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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.
ValueAct Capital Management has reduced its stake in U.K. aero-engineer Rolls-Royce (RLLCF) from 9.48% to 4.5%, according to a statement issued to the stock market today. Shares in Rolls-Royce have fallen more than 50% in the last five weeks as the coronavirus pandemic delivered a staggering blow to the company's airline customers, which have had to ground fleets and furlough personnel. Shares were trading down 4.2% at 266.8 pence at 9:22 GMT.
U.S. buyout fund Lone Star has successfully acquired a majority stake in Japanese hotelier Unizo Holdings Co. Ltd. Unizo said that Lone Star, together with a group of Unizo employees, secured 86.6% of outstanding shares in an open bid that started in December. The deal ends a nine-month bidding war among global investors such as Blackstone Group (BX) and SoftBank-backed Fortress Investment Group. The battle was seen by some as a test case for Japan's efforts to attract foreign investors through improved corporate governance. As it entertained offers from bidders, Unizo requested that a group of employees have the right to control the new owner's ability to sell assets. This unusual approach raised governance questions about the company's management. Lone Star emerged as a white knight in December with a plan that allowed a group of Unizo employees to own 73% of common shares, with the rest going to Lone Star. Lone Star would provide 178 billion yen in financing for the buyout, giving it the right to own the company.
On April 3, GCP Applied Technologies (GCP) announced that it will add two new independent directors to its board and expand the size of the board by one to 10 members. The move comes after Starboard Value, which owns 9% of the company, said it will move forward with its proxy fight and nominated eight directors. GCP named Armand Lauzon, most recently president and CEO of C&D Technologies, and John McPherson, most recently chief financial and strategy officer at Vulcan Materials Co. (VMC), as director candidates. GCP said, "We have been regularly refreshing our board to ensure our directors are diverse and have the appropriate skill sets and experience for our business." In addition to nominating the two new directors, the company said it will re-nominate eight current board members, including Clay Kiefaber, a Starboard representative who joined the board last year. However, it will not re-nominate Marran Ogilvie, who also joined the board last year after the settlement with Starboard. Both Ogilvie and Kiefaber are on Starboard's director slate, which also includes Starboard partner and head of research Peter Feld. Investors will vote on the director candidates at GCP's annual meeting on May 28.
Investment group Standard General said April 3 it increased its stake in Tegna (TGNA) to 12%. "We are fully committed to Tegna, and we are not going anywhere," said Soo Kim, Standard General's founding partner. "This increase in our position underscores our conviction that the company's intrinsic value is much higher than its market price, but also our belief that Tegna will not achieve its full potential without an upgraded Board." Standard General has suggested an alternate slate of four board members in opposition to the company's nominees. "Our additional investment boosts our economic and financial exposure to the company's equity and signals our steadfast commitment to driving change at Tegna for the benefit of all shareholders," the investment group stated. It has criticized Tegna's leadership and voiced concern that it wasn't engaging with some potential bidders. Tegna said last week that of four interested suitors, two withdrew offers and the other two had not signed confidentiality agreements that were needed to move negotiations forward or indicate where they would obtain the financing.
The board of Synalloy (SYNL) has committed to conducting a strategic review once there is stabilization from the current market volatility and macroeconomic disruption related to the Covid-19 pandemic. The review will consider a sale of all or part of Synalloy, board composition, governance enhancements, balance sheet and business optimization, and management succession if a liquidity event does not occur. The company argues that the ongoing campaign by Privet and UPG to overhaul Synalloy's management is "ill-timed and unproductive," and that it would destabilize the company and jeopardize shareholder value. Synalloy says its board recently offered a settlement that would give Privet and UPG the right to designate two of eight board directors, with two incumbent directors resigning, among other compromises. The board says it has not heard back from UPG or Privet on this offer.
Asset Value Investors Ltd., a U.K. money manager known for engaging smaller Japanese firms, has invested $46.6 million in Masayoshi Son's SoftBank Group. SoftBank has lost more than half its value since mid-February even as Son decided to fund shareholder returns and pay down debt. "[SoftBank] trades at a massive discount to the value of its assets," said AVI CEO Joe Bauernfreund in an interview. "And on top of that, the planned asset disposal and buyback will be massively accretive to the net asset value." SoftBank is too big for AVI to make shareholder proposals at annual general meetings, but AVI still wrote to SoftBank pressing it to sell down some of its portfolio, buy back shares, and improve its corporate governance. SoftBank currently trades at about a 70% discount to its net asset value, according to Bauernfreund.
On April 1, Standard General LP sold 5 million shares of Tegna (TGNA) in a series of swaps. Standard General owns a 9% stake in Tegna, and still might be able to vote those shares because the swaps were made after the deadline for eligibility. Standard General has accused Tegna of allowing the company to underperform against competitors and allowed potential bids for the company to disappear. The investment group has also proposed four people with broadcast experience that it wants elected to Tegna's board. Tegna says it rejected those nominees due to conflicting positions with other broadcasters. Tegna also called Standard General's sale of 5 million shares "troubling for all Tegna shareholders."
Bill Ackman's Pershing Square Holdings is up 3.3% for the year after rising 11.1% in March. Ackman was quick to respond to the coronavirus crisis, hedging his portfolio and sending his employees home for the duration on Feb. 27. As a result, Ackman has made $2.6 billion off one $27 million investment that protected his portfolio of hotels and restaurants as the markets tumbled. He was in the process of closing out hedges when, on March 18, he tweeted to President Donald Trump to shut down the country for a month to stop the virus from spreading. Despite his dire warnings, Ackman said he was buying stocks that day and continued to buy until March 25, by which point Pershing Square had redeployed all of the net proceeds from its hedges by adding to investments in a number of companies. In a recent letter to investors, Ackman explained that his hedges were credit default swaps on various investment grade and high yield credit default swap indices. "At the time of purchase, the IG or investment grade indices were trading near all-time tight levels of about 50 basis points per annum. The high yield index, the CDX HY, was also trading near its lowest spread ever," he explained. The firm eventually sold the hedges because "the risk-reward ratio of holding the contracts at 140 basis points was not nearly as compelling as when spreads were at 50 basis points." Ackman denies the allegations that he intentionally scared people about Covid-19 to increase his profits, saying that his firm merely bought what are essentially insurance policies to mitigate the risk to investors' capital.
Bill Ackman's Pershing Square Capital Management jumped 11.1% in March after making a $2.5 billion "recovery bet" on the U.S. economy. Pershing Square is up 3.3% for the year. In contrast, the S&P 500 Index fell 12.5% in March and is down more than 20% so far this year. Ackman said in a recent Bloomberg Television interview that he has boosted his wagers in portfolio companies like Lowe's Cos. (LOW), Hilton Worldwide Holdings Inc. (PK), and Warren Buffett's Berkshire Hathaway Inc. (BRK.A). "That's about the most bullish thing we've done," he said. "We are all long. No shorts, you know, betting on the country." Ackman's publicly traded hedge fund posted its best year on record in 2019, when it soared 58% following four consecutive years of losses.
In its second proxy fight since the outbreak of the coronavirus, Jeff Smith's Starboard Value argues that its board nominees for GCP Applied Technologies Inc. (GCP) would be better able to navigate the chemical maker through the crisis. The hedge fund, which owns 9% of GCP, has nominated eight directors to take control of the board. In a letter to shareholders, Starboard managing member Peter Feld said, "We recognize the Covid-19 crisis has created a difficult environment for many companies. GCP is no different and needs strong leadership and oversight during these challenging times. We believe the nominees we have put forth are uniquely capable to help govern the company through and after this crisis." Last March, Starboard won two board seats at GCP after threatening a proxy fight. The company said it had attempted to work constructively with Starboard to avoid a proxy fight, which it called "self-serving" and "out of touch with the realities of the current operating environment and global crisis." In a statement, GCP said, "It is designed to undermine a board and management team—that have been delivering positive financial and operating results and prudently managing the balance sheet—with directors who have limited experience in the sector and have yet to provide any plan." Starboard last month nominated four directors to eBay Inc.'s (EBAY) board—a move that was criticized by the company for its timing during the pandemic. Last year, Starboard was granted a seat on eBay's board alongside Elliott Management Corp.
