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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.
Crystal Amber (CRS), a major shareholder in Hurricane Energy (HRCXF), announced intentions to take "appropriate action" to maximize the company's potential after saying its relationship with the oil firm suffered a "dramatic deterioration" over the last six months. Crystal Amber owns a more than 11% stake in Hurricane, and has charged the company's board with being "both indecisive and obstructive." The fund alleged that Hurricane's "messaging to market participants" had been "inadequate, confusing, and poor." Hurricane countered that it had "engaged consistently" with Crystal Amber over the last six months. Crystal Amber cited its exclusion from Hurricane's ongoing stakeholder engagement process regarding its strategy, financing, and balance sheet recapitalization. The investor said it asked why the company was "not keen" to develop the Lincoln Crestal well, despite having been tested at a "sustained commercial rate." Hurricane has to date supplied no explanation, or responded to a request to nominate a director to its board. Crystal Amber also suggested in October that Hurricane should buy in some of its loan notes at below 50% of par value, noting the company's chairman had previously described such purchases as a "commercial no brainer." Yet Hurricane had not provided an update on bond purchases or capital allocation. The fund further said Hurricane had not clarified whether bondholder consent would be necessary before it could enter into financial commitments for future workstreams. Hurricane has to repay or refinance a £180 million convertible bond in 2022, and Crystal Amber reported that "the seven board members of Hurricane own shares with a total value of £60,000. We are no longer prepared to be excluded from participating in the evaluation of impending critical decisions by those who have virtually no skin in the game. We always prefer to engage privately and constructively with our investee companies." Antony Maris took over as full time CEO of Hurricane in September, the same day the company announced a huge downsizing of its resources base west of Shetland, which caused shares to plunge. Hurricane was banking on increasing production from its Lancaster field by drilling a sidetrack on an existing well this year, but on Tuesday said drilling the well this summer carried "unacceptable operational and cost risk."
Xerox Holdings Corp. (XRX) has announced the addition of Nichelle Maynard-Elliott and Margarita Paláu-Hernández to the slate of nominees to be elected to its board of directors at its annual shareholders meeting on May 20, 2021. The additions will bring the total number of directors to nine. Maynard-Elliott spent more than 25 years as a corporate dealmaker, sourcing, structuring, and executing acquisitions, joint ventures, and strategic partnerships. Margarita Paláu-Hernández is a pioneer in several fields including Spanish media, business, and real estate, having founded and managed multiple domestic and international companies. From 2018 to 2019, Paláu-Hernández served as U.S. Representative to the United Nations General Assembly, with the personal rank of Ambassador. Xerox also announced that, pursuant to its Nomination and Standstill Agreement with Carl C. Icahn and certain of his affiliates, James L. Nelson, chief executive officer of Global Net Lease Inc. (GNL), and Steven D. Miller, portfolio manager of Icahn Capital LP, will replace Jonathan Christodoro and Nicholas Graziano, respectively, on the slate of nominees to be elected to its board of directors at its annual shareholders meeting on May 20.
Sources say large financial buyers are looking at the potential opportunity to carve-out Bausch + Lomb. Parent company Bausch Health, the healthcare and pharmaceutical products giant formerly known as Valeant Pharmaceuticals, publicly announced in August its plans to spin off the eye-health subsidiary into a separate publicly traded company. An outright sale versus a spinoff would present an opportunity to generate a lot more cash needed to de-lever, sources said, since Bausch, as of year-end, was sitting on more than $24 billion of total debt. The company then known as Valeant acquired Bausch + Lomb in August 2013 for $8.7 billion. The sale process comes as Bausch Health faces mounting pressure from shareholders to unload the unit. Bausch Health last week awarded Icahn Capital two independent board seats after the investor recently disclosed a 7.8% stake in the company. The new board members, Brett Icahn and Steven Miller, will be appointed to two board committees: finance and transactions and the committee assisting with evaluating strategic alternatives. Glenview Capital Management, which owns a 6% stake in Bausch Health, sent a letter to the company in February calling for the “equitizing and spinoff of Bausch Global Eyecare in an optimal fashion.” Glenview said that “communications regarding the timeline, capital structure, and conditions necessary to move forward with the spin have been cryptic at best.” Glenview among other things recommended Bausch Health raise capital by selling a stake in the eyecare subsidiary at fair value.
Refiner Delek US Holdings Inc. (DELKY) on Wednesday rejected CVR Energy Inc.’s (CVR) nominees to its board, days after the Carl Icahn-backed company questioned the compensation of Delek’s chief executive. Delek said it was apparent from its interviews with each nominee that "they each maintain personal relationships" with CVR's CEO David Lamp, which raises serious concerns regarding their independence and commitment to acting in the interests of Delek shareholders. CVR, which owns about 15% of Delek, had questioned the compensation of Delek CEO Uzi Yemin after it said it was not interested in buying the refiner and sought to replace three Delek directors. CVR had urged Delek to cease refining operations at the Krotz Springs and El Dorado refineries in the U.S. Delek stated that the refinery supplies light products into markets where CVR is a direct competitor and its closure would create a competitive advantage to CVR.
ValueAct has built a stake of 5.2% in German advertiser Stroeer following negative publicity around stock loans taken out by the company’s top investor. Shares in Stroeer shed 10% on Feb. 22 after Manager magazine reported that CEO Udo Mueller and supervisory board member Dirk Stroeer had pledged a large number of shares as security against loans. Mueller, who is the company’s top investor, said subsequently that he saw no risks associated with the share pledge. The loan was a minor position in relation to his total assets and he had used it as bridge financing to buy real estate worth 50 million euros, Mueller told analysts on Feb. 24.
On March 3, British insurer Prudential (PUK) said it plans to split off its U.S. business in the second quarter. The announcement comes amid pressure from Third Point to split the business in two. Prudential said it is making "good progress" with plans announced in January to separate U.S. unit Jackson through a demerger and raise up to $3 billion in new equity. The company said its preferred option for the capital increase is a global offering to institutional investors and a public share sale to Hong Kong retail investors. In 2019, Prudential hived off its U.K. insurer and asset manager M&G. "These two transactions constitute the largest structural change in Pru's 172-year history," said CEO Mike Wells on a media call.
Exxon (XOM) CEO Darren Woods and his management team are facing an investor campaign seeking a board-level upheaval and strategic redirection of the company. Exxon's shares are up almost 40% since the start of this year, but shareholders remain restless. The campaign launched in December by Engine No. 1 is tapping a deep well of investor disenchantment. Resentment at Exxon's perceived offhand treatment of shareholders and hostility to change, coupled with the impression that it is not taking climate change risks as seriously as investors do, is breeding discontent. Engine has nominated four new directors to Exxon's board and called for more capital discipline, an overhaul of management compensation, and a new strategy for a transition to cleaner energy. It says Exxon must also adopt “a path to net-zero total emissions by 2050.” The fund's selection of people with substantial energy experience could prove significant. Exxon moved this week to appoint three new directors of its own, including Jeff Ubben. This was enough to satisfy DE Shaw, which will now vote for the company's slate of directors at May's annual meeting, according to people familiar with its thinking. The company has made other changes sought by shareholders, reporting since January so-called Scope 3 emissions from the products it sells. Even so, Bess Joffe, head of responsible investment at the Church Commissioners for England, dismissed the company's recent moves as “whack-a-mole” offers to activists. Woods continues to rule out a net-zero target, and Exxon does not plan to follow BP and other oil operators into clean electricity. This approach and the recent board changes have not reassured other skeptical investors, including the California State Teachers' Retirement System, an important backer of Engine No. 1's campaign.
