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Elliott’s Stake In Softbank
CNBC's David Faber takes a closer look at the Activism in 2017 and what to expect in 2018. With Ken Squire, 13D Monitor founder.
Elliott Management recently offered to buy Aryzta (ARZTY) in a deal that would value the company at around €734 million. In a letter to Aryzta's board, the company's biggest shareholder Cobas Asset Management, which helped oust its former management, said the offer “significantly undervalues the company.” “Cobas AM has no intention, whatsoever, to tender its shares at such a price,” the letter said in response to the emergence of bid plans from Elliott. Cobas, which owns almost 10% of Aryzta, added that it is urging the board of Aryzta to continue to be impartial and “not assist Elliott Advisors with their financing arrangements.” The investors say they expect the board of Aryzta to continue the mandate to “deleverage and simplify the company.” Elliott thinks it can have a firm offer for Aryzta on the table in time to be put to a shareholder vote on Dec. 15. Refinancing arrangements for Aryzta’s existing debt are at “a very advanced stage,” Elliott said earlier this week. Despite outspoken opposition from Aryzta’s new leadership, Elliott has indicated it will not launch a hostile offer for the company, as this would trigger banking covenants on loans.
Teleios Capital Partners wants Quadient (NPACY) to consider a potential bid by private equity firm Accel-KKR for a part of the company, according to a letter seen by Reuters. The biggest investor in Quadient, Teleios owns more than 15% of the French software firm. Accel-KKR is looking to buy the business unit for more than 350 million euros. In the letter, Teleios said it was "seriously concerned" that such an offer "which we believe could create substantial value for all shareholders" would not be given a fair hearing by the board. The investor called the company's current strategy "misguided," citing recent decisions involving restructuring, the dividend, and mergers and acquisitions. Teleios said engaging Quadient is in the best interest of all stakeholders and that it would "exercise all rights available" to hold the board accountable should it fail to act.
Osmium Capital purchased 500,000 shares of Leaf Group (LEAF) on the same day as its preliminary third quarter announcement. An investor group led by Osmium has launched a proxy battle at the company and has called for a strategic review of its operations. Osmium and its allies control more than 40% of shares outstanding. The strategic review concluded in May that not selling the company was best for maximizing shareholder value. Leaf's CFO resigned after the announcement, and Osmium called for the resignation of CEO Sean Moriarty. Since April, four of nine members on Leaf's board have resigned. Osmium says Leaf's assets are underperforming and undervalued. It remains to be seen whether Osmium's move to control more than 50% of shares was initiated to force out Moriarty or because of Leaf's excellent performance in recent quarters.
CoreLogic (CLGX) officials on Tuesday said they expect to receive definitive proposals for the company early next year. Investors Cannae Holdings and Senator Investment Group have been pushing for a sale by offering to buy the company for $7 billion. However, the shareholders abandoned the move after CoreLogic launched the sale process. The U.S. property data and analytics provider said its board supports the sale process. On Monday, Cannae and Senator asked CoreLogic to set a record date that will determine the eligibility of shareholders entitled to vote on a slate of six new board directors. Their request comes a week after they picked up three board seats at CoreLogic.
Sian Capital is calling on Opko Health (OPK) to rapidly distribute its Rayaldee drug, which has been touted as a way to treat Covid-19. Sian said Opko has not moved to distribute Rayaldee in the U.S. or Europe since it hit the Food and Drug Administration's marks this summer. The criticism comes a few weeks after Sian called for a possible sale of Opko, in which it holds a 3% stake. "As a substantial investor in Opko, we believe the Board has not only a fiduciary duty, but a humanitarian duty to distribute Rayaldee to those in need," wrote Sian's Anish Monga in a recent letter to the company's board. "There is no reason that so many Americans should continue dying without having the opportunity to access potential curative drugs."
Germany's coalition government has agreed to a mandatory quota for women on the boards of listed companies, in what is being viewed as a historic breakthrough for Europe's largest economy. According to a statement by Germany's ministry for family affairs, senior citizens, women, and youth, listed companies with management boards of more than three executives will be required to appoint at least one woman to the C-suite moving forward. "We are putting an end to women-free boardrooms at large companies," declared Franziska Giffey, the minister for women and families. However, some business lobby groups pushed back on the decision. The Federation of German Industries (BDI), in particular, said it supports efforts to encourage the appointment of women to leadership positions. However, it wrote in an official statement, a fixed board quota is "a major intervention in entrepreneurial freedom." A final decision on this new measure is expected next week.
Sardar Biglari of Biglari Capital Group has lost his fifth waged proxy battle—and fourth attempt to gain a board seat—against Cracker Barrel Old Country Store Inc. (CBRL). The company recently approved all 10 of its nominated board members by a wide margin. Biglari, who Cracker Barrel termed an "historically dissident shareholder," had tried to nominate his own ally to the board, The Briad Group President and co-CEO Raymond Barbrick, back in September. Cracker Barrel countered by nominating former Walmart executive Gisel Ruiz to its board. Ruiz was one of the 10 directors approved. Biglari Capital Group, whose holdings represent Cracker Barrel's largest shareholder group, has long criticized Cracker Barrel's leadership and investment decisions.
Sources say hedge fund Ides Capital is pressuring U.S. car service and tire center operator Monro (MNRO) to make changes, including environmental, social, and governance (ESG) improvements such as diversifying its workforce and board. Ides claims a diversity shortfall and broader ESG issues have prevented Monro from fulfilling its potential. The hedge fund reiterated its concerns to the company's board as recently as October. Monro is currently valued at $1.5 billion, and its stock rose 7.83% on Nov. 24 to close at $48.35. The company said it engages regularly with investors and appreciates their comments. "Promoting a diverse organization is a key pillar of our company and a priority for our Board of Directors," declared a Monro spokeswoman. "Our diversity and inclusion efforts are ongoing and will be an important factor as we formalize our environmental, social, and governance program to better inform our shareholders of our initiatives." Monro's board had been primarily male and white, and had served an average of 17 years, compared to the Standard & Poor's 500 companies' average of 11 years. In August Monro added its first-ever racially diverse director, and its board currently includes two female directors. Ides has requested that Monro publicly disclose its diversity statistics and ESG metrics. Monro's stock price has fallen 43% since January, and in August CEO Brett Ponton departed to become CEO of ServiceMaster Co. The board has been seeking his replacement since then. Ides' lobbying at Monro dovetails with a wave of consolidation in the auto parts and repair sector. Earlier this year Meritage (MTH) acquired Les Schwab Tire Centers, and Golden Gate Capital purchased Express Oil in 2017 and Mavis in 2018. Mavis also announced its planned acquisition of Town Fair Tire Centers last week. Monro is one of the last sizable firms in the industry, and the sources said Ides has encouraged Monro to consider all alternatives to maximize shareholder value while also searching for a new CEO.
Elliott Management is not in a position to mount a hostile bid for Aryzta (ARZTY), because it needs the group’s board to help line up a deal on its €1.2 billion in debt. News of the €735 million bid emerged on Friday. Sources say the board is unlikely to pursue a deal with Elliott as its members including Chairman Urs Jordi, who was nominated by activist investors a few months ago and appointed via shareholder vote, oppose the deal. The board is more likely to press ahead with the sale of non-core assets to lower debt and simplify the embattled business. While there has been speculation that Elliott is looking to secure a write-down on what banks are owed as part of its plan, sources said Monday this is not the case. Aryzta's banks would need the board to either recommend Elliott's offer to shareholders or signal it was not averse to a deal, in order to get the company's lenders to sign up to a key debt refinancing. This makes it very unlikely that Elliott will launch a hostile bid. Aryzta's €1 billion of bank debt and almost €200 million of other loans fall due in the event of a change of control.
Sources report that Elliott Management has invested at least $30 million in Cataleya Energy, an oil explorer in Guyana. The deal points to growing interest in the South American country. In 2015, a consortium led by Exxon Mobil (XOM) hit oil off the Guyanese coast in the 6.6 million-acre Stabroek block that has been shown to contain more than 8 billion barrels of recoverable oil and gas. Cateleya controls a 25% stake in the Kaieteur block, a 3.3 million-acre area near Stabroek, while Exxon owns a 35% stake in the block and is its operator. Cataleya CEO Mike Cawood made no comment on the Elliott investment, but said his shareholders hail from Guyana, the Caribbean, the United States, Canada, and Israel. He added that Cataleya will report details of its beneficial ownership later this year for Guyana's next report to the Extractive Industries Transparency Initiative. Guyana's government has not recently staged licensing rounds for new acreage, and Elliott's deal reflects how companies with stakes in existing blocks can offer investors the means to gain exposure to future developments. Elliott's Cataleya share puts the hedge fund in a consortium with U.S. producer Hess (HES), which controls a 15% stake in Kaieteur. Elliott, a Hess investor, lobbied for changes at Hess in 2013, and has been a longstanding critic of the company's management. Elliott also has obtained stakes in energy companies QEP Resources (QEP), Marathon Petroleum (MPC), and Noble Energy (NBL). Elliot's website notes that private equity also is among its investment tactics. One source said Cataleya was advised on the deal by boutique investment bank Hannam & Partners. The investment faces a setback with Exxon's disclosure earlier in November that its Tanager-1 exploration well in Kaieteur had struck less lucrative heavy oil, and that the well was not financially viable by itself. Exxon stated that it was still "evaluating the exploration potential" in the block.
Apollo Global Management Inc.’s (APO) $2.5 billion takeover bid for Great Canadian Gaming Corp. (GCGMF) will not have the support of one of the casino operator’s largest shareholders. Apollo made the offer on Nov. 10, at which point it was a 35% premium on the stock’s closing price, and the transaction was unanimously approved by Great Canadian's board. However, fund managers at BloombergSen Inc., which owns 14% of Great Canadian, and CI Financial Corp., another large shareholder, both panned the offer price. Now Burgundy Asset Management Ltd., the company's third-largest shareholder with a 9.5% stake, is also saying it will not vote for the deal. “We believe Great Canadian's Ontario assets are irreplaceable properties for which Apollo's C$39 offer reflects only a fraction of their potential value,” Burgundy portfolio managers said in a recent letter. Burgundy said that uncertainties related to the Covid-19 pandemic have depressed Great Canadian's stock price and allowed Apollo to “opportunistically approach the company with an underwhelming, unsolicited bid.” Apollo's offer doesn't value the “tremendous potential” for Great Canadian's assets in Ontario, Burgundy said in the letter, and even if these assets are challenged by the pandemic, shareholders will benefit from its other businesses. “We believe risk posed by Covid-19 are manageable, and that the British Columbia and Atlantic Canada assets provide a reliable valuation floor” for the stock, Burgundy added. “As a result, we will not vote for this deal.”