Keith Meister's Corvex Management purchased 500,000 MGM (MGM) shares at $12.02 each on March 30 for a total buy of $5,665,000, and 1 million shares at $11.94 on March 31 for a total buy of $11,940,000. Corvex owned more than 20.93 million MGM shares at the end of 2019, amounting to a 4.5% stake. Meister was appointed to MGM's board in June 2019 after the hedge fund took a more than 3% stake in the company. His mentor was Carl Icahn, who led the Caesars Entertainment (CZR) takeover by Eldorado Resorts (ERI). Icahn, after amassing a 28.5% stake in Caesars last year, tapped former Tropicana Entertainment CEO Anthony Rodio to replace Caesars CEO Mark Frissora and actively pursue being acquired. Ultimately, Eldorado reached a deal to acquire Caesars for $17.3 billion.
Synalloy (SYNL) on April 1 announced the adoption of a shareholder rights plan following board approval after "careful consideration of recent, extreme market volatility caused by the COVID-19 pandemic and other macroeconomic conditions, as well as the fact that Synalloy's current share price does not reflect intrinsic long-term value." The move follows Privet Fund Management's earlier announcement last month that it was nominating its own slate of five directors for Synalloy's eight-member board. Privet reported that it was joining with UPG Enterprises to nominate the directors, and together Privet and UPG own nearly 25% of Synalloy's stock. Synalloy joins companies like Tailored Brands (TLRD) that also have announced the adoption of shareholder rights plans to avert a business takeover due to market volatility. Tailored Brands, parent to the Men's Wearhouse and Jos. A. Bank (JOASB) chains, announced on March 31 its adoption of a short-term shareholder rights plan.
Standard General LP is pushing to replace four board members at Tegna Inc. (TGNA). The hedge fund, which owns nearly 10% of the outstanding shares of Tegna, sent a letter to the company's shareholders and launched a website on March 31 calling for change and criticizing Tegna's approach to recent acquisition overtures and management's failure to increase shareholder value. "We believe one of the key reasons for Tegna's underperformance is the lack of relevant industry expertise on its board," wrote Standard General founding partner Soo Kim, a nominee to Tegna's board. "None of Tegna's 11 independent directors has operating experience in local affiliate television broadcasting. That is why we nominated candidates with decades of C-suite and directorship experience in publicly traded local affiliate television broadcasting companies, and backgrounds spanning strategic planning, finance, M&A and technology." In response, Tegna Board Chairman Howard Elias and President and CEO Dave Lougee issued their own letter to shareholders and launched a website emphasizing the company's accomplishments, including a series of acquisitions, and urging shareholders to vote all 12 of the company's current directors back into their board seats. They also wrote, "Tegna's board has serious concerns about Mr. Kim's significant investments in and influence over Standard Media Group and Mediaco Holding, two emerging competitors in the broadcasting industry. Furthermore, we believe that it is highly inappropriate for another industry operator to have access as a Tegna board member to Tegna proprietary information, including our M&A pipeline, product development plans, R&D efforts, and partnership and affiliation strategies."
AT&T (T) will bring in Jason Kilar, founding CEO of streaming platform Hulu, to take over for John Stankey as the head of WarnerMedia. Kilar will report to Stankey, who will remain as AT&T's president and COO. The change comes a month before the scheduled introduction of streaming service HBO Max, the company's $15-a-month streaming service. As head of WarnerMedia since June 2018, Stankey has been controversial as he invested heavily in HBO Max and worked to dissolve the borders between WarnerMedia's separate units. Stankey has been controversial with major figures such as Richard Plepler, who had led HBO to 160 Emmys and maintained its independence was the key to its success. Elliott Management has a $3.2 billion stake in AT&T, and it has criticized the company's attempts to leave its telecommunications comfort zone to become a major player in the news and entertainment industries. In September, days after Stankey was made AT&T president, Elliott Management went public with a letter questioning AT&T's handling of WarnerMedia, expressing concern about whether Stankey had been right to allow the departure of Plepler. It also questioned whether he could simultaneously play a leadership role at the overall company while having oversight of CNN, Warner Bros., Turner, and HBO Max. Stephenson did not push back publicly against Elliott's criticism, and the two sides eventually agreed on a forward-looking plan that included streamlining operations and potentially selling off some of its units.
Top Occidental Petroleum (OXY) executive Oscar Brown has been forced out of the company as it deals with the fallout of a badly timed acquisition, declining crude prices, and heavy debt. Brown played a substantial role in Occidental's $38 billion deal to acquire Anadarko Petroleum Crop. last year, helping secure a $10 billion investment from Berkshire Hathaway (BERK) that supported the deal but required Occidental to pay Berkshire a rate of 8% annually. The Houston-based company did not explicitly disclose his departure on Wednesday, but a proxy filed by the company noted that Mr. Brown “was an employee of Occidental from 2016 to March 2020.” Occidental came under renewed pressure from investor Carl Icahn, a fervent critic of the Anadarko deal, last month as oil prices plummeted and it later reached a settlement that gave Icahn several board seats. Occidental has also slashed its dividend, cut planned capital spending for this year by nearly half, and reduced salaries for executives and employees.
SoftBank (SFTBF) has rescinded its $3 billion offer to buy additional shares in WeWork. In a statement, the tech investment giant said it had a duty to scrap the deal due to criminal and civil probes into the startup, WeWork's failure to restructure a joint venture in China and the impact of the coronavirus pandemic. The decision comes at a time when SoftBank is facing growing financial strain. Elliott Management has pushed SoftBank into a radical pledge to raise $41 billion by selling down core assets to raise cash for share buybacks and to reduce debt because its tech bets have soured. The tender offer had been agreed in October as part of bailout plan by SoftBank after WeWork's IPO plans flopped. However, investors had been concerned about its losses and a business model that involves taking long-term leases and renting out spaces for a short term. The decision means SoftBank is no longer obligated to proceed with a further $1.1 billion in debt financing for WeWork.
Xerox Holdings Corp. (XRX) is ending its hostile bid to purchase bigger competitor HP Inc. (HPQ) after the coronavirus pandemic undermined the copier maker's ability to pull off the debt-laden merger. The former formally announced March 31 that it is ending both its more than $30 billion tender offer and a proxy fight to oust the printer and PC maker's board of directors. The move, which puts an end to one of the largest mergers that had been in the works, underscores how deep the pandemic has impacted the world of deal making. It is the end of a five-month-long battle by Xerox, begun when its offer became public in early November after the two companies had earlier considered a combination quietly but failed to come to an agreement. HP has time and again spurned its rival since then, including Xerox's previous cash-and-stock offer of $24 a share. The development comes more than two weeks after Xerox said it was pausing efforts to meet with HP shareholders to advocate for its bid so it could focus on responding to the pandemic. The proposed deal had the support of Carl Icahn, Xerox's biggest shareholder with approximately an 11% stake; he also has a greater than 4% stake in HP.
In a recent statement, hedge fund Ciam says it welcomes the postponement of Scor's (SCOR) annual general meeting to June 30. Ciam says it is impatient to hear more from Scor on the company's succession plans and the confirmation of an independent chair.
Red Robin Gourmet Burgers (RRGB) has agreed to put a representative of Vintage Capital Management's choice on its board in exchange for the firm directing its participants at the company's annual meeting to vote for the restaurant chain's board nominees and platforms. Vintage Capital is Red Robin's third-biggest shareholder, with an 11.6% stake. The agreement, which was signed on March 26 and detailed in a March 31 Securities and Exchange Commission filing, also permits Vintage to purchase up to 20% of the company without triggering a poison-pill provision the Red Robin board adopted in 2019. It is good for five years or until Vintage and managing partner Brian Kahn have holdings of less than 11.6% of common stock. The agreement comes nearly 10 months after the Red Robin board backed a plan offering every shareholder the chance to purchase more shares of common stock having a value of twice the exercise price of the right if another person or group acquired beneficial ownership of 10% or more of the company's common stock. A week later, Kahn and Vintage Capital offered to buy Red Robin outright for $40 a share—about a 60% premium over where it had been trading the day before—if the company declined to review strategic alternatives including a sale. In September, the board rejected that $519 million offer. Less than a week after that, Vintage said it intended to pursue its examination into Red Robin's finances and seek to bring about major changes to what it felt was an underperforming company. In February, it stated in a letter that it was planning to nominate four directors to Red Robin's 10-person board at the company's upcoming annual meeting. Under the new agreement, Red Robin agreed to appoint Anthony Ackil, co-founder of health-focused comfort-food chain B. Good, to its board while Vintage Capital will withdraw the nominations of three other candidates. "We appreciate Red Robin's constructive approach, and we are pleased to reach this agreement," Kahn said in a press release. "We have great confidence in the company's newly appointed CEO, Paul Murphy, and its recently refreshed board, and we look forward to working with the company towards our mutual goal of positioning Red Robin for success and value creation."