Danone (DANOY) CEO and Chairman Emmanuel Faber is facing more pressure after the French food company said he would remain chairman and oversee its search for a new chief executive. Artisan Partners wants Danone to appoint another independent chairman instead of Faber. The U.S. company has a stake of around 3% in Danone. "With Mr. Faber as chairman, the incoming CEO will not have the appropriate latitude to set a new direction," Artisan wrote in a letter to Danone's board of management. Bluebell has also called on Danone to appoint a new, independent chairman. Investors are displeased with Danone's sales growth, margins, and share price under Faber.
Starboard Value LP has taken a stake in Elanco Animal Health Inc. (ELAN) and nominated three directors to the company's board. Elanco, which has a market value of nearly $15 billion, makes vaccines and treatments for pets and livestock. The exact size of the investor's stake—and what it plans to advocate at Elanco—was unknown at press time. Elanco was engaged in 2020 by Sachem Head Capital Management, which owns a roughly 5.9% interest. Sachem founder Scott Ferguson now sits on Elanco's 13-member board, having gained the seat as part of a settlement that also added another director and expanded one board committee's mandate to include improving margins.
Kohl’s Corp. (KSS) has given an upbeat sales outlook and announced plans to reinstate its dividend, bolstering management and its strategy amid pressure from a group of investors. The retailer says 2021 net sales will grow by a percentage in the mid-teens, while investors can expect the return of a dividend and share buybacks. The results show signs that Kohl’s new strategy is gaining traction. The retailer is focusing on categories like sportswear, outdoor apparel, and beauty and has teamed up with Sephora for in-store shops, which it says will help drive store traffic. Its partnership to accept returns from Amazon.com Inc. (AMZN) customers is already increasing foot traffic and bringing in younger shoppers, according to CEO Michelle Gass. A group of investors including Macellum Advisors GP LLC and Ancora Holdings Inc. have said a more comprehensive overhaul is needed. They are seeking nine board seats and have said the company should cut back its inventory and stop offering “promotional gimmicks.” In an interview on Tuesday, Gass reiterated that she and the board are “open to all ideas that can help us create shareholder value” but don't support adding nine directors to the board. Kohl's reported in early February preliminary fourth-quarter results showed an 11% decline in same-store sales and 10% drop in total revenue. The company expects sales to rebound in the second half of 2021, echoing the view of other retailers. As the vaccine rollout continues to expand, there are expectations that consumers will spend more freely in areas that they've neglected during the long period of social distancing.
Cevian Capital will start pressing companies on pegging executive pay levels to sustainability targets. Companies that Cevian invests in are not living up to their environmental, social, and governance (ESG) promises, says the investor. “Only a tiny share of companies meaningfully incorporate ESG targets into their incentive plans. That makes no sense,” Christer Gardell, managing partner of Cevian, said in a statement. He cited ABB, CRH, and Ericsson as companies that are not where they should be on executive pay and ESG. Cevian wants to put the matter to a shareholder vote at annual general meetings of its portfolio companies next year. The investor plans to hold companies accountable by votes on director elections and compensation plans, and putting forward shareholder motions if needed. The move is a response to "box checking" by companies.
A first-of-its-kind study from the University of Illinois at Urbana-Champaign (U of I), commissioned by the state, indicates significant underrepresentation of Black and Latino directors among Illinois' largest publicly held companies. Analysis of 74 publicly traded firms found that 35% have two or more people of color on their boards, and 67% have two or more female directors. Boards range from four to 23 directors. While companies have no obligation to meet specific diversity targets, a state law says boardrooms should be representative of Illinois' populace. The U of I researchers compared the demographic information companies provided with population data from the 2019 U.S. Census, determining that boards on average had lower representation of Asians, Blacks, and Latinos than the state's overall population. Approximately 40% of the Illinois population is comprised of people of color, which accounted for only about 15% of board members at the average company. Nineteen companies reported lacking any board members of color. Analysts also employed census data to measure the diversity of boards against workforce demographics in their respective sectors. "Companies, when they consider appointing people or electing people to the board of directors, they consider industry experience as an important condition. So that might be a useful benchmark," said U of I School of Labor and Employment Relations Professor Richard Benton. The researchers investigated companies with two or more women or people of color on their boards because prior studies have used that number as a benchmark. Benton said sole members of a particular demographic group can often be described as "tokens." He added that "very long-standing research dating back to the 1970s suggests that a lone women or minority in a work setting may not have equal opportunities to participate in discussions and may feel the increased pressure of being a sole representative of their group." A lack of Black, Asian, and Latino directors was noticeable among the companies that supplied sufficient data. Roughly 53% of firms disclosed having no Black board members, 70% had no Asian directors, and 83% had no Latino directors. Stanford Graduate School of Business Professor David Larcker explained that Illinois needs to investigate middle managers and how companies promote and help advance workers within the firm.
Institutional Shareholder Services (ISS) has recommended that Toshiba Corp. (TOSYY) shareholders vote in favor of a proposed independent investigation into allegations that investors were pressured ahead of last year’s annual meeting. The recommendation has the potential to tip the balance of power towards Effissimo Capital Management and other shareholders in their conflict with CEO Nobuaki Kurumatani and management of the industrial conglomerate. The vote will take place at a shareholders’ meeting on March 18 and activist investors are estimated to hold about 25% of Toshiba’s shares. Effissimo, which is Toshiba’s biggest investor with a 9.9% stake, made the proposal after investor complaints about the last AGM. Reuters has reported the Harvard University endowment fund had been told by a Japanese government adviser that it could be subject to a regulatory probe if it voted against management. As a result, the fund abstained from voting and later learned there was no basis for any probe. Toshiba has conducted its own investigation into the matter and found it was not involved in any effort to pressure the Harvard fund. Effissimo has also asked that allegations of miscounting of votes at the AGM be further looked into. In a report seen by Reuters, ISS called that probe “one-sided” and said it was difficult to escape the impression that Toshiba conducted a perfunctory investigation. At the last annual general meeting, Kurumatani kept his job with just 57% of the vote. In its report, ISS recommended against a different proposal from Farallon Capital Management, Toshiba’s second largest shareholder, which seeks to force the board to present a five-year capital policy plan or make certain returns to shareholders. It said the U.S. hedge fund’s proposal was “overly prescriptive, particularly given its five-year duration, to warrant support.”
TreeHouse Foods Inc. (THS) has announced an agreement with JANA Partners LLC, which owns approximately 7.4% of the outstanding shares of TreeHouse's common stock. According to the agreement, TreeHouse will appoint two new independent directors, John Gainor Jr. and Kenneth Tuchman, to its board of directors effective March 2. Gainor will join the director class that will stand for election in 2022, and Tuchman will join the director class that will stand for election in 2023. In connection with these appointments, the board will temporarily expand to 14 directors. Immediately following the TreeHouse 2021 Annual Meeting of Stockholders, it is anticipated that the board will consist of 11 directors. In connection with the appointment of these two new directors, TreeHouse Foods and JANA Partners have entered into a cooperation agreement, including customary standstill and voting commitments. Barry Rosenstein, managing partner of JANA Partners, commented, "We are encouraged by the steps the Company has been taking, including these director additions, and by the ongoing commitment to unlocking stockholder value."