Senator Investment Group LP and Cannae Holdings Inc. (CNNE), have delivered a request to CoreLogic Inc. (CLGX) to set a record date in connection with a potential solicitation of written consents to remove and replace directors at the Company. Senator and Cannae issued a statement, saying, "We are hopeful that CoreLogic's Board will heed the clear mandate shareholders expressed at the November 17th Special Meeting of Stockholders and engage in good faith with all bidders to maximize value. However, given the recent track record of the Company, we believe it is necessary for shareholders to have a safeguard in place. The submission of this record date request ensures we can act promptly by written consent to hold the Company accountable if there continue to be unexplainable delays in the process or if we learn the Board is not acting in the best interests of shareholders. If this step is required, we would be in position to move forward as early as December to seek to remove and replace six directors. Following the announcement today of our three nominees—W. Steve Albrecht, Wendy Lane, and Henry W. "Jay" Winship—being added to the Board, this approach would give shareholders the chance to ensure a majority of the Board would be newly added and fully independent. We intend to remain one of the largest shareholders of CoreLogic at least through the announcement of a transaction agreement being reached—though we plan to reduce our economic position as part of our ongoing portfolio management. We look forward to helping deliver the best possible outcome for all CoreLogic shareholders and providing a critical reassurance that a fair and comprehensive sales process occurs."
Crown Castle (CCI) has laid off hundreds of people, although the company said it continues to perform well during the coronavirus pandemic. The company said it is focusing on delivering on its long-term goals. Over the summer, Elliott Management called for a strategic review of Crown Castle's business. Elliott criticized the company's fiber strategy, saying it has significantly underperformed with regard to its return on investment. Crown Castle's third-quarter results were mixed. The company did not say what jobs were eliminated and in what segments. "We remain confident in our company's ability to deliver solid results as we build communications infrastructure that serves our customers and communities," Crown Castle said in a statement.
TESSCO Technologies Inc. (TESS), a value-added distributor and solutions provider for the wireless industry, has sent a third settlement proposal to Robert B. Barnhill Jr., in an effort to resolve Barnhill's ongoing consent solicitation. The settlement proposal would implement the preferred board framework articulated by Institutional Shareholder Services in its report and would result in a board with eight members, five of whom would be diverse, and only one of whom (Barnhill himself) would have tenure dating back before June 2018. “The TESSCO directors want what is best for TESSCO and, most importantly, to allow our exceptional management team and Chief Executive, Sandip Mukerjee, to focus all of their efforts on executing the turnaround plan,” said John Beletic, Chairman of TESSCO. “We have listened to our shareholders and their desire for a speedy resolution to this matter. We have therefore made our third attempt today to settle. All of the long-serving directors of TESSCO (other than Mr. Barnhill) are prepared to resign to enable the company to get back to work. We sincerely hope Mr. Barnhill will accept our proposal.” TESSCO’s proposal would result in a board comprised of Barnhill and two of his candidates, TESSCO’s Chief Executive Officer (Mukerjee), the three directors who were added to the TESSCO Board in 2020, and Paul Gaffney, an independent director added to the TESSCO Board in June 2018.
Ray Cameron, head of investment stewardship at BlackRock Inc. (BLK), said at a recent event that BlackRock will aim to hold individual board members accountable. In 2019, for instance, the firm voted against 5,000 directors due to issues such as lack of independence or poor progress on climate change or diversity. Cameron said the firm targets directors that "we think should have more responsibility, quite frankly, or should be assuming more responsibility for lack of progress." In addition to environmental risk and opportunities, BlackRock assesses four other categories on engagement, including board quality, corporate governance, capital allocation, and compensation. BlackRock had 3,000 engagements with companies, close to half of which were in the U.S. The firm voted in 16,000 meetings on more than 150,000 proposals, the vast majority of which were from management while less than 2% came from shareholders. Climate in particular continues to be a focal point for BlackRock, whose CEO Larry Fink wrote in a January letter to company heads that sustainability will be at the core of its investments moving forward. Of the 3,000 engagements BlackRock had with companies last year, over 1,200 of them were related to climate and the environment, Cameron said. As recently as May, for example, the firm voted against two of Exxon Mobil Corp.'s (XOM) director appointments for making “insufficient progress” on climate-related disclosures. Being vocal about specific directors is often a more effective way to enact change at the corporate level, rather than just supporting shareholder proposals that are often nonbinding, especially in the U.S. BlackRock says it is also looking at how companies have been treating employees during the pandemic as well as their progress on diversity and racial equity.
Elliott Capital Advisors has said it made a non-binding proposal to Aryzta’s (ARZTY) board of directors on Nov. 18 to acquire all outstanding shares of the company, but Aryzta said discussions with the hedge fund had ended in October. The potential offer from Elliott at an indicative price of 0.80 francs per share would value the company at 793 million Swiss francs ($871.81 million). Aryzta said in a statement it had received the letter, but said the potential offer was “subject to certain conditions, some of which cannot be satisfied as a matter of fact,” reiterating its statement that it had concluded its business with Elliott on Oct. 24. “Interesting timing and peculiar offer, in our view, as it is public knowledge that Chairman and interim CEO Urs Jordi is against such a deal,” a Vontobel analyst said in a note. Elliott said in a statement the financing for the potential offer was available and refinancing arrangements for the company’s existing debt were at an advanced stage. It said the public tender offer would be subject to customary offer conditions to be specified by Elliott. Aryzta has been under pressure from investors for months as it generated losses well before the Covid-19 outbreak.
Invesco's (IVZ) U.K. chief investment officer declined to speculate on Nelson Peltz's intentions for the company. Trian, Peltz's hedge fund, recently revealed that it has a stake of nearly 10% in the asset manager. “Improving the investment performance of the U.K. fund range is my priority,” says Stephanie Butcher, who was promoted to the post in January. Invesco's reputation has taken a big hit in recent years. Problems at Invesco started to mount in late 2013, when star fund manager Neil Woodford decided to leave to set up his own investment firm. Investors have pulled 31.5 billion pounds from its U.K. domiciled funds since the departure, according to Morningstar. Invesco underperformed when Mark Barnett took over Woodford's funds. Barnett left Invesco in May after facing heavy scrutiny. Barnett had significant overlapping holdings in unlisted and illiquid assets with Woodford, whose company collapsed.
Institutional Shareholder Services (ISS) reports its new owner Deutsche Börse (DBOEY) will back it in a legal fight against the top U.S. financial regulator that will help shape the market for shareholder advice. ISS is suing the Securities and Exchange Commission (SEC) over rules the regulator approved in July designed to rein in the influence of proxy advisers. Under the new rules, proxy advisers will be required to disclose conflicts of interests and, if their recommendations on an issue such as executive pay are rebutted by the company involved, to share that with their clients. ISS filed the lawsuit more than a year ago, but paused it in February as the regulator finalized the rules. It reactivated it in August, after the SEC approved the regulations.
Janus Henderson (JHG) is being eyed by Trian Partners, which acquired a 10% stake in the firm in October, and urged a fresh round of consolidation among underperforming asset managers. "Janus Henderson hasn't flourished over the past three years," explained investor Will Riley with Guinness Global Money Managers. The group has faced higher-than-average investor outflows, losing $68.8 billion since the start of 2018, while its share price has plunged almost 14% since the close of Janus Capital's merger with Henderson Global Investors in May 2017. With consolidation in asset management again building traction, Janus Henderson offers lessons on difficult decisions ahead for active managers, as they consider how to scale up without unbalancing their workforce and clients. The original consolidation was intended to give the combined company a global presence, especially by opening up access to the United States for Janus while enlarging its European footprint. However, Morningstar (MORN) determined that the organic average growth rate of the merged company has trailed that of its U.S.-listed asset manager peers between 2015 and 2019, and it is projected to continue struggling over the next four years. At a recent conference, Janus Henderson CEO Dick Weil said that although he was confident that the company is on pace to establish a global presence "that neither independent firm could have afforded separately," he admitted that this process was taking a "frustratingly long amount of time." Also contributing to Janus Henderson's troubles are integration-related issues, including cultural clashes between the two companies. One former employee cited the company's failure to appoint new blood to its board, and this and other problems have led to an exodus of high-profile investment staff. Weil nevertheless maintains optimism, describing Janus Henderson as "genuinely global and not dominated by one culture or the other." He also shunned suggestions that the company must merge with a competitor. It remains unclear what Trian's intent toward Janus Henderson is or whether it will succeed. Riley thinks the company could potentially reverse its fortunes on its own, and wants it to trim its cost base by 5% to 10% and repurchase stock to strengthen its share price. If consolidation becomes necessary, Riley believes Janus Henderson's acquisition by a larger competitor is more sensible, as it would entail less disruption.
GameStop (GME) investor Ryan Cohen wants the company to focus more on building a robust e-commerce platform, writes Ken Squire, founder and president of 13D Monitor. Cohen, co-founder and former CEO of e-commerce company Chewy (CHWY) has a stake of nearly 10% in GameStop. He recently sent a letter to GameStop's board that asked the company to conduct a strategic review of its operations. Cohen would rather have GameStop shift its mindset than pick up one seat on the company's board. Although Cohen appears to have an ally on the board in James Symancyk, the CEO of PetSmart while Cohen was running Chewy, Symancyk has a brick-and-mortar background. A proxy fight could create potential headwinds for Cohen. For example, a large part of GameStop's shareholder base is comprised of index funds that are reluctant to back engagement campaigns without the cover of an Institutional Shareholder Services or Glass Lewis recommendation.
