH) and initiated talks with the company about possible strategic changes, sources say.  Zimmer Biomet this week announced the exit of CEO David Dvorak, whose duties will be covered by CFO Daniel Florin until a permanent replacement is found.  Although CEO succession is one of the subjects under discussion by Zimmer Biomet and Jana, the company is presently pursuing its own strategic plan, a source said.  The size of Jana's holding is unknown; but it and Zimmer Biomet on Thursday were granted early termination under the U.S. Federal Trade Commission's Hart-Scott-Rodino Act, a public filing that is required when an investor purchases shares in a company above a certain threshold.  Discussions between the hedge fund and the $26 billion medical-equipment maker are ongoing, the sources said.

Microsoft's (MSFT) board of directors has adopted a policy that is geared toward restricting the average tenure of independent directors to 10 years or less. The move is a bid to help inject new opinions into the company's governing council. The revised language in the tech giant's corporate governance guidelines formalizes moves directors have made in recent years to make the board more responsive to change. Two years ago, Microsoft added provisions to its bylaws that give big shareholders more of a say in nominating board members. Microsoft's current slate of independent directors has an average tenure of about five years, down from an average of more than nine years in 2013. "There is a presumption that, after so many years on the board, a director is no longer independent," notes Marc Goldstein, director of U.S. research with Institutional Shareholder Services. However, it's a balancing act, he says. "As Microsoft points out, directors who have been on the board for a longer period might have the context, the institutional memory to effectively challenge management."

Johan Forssell of Investor has replaced Petra Hedengran as chairman of Ericsson's board nomination committee.  In June, Cevian's Christer Gardell joined the panel.  Cevian has boosted its stake in the Swedish mobile equipment firm in recent months, becoming the biggest investor by capital—although shareholders Investor AB and Industrivarden control many more votes.  Chairman Leif Johansson intends to step down prior to next year's annual meeting as the struggling company works toward a return to profitability.

Hudson Bay Capital Management has taken a 3.2% stake in nursing home owner Sabra Health Care REIT Inc. (SBRA), becoming its sixth largest shareholder. The New York-based hedge fund is urging shareholders to vote against a proposed takeover of Care Capital Properties Inc. (CCP), which was announced in May.  "We are being asked to approve a transaction that has caused a massive decline in Sabra's stock price and trading multiples," wrote Hudson Bay CEO Sander Gerber in a July 13 letter to Sabra shareholders. Sabra's shares have fallen nearly 14% since the deal was announced, and Care Capital's shares have slipped 4.7% over the same period, erasing the initial gains after the deal was disclosed.  "We hope that it is as clear to you as it is to us that voting against the CCP acquisition maximizes the value that we, as collective holders of Sabra shares, deserve for our investment," Gerber wrote.

Barry Rosenstein's JANA Partners has built a significant stake in Zimmer Biomet (ZBH), and on July 13 its Nirvana Offshore Fund received an Early Termination Notice from the Federal Trade Commission that allows the hedge fund to increase its stake. Its exact stake is unknown, but Securities and Exchange Commission filings indicate that it has been built over the last quarter. JANA may have played a role in the surprise departure of Zimmer Biomet President and CEO David Dvorak and may push for such additional changes as board representation and an ultimate sale.

Ronin Trading LLC and SW Investment Management LLC—together the second-top shareholder in Peregrine Pharmaceuticals Inc. (PPHM) with an 8.8% stake—sent a letter to the company's shareholders on Thursday nominating three independent candidates for election to the board at the annual meeting of stockholders. Ronin believes change is desperately needed on Peregrine's board given current strategy, weak corporate governance, misalignment of interests with shareholders, and constant dilution. It expressed disappointment about management's apparent lack of any long-term strategy for addressing the company's problems, and made several recommendations, including to suspend all clinical development activities; refocus on contract development and manufacturing; replace inexperienced board members responsible for poor corporate governance; and realign interests with stockholders. The letter also noted that Institutional Shareholder Services recommended a withhold vote for each of Peregrine's independent directors at the last three annual meetings.

Tiffany & Co. (TIF) has appointed former Bulgari SpA executive Alessandro Bogliolo as CEO to take over this fall.  The move comes months after the jewelry retailer added another executive from the Italian luxury retailer to its board as part of a deal with Jana Partners.  Bogliolo will lead the firm as Tiffany struggles to attract young shoppers who are either spending less on accessories or are turning to trendy brands.  In its most recent quarter, Tiffany reported an unexpected drop in comparable sales, as weak demand at home as well as a strong dollar crimped spending by tourists.  The shakeup also comes about five months after Tiffany ousted former CEO Frederic Cumenal following a string of disappointing results.  After his exit, Jana Partners disclosed a stake in Tiffany and struck a deal to add three directors to its board, including former Bulgari CEO Francesco Trapani.  Though Jana's exact plan for the company is not yet clear, its agreement with Tiffany included Trapani being part of the CEO search committee.

NRG Energy Inc. (NRG) said July 12 that it would sell up to $4 billion in assets, cut costs, and lower its debt as part of a "transformation plan." NRG, a leading owner and operator of power plants, said it may even sell its ownership stake in NRG Yield Inc., a dividend-generating company with renewable energy holdings. The moves are among the final steps to undo an unsuccessful plan under a previous NRG chief executive to diversify into wind and solar and away from coal and gas. The strategy was a drag on earnings and depressed the company's share price. Elliott Associates LP in January teamed with Bluescape Energy Partners LLC to purchase a combined 9.4% stake in NRG. In a January letter, Elliott said NRG's stock was "deeply undervalued," but could be improved with operational and financial changes. NRG re-worked its board of directors in February, adding three new members with ties to the new investors. Jeff Rosenbaum, portfolio manager at Elliott Management, stated that he was "pleased that this process has delivered such a strong plan for shareholders."