Jeffrey Ubben has picked up a board seat at Exxon Mobil (XOM). The oil and gas giant also says Atairos Group CEO Michael Angelakis will be a new director, adding that the moves are part of a continuing effort to refresh its board. Exxon also says the board additions reflect ongoing talks with shareholders. Investors have been pushing for Exxon to improve its carbon footprint disclosure and better articulate its energy transition strategy. Engine No. 1, a fund founded by technology investor Chris James late last year, said it still will move forward with a planned proxy fight for four board seats. Exxon is also in talks with D.E. Shaw Group, which says it supports the board additions and the company's focus on tightening cost and capital spending. Ubben is considering investing $1 billion in a big oil company through his new investment vehicle Inclusive Capital Partners.
CVR Energy Inc. (CVI) has questioned the compensation of Delek U.S. Holdings (DK) CEO Uzi Yemin as it seeks to add three new directors to Delek's board, according to a letter submitted by CVR CEO David Lamp with the Securities and Exchange Commission. CVR is controlled by Carl Icahn. Lamp cited Yemin's 5% general partnership stake in Delek Logistics Partners (DKL) that Delek U.S. Holdings bought out last year for $21.4 million. "For reasons that are not readily apparent, Mr. Yemin was also given a highly lucrative ownership interest in Logistics, despite the obvious conflicts of interest that presented," Lamp wrote. Delek said it would reply to Lamp's letter in due course, noting that CVR's activism push "is not in the best interests of Delek shareholders." Lamp wrote that he wants access to more detailed documentation to determine if Yemin breached his fiduciary responsibility. CVR in January pressured Delek to sell off its convenience store locations and close its refineries in Krotz Springs, La., and El Dorado, Ark., as well as potentially convert them to terminals or for renewable diesel production. "CVR's previous letter demanded that Delek take a number of actions that would benefit CVR, to the detriment of Delek and its shareholders," Delek declared, adding that the company's strategy led to shareholder yields of more than 92% over the past five years, significantly higher than its peers. Delek Logistics Partners was established by Delek U.S. Holdings to own, manage, acquire, and build crude oil and refined products logistics and marketing assets, according to the corporate website.
French yogurt maker Danone SA (DANOY) has voted to separate the chairman and chief executive roles held by Emmanuel Faber and start searching for a new CEO. Faber will remain in the dual position until a new CEO is found and then become non-executive chairman. The world’s biggest yogurt maker is trying to draw a line under growing pressure from investors over the firm’s share price and strategy, which has led to unease at the board level too. Now in his seventh year as chief executive, Faber has pursued a strategy centered on diversifying into fast-growing products featuring probiotics, protein, and plant-based ingredients to mitigate slower growth in dairy. In recent months and with speculation around an incursion by activist investors growing, Faber announced a plan to cut 2,000 jobs, trim product ranges, and sell some assets, including the group’s business in Argentina and the Vega plant-based brand. U.S. investor Artisan Partners Asset Managers Inc., now Danone’s third-largest shareholder, recently joined Bluebell Capital Partners in urging the firm to find a new CEO and speed up efforts to boost returns. On Sunday, Danone announced plans to sell its stake in Chinese dairy firm Mengniu and use the gains to buy back its own shares. Faber was the person who put forward to the board the proposals to separate the CEO and chairman roles and to start the search for a new CEO, and the board’s decisions were unanimous, according to a statement from the company. The CEO search could go quickly, a source familiar with the discussions said, and up to eight names of potential candidates are already circulating among board members. Sales growth, margins, and the share price have lagged the performance at some rivals, but Faber has had some backing from worker unions. The executive has a following as an advocate of a more sustainable way of doing business, and has taken steps to link Danone’s performance to social and green criteria and pledged to focus on issues such as packaging and healthier brands.
Exxon Mobil (XOM) and Citigroup (C) must allow shareholders to vote on climate change and racial equity resolutions, according to the Securities and Exchange Commission (SEC). The companies were seeking to exclude resolutions by BNP Paribas Asset Management and CtW Investment Group from being voted on during their annual meetings. BNP Paribas Asset Management's resolution urged Exxon to report if and how its activities aligned with global efforts to fight global warming. CtW Investment Group's proposal calls for Citigroup to perform an audit on racial equity. The SEC said there was no basis to exclude the shareholder resolutions. The decision is a sign that environmental, social, and governance issues will present a challenge for companies during the Biden administration. Exxon, which rose 3.6% on the news it added Michael Angelakis and Jeffrey Ubben to its board, said shareholders should reject Engine No. 1's proposals.
A new filing from Pershing Square Tontine Holdings (PSTH) notes that investors should follow the Twitter (TWTR) account of Bill Ackman. The disclosure includes three tweets from Ackman that came in response to questions asked by people on the social networking site. “Done,” Ackman said to an investor who asked if PSTH shareholders could be given first preference to buy into the company’s second SPAC at the IPO price. “We have the technology,” Ackman said in a response to someone asking how the company would validate who were PSTH long shareholders. “Yes,” Ackman said to a user who asked the CEO to confirm that PSTH will announce a SPAC deal before the second Pershing Square SPAC announces a deal. Pershing Square Tontine Holdings filed its IPO in July of 2020 and has been one of the most widely followed SPACs on the market. The tweets from Ackman confirm a second SPAC will be launched from Pershing Square, something that was uncovered by SpacTiger on Twitter last week.
Inclusive Capital Partners (InCap), an environmental and social impact investment firm launched in 2020, said on Monday that one of its partners will join the board at Strategic Education Inc. (STRA). William Slocum has been invited by the company and has agreed to serve as a nominee for election to the company's board at the 2021 annual meeting, InCap said in a filing. The appointment came the same day that ExxonMobil (XOM) said it would appoint InCap founder Jeffrey Ubben to its board amid fresh pressure from investors for it to improve its financial performance and prioritize clean energy. The filing announcing Slocum's directorship also said that InCap raised its ownership stake in Strategic Education from 5.65% to 6.14%. InCap bought 121,784 shares on Dec. 31, Feb. 26, and March 1, when the stock traded between $87.79 and $95.17 a share. The stock has lost 41.31% in the last 52 weeks. While Slocum's move attracted less notice than Ubben's, it is noteworthy at a time InCap is building its credentials as a new firm and seeks to raise as much as $8 billion in capital for a new portfolio. Ubben founded InCap after twenty years at ValueAct Capital. Slocum and fellow partners Eva Zlotnicka and Sarah Farrell are being prepared as the next generation of leaders at InCap.