Chris Hohn, founder of the TCI hedge fund, wants to push hundreds of U.S. and European companies to cut emissions by enlisting global investors to demand an annual vote on their climate plans at shareholder meetings. Hohn set a precedent last month by using a shareholder resolution to force Spanish airports operator Aena (AENA) to draft a new climate plan and submit it to an annual vote. Hohn wants to replicate that model at many more companies in the next two years by mobilizing investors to sponsor similar resolutions as part of his new Say on Climate campaign. “Of course, not all companies will support the Say On Climate. There will be fights, but we can win the votes,” Hohn told a webinar with pension funds and insurance companies on Thursday. Hohn's Children's Investment Fund Foundation said the funds taking part represented more than $3 trillion in assets. Under Hohn's plan, shareholders submit a resolution requesting companies to disclose their greenhouse gas emissions, present a plan to reduce them, and give shareholders an annual advisory vote on that plan. Rather than push for specific action by groups of high-emitting companies, such as oil and gas majors, Hohn aims to drive a systemic shift so that it becomes standard practice for all major companies to submit climate plans for annual scrutiny. U.N. climate envoy Mark Carney backed the idea earlier this month.
The latest Edelman Trust Barometer found 95% of Canadian institutional investor respondents see their firm putting less emphasis on environmental, social, and governance (ESG) factors as an investment criteria, while 93% said their portfolio companies are doing the same. Those figures drop to 83% and 81%, respectively, across respondents from six global markets including Canada. Edelman received responses from 100 institutional investors across Canada, the U.S., the U.K., Germany, Japan, and the Netherlands between Sept. 3 and Oct. 9. These findings are at odds with messaging from the Canadian government amid the pandemic. The ESG theme has received plenty of pandemic-era attention in Canada, including last month's assignment of $10 billion in federal spending for a slate of infrastructure priorities including clean power and zero-emissions transportation. Nina Godard, national financial communications lead at Edelman Canada, sees the disconnect between institutional investors and other market participants as temporary, pointing to survey results that strongly suggest ESG will not be a casualty of Covid-19 among institutional investors. To that point, 96% of Canadian respondents said their firm monitors ESG indicators such as carbon emissions reduction and diversity targets to inform investment decisions on an ongoing basis. As a recovery from Covid-19 emerges, 95% said they expect their firm to increase prioritization of ESG as an investment criteria. Further, 95% said companies with strong ESG performance merit a premium to their share price, and represent better opportunities for long-term returns. Profitable companies were found to be under added pressure to deliver on ESG priorities, with 84% agreeing they have greater responsibility than underperforming rivals.
Yorozu Corp. said Nov. 20 that a shareholder wants the auto parts maker to hold an additional shareholders meeting to vote on how the company decides its takeover defence protocols. Reno, a fund associated with prominent investor Yoshiaki Murakami, had requested that a proposal to abolish defence measures be voted on at the company's annual shareholders meeting, Yorozu said in a statement. In 2019, Yorozu spurned Reno's request to put forward its proposal to a general shareholders meeting, saying whether to abolish defence measures could be discussed at its board meeting. Investors are becoming more vocal in Japan amid the government's call for improved corporate governance.
Sources report that Elliott Management has made a new bid for distressed Swiss baking company Aryzta (ARZTY), valued at about $872 million. Elliott has reportedly performed due diligence and lined up financing for the potential takeover. Aryzta shares climbed up to 21% on Nov. 20, making it the largest gainer on the benchmark Swiss Performance Index. Company stock was up 17% at 12:46 p.m. in Zurich, giving Aryzta a market value of 703 million Swiss francs. Davy analyst Roland French wrote that Elliott's proposed offer price is "more than adequate and recommendable" considering the challenging environment. He added that "it would mark a significant return" for the company's activist shareholders and "clean the psychological slate for many others." Outgoing Aryzta CEO Kevin Toland favored considering a potential sale and engaging with Elliott, but the company's board is divided on whether to pursue a sale or remain independent. Aryzta Chairman Urs Jordi, who has spoken publicly against a sale, will assume Toland's role in an interim capacity, pending the search for a replacement. In September, Aryzta said Elliott was in advanced negotiations about a potential takeover bid, and in late October followed up that talks had ended without a binding offer. Since then, the company has appointed Houlihan Lokey (HLI) and Alantra Partners (ALNT) to advise on asset divestments that will help it concentrate on core markets. Jordi said at Aryzta's Sept. 16 shareholder meeting that now "would be the worst point in time to sell the company," adding that he aims to simplify Aryzta, push innovation, and fortify performance to serve customers. Vontobel Holding (VONN) analyst Jean-Philippe Bertschy said in a note that the timing of Elliott's offer is "interesting" given Jordi opposes a sale, while stock will continue to be "highly volatile." Kepler Cheuvreux analyst Jon Cox reflected that "a full takeover is the only way to create value for shareholders medium term given the level of the group's indebtedness. I am not sure piecemeal disposals are going to help that much."
ARYZTA has announced that Kevin Toland will cease his role as CEO effective immediately. Chairman Urs Jordi, who was appointed in September after a proxy fight, will take over as interim CEO. The writing has been on the wall for Toland since the campaign led by Switzerland's Veraison and Spain's Cobas to unseat a swathe of the Aryzta board including Toland culminated at an emergency general meeting in September. About 62% of shareholders voted in favor of the CEO’s removal from the board at the meeting, though he was retained as CEO. While Aryzta has been through a grueling three years, Toland's pay package of €4.5 million last year, including a €961,000 base salary, was multiples of what he’d been earning at DAA where pay was subject to post-bailout public sector pay caps. Aryzta’s board has also appointed Jonathan Solesbury as interim CFO ahead of the expected departure of Frederic Pflanz on Nov. 30. Commenting on the latest changes, Urs Jordi said the new leadership is focused on change and regaining the confidence of all stakeholders.
Bill Ackman expects to see market gains next year but warned there could be volatility in the months ahead. Ackman told investors on Thursday that he's “happy to be long” on equity exposure and is “bullish” on 2021 at a time of low interest rates, more expected stimulus, and infrastructure spending. But he also warned that dark days lie ahead as the U.S. has passed 250,000 coronavirus deaths. Ackman considers it “prudent” to insure his portfolio now amid a range of uncertainties, and he recently put on a new hedge as corporate credit spreads are very tight. He said he likes the companies he's invested in now and expects Lowe's (LOW), Starbucks (SBUX), Hilton Worldwide Holdings (HLT), and Chipotle (CMG) to perform well after the pandemic. Pershing Square Capital Management, Ackman's $12.5 billion firm, boasts a return of roughly 55% for the year, making 2020 its best-ever year on a gross basis. Ackman said that he has agreed to hire a woman to his all-male investment team but declined to name her, saying only that she performed extremely well on the tests he gives to candidates and is expected to join late next year. He also declined to offer any new details about his blank check company Tontine, short of saying that the extensive shareholder list will be an asset in finding a company to acquire.
Corteva Inc.'s (CTVA) board of directors has decided to back CEO James Collins even after investor Starboard Value LP took issue with management's performance. Corteva’s board discussed Collins’ future at a recent meeting and is fully supportive of him and management, sources said. Corteva went public last year after it was spun out of chemical giant DowDuPont (DD). Starboard, which has a 1.6% stake in Corteva, has said that the company has not lived up to its potential and is lagging behind its peers. Starboard CEO Jeffrey Smith has criticized Corteva’s financial performance, noting that its cash flow margin of 14.4% lags behind peers, and that its share price, now at $36.96, could be closer to $55. The company’s shares have climbed 44% in the last 52 weeks. Investors will soon have a chance to nominate directors at Corteva.
German conglomerate Thyssenkrupp AG (TKAMY) will cut 11,000 jobs, about 10% of its workforce, as its beleaguered steel business bleeds cash; it has endured a tumultuous few years marked by a string of management departures and clashes with Cevian Capital AB and Elliott Management Corp. The steel and materials group almost doubled the number of positions it plans to eliminate after recording a 5.5 billion euro net loss for the year that ended in September, with another 1.5 billion euro deficit estimated for the current period. Thyssenkrupp management has held talks with potential buyers and merger partners for the steel unit to help address chronic overcapacity. They're also in discussions with the German government over an aid package that could be worth at least 5 billion euros. The conglomerate sold its prized elevator division earlier this year for 17.2 billion euros in a bid to buy time to restructure other parts of the business. It now has about 13.2 billion euros of cash and undrawn credit lines. Excluding proceeds from the elevator sale, Thyssenkrupp burned through 5.5 billion euros in the last fiscal period, triple its prior-year outflow. The company said it needs to cut more than the 6,000 jobs planned in May 2019 because of long-term market developments and effects of the coronavirus pandemic. Thyssenkrupp expects to make a "fundamental" decision in the spring on a solution for its steel business, which swung to a 946 million-euro loss in the last fiscal year. Although the company expects low-to-mid single-digit sales growth after a 15% contraction last year, it expects an adjusted earnings loss in the mid-three-digit million-euro range.
Australian online retailer Kogan (KGGNF) is facing significant backlash against an excessive executive compensation plan. Kogan is asking its shareholders to approve a one-off grant of 6 million share options to company founders Ruslan Kogan and David Shafer in May, and the exercise price of the shares is just $5.29 each. However, Kogan's shares are currently trading around $18 after a Covid-19 induced online shopping boom, meaning the immediate value of the grant is $80 million. The options are worth about $112 million overall, drawing criticism from proxy advisers CGI Glass Lewis, ISS, and Ownership Matters, which have all recommended their clients vote against the proposal. The governance firms have primarily taken issue with the "excessive" value of the shares, along with the lack of performance hurdles associated with the grant. All Kogan and Shafer have to do to be awarded the generous fillip is to not resign by 2023. However, if shareholders block the proposal on Friday, Kogan's chairman Greg Ridder has vowed to find another way to award the executives their shares, either by buying them on-market or as a cash payment. CGI Glass Lewis has warned that if the board follows through with such a plan it would have to recommend against the re-election of Kogan's directors at future Annual General Meetings (AGMs) because it would be a "governance failure." Shareholder Stephen Mayne, who has put himself up for election to the board at Friday's AGM, said the board's contingency plan could fall foul of the Australian Securities and Investments Commission's (ASIC's) rules on "reasonable remuneration" and called for ASIC to step in if the grant is not approved by shareholders. ISS has endorsed Mayne's run at the board, saying he would increase the board's independence and the number of non-executive directors. Despite the numerous concerns, some shareholders may support the measure.
