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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.
German solar and wind project developer Energiekontor is ignoring its biggest strategic weaknesses, according to a letter from shareholder ENKRAFT. The July 6 letter criticizing Energiekontor management comes more than a month after ENKRAFT revealed that it holds a stake of less than 3% in the company. ENKRAFT said the interests of the two co-founders of Energiekontor are not aligned with those of minority investors. The co-founders have more than a 51% stake in Energiekontor, which effectively gives them control of the company. They sit on the company's three-member supervisory board, which ENKRAFT previously criticized. “We will make these weaknesses transparent regularly in the future and take any measures to ensure rights of minority shareholders are being protected, including legal steps where necessary,” Benedikt Kormaier, managing director at ENKRAFT, said in the letter. Energiekontor responded to the letter by saying the vast majority of its shareholders support its corporate strategy.
Crown Castle International (CCI) has issued a press release that highlights its returns over the past five years. The press release follows the release of a letter to Crown Castle's board of directors by Elliott Management that questioned the company's strategic focus and value. Elliott manages funds that collectively own a $1 billion interest in the communications infrastructure giant. Crown Castle said it is confident in its ability to generate value for shareholders, including by growing its dividend by 7%-8% per year. The company said it distributed $1.9 billion of cash to common shareholders through dividends last year and more than $9 billion since initiating a common stock dividend in 2014. Crown Castle also said board members and management have met with Elliott multiple times to discuss its strategic plan. "While we firmly believe our strategy best positions Crown Castle to deliver near- and long-term value creation, we remain open to having continuing dialogue with Elliott, as we do with all shareholders," said the company.
The Pershing Square Foundation has awarded $3 million to nineteen recipients at 10 academic research institutions conducting research related to the SARS-CoV-2 virus. As scientists across various disciplines around the world have risen to the challenge of combatting SARS-CoV-2, the foundation worked with its network of talented cancer research scientists and physician-scientists involved in the Pershing Square Sohn Cancer Research Alliance (PSSCRA) to create a funding opportunity for SARS-CoV-2 research. The foundation's PSSCRA initiative annually awards a cancer research prize that provides funding and emboldens early-career investigators to pursue research projects at a stage when traditional funding is lacking. "The foundation remains committed to supporting cancer research and we are proud of the PSSCRA community that we have built over the last seven years," said foundation trustee Bill Ackman. "Amid this global health crisis, we felt that we had an opportunity to quickly leverage the expertise of this exceptional scientific community to identify areas in which we could rapidly deploy funds to scientists researching SARS-CoV-2 in a way similar to our approach to funding cancer research." By tapping the PSSCRA community for this project, the foundation sought to foster synergy among experts across cancer research, immunotherapy/immunology, genetics, and epigenetics to shed new light on SARS-CoV-2 research, expand basic scientific knowledge, and strengthen the arsenal for current and future health crises. Proposals were evaluated for innovation, scientific excellence, and application to the SARS-CoV-2 virus.
The global health crisis has made companies more vulnerable to external pressure, according to bankers. The coronavirus pandemic has exposed flaws in their business models and depressed their share prices, they say. As a result, bankers are encouraging their corporate clients to prepare for an onslaught of engagement by shareholders. Companies faced a "tremendous" amount of investor engagement following the 2008 financial crisis, says Darren Novak, head of engagement defense at UBS (UBS). Shareholders are waiting for second quarter results to see which companies are vulnerable, he says. "It will be more difficult for companies to defend themselves," says David Hunker, head of shareholder activism defense at JPMorgan (JPM). Private discussions taking place between companies and shareholders are likely to go public in the coming months, adds Pamela Codo-Lotti, head of cross-markets activism and shareholder advisory at Goldman Sachs (GS). In the first six months of the year, 522 companies faced public campaigns, which makes this the quietest start to a year since 2015, according to Activist Insight.
The U.K. unit of Elliott Management is looking into buying U.K. restaurant company Casual Dining Group. However, Elliott Advisors has yet to make a formal bid for the struggling company, which recently filed for administration. Elliott has been focusing on acquiring distressed assets during the global health crisis. The hedge fund owns stakes in U.K. bookstore chain Waterstones and the French drinks company Pernod Ricard (PDRDY). Casual Dining Group says it has received multiple offers for its restaurant business. All of the interested parties "envisage a reduced restaurant estate," according to Casual Dining Group, which owns the Bella Italia and Café Rouge brands. Private equity firms, including turnaround specialists Endless and Aurelius Group, are considering buying parts of Casual Dining Group.