On June 6, shareholders of General Motors (GM) voted overwhelmingly against hedge fund billionaire David Einhorn's push for a dual-class common stock structure, with 91% of the votes cast against the proposal. The shares cast by Einhorn's Greenlight Capital were just about the only votes in favor of the proposal, as 96% of non-Greenlight votes cast rejected it. Einhorn's efforts to get three directors on GM's board also were unsuccessful, with shareholders electing all 11 of GM's board nominees, who received between 84% and 99% of the votes cast. "We are disappointed that shareholders have elected to maintain the status quo," Einhorn said in a statement. "We congratulate GM's management on their win today."

On June 6, shareholders of General Motors (GM) voted overwhelmingly against hedge fund billionaire David Einhorn's push for a dual-class common stock structure, with 91% of the votes cast against the proposal. The shares cast by Einhorn's Greenlight Capital were just about the only votes in favor of the proposal, as 96% of non-Greenlight votes cast rejected it. Einhorn's efforts to get three directors on GM's board also were unsuccessful, with shareholders electing all 11 of GM's board nominees, who received between 84% and 99% of the votes cast. "We are disappointed that shareholders have elected to maintain the status quo," Einhorn said in a statement. "We congratulate GM's management on their win today."

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Activist Investors Lead 'Quiet Revolution' in Italy
" Financial Times (07/22/17) Thompson, Jennifer; Sanderson, Rachel"

Activist investors increasingly are focusing on Italy, encouraged by improving corporate governance and the weakening of traditional company owners during Europe's sovereign debt crisis.  The number of Italian companies facing pressure from activist shareholders jumped to 12 last year from four in 2013.  The rise follows a disassembling of company cross-shareholdings—which have previously made Italian businesses invincible to outsiders—and Europe's sovereign debt crisis that began to accelerate in 2010, relaxing the grip of the Italian government and powerful family owners on many of the country's biggest businesses.  Joseph Oughourlian, founder of U.K. hedge fund Amber Capital, said a number of rights issues by Italian firms over the past decade have further loosened the hold of traditional shareholders, enabling activists to step in.  He said a "quiet revolution" has taken place in southern Europe, moving the area away from its reputation as "a world of controlled capitalism."  "There will be increasing voting from foreign shareholders," he predicts. "During [the] crisis of 2012, there weren't any Anglo-Saxon shareholders.  They are now coming back."

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Board Practices Hurt Banco Popular, Experts Say
" Wall Street Journal (07/24/17) Neumann, Jeannette; Kowsmann, Patricia"

When the European Central Bank began to regulate Banco Popular following a rescue this past June, it inherited a bank that analysts say was overcome with governance issues.  Experts say the bank's problems included directors who were not independent enough from management and deals with companies that had ties to the board.  In its 2016 annual report, the bank reported seven of 15 board members as independent.  However, four had longstanding ties to Banco Popular, which governance experts say limited their ability to challenge executives' decisions.  Analysts say the relationship between the board and management contributed to the board's hesitance to remove Ángel Ron as executive chairman despite shareholder concern the bank was not doing enough to shed roughly €37 billion in sour loans.  Ron was replaced in December after 12 years at the helm and more than a 90% decline in the bank's share price.  "Truly independent board members are key to avoid conflicts of interest that end up impacting stakeholders," said Carlos García, an analyst with financial services firm Kepler Cheuvreux SA.  "Popular is an example of why governance matters."  Another issue for Banco Popular was its relationships with firms that had representation on its board. Members of the board also approved deals that made it appear the bank was on sounder financial footing than it actually was, analysts say.

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Consumer Goods Make Appetizing Target for U.S. Investors
" Financial Times (07/21/17) Daneshkhu, Scheherazade; Nicolaou, Anna"

U.S. investors are drawn to consumer goods companies for a variety of reasons, observers say. For example, Nelson Peltz has engaged several food companies including Heinz (KHC), Cadbury, Mondelez (MDLZ), PepsiCo (PEP), and Danone. Just this week he entered into a proxy battle to obtain a seat on the board of household products company Procter & Gamble (PG), in which his Trian investment group invested $3.3 billion this year. Peltz is not alone in his attraction to consumer goods companies. Dan Loeb's Third Point has taken a $3.5 billion stake in Nestlé (NSRGY), the world's biggest consumer goods group. Loeb called for a "greater sense of urgency" to improve performance at Nestlé, which he called "staid" and "stuck in its old ways." Peltz expressed similar sentiment about P&G—referring to "excessive cost and bureaucracy" and "a slow moving and insular culture." Francois-Xavier de Mallmann, chairman of investment banking at Goldman Sachs, says activist investors are boosting their involvement in the consumer goods sector. "Activists have been investing in the consumer sector for several years but there has been a sizeable increase in both the number and size of the companies they have [engaged] over recent months," he notes. They are appealing, because they tend to be huge conglomerates with a lot of excesses that can be cut. "Sales growth in consumer industries has slowed and because of this you are seeing the rise of activist investors, looking to cut costs to boost profitability," says David Dudding, European equities fund manager at Columbia Threadneedle Investment.

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Swiss Inc. Shaken Up by Laws Emboldening Activist Investors
" Bloomberg (07/21/17) Foerster, Jan-Henrik; De Sousa, Agnieszka; Baghdjian, Alice"

Swiss companies need to rally their defenses or they will attract further activist intervention, according to Nuno Fernandes, a professor at IMD business school in Lausanne.  Shareholders are taking advantage of legal changes that give them more clout to oust board members and slash CEO pay in the country with the highest executive compensation in Europe.  The surge in activism stems from a referendum several years ago when Swiss voters opted to expand shareholder rights.  Now Switzerland is one of the few countries where shareholders have a binding vote over how much money the board and CEOs get.  Moreover, each board member's seat goes up for reelection each year, giving shareholders the power to fire a company's leadership en masse.  Daniel Loeb rattled corporate Switzerland last month when his Third Point disclosed a $3.5 billion stake in Nestle SA—the biggest Swiss company by market value—and demanded that Nestle repurchase shares and boost sales growth.  "Switzerland is a great place for activists," said hedge fund manager Rudolf Bohli of RBR Capital Advisors.  "Swiss chairmen are among the most overpaid in Europe.  I think the Loeb move may motivate other investors."  Activist investors are using executive pay to rally minority shareholders for their cause, said Mariel Hoch, a lawyer at Baer & Karrer in Zurich.  With the funds increasingly flowing into activist strategies, they have the power to engage large multinationals in Switzerland and Europe, as well as in the United States, she said.