Steven Cohen, owner of Point72 Asset Management, has warned his employees to remain disciplined as there are signs of markets beginning to recover from declines caused by the coronavirus. Cohen said in a note to staff, "We are seeing plenty of opportunities to generate returns, but I don't want us taking undue risks." Cohen says returns for Point72 Asset Management are "essentially flat for the year." He says this "speaks to how well our investment professionals have managed risk in such a challenging environment." Cohen's market view seems to have made its way to the White House. He last week participated in a conference call with President Donald Trump and Vice President Mike Pence, according to a source. What specifically he told Trump and Pence was unclear. Reuters earlier reported that the call was to talk about the U.S. economy, the Federal Reserve, and other matters, according to an administration official. Other call participants included Dan Loeb of Third Point LLC, Stephen Schwarzman of Blackstone Group (BX), Robert Smith of Vista Equity Partners, Paul Tudor Jones of Tudor Investment Corp., and Ken Griffin of Citadel.
Standard General, the hedge fund battling for board seats at broadcasting company Tegna Inc. (TGNA), wants the company to open its books to potential acquirers. Tegna said Sunday that the remaining two bidders, media investor Byron Allen and a consortium led by Najafi Cos. and Trinity Broadcasting Network, had not signed confidentiality agreements to enable due diligence or delivered any information on financing sources. "The two remaining bidders for Tegna own other broadcasting assets, so there could be various synergies," Standard General founding partner Soohyung Kim said in an interview. "Given that we don't know what the synergies are, you have to give people a chance to figure them out. If you create arbitrary barriers, you have the result we saw on Sunday." A source close to Tegna said that two bidders were welcome to sign confidentiality agreements to carry out due diligence on the company. Television station operator Gray Television Inc. (RTN) and private equity firm Apollo Global Management Inc. (APO) dropped bids for Tegna earlier this month amid market volatility. Standard General is asking Tegna's shareholders to elect its four nominees to the company's board at Tegna's April 30 shareholder meeting.
Monex announced that the Monex Activist Fund has commenced operations. The fund is part of an initiative by the Japanese online brokerage to activate Japan's capital markets and provide better investment products to individual investors. "This team is comprised of members with extensive expertise managing bottom-up research-based funds, hedge funds, activist funds, and fund engagement as well as experience in management consulting, M&A banking, and a diverse range of other fields," the company said. Monex added that Monex-Saison-Vanguard Investment Partners is in the process of becoming a 100% wholly owned subsidiary as of April 1. "It will be renamed Monex Asset Management Inc. Monex AM will take on a central role in the Group's asset management businesses and with advice from Japan Catalyst, begin managing Monex Activist Fund in April," explained Monex. "The company will provide the seed investment and is fully committed to Monex Activist Fund, as well as its efforts to transition from a broker model to an asset management model." The company added, "With the rapidly changing market and economic environment, we believe now more than ever is an opportune time for Monex Activist Fund to help raise corporate value of Japanese companies. And precisely given these current times, we as a Group will continue to pursue our mission to provide individual investors high-value-added products and services."
Starboard Value disclosed in a Securities and Exchange Commission regulatory filing that it has acquired a 9.3% stake in U.S. data protection and data management software company Commvault (CVLT), stating that it felt the shares were undervalued when it bought them. The filing said Starboard owns 4.3 million shares, and Commvault shares increased 7.3% in after hours trading, after having closed the session at $39.13. The Commvault filing did not offer any clues about Starboard's plans, saying only that the shares, when purchased, "were undervalued and represented an attractive investment opportunity." The filing indicated that the hedge fund started acquiring forward contracts in February and purchased common stock this month. "Commvault's top priorities, at this time, are the health and safety of our employees, taking care of customers, and operating our business," said a company spokeswoman. "As always, Commvault embraces open dialogue with our shareholder community and will continue to act in their best interest." Two years ago, Elliott Management and Commvault reached an agreement to add two independent directors suggested by the investor. In 2019, Commvault CEO Robert Hammer stepped down and was replaced by Sanjay Mirchandani. Commvault's stock has fallen 14% since January, showing more resilience than many other firms whose shares have been hit by panic selling triggered by fears over the coronavirus pandemic. Commvault's stock price jumped nearly 25% in the last five days. Last week, Starboard and cloud content management and file sharing service Box Inc. (BOX) reached an agreement to place three independent directors on the board of Box, in which Starboard owns a 7.5% stake. Two weeks ago, Starboard nominated four directors to eBay's (EBAY) board, pressuring the e-commerce company for the second straight year after having helped fill one board seat in 2019.
The coronavirus is forcing changes within the property sector. Pershing Square Capital's Bill Ackman has agreed to buy 10 million additional shares of Howard Hughes Corp. (HHC) stock at $50 each. Ackman also serves as Howard Hughes Corp.'s board chairman. The deal will give the company $488 million, and leaves the company with about $1 billion in cash. Howard Hughes Corp. says the money will be used "for general corporate purposes including to strengthen the balance sheet and provide liquidity."
Mack-Cali Realty Corp. (CLI) has formed a board committee and retained an executive search firm to find replacements for its retiring chairman and the four director candidates nominated by Bow Street. In a press release, Mack-Cali reiterates its belief that Bow Street wants to force a fire sale of the company's assets at any price. The company says it plans to launch a strategic process once market conditions improve.
Hudson Executive Capital urges shareholders of USA Technologies (USAT) to vote for its eight independent director nominees at the company's annual meeting on April 30. Hudson, which is USAT's largest shareholder with a 16.2% stake in the company, argues in a recent letter to shareholders that the USAT board has failed shareholders and that immediate change is required in the boardroom. Hudson says its nominees will be strong advocates for shareholders by working to replace ineffective management, restore proper governance, repair credibility, facilitate prudent capital allocation, and build long-term shareholder value. Its nominees are Lisa P. Baird, Douglas G. Bergeron, Douglas L. Braunstein, Jacob Lamm, Michael Passilla, Ellen Richey, Anne M. Smalling, and Shannon Warren.
Georgia Gov. Brian Kemp issued an executive order on March 20, 2020, allowing Georgia corporations to hold virtual shareholder meetings, so long as a company's board implements procedures to allow shareholders and proxyholders to participate and vote at the meeting via remote communications. The order is applicable to shareholder meetings scheduled between March 20, 2020, and the conclusion of the Public Health State of Emergency, including any extensions. Georgia corporations should carefully weigh whether their shareholder meetings should be changed to "virtual-only" or to a hybrid meeting that supports remote communication in order to comply with federal, state, and local directives on groups of people. Corporations should examine their organizational documents and the requirements of the order to confirm the board and the company can implement the appropriate procedures to make use of the order if needed. If the board finds that a virtual shareholder meeting is in the company's best interests, the decision should be memorialized by a formal resolution that lays out any needed guidelines and procedures for hosting and holding the meeting by remote communications. There are a variety of service providers that offer the technology required to host virtual or hybrid meetings of shareholders and maintain compliance. The company should apply reasonable verification measures to ensure that people accessing the virtual meeting are indeed shareholders or proxyholders. Companies should contact their inspector of elections, proxy solicitor, and attorney to talk about verification measures and any additional information that should be added to the company's proxy materials. If the company has already mailed proxy materials, such verification measures may require a further mailing or communication. Companies must also make sure the shareholder list is made available in accordance with O.C.G.A. Section 14-2-720(b), as updated by the order. Companies should make sure that virtual meeting participants can participate and vote "substantially concurrently" with the meeting's proceedings and that a record of any vote is kept by the company. Companies should also confirm that their intended virtual shareholder meeting conforms to the guidance from the Securities and Exchange Commission on shareholder meetings in light of the Covid-19 pandemic.