Cevian, Thyssenkrupp's second-biggest shareholder, on Nov. 19 called for management to take more decisive action to restructure the ailing conglomerate. "It's painful to watch, because it doesn't have to be like this. Thyssenkrupp has the potential to succeed," said Friederike Helfer, a partner at Cevian and a member of Thyssenkrupp"s supervisory board. She noted that not enough has transpired since the company offloaded its elevator unit to private equity firms earlier in 2020. "Thyssenkrupp continues to lose billions. The financial leeway is melting away. Competitors have acted forcefully during the Covid crisis and are leaving Thyssenkrupp further behind," she noted. Her comments mirror concerns in the financial community about Thyssenkrupp's limited competitiveness, with JPMorgan (JPM) previously saying that "operational performance of all of Thyssenkrupp's divisions lag its peers." Helfer said additional actions and results are urgently needed, adding the group's management has Cevian's full backing.
Janus Henderson Group (JHG) has hired Centerview Partners to defend against an engagement by Trian Partners, according to DealReporter. Trian in October revealed a 9.9% stake in Janus Henderson and said it may ask the company to weigh "certain strategic combinations."
Analysts are critical of ABB's (ABB) plan to offload three of its most profitable businesses, saying the strategy is uninspiring. ABB said it was "exploring all options" to exit its turbocharging, mechanical power, and power conversion divisions, which have combined annual sales of $1.75 billion, or 6% of group sales. The businesses could overall be worth roughly 3-4 billion Swiss francs ($3.3 billion to $4.4 billion), according to sources. The Swiss company, whose products range from electric ship motors to factory robots, has been evaluating operations since CEO Bjorn Rosengren took over in March and said ABB was weighed down by a complex business model. The three businesses are among ABB's most profitable, with profit margins exceeding the group margin target of 14% to 16%. Gael de-Bray at Deutsche Bank says, "This divestment program will therefore dilute the group's overall margin. Overall, we estimate that the portfolio review is unlikely to trigger any further re-rating." ABB's share price fell 2.6% on the Swiss blue chip index, making it one of the weakest performers on the Stoxx 600 Industrial Services index, which was 0.9% lower. "Against high market expectations, the announcement today may be seen as somewhat underwhelming," notes JPMorgan analyst Andreas Willi. ABB's turbocharging business could be worth 1.5-2 billion Swiss francs, according to the sources, while mechanical power could be worth 1-1.5 billion francs, and power conversion up to 0.5 billion francs. Cevian, ABB's second-largest shareholder with a 4.9% stake, said it has confidence in Rosengren, who previously helmed Sweden's Sandvik, to boost performance. "We all saw how quickly Bjorn improved Sandvik's performance and outperformed all expectations—and we expect to see this again," said Cevian co-founder Christer Gardell. "We see no reason why ABB should continue to underperform peers either on growth (or on) margins by 2023."
The Japanese government is seeking legal changes to allow corporate shareholder meetings to be held fully online. The pandemic has prompted many companies to substitute limited online gatherings for physical get-togethers, but Japan's Companies Act stipulates that corporations must hold meetings in a physical venue and does not recognize "online" as a viable option. Business leaders have called on lawmakers to revamp the law, as it mandates that a certain number of participants gather together in person to vote. The legal revision is expected to make it easier for companies to hold remote meetings, reducing the risk of exposure to the coronavirus. The government is set to work out a concrete direction for the amendment by the end of the year as it seeks the lifting of the ban sometime in 2021, amid expectations the pandemic will have yet to be quelled.
Sardar Biglari's fifth proxy battle with Cracker Barrel Old Country Store Inc. (CBRL) has ended in defeat. Biglari Capital has an 8.4% stake in Cracker Barrel, making it the third biggest shareholder. Biglari's nominee did not garner sufficient shareholder support, and Cracker Barrel announced in a statement on Nov. 19 that all 10 of its directors were re-elected by "an overwhelming margin" at its annual meeting. In three earlier proxy battles with the company in 2011, 2012, and 2013, Biglari lost bids to win a seat on the board. He also lost bids to have Biglari Holdings Vice Chairman Phil Cooley elected to the board in 2012 and 2013. Biglari has criticized Cracker Barrel management for store expansions and side ventures like its failed $133 million investment in Punch Bowl Social, a restaurant chain that combined food and drinks with arcade games. Given his own failure to win a Cracker Barrel board seat, Biglari this time nominated Raymond "Rick" P. Barbrick as a Cracker Barrel director. Barbrick is co-CEO of Briad Group, which owns 111 Wendy's (WEN) restaurants and some Marriott- (MAR) and Hilton-branded (HLT) hotels in the Northeast. Barbrick wasn't supported by ISS, which found that Biglari Holdings had not made a convincing argument for swift change to Cracker Barrel's board. ISS supported most of Cracker Barrel’s nominees for the board, with the exception of Norman Johnson. In a statement Nov. 19, Biglari Capital said Johnson got the most "withhold votes" of any director nominee in the last decade at Cracker Barrel. Biglari Capital said it expects Cracker Barrel's board "to add a director with substantial restaurant operating experience by the next annual meeting. Because there is more value to be created with the current base of Cracker Barrel stores than on any other activity, we encourage directors to focus on the core business and reject any other acquisitions."
Institutional Shareholder Services (ISS) expects its staff to keep increasing at a clip of more than 10% a year even after its upcoming takeover by German exchange operator Deutsche Boerse (DBOEY). With investor interest in environmental, social, and governance (ESG) issues spiking, demand for research from ISS is soaring, according to CEO Gary Retelny. ISS currently has about 2,000 employees and is hiring more at a steady pace. Deutsche Boerse said Tuesday it would acquire an 80% stake in ISS for about $1.8 billion, the latest in a flurry of exchange industry deals and more than double what current ISS owner Genstar Capital paid in 2017. ISS and rival Glass Lewis have grown more influential as votes on a range of matters become more prominent at annual shareholder meetings. They have also drawn a backlash from stock issuers, culminating in a rule the Securities and Exchange Commission (SEC) approved in July requiring proxy advisers to disclose conflicts of interest and distribute their reports to companies at the same time as shareholders. Under its new owner, Retelny said ISS would remain committed to a lawsuit against the SEC seeking to overturn the new rule. The U.S. Chamber of Commerce, which supports the SEC rule change, stated in a policy paper this week that Congress should further regulate proxy advisers. Retelny said his firm serves as "a convenient foil" for companies that dislike the pressure of critical votes but cannot criticize their investor bases.
Office landlord Paramount Group (PGRE) recently rejected an unsolicited takeover bid from hedge fund Bow Street LLC. Paramount's portfolio of 15 office towers is concentrated in cities where few tenants have returned to work. Its stock price fell by 60% this year and traded for only half book value before the company alerted the market to Bow Street's bid late Monday. Bow Street had made an all-cash offer of $9.50 to $10 a share on Nov. 4, according to Paramount. With a market value of $2 billion, Paramount Group is much smaller than its main rivals and could easily be acquired. Although the board unanimously rejected Bow Street's offer, Paramount acknowledged a higher bid could cause it to reconsider. Last year Bow Street demanded a shakeup at Mack-Cali Realty (CLI), describing the firm as an "intractable state—over-levered, under-occupied, structurally impaired, and lacking a credible path to sustainable shareholder value creation." After a year of pressure, in June Mack-Cali yielded and allowed Bow Street to nominate eight members to its nine-director board.
Meaningful changes in the corporate governance of Athersys Inc. (ATHX) are needed if the Ohio-based company's cell therapy is to reach its full potential, urges a significant shareholder and director of the company. Dr. Hardy Kagimoto, CEO of Healios KK (HLOSF), the regenerative medicine company in Tokyo, stated in a Wednesday regulatory filing that he was excluded from the process of adding three seats to Athersys' board of directors and selecting three new board members. Athersys announced the three directors on Monday. Healios owns an 8.3% stake in Athersys. "Directors who have served on the Athersys board for between 10 and 25 years have too close of a relationship with company management and have failed to hold management accountable," contended Kagimoto, a board member since 2018. Kagimoto believes the performance of Athersys' board and management "over many years demonstrate poor corporate governance and a lack of respect and alignment with shareholder interests."
British insurance group RSA (RSA) is backing a $9.55 billion cash offer from Canada's Intact Financial and Denmark's Tryg (TGVSF). Insurers have become an attractive proposition during the Covid-19 crisis, as working from home has led to fewer claims on home and motor insurance while commercial insurance rates have risen sharply. RSA's directors backed the Intact-Tryg bid unanimously and recommended shareholders vote in favor of the consortium's offer. RSA CEO Stephen Hester plans to step down after the deal's completion, adding that he expects a small number of job losses at the group's U.K. headquarters and in Canada and Scandinavia as those businesses are integrated. The proposed takeover would result in the breakup of the British group, with suitors carving it up between them. Intact would gain RSA's Canada and U.K. and international operations while Tryg would take the Sweden and Norway businesses, and the pair would co-own RSA's Danish unit. The overall offer represents a 51% premium to RSA's Nov. 4 closing share price. Analysts described the deal as "transformational" for Tryg. Investor Cevian Capital, RSA's largest shareholder with a 14.9% stake, said it fully supports the takeover. Cevian added that Hester had put RSA on a better footing since he took over in 2014, shoring up a balance sheet with a 773 million pound rights issue and scaling back underperforming operations. Industry sources said RSA had been seeking a buyer since a 5.6 billion pound bid from Zurich Insurance collapsed in 2015.
AC Milan's owners Elliott Management have already invested a huge amount to help "relaunch" the soccer club, a spokesperson said. After TV network Rai announced a new program investigating Milan's ownership situation, an Elliott spokesperson responded with an official statement clarifying that Elliott controls 96% of the club's shares. In addition, the spokesperson offered comment on the amount that Elliott has already invested into the club and how they are willing to invest even more. "Elliott has financed the relaunch of Milan in recent years, with over 600 million euros invested in the club," the spokesperson said. "Elliott has also committed to participate in a private investment of 1.2 billion euros for the construction of a new state-of-the-art stadium for the city of Milan and an innovative multifunctional district, which together will contribute to the continuous transformation of Milan."