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State Street: Corporate Governance Has Grown Up
" Financial Times (07/21/17) Marriage, Madison"

Rakhi Kumar, head of corporate governance at State Street Global Advisors, addresses many of the top issues facing the shareholder community.  One of her biggest concerns is the move by many of the world's largest tech companies—like Snap, Facebook, and Alphabet—to implement controversial voting structures that restrict shareholder power.  More vocal than many of her rivals in criticizing this practice, Kumar has taken the rare step of calling in the U.S. regulator.  She sees regulatory action as a final course of action, having campaigned companies for years with no result to stop adopting inequitable voting structures.  With or without the regulator's help, Kumar intends to continue lobbying against the practice.  "For us as shareholders, we appoint directors to oversee companies.  If we don't have the ability to appoint directors and the company is not going in the right direction, then we don't have any rights," she explains.  "We have to keep talking about this issue.  We can't [stop] pushing back against dual share-class structures as they are not in our best interests."  Kumar also says State Street is applying more pressure to a wider range of companies on certain issues.  This year, for the first time, the firm will include quantum—amount of money paid to CEOs—when screening for companies with potentially problematic pay structures.  State Street also pledged earlier this year to vote against company directors that do not commit to improving gender diversity in their boardrooms.  Kumar concludes that corporate governance has matured, as directors have become more receptive to alternative perspectives and as companies have recognized that index managers are taking a more active role in tracking governance standards.

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Akzo Nobel Faces Dilemma Over Shareholder Vote on New CEO
" Reuters (07/21/17) Meijer, Bart; Sterling, Toby"

The resignation of Akzo Nobel's CEO presents a dilemma for the company, because an upcoming shareholders' meeting to approve his replacement could pave the way for a vote on Chairman Antony Burgmans, who rejected a takeover bid by U.S. rival PPG Industries (PPG) that many shareholders wanted.  Thierry Vanlancker was named the new CEO June 19 after his predecessor, Ton Buechner, unexpectedly resigned for health reasons.  Shareholders must approve Vanlancker as CEO, but a meeting could also give them an opportunity to demand a vote on Burgmans—which they have been requesting for months.  Elliott Advisors, Akzo's biggest shareholder with a 9.5% stake, filed a lawsuit in May seeking Burgmans' removal.  Elliott's request was rejected, but its legal efforts to unseat him are ongoing.

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Chinese Firms Post Improving Corporate Governance: Survey
" China Daily (07/20/17)"

Chinese companies are doing a better job of upholding corporate governance standards, according to a new Institutional Investor survey. A number of Chinese mainland companies rose to the top of the rankings of the 2017 All-Asia Executive Team Honored Companies, edging out several of 2016's winners from India, Southeast Asia, and Australia. Will Rowlands-Rees, managing director of Institutional Investor Research, says the surprising thing is Chinese firms are meeting both local corporate governance standards and most international standards.

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Most Activism 'Behind Closed Doors': Bennelong
" InvestorDaily (07/19/17) Stewart, Tim"

According to Bennelong Australian Equity Partners investment director Julian Beaumont, Elliott Management's efforts to shake up BHP Billiton (BBL) are not symptomatic of a broader trend. Beaumont said, "Activism has said to be on the rise for a number of years now and it goes in patches—and clearly there's another patch right now. But there doesn't seem to be any broader scope for it. A lot of the activism in Australia's actually behind closed doors." He indicated that most fund managers prefer to maintain relationships with the companies they invest in and are reluctant to criticize them publicly. Even so, he said shareholder activism, whether public or not, is healthy for investors. "Management needs to be somewhat more accountable. What's been shown—particularly overseas, but perhaps to a lesser extent in Australia—is that management teams do improve their corporate governance through their disclosure and do come back to be more responsive to shareholders as a result of shareholder activism," Beaumont said.

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Opinion: Why All Shareholder Voices, Even Passive Ones, Matter
" New York Times (07/20/17) Litt, Jonathan"

Jonathan Litt, the founder and chief investment officer of Land & Buildings Investment Management, makes the argument for why passive and active shareholders should work together. As the popularity of index funds and passive investing strategies grows in the United States, the conversation has turned to what role these index funds should play in contested situations where shareholder votes can decide a company's future. Because of the sizable stakes that index funds like State Street, Vanguard, and BlackRock now have in so many companies, they often become the swing votes in proxy fights, determining whether an activist investor's or company's nominees get elected to the board. Lately, some have called for stripping the indexes of these voting rights. They argue that because these funds are passive, that alone should disqualify them from voting, or that they are not as incentivized to address poor corporate governance issues that hurt ordinary investors. "As an activist investor who recently lost an expensive, months-long proxy campaign [at Taubman Centers] where a lack of support from the indexes was the difference, you might expect me to be firmly in the camp advocating to disarm these funds. You would be wrong," Litt writes. In public U.S. companies today, he says, it is important to remember the deck is stacked against all shareholders—which is why both passive and active must work together to make their voices heard. "Ultimately all investors—active, passive, and activist—need each other to help instill accountability and fight back against poor governance, underperformance, and corporate self-enrichment at the expense of shareholders," he concludes.