Swiss bank UBS (UBS) has launched a new data tool to help clients prepare for potential shareholder campaigns. UBS' new Global Utility for Activism Risk and Defence (GUARD) aims to quantify the risk of a company being engaged by an activist by looking at 220 million data points and analyzing more than 5,000 historical activism campaigns. While activist investors largely stepped back in the early days of the Covid-19 pandemic so as to give executives breathing space, $3.3 billion of activist capital was deployed in May, marking a 159% increase on March. Darren Novak, head of activist defense at UBS, said that Covid-19 is likely to exacerbate the problems of companies and provide an opportunity for activist investors in the second half of this year. His comments echo those of JPMorgan (JPM) co-head of M&A Dirk Albersmeier, who said that there had been a "huge swing back to activism in the past two weeks," which was likely to be a big driver of M&A. UBS follows a number of its competitors, including Goldman Sachs (GS), JPMorgan, and Citigroup (C), in launching sophisticated technology tools that can help streamline deal-making and help clients assess the risk of an activist threat.
Japanese companies have implemented changes for their annual shareholder meetings that could benefit foreign shareholders. For the first time this year, companies allowed shareholders to watch annual meetings online, and a few even enabled them to ask questions and vote on resolutions. Foreign shareholders previously had to fly to Tokyo to participate in annual meetings. Still, some investors said the lack of give-and-take needed to challenge management was a downside for virtual meetings. Mitsubishi Motors (MMTOF), which recorded a loss for the fiscal year and suspended its dividend, completed its shareholder meeting in less than 31 minutes, compared with hours in past years. Seth Fischer, founder and chief investment officer of Oasis Management, said it is important for companies to open up their annual meetings. "We strongly encourage all Japanese companies to take steps to prepare for holding hybrid-type or virtual AGMs next year," said Fischer, whose fund invests in Japanese stocks.
Elliott Management is pressing Crown Castle International (CCI) over its dismal returns on its investment in its fiber-cable business. Crown's fiber strategy “has not been effective and has significantly detracted from shareholder returns,” Elliott said in a letter that it recently sent to the company's board. Elliott, which has an economic interest of $1 billion in Crown, has been speaking privately with its executives for more than a month. Elliott on Monday publicly released the letter, which says close industry peers have outperformed Crown for more than a decade. Although Elliott doesn't believe Crown should own its fiber assets, the hedge fund believes a sale or a spin off of the business would be disruptive or cost more than the value created by a transaction. Instead, Elliott wants Crown to change how it manages the fiber business and address its long-tenured board to improve oversight of company strategy.
German firm Scout24 (SCCTY) sold its AutoScout24 business for €2.8 billion under pressure from Elliott Management, which argued that Scout24 could command a €5.5 billion standalone valuation. Since the sale was announced in December 2019, Scout24's share price has increased by 21%, and the firm now commands a €7.7 billion market cap. The sale is likely to be a catalyst for the business, allowing Scout24 to strengthen its balance sheet, avoid a downturn in the auto sector, and concentrate on its more profitable ImmunoScout24 business. ImmoScout24 also saw the negative impact of the pandemic in the quarter, though the reopening in Germany and Austria in June might have allowed the business to see some recovery. Scout24 should see accelerated growth in ImmoScout24's Residential Real Estate business post-reopening in Austria and Germany.
A 1.8% gain by Dan Loeb's multistrategy fund in June enabled it to return between 10% and 11% for the second quarter, according to the latest monthly report for the Third Point Offshore Fund. However, the fund is still down 7.3% for the year through June, compared to a 3.1% decline for the Standard & Poor's 500 stock index. The fund's equity book remains solidly negative, but the engagement portion of the equity book performed fairly well last month. The bulk of the losses involved the fundamental and event-driven strategy, and were mostly on the short side. Third Point's exposure to equities rose to nearly 66%, up from 57.5% the previous month. The hedge fund's five biggest winners so far this year are long positions in Amazon.com (AMZN), Danaher (DHR), Baxter International (BAX), Adobe Systems (ADBE), and an undisclosed short position. The largest positions are Prudential (PRU), equities and credit positions in Pacific Gas & Electric (PCG), Amazon.com, Danaher, and Sony (SNE).