The French investment fund CIAM is again pushing for SCOR (SCRYY) to separate the chairman and CEO roles, both held by Denis Kessler. CIAM, which holds about 1% of the reinsurer's share capital, began its campaign against SCOR in early 2019 after SCOR rejected a €8.5 billion (US$ 9.5 billion) takeover bid in 2018 from French mutual insurer Covéa, its largest shareholder with a 10% stake at the time. CIAM had said SCOR's hostile reaction toward Covéa was not appropriate and underscored problems with its oversight practices. CIAM continues to believe that separating the chairman and CEO roles would help improve governance. The fund also has taken aim at "a poorly drafted pay policy that continues to lavishly reward" Kessler. In a March 24 letter to shareholders, CIAM said Kessler's "generous pension benefits has led SCOR to provision €24.7 million [US$27.5 million], based on his reference compensation." CIAM added that SCOR has only made "cosmetic changes...to the executive pay policy despite nearly half of the shareholders opposing SCOR's policy last year." CIAM has called for a shareholders' vote against the approval of Kessler's renumeration. Further, the fund is calling on shareholders to vote against the renewal of Augustin de Romanet as a director who chairs SCOR's Compensation and Nomination Committee, citing his long friendship with Kessler. In response, SCOR said, "CIAM puts forward once again seriously unfounded, inaccurate, and misleading statements with the purpose of destabilizing SCOR." The company said its board of directors has unanimously decided to reiterate its full support for Kessler and de Romanet. "The board has also acknowledged that the dismissal of Denis Kessler as director would also entail the termination of his office as chief executive officer, with all the foreseeable consequences on the stability and management of the group," SCOR added.
ValueAct Capital has built a 7% stake in Japanese chip and display materials maker JSR Corp. ValueAct's stake is worth around $283 million at JSR's current share price. The fund said in its regulatory filing that it is buying the stake as an investment and plans to give management advice or make important proposals depending on circumstances. JSR's advanced photoresists, a key chip-making material, was one of the sensitive high-tech products subject to the tighter curbs that Japan implemented on exports to South Korea last year. A spokeswoman at JSR said the company has had discussions with the fund, but declined to comment on what had been discussed.
On March 30, Standard General said it withdrew one of its five director nominees for a board seat at Tegna Inc. (TGNA) after discovering a "contractual restriction" on him serving on the board. The hedge fund—which owns 9.7% of Tegna—said in a regulatory filing that former Tribune Media Co. (TPCO) executive Lawrence Wert withdrew as a Standard General nominee on March 27. Sources say the restriction relates to non-compete clauses in his employment contract that still apply after ending his employment with Tribune last year. Standard General said it became aware of the situation on March 26. Tegna and Standard General have been embroiled in a proxy battle since January, when the hedge fund nominated four candidates to the board. It added Wert as a fifth nominee in late February, after the company named a new director. Standard General is moving forward with four nominees, including its founder, Soohyung Kim. However, Tegna has said it would be inappropriate for Kim to have access to the company's proprietary information, including its acquisition pipeline and product development plans, given his involvement with two other broadcasting companies, Standard Media Group LLC and Mediaco Holding Inc. (MDIA). Standard General holds a note that is convertible into 99% of the limited liability interests in Standard Media and some of its assets, as well as an option to acquire from McDermott Communications LLC, an entity owned by board nominee Deborah McDermott, all of its equity interests in Standard Media. Tegna shareholders will vote on the nominees at its April 30 annual meeting.
USA Technologies Inc. (USAT) has issued a statement in response to shareholder Hudson Executive Capital LP's filing of an "emergency" petition in court in which it alleges that USAT does not intend to hold its annual shareholder meeting by April 30. The petition was made just three days after USAT stated in its proxy statement filed with the Securities and Exchange Commission that its annual meeting will be held on April 30, 2020. As stated in the proxy, and as permitted under Pennsylvania law, the company may hold a "virtual" or "hybrid" annual meeting on April 30, 2020, if necessary to comply with public health orders in Pennsylvania in light of the actual emergency represented by the spread of Covid-19. In light of this, USAT alleges that Hudson's filing accusing USAT of seeking to delay the annual meeting is nothing short of a publicity stunt meant to further its own agenda.
MG Capital has for the second time in two months called for the ouster of HC2 Holdings Inc. (HCHC) Chairman and CEO Philip Falcone. Michael Gorzynski, the former Third Point executive who runs MG Capital—which owns 5% of HC2 along with its partners—asked lead independent director Wayne Barr in a letter "to facilitate the removal of Mr. Falcone." In February, MG Capital criticized the company's financial performance and said it wanted to replace the entire board, including Falcone, with six directors of its own. In the recent letter, the fund wrote, "Based on Mr. Falcone's well-documented financial, legal, and regulatory issues, MG Capital—and presumably other stockholders—remains perplexed by the incumbent board's focus on preserving HC2's status quo." In recent weeks, Falcone has been sued for more than $65.8 million for allegedly defaulting on loans and had his assets frozen for failing to pay lawyers. HC2 was ordered by a court last year to withhold some of Falcone's wages to satisfy unpaid obligations after he was ordered to pay $2.69 million in unpaid taxes to New York City. MG Capital said, "We remain deeply troubled by the impact that Mr. Falcone's apparent financial distress and legal issues may have on HC2." Further, Gorzynski wrote that MG Capital would "engage in a constructive one-to-one dialogue with [Barr] and the other directors once Mr. Falcone has been removed."
French reinsurer SCOR has plans to postpone its annual general meeting (AGM) to June 30, 2020, because of concerns about the Covid-19 pandemic. Previously, investor CIAM said SCOR was ignoring the market practice of postponing shareholder meetings and moving its AGM forward to be just within the limits of French corporate law. Now, SCOR seems to have succumbed to investor pressure and chosen a later date in the year, acknowledging the challenges posed by the pandemic. "Given the difficulties of holding annual shareholders' meetings in the current context of the Covid-19 pandemic, at the request of the Chairman and CEO, the Board of Directors of SCOR SE at its meeting of March 27, 2020, decided to postpone the holding of its Annual Shareholders' Meeting to June 30, 2020," said a statement from SCOR. CIAM CEO Catherine Berjal has criticized SCOR's governance practices, and previously led a call to have SCOR Chairman and CEO Denis Kessler removed.
Two suitors for broadcaster Tegna (TGNA) have withdrawn their acquisition offers amid upheaval in the broader market caused by the coronavirus crisis. The suitors that have bowed out are believed to be Gray Television and private equity giant Apollo Global Management, while bids from investor Byron Allen and religious broadcasting group Trinity, in partnership with private equity firm Najafi Cos., remain on the table. After the historic losses in U.S. equities markets over the past three weeks, Tegna shares have fallen from about $16-17 a share to $13.21 as of the close of trading on Friday. Tegna's management has been under pressure from shareholder Soo Kim of Standard General to be more active at a time of continued consolidation of local TV station assets. The company says its immediate focus is on stabilizing business amid the economic shock of the business clampdown caused by aggressive social distancing measures. Standard General has proposed an alternative slate of five directors to join the Tegna board as part of its effort to push the company to act on the M&A front.
Investor Bill Ackman of Pershing Square Capital has called for President Donald Trump to launch a massive infrastructure program to bolster the U.S. economy as it reels from COVID-19. Ackman added that it can be financed with "near zero cost long-term financing," noting that build costs will be lower because of lower commodity prices and less competition for labor. "We can rebuild America's infrastructure, and help support the economy to enhance the recovery from the virus," he said in a series of tweets on Sunday. The investor asserted that Trump would get bipartisan support on this issue. Ackman has suggested that Trump tackle the country's infrastructure problem before, suggesting at the 2017 SALT Conference that Trump help turn around his presidency by launching a significant infrastructure program. In a recent interview, Ackman said he's turned "very bullish" on the belief that the country would go into lockdown and minimize the impact of the virus. In a letter to investors on March 26, Ackman noted that the profits from the hedges were about equal to the mark-to-market losses suffered by the equity portfolio.