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Most Japan Firms Reluctant to Boost Shareholder Returns Further: Reuters Poll
" Reuters (07/20/17) Kajimoto, Tetsushi"

According to the Reuters Corporate Survey, fewer than a third of Japanese firms plan to increase shareholder returns this financial year, despite the fact that close to 50% have seen cash on hand rise. Prime Minister Shinzo Abe has encouraged companies to return more to shareholders or hike capital spending as part of an effort to improve corporate governance and make Japanese companies more attractive to foreign investors. In response, combined shareholder returns for firms listed on the Tokyo bourse's main board have jumped more than 20% in each of the three years to the end of March 2016, but gains dropped to 2.2% in the past financial year, according to Goldman Sachs data. The survey indicates that 60% of companies plan to keep shareholder returns flat this year, 29% plan to boost them, and 2% plan cuts. Thirty-one percent of companies cited the need to set aside funds for "uncertainties." Of the 45% of companies that saw cash on hand increase in the past financial year, about 25% said cash on hand had surged 10% or more. Kengo Nishiyama, a strategist at Nomura Securities, said, "If they don't let cash circulate through the economy, it will remain stagnant, which will make it harder for firms to find investment opportunities, causing a vicious cycle."

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Companies Go Public, and the Board Is a Boys' Club
" Wall Street Journal (07/19/17) Lublin, Joann S."

In spite of aggressive efforts to put women on corporate boards, few newly public companies do so.  Nearly half of the 75 largest initial public offerings of the past three years involved companies that lacked women board members when they went public, a new analysis by the 2020 Women on Boards advocacy group found.  Most of those 37 companies still have all-male boards. Directors of newly public companies can reap sizable rewards.  A review of 2016 proxy statements by Equilar Inc. shows that about 42% of 236 major concerns with IPOs in 2014 and the following year gave new board members an initial equity grant, worth an average of $347,000.  That compares with 19% of more established companies, where initial stock awards averaged $185,000. The 2020 Women on Boards report represents the first research about boards' gender makeup at newly public U.S. businesses.

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Unilever Cuts Costs on Flights, Products as Investors Circle
" Bloomberg (07/20/17) Buckley, Thomas"

Unilever (UL), the maker of Hellmann's mayonnaise and Dove soap, is zooming in on profitability amid shareholder pressure on consumer-goods giants contending with stagnant growth.  The company said Thursday it is ramping up an efficiency drive as it responds to a failed takeover bid from Kraft Heinz Co. (KHC) and as competitors Nestle SA and Procter & Gamble Co. (PG) field pressure from Dan Loeb and Nelson Peltz.  "If it really benefits the long-term shareholders and there is constructive change to the benefit of the company, then at times it might be good to have actively involved investors," CEO Paul Polman said in an interview with Bloomberg TV, after Unilever reported better-than-anticipated earnings for the first half.  The company said Thursday it raised prices by 3% in the second quarter, offsetting stagnant volumes, and is cutting spending on everything from employee flights to product ingredients.  As it steps up efficiencies in the second half, profit margins could increase by more than 1 percentage point for the full year, Polman predicted during a call with analysts.  Unilever shares are up roughly 25% since Kraft Heinz's takeover approach was unveiled in February.  The company vowed greater profitability after rejecting the bid, boosted its dividend payment by 12%, and has committed to repurchasing €5 billion worth of stock.  Since then, Loeb's Third Point has purchased a stake in Nestle while Peltz's Trian Fund Management has launched a campaign at Procter & Gamble.

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As Proxy Season Winds Down, a Look at the Numbers
" Bloomberg BNA (07/18/17) Hyland, Kristyn"

According to data from Bloomberg Law, the number of shareholder proposal no-action letter requests submitted to the Securities and Exchange Commission (SEC) rose from 218 in the first half of 2016 to 231 in the first half of 2017. This year, proxy access bylaws were again the most popular shareholder proposal topic, with 50 proposals, followed by proposals related to human rights and social issues, with 44. SEC staff decided that 74% of the proposals related to environmental issues that were not withdrawn before SEC comment must be included in the company's proxy materials. The Health Care, Financials, and Consumer Discretionary sectors all submitted 40 no-action letters each to the SEC. Nine of the no-action letters in the Financials sector dealt with shareholder proposals relating to executive compensation, and seven were requests regarding proxy access bylaws. Fifteen of the letters in the Consumer Discretionary sector were requests about human rights/social issues, and six were about proxy access bylaws. Fourteen of the letters in the Health Care sector were requests about risk management, and eight were about proxy access bylaws. Utilities and Communications rounded out the top five sectors with the most requests, with 22 and 20, respectively. In the Utilities sector, 10 no-action letter requests were related to environmental issues, and five were related to proxy access bylaws. Six of the requests in the Communications sector were related to human rights/social issues, and four were about proxy access bylaws. The proxy access bylaw topic was the second most common shareholder proposal topic for each of the five top sectors.

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New York's DiNapoli Asks Dimon to Back off a Proxy Reform
" Reuters (07/19/17) Kerber, Ross"

New York State Comptroller Thomas DiNapoli is attempting to recruit JPMorgan Chase & Co. (JPM) CEO Jamie Dimon to help save shareholder resolutions. In a letter last month, DiNapoli asked Dimon to halt efforts by an executive group he chairs—Business Roundtable—that would make it harder to file shareholder resolutions. The changes would "ultimately jeopardize corporate transparency and accountability," wrote DiNapoli. The Roundtable, an association of corporate CEOs that has pushed to scale back securities regulations, supports a bill passed by the U.S. House in June that would raise the threshold needed to file a shareholder resolution by boosting the minimum holding requirement to 1% of a company's stock, held for three years. The measure faces an uncertain future in the Senate. Dimon has famously clashed with his own investors, and the proposed changes come as some shareholder measures begin to receive unprecedented investor support. An example came in May at Exxon Mobil Corp (XOM) where DiNapoli's fund filed a measure calling for it to report on risks it could face from climate change policies. It passed with a historic 62% of votes cast, reflecting support from big investors including BlackRock Inc. and Vanguard Group, according to sources. DiNapoli's fund would not have been able to file the Exxon resolution under the 1% threshold, given that it owns just 0.28% of the company.