Large U.S. companies are sketching a more detailed picture of diversity in their ranks, with dozens publicly sharing gender or race breakdowns. Many of these companies are sharing the information for the first time. The disclosures, often coming from company securities filings, are voluntary, but highly encouraged by a new regulation from the Securities and Exchange Commission. Investor interest is also driving the increase in disclosures. The Wall Street Journal reviewed more than 160 annual reports filed by S&P 500 companies for 2020. Of the companies that included diversity disclosures, most provided a tally of women in their workforces, while almost 75% disclosed at least some information on racial and ethnic diversity. A handful provided data on veterans, younger and older workers, people with disabilities, and those who identify as gay, lesbian, or transgender. Some provided figures only for their corporate boards. Some institutional investors are pressing for better information on workforce diversity, and even basing rankings or investment decisions on companies' diversity details.
Sweden continues to come up short on reaching a goal for female representation on corporate boards that was set by the government 15 years ago. The nation has made "good" progress on hitting the 40% target over the past 10 years, but more recently, movement has "become slower," and last year, "it was even reversed in some areas," said Fredrik Ekstrom, who runs Nasdaq's stock exchange in Stockholm. Sweden has been viewed as a trailblazer in providing equal access to corporate boards, but it trails France and Norway, where binding quotas require companies to meet a 40% threshold. Women account for 45% and 40% of seats on boards in France and Norway, respectively, according to the European Institute for Gender Equality. Sweden, which is at 38%, has resisted implementing a binding quota requirement. “It's time to get some more momentum to this,” Ekstrom said.
NASDAQ President and CEO Adena Friedman writes in the Wall Street Journal that the exchange is making changes to strengthen a proposal focused on diversity of the boards of listed companies in response to feedback. "We've welcomed the discussion on this proposal with the goal that a robust debate will bring us to a constructive middle ground," she states. For example, NASDAQ heard from companies with smaller boards that meeting the diversity objective would be more challenging for them. Consequently, NASDAQ is now proposing that companies with five or fewer directors may satisfy the recommended objective with one director from a diverse background rather than two. "We're also providing a one-year grace period in the event a vacancy on the board brings a company under the recommended diversity objective," adds Friedman.
Herbalife Nutrition Ltd. (HLF) announced plans on Sunday to overhaul its board of directors as Carl Icahn winds down his eight-year involvement with the company. Herbalife will add three new board members: Sophie L'Hélias, a corporate governance expert and lead independent director of Kering SA (PPRUY); Rackspace Technology Inc. (RXT) CEO Kevin Jones; and Don Mulligan, ex-CFO of General Mills Inc. (GIS). The board will thus have nine members after the company's annual meeting this spring. Two current directors—Michael Montelongo and Margarita Paláu-Hernández—do not plan to stand for re-election.|
On Feb. 28, Danone (DANOY) said it would sell its 9.8% stake in China Mengniu Dairy Co. (CIADY), which has a market value of more than $2 billion, later this year, with most of the proceeds used to fund share repurchases. The news comes as the French company seeks to boost shareholder returns amid pressure from investors like Artisan Partners Asset Management Inc. to make management changes. Danone Chairman and CEO Emmanuel Faber faces demands for him to relinquish one or both of his positions at the company. Bluebell Capital Partners also has called for Danone to replace Faber, who is under scrutiny after the company's shares lost a quarter of their value last year. Danone's stake in Mengniu is currently held indirectly in a venture with COFCO Corp., Mengniu's biggest shareholder. Danone plans to first convert the investment into a direct holding. The move will cut COFCO's holding to 21.4% from the current 31.3%.
Japan will push listed companies to allocate at least a third of their board seats to independent directors as the country’s Financial Services Agency (FSA) prepares to revise its corporate governance code. FSA commissioner Ryozo Himino said companies should aim for a majority of non-executives as the regulator prepares for an extensive review, which will press companies to extend governance improvements. Himino said the review of the code will focus on strengthening the role of boards, making core management more diverse, and improving disclosure on the environment. Himino argued that there has been a “huge change in governance” since the Abe reforms began in 2015, but critics often focus on the lack of sanctions and the code's inability to change behavior across a large hinterland of “old Japan.” The 2015 code called for greater management diversity, but many companies argue they cannot find suitable executives who are not middle-aged, male, Japanese, and lifetime employees of the company, said Himino. Rather than insisting that listed companies find such people, he said, the new code will push to train them.
13D Monitor founder and President Kenneth Squire writes that JANA Partners on Jan. 29 informed TreeHouse Foods (THS) of its plan to nominate Meredith Adler (Institutional Investor's top ranked analyst in the food and drug industry for 14 years), John Paul Gainor Jr. (former Dairy Queen [DQ] CEO and president), and Charles L. Myers (former portfolio manager at Fidelity) for the company's board at its 2021 Annual Meeting. JANA believes this represents an appealing investment opportunity with TreeHouse nearly three years into a sweeping turnaround. Treehouse's current stock market value is $2.8 billion, with a per-share price of $50.02 per share. JANA has been engaged in constructive dialogue with TreeHouse's board and management on measures to resolve the company's undervaluation and total stockholder return, including assessing a sale of the company, operations, capital allocation, corporate governance, and compensation practices. JANA has extensive experience in the food and beverage manufacturing sector, including a solid track record in the consumer retail space. Its involvement has led to sales of Pinnacle, PetSmart (PETM), Safeway, Whole Foods (WFM), and ConAgra's (CAG) spinoff of its Lamb Weston (LW) business. Moreover, a substantial portion of Treehouse's assets were acquired from ConAgra at JANA's behest. Although JANA partner Scott Ostfeld is on ConAgra's board, Squire doubts that ConAgra is a potential Treehouse acquirer. It is not interested in private label production, as demonstrated by the 2015 sale of its Ralcorp business to TreeHouse for $2.7 billion following its $5 billion acquisition three years before. "TreeHouse is a pure play private label business, which is an area of tremendous secular tailwinds," Squire states. "Private label brands are cheaper for consumers, more profitable for retailers, and do not have the stigma of generic brands of yesteryear (think Whole Foods 365 or Costco's [COST] Kirkland). As a result, shelf space has been migrating towards private label space, with tremendous growth in the U.S., which is not close to the penetration level of Europe." While Treehouse is engaged in an extensive turnaround program, its operational improvements have not led to commensurate upgrades in stock price. Squire points out that Post (POST) sold part of its private label business to Thomas H. Lee Partners for over 10 times EBITDA in 2018. "A 10 times multiple here would imply a six handle on a sale," he writes. "Similar to their engagements in Whole Foods, ConAgra, and Pinnacle, JANA has yet again teamed up with world-class executives who they are nominating to the board. While their expertise would not be as necessary in the context of a sale of the company, they could certainly help evaluate a potential sale, and they have tremendous experience in public markets as well, so they can help rehabilitate the equity story in the meantime."