Recent regulatory filings indicate that Pershing Square Capital (PSHZF) CEO William Ackman has lined up major Wall Street investors for his Pershing Square Tontine Holdings special purpose acquisition company (SPAC), including T. Rowe Price Group (TROW), Guggenheim Partners, Baupost Group, Ontario Teachers, and Blackstone Group (BX). Tontine raised $4 billion in an initial public offering (IPO) in July. Tontine will use the proceeds, as well as debt and new equity it can raise, to capture a minority share in a firm valued at tens of billions of dollars. An anonymous source says Ackman is considering family-owned businesses, public companies that would like to spin off big divisions, and "mature unicorns." If Ackman seeks an investment that surpasses Tontine's resources, the investors could boost its muscle with extra equity financing. Pershing also has committed to investing between $1 billion and $3 billion to any arrangement. With Tontine's IPO heavily oversubscribed, Ackman was able to hand-pick the investors and the shares to allocate to them. According to one source, Ackman told bankers developing the SPAC that Tontine brings a "curated list of shareholders who are expected to be invested for many years." SPAC Research reports that Tontine is the highest-profile SPAC in a year in which SPACs raised $65.7 billion to date, topping the previous record of $13.6 billion. Many institutional investors have avoided SPACs, worried that they pose too high a risk, while blue-chip investors' approval of Tontine signals Wall Street's confidence in Ackman's ability to close a successful deal. Guggenheim Partners controls 22 million Tontine shares valued at about $507 million, while Baupost owns 17.5 million shares or roughly $400 million. Ontario Teachers' Tontine stake is worth $257 million, while the T. Rowe Price stake comes to $174 million. Filings indicate Soroban Capital, Millennium Management, Fir Tree Capital Management, Citadel Advisors, Mason Capital Management, Moore Capital Management, and Scoggin Management also have stakes in Tontine. Although many SPACs give managers founder shares that can result in them owning 20% of the merged company, Ackman has shunned this compensation structure. He also is set to receive warrants requiring him to invest more money to own less of the engaged company than other SPAC managers. Tontine shareholders also receive warrants, but lose two-thirds of their value if they cash out when a merger is announced. This is to discourage investors with a short-term horizon from buying into Tontine's IPO.
German stock exchange operator Deutsche Boerse is acquiring an 80% stake in proxy adviser Institutional Shareholder Services (ISS) for about $1.8 billion. The transaction was announced amid active deal making by stock exchanges as they seek to leverage their electronic trading platforms with analytics, in a redrawing of the market landscape that has also drawn the attention of regulators. The most prominent such deal is London Stock Exchange's $27 billion purchase of data provider Refinitiv. Deutsche Boerse said its purchase positioned it as a leading global provider of environmental, social, and governance data and analytics. ISS and its main rival, Glass Lewis, have faced increasing pressure from lawmakers and regulators over the last years as U.S.
corporations have accused them of wielding too much power.
SoftBank's (SFTBF) asset sales this year will give the company more flexibility if the economic fallout from the coronavirus pandemic worsens, founder Masayoshi Son said during the New York Times' virtual Deal Book Conference. However, he declined to address the idea of taking SoftBank private. Shareholder Elliott Management has encouraged SoftBank to buy back stock to take advantage of a market discount relative to the value of the company's underlying assets. Continued aggressive stock buying would make it easier for Son to take the company private as he increased his stake in outstanding shares. Son initially planned to sell off $40 billion of assets but he ended up unloading $80 billion of companies. Softbank sold its semiconductor business ARM to Nvidia (NVDA) for $40 billion and sold about $20 billion of its stake in T-Mobile (TMUS). Liquidity will help prepare SoftBank for a worst case scenario, Son said.
Aaron Stern, a former partner and managing director at Fir Tree Capital Management, is launching Converium Capital, a new hedge fund based in Montreal. Stern hopes to raise $500 million to put into event-driven investments, including activist situations, according to sources. Michael Rapps, a former chief executive officer of Clarke Inc. (CLKFD), will join Converium and head its activist, engagement, and restructuring-driven investments, the sources said. Elliot Ruda, former partner and head trader at Fir Tree, will assume a similar role at the new hedge fund. Converium will be seeking opportunities in Canada—specifically in distressed debt—and it also intends to develop a global portfolio, the sources said. It will adopt activist tactics when needed. While at Fir Tree Stern oversaw a recent proxy battle at Japan's Kyushu Railway Co., among other investments. Robert Glauber, a Harvard lecturer and former U.S. Under Secretary of the Treasury, will be an investor in the fund and sit on its advisory board. Stern has a special ability to make money where others don't recognize the opportunities, ranging from Puerto Rican bonds to European bank investments, Glauber said in an interview. "He's willing to look across the world to find situations that haven't been heavily exploited," Glauber said. "The track record at Fir Tree and his approach gives me every reason to believe he can produce in the future what he has in the past."
The investors advocating changes at CoreLogic Inc. (CLGX) have won three seats on the board of the data provider after a protracted fight that has dragged on since June. Initial tallies show that Cannae Holdings Inc. and Senator Investment Group have won the necessary support for three of their nominees: Steve Albrecht, Wendy Lane, and Henry Winship, according to a statement by CoreLogic. "We welcome Steve, Wendy, and Jay to the board of directors," said CoreLogic Chairman Paul Folino. "We look forward to working together and will get them up to speed quickly on our business and our strategic review process." Cannae and Senator had been hoping to replace nine board directors at a special meeting held Nov. 17. Their nominees will replace incumbent directors David Chatham, Thomas O'Brien, and David Walker. Cannae and Senator said that more than 86% of all votes favored electing their three nominees. They also said approximately 50% of the shares cast also voted for the removal of Folino, which was short of the threshold needed to do so. "Today's vote is a clear mandate from shareholders for CoreLogic's board to promptly engage in good faith with all bidders for the company and to maximize value," said Quentin Koffey, Senator partner, in a statement. "We are confident that Steve, Wendy, and Jay will bring important perspectives and experience to the boardroom, as they help oversee a process to ensure the best possible outcome for shareholders." Cannae and Senator in June proposed purchasing CoreLogic for $7 billion, including debt. However, that offer, and another one for $66 a share, was spurned by CoreLogic's board, which argued it undervalued the company.
Kimmeridge Energy Management says it plans to push for change at Ovintiv (OVV) in order to improve governance and performance. The investor holds a 1.9% stake in the oil and gas company. New York-based Kimmeridge also has built new positions in PDC Energy (PDCE) and Cimarex Energy (XEC). However, Kimmeridge views Ovintiv as the poster child for all that ails the North American exploration and production sector, according to Mark Viviano, head of public equities. Executives are receiving excessive compensation and companies have little accountability, the investor says. At Ovintiv, CEO Doug Suttles is getting paid millions of dollars a year in compensation, but the company's shares have plummeted 87% over his tenure. Suttles was paid $12.6 million in 2019, according to regulatory filings. Kimmeridge will address the changes it would like to see in a white paper.
GameStop (GME) investor Ryan Cohen wants the company to conduct a strategic review after talks with the board yielded little progress on getting it to focus more on e-commerce and other tech-driven opportunities. He holds a nearly 10% stake in the company through his investment firm RC Ventures. Cohen, co-founder of e-commerce pet food business Chewy (CHWY), said in a letter to the board on Nov. 16 that GameStop has an outdated business model and lags behind the broader gaming industry. Permit Capital Enterprise Fund and Hestia Capital Partners picked up board seats at the struggling retailer earlier this year after a successful proxy fight. GameStop says it has extended multiple offers for Cohen to join the board. Cohen is the co-founder of e-commerce pet food business Chewy (CHWY). He eventually sold Chewy to PetSmart for $3.35 billion.
Bill Ackman's special-purpose acquisition vehicle has received a roughly $400 million investment from Seth Klarman's Baupost Group, according to a regulatory filing. Ackman took Pershing Square Tontine (PSTH) public in July. He has raised a record $4 billion from the listing to target "mature unicorns," or to buy minority stakes in companies that are valued between $10 billion and $15 billion. Klarman has been called "the Oracle of Boston" because he follows Warren Buffett's strategy of investing in undervalued stocks. The founder and president of Baupost Group may have taken the stake in Pershing Square Tontine because Ackman also embraces some value-investing principles. The billionaire investor also took $52 million and $30 million stakes in two other blank-check companies, Redball Acquisition (RBAC) and Broadstone Acquisition (BSN), respectively.
Securities and Exchange Commission (SEC) Chairman Jay Clayton on Monday announced he will step down at the end of December, paving the way for Democrats to push for a more aggressive approach to regulating Wall Street. His exit is the latest in a series of expected turnover at federal regulators as power changes hands in the nation's capital. The 54-year-old Clayton, a longtime corporate-deals lawyer at Sullivan & Cromwell LLC, was nominated in 2017 by President Donald Trump. He has pursued an active enforcement agenda that included cases against automaker Tesla Inc. (TSLA) and biotech start-up Theranos Inc. During his tenure at the SEC, he concentrated on making it simpler for companies to raise capital—even if that meant bypassing the public markets that the commission polices. Clayton is a political independent who garnered a reputation for being a moderate in the top SEC job.
Elliott Management has liquidated its investment in AT&T (T). The fund, which last year took a $3.2 billion stake in AT&T and pushed the company to sell some assets, sold 5 million shares in the company during the third quarter. Elliott originally criticized AT&T for operational missteps and its takeover strategy as well as its choice of leaders, but by the time John Stankey took over as CEO in July, Elliott had come around to the choice. Elliott did not make any changes to its stake in eBay (EBAY), a company where it pushed for changes and won a board seat in 2019. Elliott owned 9.9 million shares in eBay even after Jesse Cohn left its board in September, according to a filing. Starboard Value, which also reached a settlement with eBay in early 2019 and was able to fill one seat on eBay's board, sold off the rest of its stake during the third quarter. The hedge fund sold about 2.1 million eBay shares after having already sold three quarters of its stake during the second quarter.
Investor Browning West has renewed its call for U.K. property developer Countryside Properties Plc (CSPLF) to sell its homebuilding unit. Browning West is also looking for a board seat at Countryside, in which it has an 8% stake. Countryside builds homes for private sale and also operates a partnerships business that develops low-cost housing for public bodies and affordable housing providers. Shares in Countryside, which has a market value of $2.9 billion, rose as much as 4.4% in London trading on Monday morning.