Two sources said SoftBank Group (SFTBY) has no intention of boosting board oversight of its $100 billion Vision Fund, opposing calls from Elliott Management and indicating governance reforms have fallen short. Softbank CEO Masayoshi Son has in recent months complied with other Elliott demands, among them launching a 2.5 trillion yen ($23 billion) buyback and boosting the number of outside directors, including the board's only woman. But board composition at Vision Fund remains largely unchanged despite a calamitous loss stemming from wagers on startups like WeWork. Elliott asked SoftBank to set up a board-level subcommittee to oversee and aid the Vision Fund's investment process. One source said Softbank executives rejected the idea, arguing instead for investments already vetted by top management and $3-$5 billion deals to the large limited partners. Vision Fund's poor performance scuttled plans to raise a further mega fund from investors including the first fund's anchor supporters, the sovereign wealth funds of Saudi Arabia and Abu Dhabi. Following the WeWork fiasco, Son vowed to improve oversight of portfolio firms and terminate bailouts of struggling companies. Recent group-level governance revisions at Softbank include the establishment of a nominating and remuneration committee chaired by an outside director. A key role for nominating panels is succession planning, and 62-year-old Son announced in June that he may continue leading SoftBank beyond his sixties.
Swiss hedge fund Teleios Capital Partners has boosted its stake in the Dublin-listed house-builder Glenveagh Properties to nearly 9.3% from 6%. Teleios in March breached the notification trigger of 3% of the equity, and is taking advantage of ongoing weakness in the Glenveagh share price. Teleios Capital also recently increased its stake in Pendragon, a U.K.-listed motor retailer, to over 19%. Teleios also boosted its stake in Maisons du Monde, a French furniture and homewares retailer, to over 20%.
Cerberus Capital Management is advocating an "orderly process" to replace the chairman and chief executive officer of Commerzbank AG (CRZBY), who were both ousted from the company. Cerberus suggested that a new chairman to replace Stefan Schmittmann should be selected first, followed by a formal process to locate a successor for CEO Martin Zielke, according to a statement issued late July 5. Zielke tendered his resignation to the supervisory board on July 3 as he took responsibility for a decline in the lender's share price, which has dropped by approximately half during his four-year tenure. Schmittmann said he would leave in August. The exits followed a campaign by Cerberus in which it had called for board seats; and private expressions of dissatisfaction by the German government, the bank's largest shareholder. We "are surprised by this development, as we had expected current management to continue and to become more aggressive on cost takeout," stated Citigroup Inc. analysts led by Nicholas Herman in a note on July 6. "We struggle to identify a long list of internal candidates." Roland Boekhout, the bank's head of corporate clients, is seen as the internal favorite to replace Zielke, sources said. The bank is also vetting finance chief Bettina Orlopp, the sources said. Board member Nicholas Teller could take over from Schmittmann at least on a temporary basis, they said. Deputy Chairman Uwe Tschaege, who's a labor representative, will automatically take on the job if no one has been selected by the time Schmittmann departs. Commerzbank's supervisory board could choose replacements for the vacant roles as early as July 8, a source said, or could wait to source additional external candidates. "The sudden departure of Commerzbank's chairman and chief executive calls for an orderly process of filling the vacant positions. First, a new chairman has to be found, followed by a formal process to find a successor for the CEO, to be executed by the supervisory board," said a Cerberus representative in an email.
Commerzbank AG's (CRZBY) chief executive, Martin Zielke, and its chairman, Stefan Schmittmann, have submitted their resignations. The moves come as Germany's second-biggest lender faces increased pressure from shareholder Cerberus Capital Management for a major overhaul because of persistent poor performance. Cerberus has pressed for significant change with the supervisory board, the management board, and the company's strategic plan. It is also looking to name two new supervisory board members. "Even if we made strategic progress, the financial performance of the bank has been and is unsatisfactory," Zielke wrote in an official statement. "And as CEO, I bear the responsibility for that." Zielke's resignation will be formally submitted for approval by Commerzbank's board of directors on July 8. Schmittmann's resignation, meanwhile, will be effective Aug. 3.