Elliott Management's Paul Singer wrote in a recent letter to clients that a "flamboyant line-up" of excesses will come back to haunt investors. “We believe that hindsight will show the champion of head-smacking craziness in the American stock market to be the period playing out right now,” Singer wrote in the Jan. 28 letter. In his view, the Fed’s current iteration of quantitative easing paired with trillions of dollars of stimulus to counter the pandemic are setting things up for a fall. Rampant inflation will shock policy makers, stock pickers, and bond investors, alike. “‘Trouble ahead’ is signaled by a rare combination of low-quality securities, staggering valuation metrics, overleveraged capital structures, a scarcity of honest profits, a desperate dearth of understanding evinced by the most active traders, and economic macro prospects. Markets have begun to show cracks in recent days. Benchmark 10-year Treasury yields catapulted to their highest in more than a year, equities tumbled, and traders yanked forward their opinion of how soon the Fed will tighten monetary policy. While pledging to stick to the basics at his multistrategy operation, Singer expressed frustration at what he sees as the hysteria driving everything from Bitcoin to government debt. Elliott made money every month in 2020, even in the March rout, gaining 12.7% for the year, thanks to “a combination of portfolio-protection trades related to interest rates and gold, together with our core activities” including distressed debt, equity activism, and private equity. The firm has registered annualized gains of about 13% in its 44 years, beating the S&P 500 Index. Even as the world begins to recover from the pandemic, Singer urged keeping expectations in check. Certain industries and activities, like commercial real estate, movie theaters, retail, restaurants, and business travel, will continue to be significantly challenged, he said. In the meantime, he wrote, the recovery will be stymied by virus variants and policies “that sometimes seem governed by short-term political pressures rather than what is best for society, short and long term.”
Bill Ackman's Pershing Square Tontine Holdings (PSTH) is one of the most popular special-purpose acquisition companies (SPACs) among hedge funds. According to Bloomberg data, 57 hedge funds have handed Ackman a combined $800 million plus for his SPAC. Tontine Holdings, which launched last July at $20 a share, is an interesting top choice among hedge funds as its structure is specifically designed to limit arbitrage and encourage long-term investing. When shareholders redeem shares, their warrants are distributed to the remaining investors. Moreover, Pershing Square Capital Management will not receive any compensation until after the shareholders receive a 20% return. Business Insider breaks down the top 20 U.S. hedge funds backing Tontine Holdings. The top hedge fund backing PSTH is Seth Klarman's Baupost Group LLC, which holds 12.7 million shares, followed by Soroban Capital Partners, which has about 5.1 million shares. Millennium Management holds about 2.8 million shares, Greenhouse Funds holds about 1.5 million, and Taconic Capital holds about 1.1 million shares. Other top holders include Locust Wood Capital Advisors, TIG Advisors, Davidson Kempner Capital Management, Kepos Capital LP, and Mason Capital Management.
On Feb. 26, Vice Chancellor Kathaleen McCormick of Delaware's Court of Chancery struck down a poison pill adopted by Williams Cos. (WMB) last year to defend against a potential takeover following a steep decline in oil prices. The judge found that the poison pill was a disproportionate response to the threat that an investor might emerge when the stock was at a low point during the start of the pandemic. "They have failed to show that this extreme, unprecedented collection of features bears a reasonable relationship to their stated corporate objective," wrote McCormick in her ruling. The company adopted the poison pill when its stock price dropped under $10 a share at the same time oil prices tumbled early in the Covid-19 pandemic. The poison pill—which set the threshold an investor would have to accumulate to trigger the pill at 5% and included a "wolfpack" to prevent investors from contacting other similarly minded shareholders—was called "unprecedented in that it contained a more extreme combination of features than any pill previously evaluated by this court," according to McCormick. Steve Wolosky, an attorney who often represents investors like Starboard Value, was the plaintiff in a class action against Williams, arguing that the pill no longer served a purpose as the stock had recovered and that the board was using the pill to entrench themselves.
Bill Ackman's recent tweets about a second Pershing Square Tontine Holdings (PSTH) special purpose acquisition company has renewed speculation that this blank-check company will reach a definitive agreement soon. Ackman tweeted that investors long on Pershing Square Tontine will be given first preference to buy into a second Pershing Square Tontine blank-check company at the initial public offering price. When asked how that would work, Ackman answered, "We have the technology." On online chat platforms, some investors speculated that Pershing Square Tontine was working on a deal with a technology company. Investors mentioned both Plaid and Stripe. Plaid is not in any talks with special purpose acquisition companies, CEO Zach Perrett said in mid-January. Visa (V) has scrapped its deal for Stripe over antitrust issues.
Elliott Management has agreed to support Evergy (EVRG) management until the 2022 annual shareholder meeting as part of a new agreement with the utility. Evergy will name two additional directors to its board and will continue to maintain focus on its Sustainability Transformation Plan announced in August. Elliott first declared in January 2020 that it owned a stake in Evergy and wanted a sale of the company or significant changes to boost performance. Evergy came up with a new five-year business plan after management failed to sell the company last summer. One of the new board members will be John Wilder, a utility industry veteran who supported some of Elliott's other campaigns in the power sector through his investment firm Bluescape Energy Partners. Bluescape will purchase $115 million of newly issued Evergy shares and will be bound by the same 2022 support agreement as Elliott.
U.S. investor Artisan Partners (APAM) has joined BlueBell Capital Partners in pushing Danone (DANOY) to replace CEO Emmanuel Faber to improve its governance practices and accelerate efforts to increase yields. Shareholder pressure on Faber has been rising as the French food group has trailed competitors during the Covid-19 pandemic. Danone stated that its board and management team is open to suggestions from all shareholders, but it did not answer calls for a new CEO. "Understanding shareholder priorities is a top priority of the senior management team and the board of directors," the company declared. French daily Le Monde said Danone's board is scheduled to meet on March 1. Artisan controls a 3% stake in Danone, and echoed BlueBell's call for separating the roles of CEO and chairman. "The roles of CEO and chairman should be split to reflect modern-day corporate governance," Artisan wrote. "Governance standards also require that prior leadership leave the board. And logic demands more consumer goods experience on the board of directors." The investor maintained that "a new, non-financial CEO with consumer goods experience and a track record of success should be installed as soon as possible to restore Danone to the elevated status it deserves within the French business establishment." Artisan previously lobbied Danone to divest underperforming brands like Asian water label Mizone. Faber recently attempted to counter investors' push, announcing in November a plan to slash 2,000 jobs, de-scale product ranges, and sell certain assets, including Danone's Argentina business and its Vega plant-based brand.
On Thursday, Twitter (TWTR) shares rose as much as 12% higher in advance of the company's virtual investor day. In a regulatory filing that morning, Twitter said it would aim to at least double its revenue, reach at least 315 million monetizable daily active users, and essentially double one internal measure of the pace of features released by the end of 2023. It is hard to know which of Twitter's goals is most ambitious. Estimates compiled by Visible Alpha show Wall Street wasn't expecting Twitter to hit that level of revenue and users until 2025 and 2027, respectively. Getting there by 2023 will require rapid innovation, which doesn't come cheap: Twitter's earlier outlook for this year called for 20% head-count growth and 25% growth in cost and expenses on an annual basis. Taken together, Twitter's announcements sound something like the aggressive direction Elliott Management pushed for last year, when it advocated for CEO Jack Dorsey's removal, asserting his attention was stretched too thin by leading two companies at once. In his kickoff comments on Thursday, Dorsey noted Twitter's work to rebuild its ad server is already paying off, resulting in 31% ad revenue growth in the fourth quarter versus the year prior. While it used to take six to 12 months to get a new product to its customers, Twitter is now working toward getting a new feature or product out in under a few weeks. Twitter's recent acquisitions in Squad (a video chat app), Breaker (a social podcast app), and Revue (a subscription newsletter service), should collectively make Twitter a more attractive place for public conversation and, in turn, a more compelling place for advertisers. Dorsey pointed to an emphasis on topics, calling it the area that would have the biggest impact on its business and its user experience.