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P&G Chief Executive Wrestles With Changing an 'Insular' Culture
" Financial Times (07/18/17) Nicolaou, Anna"

Procter & Gamble (PG) shareholders have been unhappy for some time, and leadership has been blamed.  CEO David Taylor is promising a shakeup at the consumer goods giant, but investor Nelson Peltz wants him to pick up the pace.  Taylor says management can boost sales growth and change its culture without breaking up the company, but engagement last month by Peltz adds time pressure to the process.  After Trian Fund Management purchased a $3.5 billion stake in P&G in February, P&G said it would consider giving Peltz a board seat if performance does not improve in the next year. The hedge fund manager chose not to wait until then and put himself up for nomination to the board, arguing that a "motivated" outsider was needed to spark change now.  P&G has been criticized for largely promoting from within; and Trian says its shareholder returns during the past 10 years have significantly lagged peers because of "excessive cost and bureaucracy" and "a slow-moving and insular culture."  When Taylor became CEO in November 2015, he pledged to shed more than half the company's brands and slash $10 billion in annual costs by 2021.  In response to the engagement by Peltz, P&G has hired a number of prominent advisers to defend the board.

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How a Billionaire Hedge Fund Manager Plans to Transform the Biggest American Power Producer Without Getting Burned
" CNBC (07/18/17) DiChristopher, Tom"

Billionaire hedge fund manager Paul Singer and Bluescape Energy Partners head Charles John Wilder have launched a plan to transform NRG Energy (NRG), the nation's largest independent power producer.  In an effort to improve shareholder value, they aim to shrink NRG from a sprawling giant with significant clean energy holdings to a smaller and simpler generator and seller of electricity.  Wilder won a board seat at NRG in February after partnering with Singer to press for change.  Singer's Elliott Management owns a nearly 6% interest in NRG, while Bluescape owns about 2.8%.  After shareholders opposed NRG's aggressive expansion into renewable power and sustainable energy, Wilder and CEO Mauricio Gutierrez are working to shrink the company, attempting to generate about $1 billion in cost savings while seeking to sell off all or part of its renewable energy business and part of its conventional energy portfolio.  The move would lower NRG's debt load and generate as much as $6.3 billion to invest in higher-yielding businesses or fund shareholder payouts.  Meanwhile, Dynegy (DYN) has been identified as a potential acquisition target for NRG, which would give it the opportunity to snap up a large portfolio of combined cycle plans and re-enter the Pennsylvania-New Jersey-Maryland market with more competitive assets following the bankruptcy of its GenOn unit.

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Directors as Strategic Company Assets: Making the Most of Very Expensive Real Estate – Board Seats
" Metropolitan Corporate Counsel (07/17/17)"

Metropolitan Corporate Counsel interviews Robyn Bew, director, strategic content development for the National Association of Corporate Directors (NACD), for her take on the evolving environment for board-shareholder engagement. With regards to engagement with the investor community, she notes that there are a few drivers. "For one thing, investors certainly have more influence now than they did 10 years or even five years ago," she states. "Some pay votes may be advisory only, but they still get an awful lot of attention. On most boards, larger cap companies have majority voting, and the results of those annual direct elections are also very visible." Bew acknowledged that corporate directors are being asked to do a lot more homework than ever before. "The annual governance surveys that we do at NACD do show that the level of time investment by directors is going up," she concludes. "In terms of preparation, directors tell us that they're really focusing on staying current with trends in the company's industry."

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Women on Executive Boards: 2016 Setback Belies Broader Trend
" Bloomberg BNA (07/17/17) Douglas, Genevieve"

The percentage of women among newly appointed directors in 2016 decreased for the first time in seven years, according to a study by executive search firm Heidrick & Struggles. In 2016, women accounted for 27.8% of new director appointments at Fortune 500 companies, a 2 percentage point decline from the previous year. One contributing factor may be that the majority of director appointments were chief executive officers and chief financial officers, which "are not a particularly diverse group," says Jeff Sanders, vice chairman and co-managing partner of the global board and CEO practice at the firm. To combat the status quo, companies should have a more performance-based approach with potential candidates for C-level and CEO roles, says Terri Hartwell Easter, principal of T.H. Easter Consulting. Sanders, who believes boards will continue to focus on diversity, points to the gains in the technology sector. Women accounted for 40% of the board seats filled in the tech industry, an increase of approximately 13.5 percentage points compared with Heidrick & Struggles' data from 2015.

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The Answer to Short-Termism Isn't Asking Investors to Be Patient
" Harvard Business Review (07/18/17) Edmans, Alex"

Many companies prioritize quarterly earnings over long-term innovation, human capital investment, and brand development, and short-term shareholders are often blamed, according to Alex Edmans, a finance professor at London Business School. The thinking is that short-term investors are not interested in the company's prospects beyond the year or so they plan to hold the stock, and they will sell their shares if the company misses its quarterly earnings target. "The fear of such selling forces the firm to fixate on meeting the target, cutting investment to do so. Moreover, since shareholders can sell at the drop of a hat, the firm has no stable source of long-term capital, and so cannot make long-term plans," says Edmans. "However, laying the blame on short-term shareholders is shooting at the wrong target, and may actually make things worse. The error in the popular argument is that it confuses the holding period of a shareholder with her orientation. Short-term selling need not be based on short-term information. ... Critically, short-term selling by shareholders need not entail short-term behavior by managers. Instead, it disciplines it, a mechanism known as 'governance by exit.' In fact, the evidence shows that short-sellers actually discipline earnings management, the practice of making a company's performance look better than it is in order to meet an earnings target." Edmans notes that what matters is not whether shareholders hold for the long-term but whether they trade on long-term information, which can be ensured by encouraging them to take large stakes. Thus, the focus should be on creating large shareholders, not long-term shareholders. He says, "The best form of loyalty is conditional loyalty: staying with a firm, even if short-term earnings are low, but only if the firm is pursuing long-run value. It is the combination of loyalty if the firm continuously innovates for the long-term, plus the threat of exit if it coasts or pursues the short term, that will help build the great companies of the future."