At Toshiba (TOSYY), a clash with Singapore-based investor Effissimo represents the first test case of Japan's controversial new national security law on foreign investment. The conflict was triggered when Effissimo, which is Toshiba's largest shareholder with a 15% stake, submitted a proposal that would have put its founder and two other directors on Toshiba's board. Under Japan's newly revised Foreign Exchange and Foreign Trade Act (Fefta), Effissimo's proposal could draw government intervention if the move to shake up the board were considered a threat to Japan's national security. Toshiba was designated by the government in May as the highest category of national security-related business. Although the government has stressed that the Fefta regime is not designed to deter or constrain financial investors, foreign fund managers have expressed concerns that the law might be used to hobble activism. Yoshimitsu Kobayashi, Toshiba's chairman, said last month that the board had “no intention of clashing with our shareholders.” Toshiba is proposing to replace one non-executive director on its board, and the competing slates will be voted on at the group's annual meeting at the end of July. Toshiba has also previously said it has an “extremely progressive” and balanced board, with 10 out of 12 directors coming from outside the group.
Shareholders including Switzerland's Veraison and Spain's Cobas have said that Aryzta (ARZTY) must sell at least €600 million in assets in order to cut its debt to more manageable levels. Veraison and Cobas together own more than 20% of Aryzta's shares and claim that the bakery group has not even looked into the three board candidates they have proposed. The investors also want to oust Aryzta Chairman Gary McGann and four other board members. While the shareholders said they plan to remove Kevin Toland from the board, they would retain him as CEO. During a recent presentation, Veraison CEO Andreas Weigelt said he's "fully aligned" with what Toland said in late 2018—that the group's net debt-to-earnings ratio needs to be between 2.5 and three times. Weigelt said for the first half of this financial year, Aryzta's net debt totals €1.47 billion, giving it a net debt-to-earnings ratio of 7.3 times. The shareholders and their board candidates have insisted they won't undertake a fire sale of Aryzta assets.
A shareholder group comprised of Switzerland's Veraison and Spain's Cobas have boosted their stake in Cuisine de France owner Aryzta (ARZTY) from slightly less than 18% to more than 20%. The group also wants the Irish food company's board to call an extraordinary general meeting of shareholders so it can remove several directors, including Chairman Garry McGann. Cobas proposes replacing the board members with its own candidates and has called for CEO Kevin Toland to step down from the board to focus on his CEO role. In May, Aryzta announced a strategic review of operations and said it had appointed consultants to review the strategic and financial options available to the company to maximize its shareholder value.
Alden Global Capital co-founder Randall Smith has picked up another board seat at Tribune Publishing (TPCO). The hedge fund is the biggest shareholder in Tribune with a stake of nearly 32% in the newspaper company. Alden Global and Tribune have been negotiating a deal that would prevent the hedge fund from making a hostile bid to buy the rest of the publishing company. A settlement agreement that gave Alden two seats on the publisher's board of the Chicago Tribune and the Baltimore Sun expired at the end of June. The addition of Smith increases the size of the board to seven members. The new standstill agreement will last until Tribune's annual meeting in June 2021.
Bloomin' Brands (BLMN) and investor Jana Partners in April agreed that Bloomin' would increase its board size to 10 and add directors backed by Jana. John Gainor and Lawrence Jackson officially joined the board July 1. Gainor previously operated International Dairy Queen (a Berkshire Hathaway company), and also serves on the board at Jack in the Box (JACK) and Saia Inc. (SAIA). Jackson formerly was an executive with Walmart (WMT), Dollar General (DG), Safeway, and PepsiCo (PEP).
E.l.f. Beauty (ELF) has agreed to include a say-on-pay proposal vote at its 2020 annual meeting under a cooperation agreement with Marathon Partners Equity Management. Marathon Partners has approximately a 5.2% stake in e.l.f. The beauty company also agreed to cut to 2% from 4% the maximum automatic annual percentage increase of shares under its 2016 Equity Incentive Award Plan. Meanwhile, e.l.f. has named Lori Keith, portfolio manager of Parnassus Investment $5B Mid Cap Fund, as an independent director to its board. Marathon Partners had nominated three candidates to the board.
