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AutoCanada Launches Strategic Review After Clearwater Capital Management's Request
" Globe and Mail (06/18/18)"

AutoCanada Inc. announced that its board of directors has appointed a special committee of independent directors to review strategic alternatives following a request by Clearwater Capital Management. The auto dealership group says the special committee will review options to maximize shareholder value. Clearwater had raised concerns about the company's poor first-quarter margins and indicated that it might be an attractive acquisition target.

In Icahn-SandRidge Tiff, Bitter Words Hide Overlapping Goal
" Bloomberg (06/18/18) Nussbaum, Alex; Deveau, Scott"

Observers note that whether SandRidge Energy Inc. (SD) or Carl Icahn wins control of the board at the company's annual meeting on June 20, the oil and natural gas explorer is expected to sell some or all of its drilling rights as it seeks to reverse a long slide in its market value. The company's stock has fallen more than 40% since a 2016 bankruptcy, and Icahn is seeking to replace its entire seven-member board. Coker & Palmer Inc. analyst David Beard notes, "Icahn and the management team are probably closer than a lot of these fights would suggest. They both want to sell the company—it's just a matter of magnitude and speed. Icahn wants to move faster. If you agree, you'll vote for him." However, SandRidge raised concerns about Icahn taking control of the board given that it had signed confidentiality agreements to share information with 17 potential bidders, Icahn included. "If Icahn gets his way by seizing control of or placing his non-independent nominees on the board, he will be in a position to simultaneously run and bid for the company—putting his interests ahead of other shareholders," the company said. Icahn, the company's biggest shareholder with a 13.6% stake, countered, "The facts show the board's strategic review process is a disingenuous sham—window dressing designed to convince shareholders that this board actually wants to maximize value when in reality their primary focus is (and always has been) perpetuating themselves in office."

Fujifilm Sues Xerox Over Aborted Merger, Seeks More Than $1 Billion
" Reuters (06/18/18) Stempel, Jonathan"

On June 18, Fujifilm Holdings Corp. filed suit against Xerox Corp. (XRX) for more than $1 billion plus punitive damages for abandoning a proposed $6.1 billion merger due to pressure from investors Carl Icahn and Darwin Deason. It also is seeking a declaration that Xerox owes it a $183 million fee for terminating the deal, which would have merged Xerox into the companies' Asia joint venture Fuji Xerox and given Fujifilm 50.1% of Xerox's common stock. Fujifilm accused Xerox of engaging in "intentional and egregious conduct" in calling off the merger after reaching a settlement with Icahn and Deason that handed control to new management. Xerox CEO Jeff Jacobson stepped down as part of the settlement with the investors, who argued that the merger undervalued Xerox.

Britain's Tesco Pledges to End All-White Board
" Reuters (06/15/18) Davey, James"

Tesco Chairman John Allan on June 15 promised to end the all-white composition of the company's board of directors. The U.K. supermarket group's current board has 14 white members, three of them women. Its 12-person executive committee also is all white. "Tesco is actually ... in very good shape in terms of diversity as far as our customer base, our colleagues, many layers of management are concerned," Allan told shareholders at the company's annual meeting in response to an investor question. "We aren't there as fully as we need to be at the moment on the board," he acknowledged. Allan said he is personally involved in locating diverse board candidates. "I'll be very disappointed if by next year's AGM we haven't cracked that," he said. Allan also defended the near 5 million pound ($6.6 million) pay package for CEO Dave Lewis in 2017-18, called "excessive" by shareholder advisory group Pirc. Lewis joined Tesco in 2014 when it was in rough shape and has led its turnaround. "I would defend (him) to the hilt, I think he's worth every penny that we pay him," Allan said. Ninety-seven percent of shareholders who voted at the AGM supported the company's compensation report.

Disney Plans to Add Cash to Its Bid for Fox
" Financial Times (06/18/18) Platt, Eric; Fontanella-Khan, James"

Walt Disney (DIS) is planning to add a cash component to its previously agreed $52.4 billion stock offer for 21st Century Fox (FOXA) assets, according to sources. It remains uncertain whether its new bid will top the $65 billion all-cash offer from Comcast (CMCSA). AllianceBernstein analyst Todd Juenger said, "Disney will respond. But we doubt that was Comcast's best-and-final offer." Fox's board will meet on June 20, and if it says the Comcast offer is superior to Disney's, Disney will have five business days to match its rival. Comcast has said it will pay the $1.5 billion fee that Fox would owe to Disney if it walked away from its agreement. Fox's Rupert Murdoch has faced pressure from shareholders to consider the competing bid. Christopher Hohn, whose hedge fund TCI has built a 7.4% stake in the company, said in a letter to Murdoch that he was "aware that the Murdoch family has a potential conflict of interest because of capital gains tax, which could lead them to preferring a lower priced Disney stock offer, to a higher priced offer from Comcast."