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How Companies Should Fend Off Attacks From Activist Investors
" Business Standard (07/18/17) Petry, Stefan"

Activist investors often emerge loudly announcing their plans and taking aim at the performance of CEOs. Stefan Petry, a finance lecturer at the University of Manchester, says the best way for a company to defend itself from activist investors is to borrow some of their tricks. "Dealing with activist shareholders can be a lengthy and distracting endeavour for target CEOs; the natural reaction is try and fend them off. However, in essence, activist investors provide a 'free' but confrontational market assessment of the firm, and they do highlight possible areas of improvement," says Petry. "This assessment can, of course, be wrong. However, research suggests that in the majority of cases, the stock price goes up at the announcement of an activist investor taking a large stake in a firm, suggesting that shareholders expect future value increases. And it is not only the target company's shareholders who benefit. Research also shows that rivals often begin to implement measures that might prevent them falling under the gaze of activist investors themselves." He adds that "the best defense against activist investors is attack, but aimed squarely at their own failings. CEOs need to mimic activist scrutiny over their own firms and by doing so, become less attractive as a potential target. It is important for bosses to continually benchmark themselves against leading peers and to keep close ties to existing large shareholders. They are the crucial factor that can tip the balance one way or another, and giving an ear to their more gentle concerns could dissuade them from a dangerous alliance with the activists."

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Ericsson Speeds Cost Cuts as Turnaround Proves Challenging
" Bloomberg (07/18/17) Rolander, Niclas"

Ericsson AB (ERIC)—under pressure from Christer Gardell, whose fund Cevian has acquired a roughly 6% stake in the company since March—has warned that revitalizing the struggling phone-equipment maker will require even deeper cost cuts.  Ericsson declined as much as 13% in Stockholm after the company posted a second-quarter loss and cautioned that a faltering market amid technology shifts could cause as much as 5 billion kronor ($600 million) of operating income to disappear over the next 12 months.  CEO Borje Ekholm, who took over in January, is under pressure from Gardell to deliver a quick turnaround.  His plan depends on reducing costs and scaling back expansion plans that have not been successful while refocusing on Ericsson's core business of selling networking equipment ahead of the expected roll-out of 5G networks.  "We are not satisfied with our underlying performance with continued declining sales and increasing losses," Ekholm said in a statement Tuesday.  "In light of current market conditions, we are accelerating the planned actions to reduce costs."  Ericsson's adjusted gross margin fell by 3.4 percentage points from a year earlier to 29.8% in the second quarter, and the company suffered a net loss of 1 billion kronor from a profit of 1.59 billion kronor a year earlier.  Although Gardell has not given much detail on his plans for Ericsson, his liking for asset sales has led to speculation that he may seek more drastic change.

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Proxy Fights Are a Rarity for Peltz's Trian
" Wall Street Journal (07/17/17) Benoit, David"

Trian Fund Management LP made a rare move Monday when it initiated a drive to put co-founder Nelson Peltz on the board of Procter & Gamble Co. (PG)—the biggest company to ever face such a campaign.  Trian does not wage proxy fights often and has tried to avoid the perception that it battles companies, branding itself instead as a "highly engaged shareholder."  It seeks a board seat at nearly all of its companies so that it can access the information only insiders have and can influence the discussion on strategy.  Trian's willingness to work with companies in private has often helped it negotiate its way onto the board instead of fighting for representation.  Since it started in 2005, it has only had two prior proxy fights—with H.J. Heinz Co. (KHC) and DuPont Co. (DD).  In 2006, it acquired a stake in Heinz and sought a seat on the board, triggering a fight.  Trian won two board seats, and afterward, the sides grew close and Heinz CEO William Johnson was put on the board of PepsiCo Inc. (PEP) by Trian.  The victory worked as a stamp of legitimacy for almost a decade: Trian would take big stakes, with companies quickly agreeing to give the firm a board seat.  In 2015, Trian ran a fight against DuPont but narrowly lost to DuPont's successful countercampaign.  Within months, however, DuPont opened back up to Trian helping to structure its pending merger with Dow Chemical Co. (DOW).  P&G seems ready to make a similar case to DuPont's: the board backs CEO David Taylor's plan and does not want to add Peltz because it does not see the need, sources said.

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Strategy for Board Unanimity — The 'Need to Know' for the Lone Activist
" Forbes (07/17/17) Skroupa, Christopher P."

In a minority position on the board, an activist investor needs to gain the support of other directors using a perceptive strategy.  Eric Rosenfeld, CEO and president of Crescendo Partners L.P., suggests some ways to accomplish that goal.  Before the campaign can take flight, he advises, the activist should thoroughly understand the dynamic of the boardroom in order to know what to expect and to effectively plan a strategy for convincing the board.  "The first step is to understand the political forces affecting board dynamics.  It is necessary to understand how and why each board member came onto the board, whether there are different camps on the board, and what are the motivations and alliances of each board member," Rosenfeld reasons.  It also helps to know which directors to target for support.  "The next step is to allay the preconception the board may have that the activist and his or her nominees are reckless and ill informed.  Thorough research, an intimate knowledge of the company and the use of data, including reading past board books, will help," he continues.  "Third, the activist's knowledge of the views of unhappy shareholders can be used to help sway the board's position on different matters."  The activist presumably has gathered significant shareholder support, Rosenfeld notes.  Finally, it is key for the activist to remember that the battle occurs inside the boardroom.  "Fourth, the prospect of another proxy battle may help to influence the views of directors.  Unless change is evident and progress is achieved, the activist may gain more allies on the board in a year or less," he says.