St James’s Place (STJ) was given a wake-up call at the end of 2020 when investor PrimeStone called out the company's poor management of its own cost base. PrimeStone discovered some 120 employees with a “head of…” title, weighty business function teams, and protracted outsourcing arrangements, the combined effect of which had driven up operating expenses per adviser by 65% in five years. “The current share price does not reflect the full value of the strength of its business model, its leadership position, or its long-term growth potential,” the group wrote on Oct. 26. Full-year returns suggest that St James’s has taken the missive seriously. Management confirmed around 200 jobs across the business will be cut (at last count non-partnership employees stood at more than 2,600) in a bid to remove duplication of work and stop tasks “that are now no longer needed,” while legacy technology investments are now deemed sufficient to help cap operating expense growth at around 5% per annum. In addition to placating PrimeStone and other cost-conscious investors, the hope is that earnings growth will follow if the business can hit a secondary target to boost new business by around 10% each year. “With modest help from investment markets and continued high retention rates,” says CEO Andrew Croft, this “would see funds under management grow to in excess of £200bn by the end of 2025.” That scrapping of rigid goals in favor of incremental control seems wise. Results for 2020 also suggest that the new growth target is achievable, as strong asset prices helped offset an 8% dip in net client flows to lift total managed funds by 11% to a record £129 billion. Importantly, the decline in new investments was blamed on Covid-19-related restrictions, so presumably management believes a return to face-to-face contact could see a flood of new business.
In its investor letter for the fourth quarter of 2020, Third Point disclosed a 16.1% net return, outperforming all its benchmarks. Third Point noted in the letter its belief that Prudential PLC's (PUK) unique Asian business is substantially undervalued but praised the company's recent move to separate its U.S.-based annuity business, Jackson National, via a demerger in Q2 2021. Third Point said the move is "a net positive and important step forward" because it will significantly accelerate Jackson National's separation, and because "an equity capital raise out of Hong Kong and a potential listing on the Southbound Stock Connect exchange will be an important catalyst to build liquidity among Asian shareholders." The investor says "this decision, while challenging on an immediate basis, pulls forward the realization of independence and local ownership participation that is essential to achieve full value for long-term shareholders." Third Point also said Prudential has been making "substantial progress" in its governance, especially around board talent and diversity. "Shriti Vadera, who formally assumed her role as Chairwoman last month, brings a wealth of expertise in Asia strategy, capital allocation, technical innovation, and ESG," Third Point writes. "She recently recruited two new Asia-based board members who bring important skills to help guide the new Pru Asia. Chairwoman Vadera and CEO Mike Wells' commitment to long-term value creation gives us great confidence in the future of this business."
CM Life Sciences III plans to raise up to $400 million in an initial public offering. The New York-based company is led by CEO and director Eli Casdin, founder of life sciences investment firm Casdin Capital, and Chairman Keith Meister, founder of Corvex Management. The company plans to offer 40 million units at $10, and may raise an additional $150 million at the closing of an acquisition pursuant to forward purchase agreements with Casdin Capital and Corvex Management. The proposed size of the deal would give CM Life Sciences II a market value of $500 million. The company plans to engage the life sciences industry on the Nasdaq under the symbol CMLTU. CM Life Sciences II is the third blank check company formed by Casdin Capital and Corvex Management to engage a life science business. CM Life Sciences (CMLFU) raised $385 million in September 2020 and CM Life Sciences II (CMIIU) raised $240 million this week.
Legion Partners Asset Management has nominated four directors to the board of OneSpan (OSPN). In a letter to other shareholders, the investment firm said that directors have failed to address OneSpan's low share price and were moving too slow to make changes to the board. Legion owns about 6.8% of OneSpan's stock and has been investing in the cybersecurity company since 2018. The investor had been holding private conversations with OneSpan, but finally made its demands publicly known about six months ago. In addition to improving the company's stock, Legion wants OneSpan to unload some assets. "We believe more substantive change is necessary," Legion wrote. Shareholders now need to elect "strong technology leaders to the Board who will seek to begin a comprehensive strategic review of the Company to determine the best path forward for the Company and all its stakeholders."
Herbalife (HLF) CFO Alex Amezquita wants investors to think differently about Herbalife, with a focus on its revenue and profit. The company's revenue climbed 15.6% to $1.41 billion during the quarter ended Dec. 31 compared with the prior-year period, while profit grew 30.2% during the latest quarter and shares rose 1.8% over the course of 2020. Amezquita wants to use tools such as virtual roadshows, investor conferences, and conversations with analysts to recast the messaging around Herbalife as a growth company. Herbalife is looking to attract more long-term, international investors, such as pension and sovereign-wealth funds, to stabilize its share price, Amezquita said. Certain hedge funds created significant volatility in the stock when they bought in, he said. The company's biggest shareholders include investment manager Capital Research & Management Co., hedge fund Renaissance Technologies LLC, index-fund investment giant Vanguard Group Inc., and hedge-fund manager Route One Investment Co. Companies' efforts to develop or expand a shareholder base can take at least 12 to 18 months as executives educate investors about the business model, said Jim Rossman, head of shareholder advisory at investment bank Lazard Ltd. Amezquita joined Herbalife in 2017 as senior vice president of finance, strategy, and investor relations after serving as a senior vice president at investment bank Moelis & Co. Carl Icahn, who is estimated to have made more than $1 billion on his investment in Herbalife, keeps a roughly 6% stake in the company worth about $400 million. "In many cases, activists get involved at a company when there's a problem, which was the case at Herbalife," Icahn said. "The company has better controls than it did before we invested in it, and we believe we were meaningfully responsible for that."
Ancora Holdings Inc., together with its affiliates, which owns in the aggregate approximately 3.4% of the outstanding shares of Blucora Inc. (BCOR), has issued an open letter to stockholders and announced that it has nominated four highly-qualified candidates for election to the company’s board of directors at Blucora’s 2021 Annual Meeting of Stockholders: Frederick D. DiSanto, Cindy Schulze Flynn, Robert D. MacKinlay, and Kimberly Smith Spacek. In its letter, Ancora highlights a number of reasons why it believes Blucora needs board refreshment, including negative TSR and underperformance relative to peers, substantial sum-of-the-parts and private market value discounts, poor capital allocation leading to major goodwill impairment, a bloated corporate infrastructure that dilutes shareholder value, ineffective board oversight and troubling management turnover, and entrenchment and manipulation of the board election process. In its letter, Ancora expresses its view that Blucora’s wealth management/registered investment advisor business, Avantax, is a highly attractive asset given its significant scale and niche focus. However, Ancora is not aware of evidence of any meaningful synergies between this business and the company’s tax preparation business, TaxAct. Ancora’s letter outlines how it believes that a reconstituted board can help address Blucora’s challenges and ultimately unlock substantial value, including by refocusing the company’s attention and resources on operating, improving, and growing the Avantax business; creating a special committee of independent directors to assess operational improvements and explore strategic alternatives for the TaxAct business; and establishing a disciplined capital allocation framework that emphasizes paying off current debt and eventually implementing a stock-repurchase program.