Mellanox Nears Truce With Starboard Over Board Seats—Sources
" Reuters (06/17/18) Baker, Liana B.; Herbst-Bayliss, Svea"

Sources said on June 17 that Mellanox Technologies Inc. (MLNX) is nearing a deal with Starboard Value LP over the makeup of its board of directors. The agreement follows the chipmaker's move last month to adopt corporate governance changes that affect how investors select directors in contested board elections. The sources indicated that Mellanox could announce an agreement as early as this week to avoid a proxy fight with Starboard—which owns about 11% of the company—at its July 25 shareholder meeting. They noted that the settlement would involve naming two directors from Starboard's eight-person slate to Mellanox's board, and another director would be agreed upon later between the two parties and added to the board. However, the 11-member board will not be expanded, according to the sources. Further, Mellanox Chairman Irwin Federman will remain in place, but Starboard portfolio manager Peter Feld will not be added to the board. The sources added that the settlement includes a standstill agreement that requires Starboard to support the board and company for at least a year.

Stobart Investor Neil Woodford Calls for Chairman to Resign
" Reuters (06/18/18) Jessop, Simon"

Stobart's second-largest shareholder, Neil Woodford, reiterated his call for a board shakeup on Monday.  The investor said Chairman Iain Ferguson should step down and once again proposed the election of Scottish businessman Philip Day to the board—a move backed by other shareholders as well.  The board has already removed director and former CEO Andrew Tinkler following recent arguments.  Woodford said a new chairman was necessary to restore stability and “ensure that shareholder value creation continues in the manner that we have become accustomed to.”  Day had “extensive experience managing and leading diverse businesses in challenging environments whilst delivering excellent returns to shareholders,” said Woodford.  “I believe he will be a very strong and effective leader of Stobart Group at a time when the business needs just that. Ultimately, I would like him to become Chairman but that will be up to the Board to decide.”

Blue Lion Capital Ratchets Up Rhetoric by Pressing HomeStreet to Sell
" American Banker (06/15/18) Stewart, Jackie"

Blue Lion Capital said on June 15 that management of HomeStreet (HMST) should develop a "comprehensive operating plan" to become a top-performing bank instead of "continuing to announce piecemeal and reactionary cost reductions." The investor said executives should hire an investment bank and put HomeStreet up for sale if improvement is unattainable, noting that "either way, shareholders would finally be rewarded." Among other things, Blue Lion criticized the bank's recent move to close 18 mortgage offices and cut jobs to save $13.1 million annually, calling the plan inadequate. According to the investor, HomeStreet should close any mortgage lending office that is unable to earn its cost of capital, and sell its single-family mortgage servicing rights. Further, Blue Lion asked shareholders to reject two HomeStreet director nominees and vote against a nonbinding advisory proposal on executive pay.

Ranger Direct Chairman Resigns in Boardroom Exodus
" Citywire (06/18/18) Lumsden, Gavin"

Ranger Direct Lending (RDL) announced that Chairman Christopher Waldron will resign before the company’s annual general meeting (AGM) on Tuesday, after clashing with shareholders Oaktree and LIM Advisors over his handling of the company’s strategic review earlier this year.  The embattled investment company—which last week announced it would wind up and return money to shareholders—said two other directors will also step down.  The resignations give Oaktree and LIM, which own nearly 29% of its shares, the board overhaul they wanted as RDL prepares for the long task of winding down its badly performing portfolio.  Shareholders will also vote Tuesday on whether to reappoint Jonathan Schneider—the only original director still on the board—alongside votes for the four new non-executives that Oaktree and LIM have proposed.  Waldron had resisted winding up RDL and had not included it as an option in its strategic review, which upset Oaktree and LIM. However, he and the board were forced to back track last week after Ares Credit, the fund manager they had appointed to replace Ranger, announced it would not take up the role, put off by the shareholder pressure.

Rent-A-Center Is Sold: Retailer Accepts $15 Offer From Vintage Capital
" Dallas Morning News (06/18/18) Halkias, Maria"

Rent-A-Center Inc. (RCII) has agreed to be taken private by Vintage Capital in a transaction valued at approximately $1.4 billion. Vintage will pay $15 per share for the rent-to-own company. The deal is expected to close by the end of the year. The $15 price equates to a premium of 49% over Rent-A-Center's closing price on Oct. 30, 2017, prior to the announcement that its board was evaluating strategic options. The board, which includes seats controlled by Engaged Capital which started calling for a sale in 2016, unanimously approved the transaction.

SandRidge Says Approached by 17 Potential Buyers, Including Icahn
" Reuters (06/15/18) Chatterjee, Laharee; P, Akshara"

On June 15, SandRidge Energy Inc. (SD) disclosed that it had been approached by 17 potential bidders for a buyout, including billionaire investor Carl Icahn. Icahn has criticized the company's leadership and currently is fighting for control of the oil and gas producer's board, nominating a slate of seven directors. "Some investors tip their hat to an Icahn-lead board, as that might offer a quicker and possibly greater gain," said Coker Palmer International analyst David Beard. "But it also seems that both management and Icahn want a higher stock price. Either way, shareholders should win." SandRidge's stock has gained about 18% since Icahn disclosed his buyout interest in April.