Donald Brydon, the former chair of the London Stock Exchange who was commissioned by the U.K. government to review the audit market last year, is pushing for a speedier overhaul of the sector in the wake of the Wirecard (WCAGY) scandal. EY, a Big Four accounting firm, had audited Wirecard since 2009 but failed to uncover €1.9 billion in fraud for several years. The company now faces investor lawsuits and a regulatory investigation. According to Brydon, "We must not wait until there is a market failure, there has to be a whole mindset change on what is the purpose of an audit. Another couple of big scandals and suddenly you have a global audit profession that is entirely in disarray because choices become more limited or there are knee-jerk reactions." EY could have uncovered the fraud but reportedly failed to conduct routine audit procedures to verify Wirecard's bank balances for at least three years. Wirecard recently filed for insolvency, and its CEO has been arrested and released on bail. "Given the focus on Wirecard, making it clear that auditors have an obligation to find fraud rather than stumble over it would be a smart move to change auditor behavior," said Brydon. His report on the U.K. audit profession was submitted to the Department for Business, Energy, and Industrial Strategy in December. In the report, he proposed that accounting standards are overhauled to include a requirement for auditors to "endeavor to detect material fraud in all reasonable ways" and that auditors should be taught forensic accounting methods and "fraud awareness." Brydon added, "It would be very apt at this time for the government to lay out its plans and timing for reforming audit. There are many in the accounting profession who genuinely want reform, but there are also others who are in denial and want to put the blame somewhere else."
Goldman Sachs (GS) started a new policy Wednesday, and will not assist a company with its initial public offering unless that company's board of directors has at least one diverse member. Starting in 2021, it will require at least two. "We might miss some business, but in the long run, this I think is the best advice for companies that want to drive premium returns for their shareholders over time," said Goldman CEO David Solomon in January, when first announcing the change. National Association of Corporate Directors CEO Peter Gleason, who works with companies to diversify their boardrooms, cautions that changing boards takes time. He states, "The fact of the matter is corporate boards don't turn over very frequently. So you've got a great supply of people and little demand." In calling for greater diversity on corporate boards, Goldman Sachs is referring to people from chronically underrepresented groups whether because of gender identity, sexual orientation, race, or ethnicity.
A Government Accountability Office (GAO) study said most environmental, social, and governance (ESG) disclosures from public companies offer little clarity or use for investors. GAO reported that it was difficult to compare climate or resource-related data when companies applied different calculation methods or reported results in different units of measurement in yearly disclosures, 10-K filings, proxy statements, and voluntary sustainability reports of 32 companies it reviewed. "Specifically, we found instances where companies defined terms differently or calculated similar information in different ways," the authors said. "We most frequently identified these inconsistencies in quantitative topics associated with climate change, personnel management, resource management, and workforce diversity." Board accountability and workforce diversity were addressed most often, and human rights least frequently. Shareholders complained about difficulties in understanding and interpreting both quantitative and narrative ESG disclosures. The authors observed that ESG has become of paramount concern for institutional investors, with 12 of 14 surveyed investors saying they seek information on these issues to better understand risks that could impact company financial performance over time. The investors also monitor ESG disclosures to inform their vote at shareholder meetings or decide on stock purchases. A GAO review of a sample of companies from the S&P 1500 found an estimated 10% received one or more shareholder proposals last year, and about 5% received one or more shareholder proposals related to increasing ESG disclosures. Yet all of the private asset management firms and representatives from three of seven polled pension funds told GAO that they do not use shareholder proposals to influence companies' ESG disclosures. The authors said although some have supported making comparable ESG disclosures mandatory, voluntary disclosures allow firms to reveal only ESG data that is relevant for their specific businesses, lowering costs for them. None of the 18 companies the GAO investigators queried said their businesses had quantified the costs of ESG disclosures. Securities and Exchange Commission Chairman Jay Clayton said his agency's approach to categorizing ESG disclosures as general "materiality" content has served investors and capital markets well for decades, and should continue to do so.