AT&T (T) has inked a deal with TPG Capital that calls for its struggling satellite TV provider DirecTV to become a standalone company in which TPG would have a 30% ownership interest. TPG is set to pay $1.8 billion in cash for the stake. The deal would move the DirecTV and AT&T TV services in the U.S. into a new entity that will be jointly run by the new partners, with AT&T retaining a 70% stake in the business. The deal values the new company at $16.25 billion, well below the $49 billion (about $66 billion when factoring in debt) the Dallas-based telecom giant paid for DirecTV in 2015. The new-model DirecTV will be governed by a five-member board of directors—two from AT&T; two from TPG Capital; and Bill Morrow, CEO of AT&T's U.S. video series. The weak satellite business and the debt built to acquire it has weighed on AT&T's stock in recent years. Elliott Management pushed the company to offload unneeded business units and buy back stock, among other recommendations. AT&T began a formal sale process for the video unit after longtime AT&T executive John Stankey became chief executive in June.
Activism, board diversity, and virtual shareholder meetings are among the top global trends predicted for 2021, according to global institutional and activist investors, pension fund managers, proxy advisors, and other corporate governance professionals interviewed by Russell Reynolds Associates. Shareholder activism is expected to continue to rebound in 2021 with activity picking up in the fourth quarter of 2020 and in January. New special purpose acquisition companies formed in the U.S. last year were up 50% more than the total of the past four years combined at 230. These types of blank check companies are expected to remain popular this year. Diversity is the top trend for the U.S. and is also a hot topic in other regions, including the U.K. and Canada. Companies have increased demand for racial and ethnic diversity at the board level, and gender diversity remains a priority in all regions. Boards have adapted to life in the virtual environment, and many are now looking to leverage technology to offer some form of combined in-person and virtual shareholder meetings. However, investors say they will be less forgiving of virtual shareholder meetings that lack functionality and are hastily put together, like they were last year.
The stock market's negative reaction to California lawmakers passing gender quotas for corporate boards in September 2018 does not mean shareholders prefer the current composition of boards. Shareholder voting results from annual shareholder meetings for approximately 600 firms show that prior to the quota, female nominees (both new and incumbent) received greater support than male nominees. After the introduction of the quota, support for incumbent female nominees remains stronger than for male incumbents (for whom support decreased post quota). In contrast, support for new female nominees decreased after the quota and converged to the same level as the support for new male nominees. Only certain stocks reacted negatively to the quota announcement, and they were from firms that subsequently failed to replace the director with the lowest pre-quota support when adjusting the board to comply with the new law. As a result, the negative share price reaction appears to have been driven by correctly anticipated dysfunctional board dynamics due to a turnover of directors.
Investors representing a combined 9.5% stake in Kohl's (KSS) are pushing for change at the company. Macellum Advisors, Ancora Holdings, and Legion Partners are involved in this campaign, having successfully pushed for change at Bed Bath & Beyond (BBBY) in 2019. The author argues that this time, the investors' argument is not convincing in part because Kohl's has fared better than peers in a struggling industry. Kohl's report on Tuesday morning showed that the company's net sales in the fourth quarter ended Jan. 31 declined 10% from a year earlier, exceeding analyst estimates. Not only is that better than department store peers, it is also in-line with off-price retailers, which have been the main threat to department stores in recent years. Many of the observations investors have about Kohl's are astute but come off as nitpicks because they are issues the retailer is already working on. For example, the letter calls for better inventory turnover; this was something Kohl's had already said it began working on, and inventory turn in the fourth quarter was at a 10-year high. While it is true that profitability has been declining over the years, the company has done a decent job of holding on to its margins despite depressed sales in 2020. The investors are also pushing for sale-leasebacks of properties and share repurchases, pushing to increase earnings per share by at least 25%. The author says this recommendation seems "optimized for juicing short-term returns."
Investors should draw on the skills and techniques of hedge funds where a company's financial performance is deteriorating and traditional engagement tools do not produce meaningful results to protect value and mitigate long-term risks. Companies that are uninterested in engaging with their shareholders and their stakeholders draw moats around their corporate walls and do everything in their power to continue on without making any changes to their business operations. Engagement stewardship at such companies starts with getting their attention, whether through the media or proposing an alternative slate of a critical mass of board directors. The “Reenergize Exxon” (XOM) campaign led by Engine No. 1 is an example of engagement stewardship. The model for engagement stewardship, which is still in the early stage of development, includes a lead investor who identifies the company to engage, and depends on other investors supporting engagement at implacable companies and stakeholder representatives applying pressure. “Reenergize Exxon” can serve as a pilot for further developing the idea of engagement stewardship.
South Korean lawmakers have agreed to abolish a rule that gives foreign investors an unfair advantage in domestic capital markets. Such a move would enable South Korean investors to protect local conglomerates from foreign funds like Elliott Management, Sovereign Asset Management, and Whitebox Advisors, according to market experts. Under the so-called "10% rule," foreign investors with a small number of shares have been able to put pressure on the management of companies like Samsung, Hyundai Motor (HYMTF), SK, and LG (LGEIY). The rule requires local investors that engage corporate management to own more than 10% of voting shares or have a board seat at the company. South Korea's ruling and opposition parties are in agreement on overhauling the Capital Markets Act, which includes the rule. Lawmakers are expected to pass a bill that revises the law in March.
Daniel Loeb's Third Point has become a corporate partner of Ladies of Hope Ministries (LOHM), fronted by criminal justice activist Topeka Sam. Third Point's backing of Sam's group is, by Loeb's own reckoning, similar to the kinds of investments that his hedge fund makes. “Philanthropy is a lot more like hedge fund investing than you might think,” he said. “You're thinking of ways to allocate capital and creating a scalable impact.” That includes political impact: Loeb said that he worked his network to lobby for a presidential pardon for Sam, which she received last December. Loeb has committed to donating $1.5 million over three years through his family's foundation, and Third Point employees have given $80,000 so far. Loeb, who has donated largely to Republicans in recent election cycles, has supported groups like the Brennan Center for Justice, the Innocence Project, and the Marshall Project in recent years. Loeb first met Sam around 2017, as he was looking for new ways to donate to criminal justice groups. Her emphasis on helping prevent recently released women from recidivism persuaded him to back her as a sort of philanthropic entrepreneur. Michelle Marcellus, a lawyer at Third Point, has joined the nonprofit group's board; the fund's real estate team will help find more affordable housing for women using its services; the marketing department started holding regular calls with the group; and outside lawyers for Third Point at the corporate firm Willkie Farr & Gallagher offered their services to the group. After Third Point's “investment,” L.O.H.M. is looking to expand in Baltimore, Miami, and Philadelphia. The way it approaches its work may also change because of the support coming from the hedge fund. The next step is getting others on board. Loeb said that he would introduce Sam and her organization to the growing community of financiers and entrepreneurs who had moved to Miami, where he—along with a burgeoning group of hedge fund tycoons—has been spending more time.