Pershing Square Capital Management CEO Bill Ackman said on March 28 that his firm no longer has hedges on its stock portfolio, but still has cash to invest should equities decline further as the U.S. battles the coronavirus pandemic. Pershing Square earned about $2.6 billion by hedging its stock portfolio in early March via credit protection on investment grade and high-yield credit indices, and much of the money has been reinvested in stocks that the company already owns. "Today, we are unhedged, and we no longer own any insurance," Ackman posted on a Twitter thread, adding that the sooner the entire country is shut down, the more lives will be saved and the sooner the economy will rebound. In a March 18 interview on CNBC, Ackman said he thought the best approach to eliminating the coronavirus was to close U.S. borders and shut down the entire nation, excluding essential services, for 30 days. The S&P 500 and the Dow Jones Industrial Average sharply declined following the interview's broadcast. Ackman later said the interview was not intended to enable Pershing Square to profit from any trades, dismissing media speculation that he had purposely pushed markets lower to make money off his hedges.
Privet Fund Management LLC has joined with UPG Enterprises LLC to nominate five directors to the eight-member board of Virginia-based Synalloy (SYNL). The move comes after Synalloy spurned several attempts by Privet to buy the company, which owns various manufacturing companies that make chemicals, metals, and infrastructure for the energy and industrial sectors. Privet contends that Synalloy is underperforming its competitors and the broader market, and Privet wants to make management changes. "We clearly believe in the long-term value creation opportunity at the company," said Ben Rosenzweig, a partner with Privet. "The company would not engage with us, [and] we felt there were some levels of entrenchment there." In a statement Tuesday, Synalloy acknowledged that its results for 2019 fell short of expectations, but said it has built a strong pool of assets, managed its cash flow, paid down debt, and increased market share.
Shareholders of Hanjin KAL have voted to keep Korean Air CEO and group Chairman Walter Cho as a board director. Cho fended off a challenge from his older sister and a fund to replace him with a professional manager as about 57% of the group's shareholders voted for his continued directorship. The proxy fight has been a major distraction for the airline as it struggles with the effects of the coronavirus pandemic. Korean Air said this week all executives will forgo 30%-50% of their salaries starting in April.
Shareholders of Kirin Holdings (KNBWY) on March 27 rejected investor Independent Franchise Partners' (IFP) proposal for the company to exit businesses outside of beer and buy back shares worth $5.54 billion. A majority of shareholders also approved board members proposed by management, rejecting nominees recommended by IFP. The proposals by IFP, which owns a 2% stake in Kirin, highlight weaknesses at Kirin, where moves toward diversification have produced mixed results. Analysts say that despite the vote, Kirin is now under strong pressure to prioritize investor returns, and may be forced to agree to less radical demands ahead. In another shareholder vote on March 27, Toshiba Machine (TSHMY) pushed through controversial anti-takeover measures to thwart a hostile bid by a fund backed by investor Yoshiaki Murakami. However, the proposal passed with the approval of just 62% of shareholders—close enough to keep the pressure on the former subsidiary of Toshiba Corp. (TOSYY) Murakami has said that while he will end his hostile bid if a poison pill goes through, he will keep urging more dividends and share buybacks. Analysts say that although people like Murakami are unpopular in consensus-driven Japan, institutional investors are no longer as passive as they once were. "Shareholder activism is not easy in Japan's complacent corporate culture, but will continue to increase as that's the global trend," noted Masayuki Otani, chief market analyst at Securities Japan. The number of activist funds operating in Japan rose to 36 in 2019 from only seven five years ago, according to data from IR Japan Holdings. Shareholders in SoftBank Group Corp. (SFTBY) may already be benefiting. Elliott Management had been urging SoftBank to complete $20 billion in stock buybacks by selling down its stake in Chinese e-commerce giant Alibaba (BABA). Although SoftBank initially spurned that call, it has subsequently announced it intends to raise as much as $41 billion to buy back shares and reduce debt.
Amber Capital's founder Joseph Oughourlian said the firm could hike its 16.4% stake in French media conglomerate Lagardere, where it has pushed for board changes. "We're not ruling out increasing our stake. ... We could raise it ahead of the annual general meeting," Oughourlian told France's BFM Business TV. Amber stepped up pressure on Lagardere on Thursday, saying it would seek to change the supervisory board and called for a review of its strategy ahead of its May 5 shareholder meeting.
Carl Icahn has casually raised the possibility of repricing Eldorado Resorts' (ERI) deal to acquire Caesars Entertainment (CZR). Eldorado is set to acquire all outstanding shares of Caesars for $12.75 a share for cash and ERI common, and at closing, would own 51% of the new company; Caesars shareholders would own 49%. The three big shareholders are Icahn, with 16.79% of shares outstanding; BlackRock (BLK), with 7.57% of shares outstanding; and Canyon Capitol Advisors, with 6.8% of shares outstanding. They control 31.6% of the deal. The coronavirus pandemic has devastated the valuations of the deal, and repricing could reduce debt incurred and help propel the successor stock forward post-crisis. The new company, which would be under the Caesars names, had previously been expected to debut in a robust U.S. economy.
Sources say Stericycle (SRCL) has reached a settlement with Saddle Point Management that gives the firm two board seats, expanding the board from 10 members to 12. James Martell, a former XPO Logistics (XPO) director, and James Welch, former CEO at YRC Worldwide (YRCW), who were nominated by Saddle Point, will join the medical waste company's board. The move comes as some investors call for Stericycle to cut costs, pay down debt, and sell non-core assets. Saddle Point did not press for any changes publicly. Roy Katzovicz, former chief legal officer and an investment team member at William Ackman's Pershing Square Capital Management, founded Saddle Point two years ago but until now has largely stayed out of the public eye. Saddle Point requested confidential treatment from the Securities and Exchange Commission to build its stake in Stericycle. Other investors who made demands more publicly and won board seats include Carl Icahn, Elliott Management, and Starboard Value at companies ranging from Occidental Petroleum (OXY) to Twitter (TWTR).
CIAM has written to shareholders of French reinsurer SCOR to caution about major corporate governance shortcomings at the company, and has called on it to postpone its annual general meeting (AGM), currently scheduled for April 17. CIAM has a greater than 1% stake in SCOR. CIAM said areas of "significant concern" at SCOR have been "largely unaddressed by an unresponsive board." Catherine Berjal, CIAM's chief executive, said only "cosmetic changes" have been made to SCOR's executive pay policy, even though almost 50% of shareholders opposed it in 2019. Pointing to a "poorly drafted pay policy that continues to lavishly reward the chairman/CEO"—without a sufficient tie to performance—Berjal said that last year's AGM sent a "very clear signal" that the executive remuneration policy was inadequate. Berjal also criticized the lack of an independent chairman at SCOR, and asked that the company delineate a clear succession plan for when Denis Kessler, the current chief executive and chairman, exits in 2021. Further, Berjal discussed the firm's environmental, social, and governance (ESG) policy. "For a company operating in the financial services sector, the level of sophistication on the environmental, social, and governance criteria incorporated within the bonus plan is worrying," she wrote. "There is no clear forward-looking quantitative ESG priorities set for 2020, including on the topics ranging from climate change to gender equality." She suggested that a postponement of SCOR's AGM would be more shareholder-friendly, and would allow SCOR to focus on managing the effect of the ongoing Covid-19 crisis.
On March 26, Lindblad Expeditions (LIND) said it named two independent directors, former Sothebys CEO Thomas Smith and ValueAct Capital associate Sarah Farrell, to its board. Smith and Farrell were backed by ValueAct, which owns a nearly 10% stake in the adventure cruise company and is its second-largest investor. The pair will fill two vacant seats on Lindblad's eight-member board. The move comes after ValueAct boosted its ownership in Lindblad to 9.8% from 7.4%. Lindblad's share price has fallen 62% in the last month, as travel virtually stopped due to fears over the coronavirus pandemic. "Lindblad's board has always been a source of wisdom for our management team in all ways and adding two new members with distinct backgrounds and experience simply adds to an already solid board," Chairman Mark Ein said in a regulatory filing.