Bill Ackman's Pershing Square Tontine Holdings Ltd., a special purpose acquisition company (SPAC), is set to go public later this week and likely exceed its $3 billion target because of massive investor demand. This marks the largest initial public offering of 2020 and the biggest SPAC ever, but it is also noteworthy because Ackman decided to give seven very small, veteran-, women-, and minority-owned investment banks meaningful roles in the underwriting and distribution of the stock being sold. He is hoping that by sharing the economics of the deal with these less-powerful firms, he will provide them the capital and profits they need to compete more effectively with Wall Street giants. Ackman still chose giant firms Citigroup (C), Jeffries, and UBS (UBS) as the lead underwriters of the SPAC, but the smaller firms will get to share $18 million in fees. Ray McGuire, a vice chairman at Citigroup, said June 23 that the SPAC deal is extraordinary because, in addition to its structure, “[Ackman] had the courage and conviction to include minority firms as co-managers with 20% of the fees. Other issuers have allocated 20 basis points to each firm, which is 'feel-good, check-the-box' but is certainly not material.” Ackman also decided that two of the four independent directors of Tontine should be women. If all goes according to Ackman's plan, he will soon have a huge new unrestricted pool of some $5 billion in equity capital, or more, to make a huge acquisition, plus the publicly traded stock of the SPAC to use as acquisition currency. “We intend to pursue merger opportunities with private, large capitalization, high-quality, growth companies where our ownership in the merged company would generally represent a minority of shares outstanding at the time of the merger,” Ackman wrote in the prospectus.
Third Point Management is bullish on Sony Corp. (SNE) stock, which is up 0.1% since Third Point's pitch in January 2020. In its Q4 2019 investor letter, Third Point said that Sony stock can provide massive upside ahead. Third Point said it invested in Sony when shares traded down because of the company's strong semiconductor business and capable management team. Sony's semiconductor business has grown from 15% of profits to 25%, and analysts expect semis to be a core driver of Sony's growth going forward. "While business performance has been stellar, we believe true value maximization at Sony is only beginning," Third Point wrote. "Out of Sony's four major non-core publicly listed stakes, the company has divested only one of its smallest, Olympus (OCPNF)."
Dutch pension managers APG and PGGM, along with AustralianSuper and the British Columbia Investment Management Corp. (BCI), launched the Sustainable Development Investments Asset Owner Platform (SDI AOP) on July 6. The global platform aims to provide data for investors to assess companies based on their adherence to the United Nations' (UN) Sustainable Development Goals. According to Jennifer Coulson, vice president for environmental, social, and governance (ESG) at BCI, "Any investor will be able to subscribe to the platform and it will allow them to very easily identify to what extent a company's business is aligned with the Sustainable Development Goals." She noted that the Dutch funds invited BCI to join the project. "The Dutch had been working on it, but it was really important that this be a global platform and have global appeal," Coulson said. "We didn't want this to be only applicable to Europeans; we wanted this to be something that all asset owners and all asset managers can adopt so that company data is easily compared." The platform had sustainability classifications for 8,000 companies at the time of its launch. These classifications were generated using APG's data science company Entis. Coulson noted that "the platform really utilized [artificial intelligence] tech to do this at scale." She stressed that the SDI AOP is "very specific" to the UN's sustainability goals and is "not just a broad ESG framework." Beginning this fall, the platform will be made commercially available to other asset owners and managers, distributed through analytics firm Qontigo.
Bill Ackman's Pershing Square Holdings just reported its best quarterly performance since it went public in 2014, rising 1.1% even as markets floundered in June. The fund rose 28.9% this year and 24.9% during the second quarter as Ackman wound down $2.6 billion in credit default swaps, enabling him to buy more shares just as the market was starting to return. Most of Ackman's holdings have begun to recover, and he sold out those that didn't, but his bullish call may yet sour as markets have turned volatile again, hitting some of his holdings. Hilton Worldwide Holdings (HLT) fell more than 7% for the month and is down 34% for the year, while Restaurant Brands International (QSR) was flat in June and is down 14% for the year. Another holding, Starbucks (SBUX), fell about 5.6% last month, but it is up almost 12% over the past three months. The worst performer is likely Howard Hughes (HHC), which is down about 59% for the year through June. Others fared better, such as Lowe's Cos. (LOW), whose stock was up 3.6% in June and 12.8% for the year, and Chipotle Mexican Grill (CMG), which is up 5% for the month and up 25.7% for the year. Last month, Ackman filed plans for a listed special purpose acquisition corporation called Pershing Square Tontine Holding, which plans to raise $3 billion, with another $1 billion from Pershing Square. At the end of June Pershing Square Capital, with $10.3 billion, was almost fully invested, meaning Ackman will be raising fresh capital for the new venture.