Engagement is likely to increase in 2021. Investors launched a number of high-profile campaigns in 2020, stepped up engagement in the second half of last year, and replaced more than 80 CEOs during their campaigns. As the economy strengthens and business becomes more predictable, investors are likely to press companies on transactions and changes to proposed deals. Environmental, social, and governance (ESG) themes could become a focus for investors in companies that have a solid financial performance. Some veteran investors, including ValueAct founder Jeff Ubben, have formed new ESG-only firms to engage issuers. Major investors are acting more like private equity firms, pursuing outright acquisitions or negotiating for large stakes in companies for extended periods. Pershing Square, Starboard Value, and Third Point formed special purpose acquisition companies last year. Elliott Management formed a buyout fund in 2019.
Shareholder activism picked up at the end of a slower year in 2020, with more than 80 CEOs replaced during campaigns during the second half of the year. Some investors are raising permanent capital for activist approaches, which have become more acceptable to many institutional investors. Even high-performing companies may face pressure on environmental, social, and governance (ESG) issues. Some established activists have recently formed ESG-focused funds alongside their regular pools to engage companies they contend have not met ESG standards, and some, including ValueAct founder Jeff Ubben, have formed new ESG-only activist firms. Moreover, a number of major activist firms have begun acting more like private equity firms, pursuing outright acquisitions or negotiating for private investments in public entities. Meanwhile, some private equity firms have pursued more activist-like strategies, and in some cases, activists have teamed up with strategics or private equity firms on acquisitions. Over the last few years, as activism has become more accepted, some long-only asset managers have supported activist campaigns where they thought it would increase the value of their investments. This reflects a broader transition to a more shareholder-centric model of corporate governance. The best defense for companies is strong shareholder engagement coupled with a plan for dealing with activists if they emerge.
The number of stockholder rights plans, or poison pills, adopted in 2020 nearly tripled compared to prior years. Every rights plan sets a triggering percentage; most anti-takeover rights plans have triggering percentages ranging from 10% to 20%. Some rights plans bifurcate the trigger, setting a higher triggering percentage for passive investors and a lower, general triggering percentage. If the general triggering percentage is set below 15%, most recent plans bifurcate the trigger, with the higher triggering percentage typically being set at 20%. Almost every rights plan includes a carve-out provision for acquirers who inadvertently (as determined by the board) trigger the plan. In addition, some companies have included “acting in concert” provisions in their rights plans that broaden the traditional definition of beneficial ownership to capture certain kinds of informal coordination among stockholders. Some stockholders have criticized acting in concert provisions as chilling their ability to communicate with other stockholders. Rights plans commonly include a “grandfather clause” that exempts stockholders who, at the time of the rights plan's adoption, have ownership stakes equal to or greater than the rights plan's triggering percentage. This allows these stockholders to maintain their stakes without immediately triggering the rights plan upon adoption. An increasing proportion of rights plans provide the board a limited window after an acquirer exceeds the triggering percentage during which the board can redeem for a nominal amount or otherwise terminate the rights. This is known as a “last look” provision, and it gives the board the ability to avoid the dilutive effects of a triggered rights plan. About half of the rights plans adopted in 2020 contained a last look provision. While it seems sensible to put this decision in the hands of the board rather than a third party, doing so may weaken the rights plan's deterrent value. About 15% of rights plans adopted in 2020 contain a “qualifying offer” provision, which gives stockholders the right to force the board to call a special stockholder meeting to vote on whether to exempt the offer from the rights plan. Some boards have determined to include the provision to emphasize to stockholders that they are not categorically opposed to a takeover of the company. In fact, both ISS and Glass Lewis state in their guidance for stockholder vote recommendations that rights plans should contain a qualifying offer provision.
The battle at Danone (DANOY) could impact the way that the business world seeks to take a more stakeholder approach to capitalism. Bluebell Capital Partners has launched a campaign at Danone at a time when the French food group has made a commitment to being a more environmentally and socially conscious business enterprise. Bluebell and other dissatisfied shareholders have stressed the sustained poor performance of Danone. In a letter to Danone's board, Bluebell said it supports the "dual economic and social project" of the company. However, Bluebell noted that under CEO and Chairman Emmanuel Faber, Danone has not struck the right balance between shareholder value creation and sustainability. Bluebell and other shareholders want Danone to replace Faber. University of Toronto professor Sarah Kaplan says she expects to see more conflicts like this. "People may want to run businesses differently but they still do not know how to do it," she says.
DOMO Capital Management says Bausch Health (BHC) is significantly undervalued based on a sum of the parts analysis, and thinks the per-shares price should be closer to $80. Well-known investors own approximately 30% of shares outstanding in BHC. DOMO has been a BHC shareholder since 2017, and BHC currently has the largest weighting of roughly 27% in the DOMO Capital Concentrated All Cap Value Composite. DOMO finds it vexing why BHC management is taking little action on what it sees as a golden opportunity to unlock value in the current market environment. Moreover, the timing of share purchase gains by activists is not random, as the annual shareholder meeting will be held in about two month. FactSet (FDS) considers four of BHC's top five shareholders to be High to Very High for activism, with the fifth largest designated a Medium ranking. The latest 13F/13D filings indicate that Icahn Capital owns 7.8% of outstanding shares in BHC to Paulson & Co.'s 7.28%, ValueAct Capital Management's 5.05%, Glenview Capital Management's 4.63%, and GoldenTree Asset Management's 3.15%. Meanwhile, Glenview recently excoriated BHC's management in a letter stating that they own approximately 6% of shares outstanding which represents a material gain from the end of last year. Icahn's stake in BHC was unknown until he filed a 13D on Feb. 11. ValueAct partner Robert Hale and Paulson & Co. President John Paulson already have two seats on BHC's board, but represent less than 20% of the 11 board seats. DOMO thinks a proxy battle could erupt in the coming months if BHC's management fails to assuage shareholder concerns on Wednesday's earnings call and does not take prompt action. Meanwhile, a CNBC article authored by 13D Monitor's Ken Squire on Carl Icahn's intentions and the potential use of special purpose acquisition companies (SPACs) may offer insights. The article said Icahn will certainly want to ensure that shareholders reap full value in the separation of BHC's eyecare business, which could mean a sale of the business rather than a separation. Moreover, the creation of a SPAC by a conglomeration of the current shareholder activists could be attractive. DOMO suggests they could pay fair value for specific operating segments of BHC and then merge them with assets from other companies to create a combination with even greater value. This means they would double-dip by having their BHC investment increase substantially while also using the SPAC to derive additional value, and the total cost would be less than a spin-off, while also preventing the costs that a proxy battle would entail.
Roughly five months went by after Veritas Capital asked in July 2020 for a waiver from its agreement with Perspecta (PRSP) that governed how the private equity firm could bid for the company. The Perspecta board of directors granted Veritas that waiver on Jan. 6, after which Veritas submitted three bids over the next 20 days. Its final offer prevailed over a competing bid by an unnamed government contractor in the final round; the winning bid was $29.35 per share in cash. Veritas, which owned two of the three businesses that helped launch Perspecta in 2018, holds 14.4% of the stock today. Perspecta’s third-largest shareholder is Jana Partners, which holds 8.6% of the stock and first disclosed its Perspecta holdings in June 2020. Representatives from Jana met with Perspecta CEO Mac Curtis and then-board Chairman Mike Lawrie twice in March. Another meeting happened in July at which Jana put forth options they thought could help increase Perspecta's value, including a sale of the company or other transformative transaction. Within months the merger search began in earnest and by Jan. 27 the deal with Veritas was announced.