Discussions between First United Corp. (FUNC) and Driver Management to settle a battle for board seats at the bank holding company broke down when the investor spurned the offer, according to two sources. Driver Management has approximately a 5% stake in the company. "Your 'best and final' offer failed to meet what I clearly described as the minimum acceptable conditions for any cooperation agreement," Driver founder Abbott Cooper wrote in a letter to the board's lead director. "I think it is appropriate to suspend those discussions." The two sides now seem poised for a showdown at a time when several companies have moved to settle with investors amid the panic selling spurred by the coronavirus pandemic. First United, the holding company for Maryland community bank First United Bank & Trust, said it was offering Driver a say in choosing more than a quarter of its 11-member board, including two independent directors who would be selected prior to the 2020 annual meeting. Driver would select one director from the company's nominees and the company would choose one of Driver's proposed candidates, according to First United's proposal. A third independent director would be chosen prior to the 2021 meeting. Driver has for months been calling for the company to sell itself, arguing it has fallen behind competitors in making new loans. In September, Driver anticipated the company could be sold for between $26 and $33 a share. It traded at $12.88 on March 26. This week, Driver criticized the company for mistakes during the 2008 financial crisis and said it was poorly positioned for the current downturn.
In a letter to Pershing Square investors, Bill Ackman said it is "ridiculous" to suggest that his appearance on CNBC last Wednesday pushed the market down an additional 4% that day. Ackman was responding to questions about whether his CNBC TV appearance was intended to drive down markets so the company could profit on previous hedges. Ackman said the hedge already paid off prior to his going on CNBC, as the company had sold more than half the hedge before the show. "By selling the hedge, we generated $2.6 billion of proceeds, the substantial majority of which we invested in both new and existing investments, which we believe will payoff as markets recover," Ackman wrote.
Evergy (EVRG) has postponed by two months the deadline for a special board committee to provide options for the company's restructuring or possible sale, as part of an agreement with Elliott Management Corp. The committee, comprised of current Evergy directors and new directors added at Elliott's urging, will present a formal recommendation to Evergy's full board on July 30 instead of May 30. The deadline for a board vote on the recommendations also has been pushed back two months to Aug. 17. Evergy said in a filing with the Securities and Exchange Commission that the extensions are required due to restrictions on travel and in-person meetings related to the Covid-19 outbreak. Elliott approached Evergy in October, and went public in January with its demand that Evergy either reorganize or pursue a merger. Evergy and Elliott announced an agreement on Feb. 28 calling for the appointment of new members to the utility's board, while having four existing board members retire in May. The two new members—onetime Energy Future Holdings CEO Paul Keglevic and NRG Energy (NRG) CFO Kirk Andrews—were to serve on a new committee established to review the company's options for improving shareholder value "including through a potential strategic combination or a modified long-term standalone operating plan and strategy." Other committee members include Evergy CEO Terry Bassham and existing board member Art Stall. Elliott agreed not to raise the amount of stock it owns or controls in Evergy to more than 9.9%, nor to solicit any other voting arrangements or disparage the utility.
Investor Amber Capital wants to replace the board of French media group Lagardère (LGDDF), the latest stage in its longstanding campaign for change at the company. Amber, which is the group's largest shareholder with a 16.4% stake, argues that poor governance has allowed heir and managing partner Arnaud Lagardère to destroy shareholder value for years without consequences. The fund has proposed 16 resolutions to put forward a slate of eight new board members at the company's general meeting in May. It will not oppose the appointment of the two new board members Lagardère has proposed, who are former French President Nicolas Sarkozy and Guillaume Pepy, who used to run state-owned rail company SNCF. Amber has selected Patrick Sayer, the former CEO of listed private equity company Eurazeo, as its candidate for board chairman. The move represents an escalation in the conflict that has raged between Lagardère and Amber since it first took a stake in 2016. Amber wants to get rid of the company's "commandite" structure, which makes it so that Arnaud Lagardère cannot be removed as in a normal company, and cut management costs so as to invest more in publishing and travel retail. Two years ago Amber tried unsuccessfully to nominate two members to Lagardère's board at its shareholder meeting, but investors voted against its proposals.
Bill Ackman has invested some of his personal wealth to help manufacture antibody testing kits produced by Covaxx, a newly formed subsidiary of United Biomedical Inc. "The key to a successful reopening beyond the maintenance of social distancing, hand washing, mask use, and other related practices is a broad-based testing regime and tracing program," Ackman said in a Wednesday letter to investors in Pershing Square Capital Management. "This will enable the inevitable viral breakouts to be identified early and minimized with localized quarantines, reducing the impact on the overall U.S. economy and the need for future shutdowns." The letter says that Ackman made a roughly 100 times return on hedges he had put in place to protect Pershing Square's $6.6 billion portfolio against the impact of the virus. His firm paid roughly $27 million for the hedges, which were made in the form of purchases of credit protection on investment-grade and high-yield credit indices. He said he has since redeployed the capital by investing further in his portfolio companies, including Lowe's Cos. (LOW), Agilent Technologies Inc. (A), Hilton Worldwide Holdings Inc. (HLT), and others. Covaxx has already deployed over 100,000 Covid-19 tests in China, and Ackman says its tests offer a broader antibody-based screen that could allow for more accurate data on the virus. United Biomedical mainly produces vaccines for animals, and it has developed blood-screening kits and a test for SARS, or Severe Acute Respiratory Syndrome.
Christopher Hohn's TCI Fund Management has lost more than 30% year-to-date through its flagship vehicle, The Children's Investment Fund. TCI's losses illustrate a trouncing that value-oriented equity managers have experienced as the financial market crashes in response to the coronavirus pandemic. The HFRX Equity Hedge Index was showing a monthly decline of 12.3% as of March 20, with a year-to-date drop of 16%. TCI's fund slumped 8.8% in February after gaining 3.8% in January, and while its exact concentrations are not known, sources say its recent performance suggests a heavy exposure to stocks. Some sources say investors remain bullish on the portfolio as they consider the underlying companies strong and likely to regain value. Others said limited partners likely will withdraw some of their capital, especially given lingering questions about how Hohn navigated the 2008 selloff, when TCI lost 43% compared to a 19% decline for the average hedge fund. It is believed that the poor showing reflected a bullish economic view held by Hohn even as TCI co-founder Patrick Degorce, who ended up leaving the firm in 2008, had been pushing to move more heavily into cash. The vehicle's 2020 performance has marked a stark and sudden reversal from what had been outstanding gains in recent years, returning average annual returns of more than 10%.
Looking to ward off hostile bidders and shareholders seeking to exploit the coronavirus-induced market sell-off, more U.S. companies are adopting so-called poison pills. These tools prevent other companies and investors from amassing ownership stakes above a certain threshold by authorizing the company to sell new stock to its shareholders at a discount. The S&P 500 Index has lost about a quarter of its value in the last month due to the coronavirus outbreak, making the shares of many companies cheaper and more vulnerable to approaches by corporate rivals and hedge funds. A record 10 companies announced poison pills in March, according to FactSet Research Systems Inc. (FDS) and Deal Point Data LLC. FactSet adds that 44 poison pills were adopted in the year ending March 25, double the number during the previous 12-month period. "Companies have been adopting poison pills at a faster pace than we have ever seen in recent years. We expect more will be coming, many more," said Lawrence Elbaum, co-head of law firm Vinson & Elkins LLP's shareholder activism practice. Companies announcing poison pills in the last 10 days include Occidental Petroleum (OXY), Dave & Buster's Entertainment Inc. (PLAY), Delek US Holdings Inc. (DK), Williams Cos. (WMB), Global Eagle Entertainment (ENT), and Chefs' Warehouse (CHEF). Occidental and Delek adopted poison pills to defend against investor Carl Icahn. The others did so after their stock price plummeted, without disclosing a specific threat. Meanwhile, hedge funds with stakes in companies that suffered losses in the stock market recently have raised their stakes. For instance, Jana Partners boosted its stake in Bloomin' Brands (BLMN) to 9.2% from 7.4%, ValueAct Capital raised its stake in Lindblad Expeditions Holdings (LIND) to 9.8% from 7.4%, and Pershing Square Capital Holdings snapped up shares of Starbucks Corp. (SBUX) after having sold a previous stake earlier this year.