RELEVANT ARTICLES

In SandRidge Proxy Fight, Icahn's Reputation for Turnarounds at Stake
" Reuters (06/15/18) McWilliams, Gary"

On June 19, shareholders of SandRidge Energy Inc. (SD) will cast their votes for directors, and they will have to determine how much control they will give to Carl Icahn, whose hedge fund owns a 13.6% stake in the company. Under the formula set by the board, Icahn is assured at least two of seven board seats, and observers note that he is staking his reputation by pushing for a straight vote on his seven-person director slate. According to Coker Palmer International analyst David Beard, he could win three or four seats with the support of many of its largest shareholders, activists, or distressed company investors. Thomson Reuters data indicates that institutions including Icahn's hedge fund, Fir Tree Partners, Paulson & Co., Guggenheim Capital, and Apollo Capital hold 88% of SandRidge's stock. Although Icahn has support for three board seats from Institutional Shareholder Services and Glass Lewis & Co., SandRidge has attacked his board slate in a series of shareholder letters. The company has argued that his losses from $7 billion in past energy company investments total $540 million and that Icahn wants to "gain control of SandRidge without paying an appropriate premium." Meanwhile, Beard added, "Whether he wins two seats or all the seats, there is no magic switch that he can flip to drive shareholder value in the short term."

Lessons from Europe: How to Get More Women on Corporate Boards
" Fortune (06/15/18) Kowitt, Beth"

U.S. boardrooms—where only about 20% of corporate directors are female—could take a lesson from Europe, where the momentum behind adding women to boards has picked up steam. At Fortune’s MPW International Summit in London, women leading the push to diversify European boards shared their strategies. Sophie L’Helias, co-founder of International Corporate Governance Network, has a philosophy that comes from her time in the activist hedge fund industry. “I believe in numbers,” she said. But when it came to gender in the workplace, she did not feel like the data was out there. She thus started LeaderXXchange, an organization whose mission includes promoting diversity in governance, leadership, and investment. LeaderXXchange recently launched the Gender Diversity Exchange, a database that not only tracks what companies announce in regard to their gender policies, but whether they are meeting their targets. The tool also looks beyond boards to diversity in the c-suite and management, as well as the trends over a five-year period. Helena Morrissey, head of personal investing at Legal & General Investment Management, founded the 30% Club to push U.K. companies to have 30% of their boards comprised of women by 2010. The investor and institutional asset manager has been voting against the chairs of boards of FSTE 350 companies whose boards are not at least 25% women. Last year, that resulted in the company voting against 37 board chairs in the U.K.

Asset Managers Pressure Japan's Board Appointments
" Nikkei Asian Review (Japan) (06/14/18) Wada, Taizo"

As Japan's shareholders meeting season approaches, asset managers are urging companies to hire more outside board members and reduce cross-shareholdings as conditions for voting for proposed appointments. The Tokyo Stock Exchange's (TSE) governance code urges listed companies to hire at least two independent outside board members and although most companies listed on the TSE's first section have two or more such members, critics say their governance systems are still inadequate. Because of this, JPMorgan Asset Management has decided to oppose appointments of presidents and other representative directors if outside members do not make up at least one-third of the board. Additionally, Mitsubishi UFJ Trust and Banking will oppose the appointment of all board members if companies do not have at least two outside directors.

Two Corporate Governance Mechanisms: Activism and Hostile Takeovers
" London School of Economics Business Review (06/12/18) Burkart, Mike; Lee, Samuel"

New research from London School of Economics professor Mike Burkart and Samuel Lee, an assistant professor of finance at Santa Clara University's Leavey School of Business, compares shareholder activism with hostile takeovers. Their key insight, when examining takeovers and activism in isolation, is that the prospect of larger value improvement in an engaged firm raises the takeover premium more than net surplus, but also makes an activist campaign more rewarding relative to its costs. Thus, activism becomes more profitable as takeovers become too "expensive," and more valuable campaigns also are more profitable but tender offers with larger surpluses yield smaller bidder returns. Burkart and Lee show that the legal risk of a price revision has opposite effects on activism and hostile takeovers; in takeover activism, it merely reinforces ex post free-riding. As a result, activists are better off acting as control brokers, rather than using control to implement value improvements on their own. When considering the two governance mechanisms as feasible alternatives, the research shows the potential of a tender offer erodes activists' incentives and reduces campaign profitability, making takeover activism the only relevant alternative. Implications for takeover activism from the theoretical analysis are higher returns over other forms of activism while enabling takeovers that otherwise would not occur and replacing some tender offers with more efficient mergers.


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