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Hudson's Bay Faces Pressure to Get Out of Retail
" Financial Times (07/17/17) Indap, Sujeet"

Richard Baker, one of the world's savviest property investors, made a splash when his New York investment firm acquired Saks (SKS) for $3 billion in 2013. Baker focuses on acquiring prominent brands that also own most of their physical locations. A year after the Saks purchase, his Hudson's Bay vehicle took out a mortgage on Saks' flagship location on Fifth Avenue in Manhattan that valued the building and land at nearly $3 billion. However, Jonathan Litt—who recently announced a 4% stake in Hudson's Bay—is not impressed. The investor wrote in a letter last month to the board that "the jury still appears out" on Baker's strategy. The share price of Hudson's Bay, listed in Canada, is down 70% in two years as Baker's chains have been pummeled by the decline of traditional retailers. Litt believes that Baker should return to doing what he knows best: being a landlord. In his view, Baker has perhaps the most unique opportunity in retail: the 10 blocks between the Saks and Lord & Taylor stores on Fifth Avenue that attract New York tourists. Litt argues that its real estate portfolio should be worth three times the company's current market capitalization of $C2 billion, and believes that Baker should either take the company private or auction off the best buildings in hopes of attracting a tech company that wants to build its brand. Hudson's Bay has yet to respond to Litt's proposal, but Baker now faces pressure to show his shareholders that he can turn things around.

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Lack of Voting Rights May Keep Snap, Others From MSCI Indexes
" Reuters (07/17/17) Kerber, Ross"

MSCI has proposed leaving shares of companies that lack voting rights out of stock indexes. The proposal is designed "to address the growing concern pertaining to listings of only non-voting shares," according to a paper sent to clients in June. MSCI is seeking feedback. Index providers have been reviewing the issue of whether to include companies with non-voting shares since Snap's (SNAP) initial public offering in March. MSCI's move is similar to the skeptical view that rival FTSE Russell has already put forward, even as some technology firms move in the direction of offering shares with unequal voting rights. S&P Dow Jones also has its own review underway, with decisions due in the coming weeks. Giving shareholders less say over matters like executive pay or board elections will make corporate leaders less accountable, according to critics like big pension funds. "We don't want to kick Google (GOOGL) or Facebook (FB) out of the indexes, it would be way too disruptive," says Ken Bertsch, executive director of the Council of Institutional Investors, a trade group for pension funds and other big investors that has been critical of unequal voting rights. "Our concern is to set a limit on this."

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Four-Year Effort to Allow Universal Proxy Cards for Contested Shareholder Elections Moves Through SEC Channels
" Huffington Post (07/14/17) Anthony, Laura"

An effort in 2013 to mandate the use of universal proxy voting cards in contested shareholder elections may at last be adopted as standard corporate practice, based on an October 2016 amendment issued by the Securities and Exchange Commission.  If adopted, the rule would do away with the practice of requiring shareholders to pick from only one of two proxy voting cards when opposing slates are presented for corporate director elections—a card for the candidates nominated by the company and a card for candidates nominated by opposition shareholders.  Instead, shareholders would be permitted to select from both sides on a universal proxy card.  Opinions vary, with the SEC supporting universal proxy cards as a way to enable shareholders to vote more seamlessly for their preferred candidates. Opponents, though, remain concerned this will embolden shareholder activists and place dissident members on boards.

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The Man Behind Activist Investors' Biggest Bets
" Wall Street Journal (07/14/17) Chung, Juliet; Benoit, David"

Daniel Loeb's Third Point turned to EnTrustPermal CEO Gregg Hymowitz for help in making a $3.5 billion investment in Nestlé SA (NSRGY). Hymowitz approved a $650 million investment in Nestlé alongside Third Point. He is known for being the man behind some of Wall Street's biggest activist bets, and his willingness to write large checks on short notice makes him a potent weapon when hedge fund managers look to quietly amass meaningful stakes in companies. EnTrustPermal also backed Trian Fund Management's $3.4 billion stake in Proctor & Gamble Co. (PG) and Mantle Ridge's $1 billion investment in CSX Corp. (CSX), but the $650 million Nestlé investment is its biggest co-investment to date. The fund-of-hedge-funds firm has more than $6 billion tied up in such single-bet wagers, or co-investments. EnTrustPermal increasingly is focusing on co-investments to help it survive a shakeout among funds-of-hedge-funds. The research firm HFR reports that investors have been pulling money from these funds each year since 2007, and their number has dropped by 40% over that period to roughly 1,500 at the end of March. Furthermore, the hedge funds they invest in have posted disappointing returns on average, and clients are increasingly less willing to pay an additional layer of fees. However, there are risks to taking concentrated bets, with EnTrustPermal losing more than 5% on its co-investment with Corvex Management LP in Williams Cos. (WMB) after a sale to Energy Transfer Equity (ETE) failed last year. Sources say it later backed Corvex's bet on Yum Brands Inc. (YUM) and more than recouped those losses.

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BlackRock Supports Effort to Boost Number of Women Board Members
" Reuters (07/13/17) Hunnicutt, Trevor"

BlackRock Inc. announced Thursday that, during the most recent quarter, it voted for eight proposals pressing U.S. and Canadian companies to adopt policies that increase the gender diversity of their boards.  BlackRock did not name the firms but said most lacked female directors.  "We've been particularly focused on increasing the number of women on U.S. boards because progress in the U.S. has been slower than in many other markets," BlackRock said in a report.  "Board diversity, particularly in terms of gender, is important from a sustainable investment perspective, given that diverse groups have been demonstrated to make better decisions."  Women hold roughly 20% of board seats in the S&P 500 .SPX index, according to Catalyst Inc.  BlackRock said it also opposed board members at five companies who sat on nominating committees but failed to address shareholder concerns about diversity.  This is the first year the company "decided to vote against members of the nomination committee of men-only boards in a more systematic manner," a spokesman said, although it has long engaged on the topic of gender diversity.  BlackRock's own 17-member board includes four females.  The world's largest asset manager and a top shareholder in most public companies, the firm this year broke with prior practice by publicly revealing opposition to practices at several firms over climate change, compensation, and other policies.