A Seoul court has ruled against a South Korean fund's alliance that is fighting for control of Hanjin Group. The Korea Corporate Governance Improvement (KCGI) Fund, along with Bando Engineering & Construction, backs group heiress Cho Hyun-ah, who has called for replacing the current leadership of Hanjin to boost its financial status and shareholder value. The KCGI alliance controlled voting rights for 31.98% of the shares of Hanjin, but the Seoul Central District Court has decided to reduce it to 28.78%. The court has ruled against Bando's injunction that asked for allowing the company to cast 8.2% of its votes. In addition to allowing Bando to cast only 5% of the votes, the court ruled against a KCGI injunction that asked for banning a group consisting of Korean Air employees from exercising voting rights with 3.79% of shares. Hanjin KAL shareholders are set to vote Friday on the reappointment of Cho Won-tae as chairman of the group. Together with employees' shares, Cho Won-tae is believed to have secured total voting rights equal to 37.49% of shares, including those of Delta Air Lines (DAL).
Cevian Capital has boosted its stake in CRH (CRH) over the past week as the coronavirus outbreak and subsequent turmoil in the stock market weigh on the company's stock. Cevian disclosed on March 24 that it owns 3.51% of the Irish building materials firm, up from 3.14% as recently as last week. "When this passes CRH's fundamentals will still be strong, and the business well positioned to benefit from increased public construction spending which seems increasingly inevitable," said Cevian managing partner Christer Gardell. The company's stock has tumbled 36% so far this year.
On March 25, Occidental Petroleum Corp. (OXY) said it would add three of Carl Icahn's associates to its board, ending its battle with the investor that began after its acquisition of rival Anadarko Petroleum. The company said Andrew Langham, Nicholas Graziano, and Margarita Paláu-Hernández will join Occidental's board as independent directors. Icahn said in a statement, "We believe Oxy is a good company with good assets."
Kirin Holdings Co. (KNBWY) is in a battle with London-based Independent Franchise Partners (IEP), which owns a 2% stake and is calling on the Japanese beer maker to focus on alcoholic drinks and shed noncore businesses. This comes as foreign shareholders have been successful in securing buybacks and higher dividends from Japanese companies. On March 23, SoftBank Group Corp. (SFTBY) said it would buy back as much as $18 billion in shares after pressure from Elliott Management Corp. The New York hedge fund pushed its ideas behind closed doors, and many investors say that such an approach generates better results when working with Japanese companies. At Kirin, IEP nominated two board candidates, corporate-governance expert Nicholas Benes and pharmaceutical executive Kanako Kikuchi. The company agreed that current board members would conduct interviews with the nominees but said both candidates flunked, which ramped up the battle. Kirin management opposes all of the investor's proposals, which are up for a shareholder vote on March 27. IEP wants Kirin to sell its stakes in Fancl and Kyowa Kirin Co. (KYKOF), buy back ¥600 billion ($5.4 billion) in shares, and allow Benes and Kikuchi to join the board.
Starboard Value LP supports Green Dot's (GDOT) appointment of Daniel R. Henry as chief executive. "We believe that Mr. Henry has the requisite skill set and industry experience to lead the transformation at Green Dot and focus on reinvigorating growth and improving profitability," Starboard Value LP said in a statement. "We look forward to continuing our constructive dialogue with the company regarding operations, strategy, finance, and governance." The company's shares rose 13% on March 25 in early trading.
SoftBank (SFTBY) has demanded that Moody's remove all of its ratings on the Japanese conglomerate after the ratings agency issued a two-notch downgrade that cut its debt deeper into junk status. SoftBank, which is led by the Japanese dealmaker Masayoshi Son, said Wednesday that Moody's has "biased and mistaken views." Moody's downgraded SoftBank's ratings two days after the conglomerate said it would sell $41 billion of its assets to pay down its heavy debt load, which Elliott Management is encouraging, and increase the scale of a share buyback. The ratings agency said it downgraded SoftBank because of the "aggressive financial policy," saying the value of the group's portfolio would be reduced if it sold off its lucrative stakes in the Chinese ecommerce giant Alibaba. The Moody's downgrade could increase borrowing costs for SoftBank.
HP Inc. (HPQ) is asking its shareholders to reject a takeover proposal submitted by Xerox Holdings Corp. (XRX). The company warns that a complex takeover would be "disastrous" during the economic turmoil caused by the coronavirus. Xerox has offered to buy HP for $24 a share in cash and stock. The deal has a value of about $35 billion. However, Xerox says it will put its acquisition plans on hold until the coronavirus situation has improved.
Occidental Petroleum Corp. (OXY) is reducing salaries for its U.S. employees by up to 30% in an effort to reduce expenses, according to an internal e-mail made available to The Wall Street Journal. The Houston-based oil-and-chemical company is dealing with high debt from an ill-timed acquisition, plummeting oil prices, and falling demand due to a halt in economic activity because of the coronavirus pandemic. Occidental CEO Vicki Hollub's salary will be slashed by 81%, while the company's top executives' compensation will be reduced by an average of 68%, the e-mail states. Employee bonuses and perks, including commuter subsidies and gym memberships, are scheduled to end next month. Meanwhile, Occidental is close to reaching a truce with Carl Icahn that would bring the investor into the oil company’s boardroom, The Wall Street Journal reported March 22. A deal would mark the end of a protracted battle with Icahn, who took aim at Occidental after the company outbid Chevron (CVX) for Anadarko. Occidental's market capitalization has since plummeted below $10 billion, from more than $46 billion at the time of the offer. The company had held off Icahn for months, but had to give up significant ground as oil prices dropped below $25 a barrel because of a price war between Saudi Arabia and Russia and weakened demand due to the coronavirus pandemic.
Elliott Management slashed its stake in Telecom Italia (TIIAY) by nearly 3% in response to a financial crisis, but this should not alter the investor's influence on the operator. A filing by the Italian Companies and Exchange Commission (Consob) indicated that Elliott Management reduced its stake from 9.72% to 6.97% in a bid to rebalance its portfolio after Italy's economy was roiled by efforts to combat the Covid-19 pandemic. A source said that this action does not change Elliott Management's commitment to Telecom Italia as a shareholder, and the investor has the full backing of the company's board and management. The hedge fund has had a significant impact on Telecom Italia since emerging as a shareholder in early 2018. Elliott Management revamped Vivendi (VIVHY), the operator's single largest investor at the time, to assume control of the board, sparking a contentious feud between the two shareholders. The investors have been on relatively peaceful terms since last year, as they agreed on a common strategy for Telecom Italia.
Investor Bill Ackman of Pershing Square Holdings Ltd. (PSH) has taken off credit market hedges and reinvested the money after turning "increasingly positive" on stock and credit markets. Ackman initially took out the credit protection on investment-grade and high-yield credit indices at the start of March amid mounting coronavirus panic in global markets. Ackman told PSH investors on Wednesday that subsequent market falls, combined with federal monetary support and steps taken by state governments to contain the disease, had made him more positive. Pershing Square completed its exit from the hedges on March 23, generating proceeds of $2.6 billion, and had reinvested most of the money in existing holdings Agilent (A), Berkshire Hathaway (BERK), Hilton (PK), Restaurant Brands (QSR), and Lowe's (LOW). The fund also bought into several new holdings, including Starbucks (SBUX), which it had exited in January. However, Ackman expects markets and the firm's performance to remain volatile, and he also reiterated his call to close the whole country for 30 days.
The Securities and Exchange Commission (SEC) on March 25 announced that it is extending the filing periods covered by its previously enacted conditional reporting relief for certain public company filing obligations under the federal securities laws, and that it is also extending regulatory relief previously provided to funds and investment advisers whose operations may be affected by COVID-19. In addition, the SEC's Division of Corporation Finance has issued its current views regarding disclosure considerations and other securities law matters related to COVID-19. To address potential compliance issues, the SEC issued an order that, subject to certain conditions, provides public companies with a 45-day extension to file certain disclosure reports that would otherwise have been due between March 1 and July 1, 2020. The March 25, 2020, order supersedes and extends the commission's orignal March 4, 2020, order. Among other conditions, companies must continue to convey through a current report a summary of why the relief is needed in their particular circumstances for each periodic report that is delayed. The commission also issued orders that would provide certain investment funds and investment advisers with additional time with respect to holding in-person board meetings and meeting certain filing and delivery requirements, as applicable. The March 25, 2020, orders supersede and extend the filing periods covered by the commission's original March 13, 2020, orders. Among other conditions, entities must notify the division staff and/or investors, as applicable, of the intent to rely on the relief, but generally no longer need to describe why they are relying on the order or estimate a date by which the required action will occur. The Division of Corporation Finance on March 25 issued Disclosure Guidance Topic No. 9, providing the staff's current views regarding disclosure and other securities law obligations that companies should consider with respect to COVID-19 and related business and market disruptions. The guidance encourages timely reporting while recognizing that it may be difficult to assess or predict with precision the broad effects of COVID-19 on industries or individual companies.