Elliott Associates believes there are operational and strategic opportunities at technology services company F5 Networks Inc. (FFIV) to create shareholder value. Elliott has gotten to know the industry well through a previous 13D filing at F5's main competitor, Citrix Systems Inc. (CTXS), where partner Jesse Cohn was a board member from July 2015 until April 2020. Now that Elliott can invest in F5, it sees significant opportunity at F5, mainly operational. The company's spending is outpacing its revenue and two recent acquisitions have not yet helped its declining operating margins. Elliott would likely work with the board and management to get operating margins from 30.5% to 36%-38%, a range the company was in for a decade prior to 2019. Focus needs to shift to integrating the acquired businesses and halting future acquisitions that do not make sense, though there could be a place for smaller acquisitions with businesses that can be sold through F5's channels. Elliott is quite adept at operational activism as it has shown at Citrix and Akamai (AKAM), and that is its main plan at F5. However, if the operational improvements don't work out or management doesn't make the necessary improvements, Elliott is likely to advocate for strategic options. If this is the case, it is expected that there would be very strong acquisition interest from both private equity and strategic acquirers.
Institutional Shareholder Services (ISS) has released new benchmark policies that will be effective for shareholder meetings on or after Feb. 1, 2021. The proxy advisory firm made some policy changes regarding board racial and ethnic diversity, shareholder litigation rights, and director accountability for governance failures related to environmental or social issues. Under a new board diversity policy, ISS will highlight boards that lack racial and ethnic diversity in its research reports, but Russell 3000 or S&P 1500 companies will face adverse vote recommendations in 2022. Under a new shareholders' litigation rights policy, ISS will distinguish among federal securities law matters, Delaware corporate law matters for Delaware corporations, and corporate law matters for other states. The primary change to the proxy adviser's classification of directors as independent will be to limit the "executive director" classification to officers only. ISS will consider a recommendation on term limits for boards on a case-by-case basis, but will continue to recommend against age limits. Directors who include a deadhand provision in a company's poison pill will face a withhold/against recommendation. Companies with no women on their boards will receive an adverse vote recommendation. On the issue of virtual meetings, ISS will generally support management proposals that allow shareholder meetings to be convened by electronic means, as long as they do not preclude in-person meetings.
A U.K. government-commissioned paper is suggesting changes to the law that allows investor relations teams to uncover beneficial owners. Investor relations firms operating on behalf of corporate clients use Section 793 of the Companies Act to conduct an up-to-date analysis of their shareholders. The Law Commission, which produced the paper, notes that Section 793 does not require the disclosure of contact information, the information can quickly become outdated, and investors can't make use of it. The paper says the law could be amended to allow the ultimate identity of investors to be disclosed, as well as their contact information. However, the Law Commission says allowing investors to use Section 793 notices could become a burden for companies and could present problems for verifying who has the right to do so. The paper also says a significant technology investment and changes to the current system would be needed to maintain a real-time register of beneficial owners.
Six companies in the S&P 500 added Black female directors last month, helping women pick up 18 additional spots in the boardroom and continuing a move to boost racial diversity. TJX (TJX), Intuit (INTU), and Adobe (ADBE) were among the companies adding Black women to their boards after a Bloomberg analysis earlier this year found that all three lacked a Black director. In the S&P 500, the number of Black directors climbed in 2019, even as the number of companies with Black directors dropped; 37% of boards lacked a Black director last year, according to Russell Reynolds Associates. The additions meant that the average number of female directors advanced from 3.1 to 3.2, out of an average board size of 11.1.
India-based Tractors and Farm Equipment Ltd., a major shareholder of Atlanta-based AGCO Corp. (AGCO), is seeking a big change in how the agricultural equipment giant is run. TAFE, which owns a 16% interest in AGCO, issued a statement that read: "We believe the company should create a stronger governance structure going forward, beginning with the separation of the roles of the chair and the CEO." AGCO is a global manufacturer of agricultural equipment with approximately 21,000 employees and $9 billion in 2019 sales. The move comes in advance of a CEO transition at AGCO. In August, the company announced that Martin Richenhagen, its chief executive for the past 16 years, will retire at the end of next month. Richenhagen has also been AGCO's chairman since 2006.
Sian Capital has issued a letter to shareholders of OPKO Health (OPK), urging the board to formally announce and initiate a strategic review. Sian, which holds a 3% stake in OPKO, states that the company has already agreed to release a subset of the documents Sian requested in a previous demand letter. OPKO has also agreed to enact several governance enhancements, including the addition of a new independent director by January 2021. However, Sian claims that OPKO has presented several "falsehoods and misrepresentations" to stockholders, including management's assertion that its ownership of greater than 40% renders shareholders powerless. In fact, not only do current directors have a fiduciary duty to act in the interests of shareholders, filings show that OPKO leaders could be personally liable for breaches of these duties, leaving them vulnerable to potential litigation. Sian reiterates its belief that OPKO is deeply undervalued and argues in favor of a strategic review process.
Institutional Shareholder Services has informed Standard & Poor's 500 companies that it will no longer provide draft copies of their research reports prior to issuing their final reports to their subscribers. The policy will apply to companies with annual meetings occurring after Jan. 1, 2021. ISS cited recent investment in additional resources in data collection, checks and quality controls, and other research activities as a reason for making the move. The proxy advisory firm also said the preliminary review process often resulted in companies lobbying ISS to change its recommendations instead of identifying data inaccuracies. Moreover, many institutional investor clients have objected to its decision to offer draft previews to issuers, ISS said. The process ISS is eliminating for 2021 is required by new Securities and Exchange Commission (SEC) regulations taking effect during the 2022 proxy season. In July, the SEC adopted new rules on the solicitation and delivery of proxy voting advice in an effort to increase transparency.
Recent months have brought an unprecedented flurry of shareholder activity in Japan. For one, the pandemic has precipitated a wave of domestic merger and acquisition activity in industries under stress, starting with the retail sector. These are major developments in a market where a full-blown hostile takeover has so far never succeeded. Earlier this month, on another unexpected front, domestic fund Strategic Capital announced a tender offer for 20% of Keihanshin Building. Strategic Capital is a purely financial bidder that saw an opportunity in the mismatch between the company's stock price and its underlying asset value. Its resort to a tender offer instead of the usual activist shareholder proposal is a tactic that has been missing in Japan for years. Strategic Capital has highlighted the conflicts of interest between the engaged company and its primary allegiant shareholder, a megabank that owns 4% of the company and occupies five sinecure seats on the board. The time may have arrived when allegiant shareholders are as much an embarrassment as a shield against shareholder demands. However, Covid-19 has not changed the underlying economic drivers of Japanese activism, rather creating economic pressures against which shareholders are increasingly unwilling to protect management.
If the Securities and Exchange Commission's 13F mandate were relegated to investment managers with more than $3.5 billion in equity assets under management, then 36 of the Sharkwatch 50 investors would not be required to file. Investors exempt under the new reporting threshold would include Starboard Value, Oasis Management, Land & Buildings Investment Management, Voce Capital Management, and Crystal Amber Advisers. Among companies with $100 million to $25 billion in market capitalization, the proposal would have a measurable impact on shareholder reporting. A shareholder analysis of $100 million in market capitalization reveals that 25 out of 91 total holders would not be required to file a 13F. At $1 billion in market capitalization, 118 out of 187 total holders would not be required to file a 13F, and at $3 billion, it would be 266 out of 521 total holders. The biggest change in the composition of the capital base was seen at $5 billion. A decrease in ownership by institutions continued to be seen at $25 billion.
According to former Federal Reserve staffer Graham Steele, the dominance of BlackRock (BLK), Vanguard, and State Street pose a number of threats to the market. “Asset management firms have become a part of a new ‘money trust’—a system of financial architecture dominated by a few large banks, private equity firms, and hedge funds,” Steele argues in a forthcoming report. Steele, who directs the Corporations and Society Initiative at Stanford Graduate School of Business, says the index funds' stock holdings give them “outsized influence” in corporate elections and reward anti-competitive behavior among companies in a given sector. The sheer size and interconnectedness of the three firms influence the stability of the financial system, and they benefit by providing critical infrastructure. According to the paper, BlackRock, Vanguard, and State Street manage over $15 trillion in global assets, which is equal to approximately three-quarters of the U.S. GDP. The asset management industry has also grown more concentrated over the last decade, with these three firms attracting 82% of all investor money over the time period, plus 73% to 80% of the exchange-traded fund market. That dominance means that when combined, the “Big Three” are the largest shareholder of 88% of firms in the S&P 500. This concentrated ownership is responsible for the rise in stock buybacks. Research from Lucian A. Bebchuk and Scott Hirst has found that companies with a high amount of index fund ownership have increased stock buybacks more rapidly than peers with more diverse ownership. The largest asset managers also provide related technology and financial services to external firms that further increase their power and influence. Low fees, which benefit investors, have driven much of the concentration in the asset management industry.
In an environment in which simply buying an S&P 500 index fund produces impressive returns, Lauren Taylor Wolfe and Christian Alejandro Asmar's Impactive Capital is a rare deep value investor, outperforming by owning only eight to 12 unglamorous companies at a time. Impactive underwrites all its investments for an expected holding period of three to five years, and it has time to be patient thanks to a $250 million investment and six-year commitment from the California State Teachers' Retirement System (Calstrs), which kickstarted the firm in 2019. That investment is now worth $320 million for Calstrs, a 28% increase over 20 months, while the Russell 2000 small-cap index has gained only 10% in the same period. Taylor Wolfe and Asmar are using their growing pool of capital to try to revamp the activist playbook by replacing confrontation with collaboration and putting environmental, social, and governance (ESG) at the forefront. However, Impactive eschews public proxy battles and threats in favor of an occasional board seat and gentle behind-the-scenes persuasion. Their message is that ESG will improve profitability, and they promise not to jump ship if the next earnings report isn't up to par. Taylor Wolfe and Asmar met as managing directors at Blue Harbour, and like that fund Impactive has a focus on undervalued businesses, a self-described private equity approach to markets, and an aversion to conflict. Earlier this year, Impactive took a stake in Asbury Automotive Group (ABG) and got it to adopt various benefits to attract women in response to the group's labor shortage. The investment didn't pay off immediately, but Asbury has since recouped its pandemic losses to reach an all-time high in October.