Olympus' (OCPNF) decision to spin off its imaging unit and sell it to a private equity firm could lead to similar moves by other makers of digital cameras. Two investors from ValueAct Capital joined Olympus' board as non-executive directors last year. Olympus then embarked on a medium-term business plan that seeks an operating profit margin of 20% or more by fiscal 2023. As a result, the company's withdrawal from the money-losing imaging business was no surprise. Other digital camera makers, including Nikon (NINOF), Ricoh (RICOY), Panasonic (PCRFF), and Canon (CAJ), also are struggling. Ricoh itself is exposed to activist investors. Ricoh already has narrowed and consolidated its operations, including through the sale of shares of Ricoh Leasing. Panasonic will need to shore up its operations.
The accounting scandal at Wirecard (WCAGY) has led to a national reckoning for the investor community in Germany. More than 30,000 shareholders have asked to join TILP Rechtsanwaltsgesellschaft's lawsuit against Wirecard. That is a record number of shareholders for a class action lawsuit, estimates Marc Schiefer, an attorney at the German law firm. TILP also plans to expand its legal claim to include current and former Wirecard board members, including former CEO Markus Braun, and the company's auditor, Ernst & Young. Although short sellers and investigative journalists at the Financial Times had been sounding the alarm about the company's finances, German retail investor Fabian Schmidt says he put his faith in Wirecard because of a vote of confidence in the company from BaFin, Germany's Federal Financial Supervisory Authority. Schmidt says BaFin should have looked closer into the allegations of financial wrongdoing. "It's their job," he says. "This is what makes me so angry."
Securities and Exchange Commission (SEC) Chairman Jay Clayton could vacate his position to become the U.S. attorney for the Southern District of New York, sparking concerns about the fate of his rulemaking agenda. However, Clayton has confirmed that a rule to enhance oversight of proxy advisory firms will be issued in the next three months. The rule is the product of years of study, public input, and stakeholder feedback, with the SEC first broaching the issue of proxy advisory firms having too much power over their clients' actions back in 2010. Ike Brannon, a former senior economist for the Treasury and Congress, says it makes little sense to suggest that the SEC pause its work just as it is about to conclude. "Given the lengthy and deliberate rulemaking process and the SEC's responsiveness to public feedback, it is hard to credibly suggest that this effort has been driven by the short-run machinations of a political appointee," he says. "Instead, this rule is an outcome of a process that began a decade ago, was done entirely in the public realm, received input from stakeholders on both sides, and will reach a final outcome that will give neither side what they were seeking. In short, this is precisely how the regulatory process should operate, and the ultimate result comports perfectly with the SEC's explicit mission to facilitate capital formation and protect investors."
Expectations of significant consolidation activity among Canadian-listed issuers should be tempered, according to an analysis of merger and acquisition activity from 2012 to the end of 2019 by Davies Ward Phillips & Vineberg. Hostile bids declined by 50% after May 9, 2016, the date that Canadian securities regulators implemented fundamental changes to takeover bid rules. Financial buyers left the field entirely after the new rules were adopted, while a strategic purchaser was behind every hostile bid under the new regime. The number of friendly acquisitions of Canadian-listed issuers declined by 24% over the same four-year period, and the number of friendly acquisitions by strategic purchasers declined 30%. Since 2016, the average premium for a first-mover hostile bid increased by more than 30%, and bidders had better odds of success than in the prior period. For friendly acquisitions of control of Canadian-listed issuers, the average premium has declined by approximately 16%. Canadian M&A activity since 2016 has run counter to the global trend of increasing volumes, but recent turbulence in the nation's mining and energy sectors could equally explain the decline.