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The Morning Risk Report: Hybrid AGMs Go Way of the Physical Meeting
" Wall Street Journal (07/14/17) Stein, Mara Lemos"

Online-only annual general meetings (AGMs) are on the rise despite resistance from some influential investors.  Although some governance experts believe companies should offer a combination of audio or video access and an actual physical meeting, Broadridge Financial Solutions Inc. research indicates that hybrid versions of AGMs are falling out of favor.  According to Broadridge, 16 of 177 virtual AGMs it facilitated this year through June 30 were hybrid, compared with 32 of 187 last year.  "Companies are showing a preference for virtual-only meetings," says Cathy Conlon, a Broadridge vice president.  "Earlier on many chose to do a hybrid version ... to see whether they would be comfortable with the technology but have since moved to virtual-only."  This shift may be attributed to the fact that virtual meetings are more cost-effective and encourage greater shareholder participation, but some suggest it also could serve as an easy way for companies to dodge activists and screen questions.  New York City Comptroller Scott Stringer, among other large investors, warned various companies in the S&P 500 earlier this year that he would use the power of the vote against directors at companies that insist on virtual-only meetings.

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Opinion: The CEOs Who Didn't Deserve the Boot
" Wall Street Journal (07/12/17) Sonnenfeld, Jeffrey A."

According to a Wall Street Journal report, 13 companies with market capitalizations above $40 billion replaced their CEOs during the first five months of the year, including Ford (F), General Electric (GE), U.S. Steel (X), CSX (CSX), AIG (AIG), Yahoo, and Arconic (ARNC). Many of these CEOs were the victim of a short-term mindset fueled by activist hedge funds, according to Jeffrey A. Sonnenfeld, senior associate dean and a professor of leadership practice at the Yale School of Management. Sonnenfeld says, "Board panic is a feature of the current corporate environment. The board of retail giant J.C. Penney (JCP) fell victim to activist pressure and pushed out the highly successful CEO Myron Ullman in 2011. Two years later they sheepishly had to lure him back." He notes that activist proxy campaigns have risen as hedge funds seek short-term stock returns, and fearing the costs of proxy battles and the bad press, directors often wrongly settle with activists. "Corporate boards settled 45% of proxy battles in 2016, with many settlements involving invitations to activists to join the board. Fifteen years ago only 17.5% of proxy battles were settled in this way," Sonnenfeld says. "These settlements often lead to disproportionate activist representation on corporate boards. It's not unusual for a 4% ownership stake to net an activist as much as a third of the seats on a board. The research and consulting firm FTI looked at 300 activist campaigns between 2012 and 2015 and found that CEOs were three times as likely to be replaced within 12 months after activists joined the board." However, he contends that these activist campaigns have not translated into better performance.

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Black Swans, Wolves at the Door: the Rise of Activist Investors
" Bloomberg (07/12/17) Baigorri, Manuel; Kumar, Nishant"

Alvarez & Marsal Inc. reports that shareholder activism is on the rise across Europe—especially Britain, where investors have great confidence in the nation's legal and corporate-governance structures.  Nearly half of the 111 companies at risk this year or next are U.K.-based, the restructuring consultant concluded after analyzing 1,170 firms.  "Activist approaches are growing in frequency in Europe and they should no longer be regarded as a black swan event," said Malcolm McKenzie, a managing director at Alvarez & Marsal in London.  Activists typically engage companies with dwindling stock prices, return on equity, earnings, or cash generation, or those with rising expenses, according to the consultancy.  While activists historically have intervened about two years after a company's problems start, that time frame is narrowing, it added.  That is not necessarily a bad thing: a JPMorgan Chase & Co. report this month found traditional investors like mutual and pension funds are mirroring activists' approaches as they seek ways to maximize shareholder value.  "Activist shareholders have often been perceived as the wolves at the door—this is becoming increasingly outdated," said McKenzie.  "There is an ever-greater willingness in Europe for institutional shareholders to listen to an activist's observations on how performance and share price can be improved."  Activists do not engage bad companies, he said; rather, "They like good companies that could be doing better."  

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New Rankings From Institutional Investor Show Chinese Corporations Committed To Corporate Governance
" Institutional Investor (07/12/17)"

China takes the spotlight this year in Institutional Investor's annual rankings of top-performing individuals and companies across the Asia-Pacific region.  Companies are nominated based on how they uphold corporate governance standards and engage with shareholders in a transparent, meaningful way.  The survey revealed that more mainland Chinese companies climbed to the top of the rankings, bumping some of 2016's winners from India, Southeast Asia, and Australia.  With the recent inclusion of China's A-shares in the MSCI Index and further opening up of the Chinese market, Asia provides increasing investment opportunities for global managers; and Chinese companies are expected to reap the benefits.  In addition, China leads the regional tech sector, although India and Taiwan continue to dominate it.  Finally, corporate transparency and value are the strongest areas of focus for investors, the survey found.  This year's report hit a new record in terms of nominated companies, showing that investors are searching for value investments and have a growing interest in corporate transparency.  "International investors continue to view the Asia Pacific region as a really good investment opportunity," said Will Rowlands-Rees, managing director at Institutional Investor Research.  "This year we saw a real investor focus on Chinese companies at the expense of some more established markets like Korea and Australia, and their efforts to be transparent and trustworthy for domestic and international investors alike are being recognized."

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