It seems 2020 is poised to be another year of outperformance for environmental, social, and governance (ESG) funds. Some conclude that we are in the early stages of a “momentum trade” that favors sustainable investments. The idea is appealing in an era when longtime investors such as Chris Hohn in the U.K. and Jeff Ubben in the U.S. have shifted their focus to the area. Money invested in ESG funds jumped from $300 billion in 2011 to close to $900 billion last year. Morningstar finds that in every year since 2015 and in the first three quarters of 2020, a majority of ESG funds in the U.S. beat their respective markets. However, a momentum trade in ESG stocks seems unlikely while there is such disagreement over what constitutes an ESG investment. As the number of funds has risen, so too has the number of indices and scoring systems purporting to identify companies with positive ESG performance. A study this year by academics in Geneva found very little correlation between stocks favored by different environmental and social ratings providers. Wildly complex or subjective rules can lead to a lot of change even within an ESG index, further disrupting the possibility of a momentum trade. The S&P 500 ESG index is trying to maintain a sectoral balance similar to the wider market, as well as weighting for ESG scores, and it also reviews corporate “controversies” after which a stock may be kicked out for a year. It eliminated thermal coal producers recently, adding them to the list of banned sectors along with tobacco and some weapons manufacturers. That leads to a third problem for an ESG momentum trade, being that funds may end up missing out on some of the investments that could drive their returns the most.
ISS has released its new benchmark policies, effective for shareholder meetings on or after Feb. 1 of next year. ISS reports that it received 522 responses to its online policy report, including from 176 investors and related organizations and 346 non-investors. In this survey, almost 60% of investors “indicated that boards should aim to...include directors drawn from racial and ethnic minority groups,” while 57% of investors said they would consider voting against members of the nominating committee where board racial and ethnic diversity is lacking. Under its new policy, ISS will highlight the absence of racial/ethnic diversity in its research reports, though this will not be a factor in voting recommendations. Currently, ISS voting policy provides that ISS will recommend against directors or boards in the event of various governance failures; ISS is now expanding that list to include “demonstrably poor risk oversight of environmental and social issues, including climate change.” It remains to be seen how ISS will apply that policy. ISS observes that most commenters supported this change. Going forward, ISS will also take a more nuanced view of shareholder litigation provisions, distinguishing among federal securities law matters, Delaware corporate law matters for Delaware corporations, and corporate law matters for other states. ISS will now recommend a vote in favor of proposals for advance notice provisions that require notification 120 days prior to the meeting, consistent with current market practice. ISS is also changing its policy on term limits to consider them on a case-by-case basis, though it will continue to recommend against age limits. ISS is removing transitional language that permitted a company that previously had not had a female director to make a commitment to add one by February 2021. ISS will recommend a vote on a case-by-case basis on proposals requesting reports on the use of mandatory arbitration in employment-related claims, as well as proposals requesting reports on company actions taken to strengthen policies around workplace sexual harassment. ISS will generally support management proposals that allow shareholder meetings to be convened by electronic means, provided they do not preclude in-person meetings.
With new Japanese Prime Minister Yoshihide Suga having pledged to continue his predecessor's reforms, investors like SKAGEN M2 are hoping this will translate into improved corporate efficiency and protection for minority shareholders. Suga has already announced the establishment of a new agency to improve Japan's digital infrastructure, which should work to the advantage of M2's largest overall position, Keihanshin Building, at 5.8% of the fund's portfolio. Keihanshin is a small-cap commercial property owner with an expanding datacenter portfolio, and the company has been M2's top contributor this year with a share price gain of 50%. Yet the company believes further value waits to be gained through crystallizing unrealized asset value boosts, raising the dividend, and a buyback. Investor Strategic Capital is particularly eager, having enlarged its Keihanshin stake to 9.4% and becoming the firm's second largest shareholder. It is clamoring for Keihanshin to improve corporate governance by appointing an independent director, as well as concretize value in its assets by creating a real estate investment trust, ditching its low margin rental properties, and selling cross-shareholdings to bolster capital efficiency. Despite the backing of shareholders that included M2, there was not enough support to effect the reforms. Strategic Capital has since launched a tender offer for another 20% of Keihanshin's shares to further pressure management and perhaps entice a rival bidder. Keihanshin was one of a record 23 Japanese companies to receive shareholder proposals from activists in the first half of 2020, a 44% increase from 2019, according to IR Japan. Meanwhile, a White & Case survey showed that although none of the activist's 47 demands accrued majority shareholder buy-in, they had more support on average than the previous year, suggesting growing investor willingness to back their proposals. Scrutiny on activist voting has also deepened, following a scandal that ensnared Sumitomo Mitsui Trust (SUTNY). The firm admitted in October that votes at nearly 1,000 annual general meetings were miscounted due to an outdated counting method. Prime Minister Shinzo Abe's 2012 election is seen as the point of origin for activism's growth. The Activist Insight consultancy estimates that the number of companies publicly engaged rose from 14 in 2013 to 65 in 2019, while demands increased from 11 to 54.
At F5 Networks' (FFIV) analyst and investor meeting this week, CEO François Locoh-Donou said F5's top priority is to keep building and investing in its existing lineup of behind-the-scenes technologies for delivering and securing cloud-based software. Locoh-Donou promised that if the company does pursue additional acquisitions, it will not make any deals that would reduce its profit margin targets, or force it to pull back from a commitment to buy back $1 billion of its shares over the next two years. F5's financial outlook and underlying business have been in the spotlight since news emerged of Elliott Management's stake in the company on Nov. 8. Elliott reportedly raised concerns about F5's $670 million deal for server tech company Nginx, announced in March 2019, as well as its $1 billion purchase of Shape Security, completed in January 2020. F5 describes the acquisitions as key steps in a broader evolution beyond its traditional networking hardware business, but those deals also contributed to a decline in operating profit margin, slipping from 36% to 30% as of the fourth quarter. 13D Monitor's Ken Squire noted in a previous article that Elliott's main plan for F5 seems to be operational improvement, rather than forcing a sale. Locoh-Donou said the company will be looking to save costs in part by using AI and automation to improve its marketing and sales efforts, as well as evaluating its facilities costs post-Covid. In April, Locoh-Donou committed to not make any layoffs during the 2020 fiscal year, a commitment he has not reiterated for the new year. However, he said in the interview that he's averse to job cuts and doesn't have anything planned, again expressing his optimism in the company's growth potential.
Effective for meetings held on or after February 2022, Institutional Shareholder Services (ISS) will recommend in respect of companies on the S&P/TSX Composite Index, a withhold vote for the Chair of the Nominating Committee (or committee with nominating responsibilities) where less than 30% of the board of the company is comprised of women, and the company has not disclosed a formal written gender diversity policy; or the company's formal written gender diversity policy does not include a commitment to achieve at least 30% women on the board over a reasonable timeframe. With respect to targets, ISS will look for an explicit percentage or numerical target for women's representation of at least 30% of the board. For widely held companies that are not S&P/TSX Composite Index constituents, ISS will generally recommend a withhold vote for the Chair of the Nominating Committee (or committee with nominating responsibilities) where the company has not disclosed a formal written gender diversity policy and there are zero women on the board. ISS reminds issuers that the gender diversity policy should include a clear commitment to increasing board gender diversity and that boilerplate or contradictory language may result in withhold recommendations for directors. The gender diversity policy should also include measurable goals and/or targets indicating a firm commitment to increasing board gender diversity within a reasonable period of time. This policy will not apply to newly publicly listed companies or those having transitioned from the TSXV within the current or prior fiscal year or companies with four or fewer directors.
The Latino Corporate Director Association's new director tracker shows Latinos currently holding just 2.1% of the board seats at 674 public companies in California even though Hispanics are the state's largest ethnic group (39% of the population). Non-Hispanic white people, who comprise 37% of California's residents, hold the vast majority of the seats. Black people—6.5% of the state's population—currently hold 2.9% of seats. The California Boardroom Equity Scorecard was compiled with the assistance of Equilar. Their research further showed that 86% of the state's companies had no Latino board members. The group wants to ensure that Latinos benefit from a new California law requiring each public company based in the state to have at least one director belonging to a minority group by the end of 2021.
Institutional Shareholder Services (ISS) has updated its proxy voting guidelines for the 2021 proxy season. The Canadian updates relate to policies on board gender diversity, director accountability on environmental and social risk oversight failures, and shareholder litigation rights as related to exclusive forum provisions. The revised guidelines are generally applicable to meetings held on or after Feb. 1, 2021. Starting in February 2022, ISS will raise the existing minimum board gender diversity policy thresholds for S&P/TSX Composite Index issuers. ISS will recommend voting withhold for the chair of the nominating committee where women comprise less than 30% of the board of directors and the issuer has not disclosed a formal written gender diversity policy that includes a commitment to achieve at least 30% women on the board over a reasonable timeframe. Meanwhile, ISS' current benchmark policy, applicable to TSX and Venture issuers, already provides that ISS may recommend a vote against one or more directors for material failures of governance, stewardship, risk oversight, or fiduciary responsibilities at the issuer. ISS also introduced a new policy, which will be applicable to both TSX and Venture issuers, in respect of board proposals to adopt an exclusive forum bylaw. Beginning in 2021, ISS will vote case-by-case on such proposals, taking into consideration jurisdiction of incorporation, board rationale for adopting the provision, legal actions subject to the provision, evidence of past harm as a result of shareholder legal action against the issuer originating outside of the jurisdiction of incorporation, other corporate governance provisions and shareholder rights of the issuer, and any other problematic provisions that raise concerns regarding shareholder rights.
Icahn Enterprises (IEP) holds a broad mix of assets in out-of-favor industries, and its large short positions on the broader market and long energy exposure have detracted from performance in recent years. IEP owns about 71% of CVR Energy (CVI) and 15.5% of Herbalife (HLF), though it has been trimming the latter position after holding it since 2013. IEP pushed an operational turnaround at Navistar (NAV), in which it holds a 16.8% stake, and also pulled a board refresh at Occidental Petroleum (OXY). With 90% ownership of Icahn Enterprises, Carl Icahn is well-incentivized to stage a comeback, as he has done several times throughout his career. If deep value investing returns to favor or there is a surge in energy prices, Icahn Enterprises would likely soar. At current prices, the company yields 15%, so investors are paid well to wait for a turnaround.
Shareholder activism is picking up again after a slower period during the Covid-19 pandemic. Investors launched 16 new campaigns for corporate change in October, up from eight in September and four in August. The number of new campaigns kicked off in October 2020 exceeded the 13 new campaigns in October 2019, another sign of the pent-up demand by these investors. The level of campaigns is on track to return to the 20-plus range, consistent with the monthly level seen at the start of the year. In recent months, activists have focused on encouraging companies to fine-tune their operations and accelerate strategic shifts to navigate uncertainty amidst the pandemic. Examples discussed include Third Point's push for Disney (DIS) to suspend its annual dividend and invest in streaming, Sachem Head Capital Management's campaign to close the performance gap at Elanco (ELAN), and Starboard Value's quest for margin improvement at Corteva (CTVA). Trian Partners is calling for a business separation at Comcast (CMCSA), while Land & Buildings is calling for a special meeting of shareholders at Apartment Investment & Management (AIV).
Glass Lewis recently issued its 2020 Proxy Season Review covering the U.S. 2020 proxy season. Among other findings, Glass Lewis reported a decline in the average age of board members and an increase in board tenure. Approximately 13.2% of boards did not include women, which was down from 18.8% in 2019 and 26.2% in 2018. The number of women in board leadership positions at Russell 3000 companies has increased each year during the past three years; however, women are more likely to serve as committee chairs rather than as board chairs, vice chairs, or lead directors. For Russell 3000 companies, 69% of directors served on only one public company board, up from 56% in 2019; 21% served on two such boards, down from 26% in 2019; and 7% served on three such boards, down from 12% in 2019. Approximately 51.6% of Russell 1000 companies disclosed board oversight responsibility for environmental and social issues as compared to 43% in 2019. The average shareholder approval vote for director nominees was 94.5%, and Glass-Lewis recommended support for about 90% of director nominees. Most directors who fail to receive majority support from shareholders remained on their boards; of a total of 67 directors who failed to receive such support, only six left their boards as a result of the negative vote. Average shareholder support for say-on-pay proposals was 89.7%, which was substantially the same as in 2019 (89.8%) and down from 90.0% in 2018; Glass Lewis' rate for recommendations against say-on-pay proposals increased to 15.7% from 14.1% in 2019 and 14.8% in 2018; and investor support for shareholder proposals was 31.7% overall, down slightly from 32.9% in 2019, while Glass Lewis' rate of recommendations in favor of shareholder proposals increased slightly from 57% in 2019 to 58% in 2020. Glass Lewis' support for shareholder proposals addressing environmental issues increased substantially to 48% from 20% in 2019.
In 2020, the Covid-19 pandemic prompted radical changes in the realm of shareholder rights. Some of the effects of the pandemic were immediate and visible, such as the widespread switch from in-person to virtual annual shareholder meetings. This had a negative impact on shareholder participation, as virtual Q&As proved to be poor substitutes for in-person meetings, and shareholders generally hope that companies return to in-person meetings after the pandemic is over. The pandemic also reignited the debate around the purpose of a corporation and its duty to shareholders and stakeholders. The author believes the responses of both companies and shareholders during the pandemic provide important evidence that the interests of shareholders and other stakeholders are often aligned in the long run. This year also saw the emergence of new defensive strategies for companies, as well as a reshaping of the shareholder activist model as some activists adopted tactics historically associated with private equity. While shareholders have largely sat on the sidelines during the pandemic, companies should not expect such deference when business returns to normal. Shareholders have long faced regulatory challenges at closed-end management investment companies. This became worse in 2020 when the Securities and Exchange Commission (SEC) made it so that Regulated Funds may now opt into state control share statutes, even where those statutes may limit voting rights of certain larger shareholders. Moreover, 2020 saw ever more overlap between shareholder activism and private equity, with each adopting the other's strategies. Causes for this include intense competition for positive returns throughout the investment space, record amounts of capital on hand, a shared investor and employee base, and a fundamentally similar approach to profit. In the litigation space, activists sued incumbent boards that aggressively amended or attempted to amend the company's bylaws in the middle of ongoing proxy contests. They are reflective of a pendulum swing where boards have been more willing to take aggressive action when faced with a strong challenge by a shareholder who nominated directors.
The authors review key trends and developments for corporate governance and proxy voting during the 2020 proxy season. Overall, more companies are adopting a holistic approach to environmental, social, and governance (ESG) issues. In 2020, references to terms like “sustainability,” “ESG,” “climate change,” and “human capital” more than doubled compared to disclosures from two years ago and tripled from five years ago. With the abundance of new information included in proxy statements, companies and investors face the risk of information overload becoming imminent. Companies will need to focus their ESG-related disclosures on issues that can have a significant, material impact on the business. The intersection of investor stewardship and a company's management of ESG issues displays most prominently in the voting of director election proposals. In the past few years, investors have intensified their efforts in applying a diverse set of criteria to ensure board effectiveness. According to the authors' research, companies with more shareholder-friendly governance practices are more likely to have better reporting and oversight practices of ESG issues. There is a similar correlation between ESG management practices and board composition, specifically regarding board independence, the separation of the chair and CEO positions, and board gender diversity. While the Covid-19 crisis is not seen as a direct result of corporate behavior, companies' response to ESG issues related to the crisis may trigger investor action. The apparent willingness of large institutional investors to hold boards accountable for environmental and social issues should be a wakeup call for many companies.
So far this year, 156 special purpose acquisition companies (SPACs) have raised more than $55 billion, and 76 SPACs in the U.S. have announced acquisitions with a combined value of $95.2 billion. A Financial Times analysis of SPAC deals by four prominent sponsors of the vehicle within the last two years shows that the structure can be highly lucrative for the sponsors. The 10 SPAC deals analyzed were brought by Michael Klein, Chamath Palihapitiya, Harry Sloan, and private equity firm Gores Group. SPAC sponsors are paid in the form of a "promote," which usually means they take 20% of the SPAC's equity for a nominal purchase price of $25,000. The Financial Times found that promotes for the four sponsors are now worth a combined value of almost $2 billion across the 10 deals. The biggest rewards have naturally come from companies that have performed well on the stock market. However, even those SPAC-sponsored companies that struggle can leave backers holding sizeable profits. Bill Ackman believes the structure is "one of the greatest gigs ever for the sponsor" and he launched his own SPAC—Pershing Square Tontine Holdings—earlier this year. However, Ackman chose not to create founders' shares when he did so, noting that the "massively dilutive" nature of such shares often makes it difficult to complete a deal on attractive terms for SPAC shareholders. The promote has also caught the attention of Jay Clayton, the chairman of the U.S. Securities and Exchange Commission, who expresed concern about its impact on ordinary investors. Moreover, sponsors often see diminishing returns on repeat deals, though these can still be lucrative. This sometimes draws the attention of short sellers like Carson Block of Muddy Waters, who is betting that Klein's second SPAC bet of the year will not have the success of his first.
SoftBank Group Corp. (SFTBY) founder Masayoshi Son is currently sitting on one of the largest cash piles in the investing world. When SoftBank's shares lost nearly half their value in two weeks this spring, Son and his senior team held daily calls with executives at Elliott Management Corp. Son reversed the company's fortunes by buying back shares and selling off holdings that have been central to his investment and operating strategy. Softbank relinquished majority control over its last major operating businesses, sealing SoftBank's transformation into an investment firm. Among Elliott executives counseling the Japanese firm was Gordon Singer, whose team pressed Son to improve corporate governance and buy back shares. SoftBank's stock has long traded for less than the sum of its parts because investors are wary about Son's unorthodox investment style. Elliott had avoided getting involved on fears that Son, who owns more than 30% of the stock, would not be receptive, but the fallout of the WeWork scandal created an opening for a soft approach. Instead of launching a public campaign for change at Softbank, Elliott decided to make an appeal based on logic and the math behind the stock's poor performance. In the end, SoftBank bought back more stock than Elliott had pressed for and sold enough assets to leave the company as much as $60 billion in available cash; it also took steps to improve its corporate governance, as Elliott had recommended. Some inside Elliott are wary that Son could spend the cash on risky investments, as he has done before.
As investing according to environmental, social, and corporate governance (ESG) principles continues to expand, most empirical ESG analyses have resorted to ESG scores constructed by professional data providers. In a new paper, the authors document widespread changes to the historical ESG scores of Thomson Reuters Refinitiv ESG. They show that the rewriting of these scores has important implications for analyses linking ESG scores to outcome variables. Authors downloaded at different points in time two versions of the same Refinitiv ESG data for the same set of firm-years, an "initial" version in September 2018 and a "rewritten" version in September 2020. After inspecting the two downloads, authors observed that the ESG scores for identical firm-years differed significantly between the two data versions. Thirteen percent of the sample observations were subject to a score "upgrade," that is, the rewritten ESG score was higher than the initial ESG score, while 87% of the observations were subject to a score downgrade. As authors do not have access to Refinitiv ESG's methodology to understand and verify these changes, they use statistical methods to infer the role of different economic variables in explaining the score deviations. They demonstrate that the ex-post score changes are systematic and partially driven by reassessments of industry- and country-level drivers of ESG performance. Overall, they show that large parts of the score deviations originate from ex-post reassessments of the ESG performance of specific firms in specific years. Moreover, when classifying firms based on the initial environmental and social (E&S) scores, authors find no evidence that high-E&S firms performed better during the Covid-19 pandemic. However, if they run regressions using a classification of firms based on the rewritten data, they now find strong evidence that high-E&S firms exhibited better performance during the pandemic.
To date, eight shareholder lawsuits have been filed regarding board diversity, most of them targeting public technology companies headquartered in California. The suits accuse directors of misrepresenting company commitment to diversity in proxy statements to avoid market scrutiny and mislead shareholders. The suits also allege that the directors have breached their fiduciary duties by making false assertions about the company's commitment to diversity and failing to act in the company's best interest and attaining diverse leadership. All of the complaints analyze references to "diversity," "inclusion," or similar terms used in proxy statements filed since 2017 and compare those statements with recent board composition. They argue that diverse companies are more profitable and thus enhance shareholder value to underscore that diversity is in the company's best interest. The complaints challenge corporate governance practices that allegedly entrench incumbent directors and allege that the companies are failing to live by their own diversity initiative policies. The remedies sought combine both damages and corporate governance therapeutics, including the replacement of existing directors with new, diverse directors and the creation of programs to ensure fair and equitable hiring. These plaintiffs demand large investments to promote minority hiring or social justice programs in the Black community. It is likely that more suits of this type will be brought.