Toshiba Machine (TSHMY) has taken its case against a takeover by investor Yoshiaki Murakami to shareholders and regulators. Murakami and his daughter are linked to funds that hold a 12.7% stake in Toshiba Machine. In late January, the funds launched a hostile takeover seeking a stake of as much as 43.8% in the company. However, Toshiba Machine's stock price has lost half its value over the past two months during the coronavirus crisis, which has prompted Murakami's fund to offer to pull its bid if the company agreed to a $108 million share buyback. Murakami faces the prospect of a tender offer that will probably be lossmaking because Toshiba Machine rejected the proposal. Moreover, shareholders are set to vote on anti-takeover measures during Toshiba Machine's extraordinary general meeting on Friday. Japan's Ministry of Finance recently closed a loophole that allowed Murakami, a resident of Singapore, to operate as a domestic investor by using Tokyo-based vehicles.
SoftBank Group (SFTBY) had discussions with investors including Elliott Management and the Abu Dhabi sovereign investment vehicle Mubadala about possibly taking the company private. The talks came as SoftBank founder Masayoshi Son moved to revive shares in the group, which has $55 million in debt, after a stock market rout last week. Eventually SoftBank decided instead to move ahead with a plan to sell down about $41 billion in assets to pay down debt and boost its share buyback to $23 billion, sending the company's shares up 41% last week. At the end of last week, SoftBank's shares had an equity value of around $50 billion before any potential premium would have been applied. Son began considering a leveraged buyout after Elliott's Gordon Singer expressed interest in buying more SoftBank shares last week as their price fell. During those discussions, Son and some of his key lieutenants began to study the formation of an investor consortium to take SoftBank private. The plan was eventually abandoned for a number of reasons, including the complications around getting an investor consortium together quickly for such a large deal, Tokyo-listing rules, and other tax considerations. Son has often vented his frustration with the public markets, arguing that SoftBank's equity value is at a steep discount to the value of its holdings. By the end of last week, SoftBank said that the discount had stretched to 73%, the widest in the company's history.
Two investors who push management to perform better are trying to raise cash to buy stakes in companies. Glenn Welling, who runs the $1.1 billion Engaged Capital, wants to raise as much as $250 million in new money, and Johnathan Litt's $500 million Land & Buildings Investment Management is forming a new investment vehicle. Litt wants to invest in companies with strong balance sheets that are trading at large discounts and own assets such as data centers, warehouses, and lab space. Litt's team will host a conference call on Wednesday to discuss the opportunities in public real estate being created by the COVID-19 sell-off. Welling has approached only existing investors. Engaged's three largest investments at the end of 2019 were Hain Celestial Group Inc. (HAIN); Rent-A-Center Inc. (RCII), whose stock has fallen 51% since January; and Medifast Inc. (MED), whose stock has fallen 42% since January. Others including Bill Ackman's Pershing Square Capital Management and Carl Icahn have also bought more stock in companies they owned. Panic selling has driven the S&P 500 index down some 30% since January, creating a buying opportunity for some as previously expensive companies may now be attractive.
Hudson Executive Capital LP has stated that the proxy materials filed by USA Technologies (USAT) contain "material representations" meant to "disenfranchise shareholders and entrench management." Hudson, which owns 16.2% of USAT's common stock, says it reached out to the new chairman and CEO of the company last week to engage in good faith settlement discussions to reach a resolution and expedite necessary changes at the company, which it says USAT cut off. Hudson objects to USAT's continued insistence that a majority of current directors participate in the new board, as these individuals were responsible for USAT's Nasdaq delisting, "unfathomable accounting gaffes, detrimental financing agreements, [and] ill-advised capital allocation decisions," as well as a stock price that has fallen 44% since the Oct. 17 appointment of Don Layden as interim CEO. "We are further troubled by the fact that management has entered into a new transaction processing agreement with long-run consequences one month prior to the shareholder vote," says Hudson.
British insurer Prudential said March 24 it was actively evaluating other options in relation to its U.S. business Jackson along with preparations for a minority public offering, because of ongoing market turmoil related to the coronavirus pandemic. "Our business continues to be financially resilient," Prudential said in a statement. The insurer earlier in March said it planned to float a minority stake in Jackson amid demands from investor Third Point for a complete break-up.
USA Technologies Inc. (USAT) argues in a March 24 letter to shareholders that it has been trying to end an ongoing proxy contest with Hudson Executive Capital but will not make changes that it says would "risk significant value destruction." It says that Hudson has refused to honor a past handshake agreement wherein it would have the right to select four out of eight directors, instead forcing out the current USAT CEO and installing a Hudson insider as executive chairman. As such, USAT recommends that shareholders vote for all of USAT's director candidates, saying the company benefits from solid business fundamentals, a clear market strategy, and positive long-term industry trends. In addition, USAT says it continues to take action to reduce costs and enhance compliance, and that the USAT board and its candidates are on course to manage the COVID-19 crisis and emerge as a stronger company.
On March 24, Occidental Petroleum Corp. (OXY) named former CEO Stephen Chazen as non-executive chairman. The move reportedly was made to appease investor Carl Icahn. It had previously been reported that Occidental was close to adding two of Icahn's associates to its board.
In light of the coronavirus pandemic New York Gov. Andrew Cuomo on March 20 issued Executive Order No. 202.8, allowing New York corporations to hold annual shareholder meetings solely through remote communication. The Executive Order alleviates the concerns of many New York public companies that have been trying to comply with New York law while protecting the health of the shareholders and other constituencies that typically attend annual meetings. The Executive Order is effective through April 19, 2020. Absent such an Executive Order, the New York Business Corporation Law mandates that New York corporations hold annual meetings at a physical location, although they may give their shareholders the choice to attend through remote communication. Meanwhile, New Jersey Gov. Phil Murphy on March 20 signed a law allowing New Jersey companies to hold hybrid or virtual-only annual meetings during a state of emergency, so long as the board of directors authorizes and adopts guidelines and procedures concerning this type of meeting.
Land & Buildings is pulling its slate of board nominations for American Homes 4 Rent (AMH). Land & Buildings says governance and operational issues continue at American Homes. "If we do not see continued improvement in the areas we have highlighted, we will not hesitate to run a proxy contest next year," Land & Buildings said.
In November, the Securities and Exchange Commission (SEC) proposed rules that would require proxy advisory firms to disclose more about their process and give companies the opportunity to make revisions before submitting final recommendations to clients. Institutional investors such as New York City Comptroller Scott Stringer have had a negative reaction to these recommendations, which they say will further insulate corporations. Patti Brammer of the Ohio Public Employees Retirement System is concerned that the proposals would negatively impact the independence of proxy recommendations, adding that if costs rise as a result of the new regulations, issuers should bear some of the burden. A recent study from MSCI Inc. looked at more than 2,300 shareholder proposals and found that 30.9% of them were submitted by individual investors, and that 55.3% of those proposals obtained more than 30% of total votes cast. MSCI's Ric Marshall says these findings undermine the notion that shareholder proposals are simply filed by gadfly investors. SEC Commissioner Elad Roisman voted for the proposals, but said in a March 10 speech at the Council of Institutional Investors that, based on feedback from stakeholders that use proxy advisory firm services, he understands "that there is concern that these days devoted to issuer pre-review could disrupt current voting practices." Proxy advisory firm Glass Lewis & Co. says it continues to engage with SEC on the proposals.
SoftBank Group Corp. (SFTBY) is planning to raise as much as $41 billion to buy back shares and reduce debt in an attempt to improve investor confidence. The move comes as the company has suffered greatly under the recent market decline. SoftBank has also been under financial pressure after its $100 billion Vision Fund recorded two straight quarters of losses. Furthermore, the coronavirus has compounded the company's struggles. Shares of the company rose 19% after it announced the stock buyback plan. The company's plan is bigger than the $20 billion of purchases sought by Elliott Management, which has pressured the company to improve shareholder returns.
As part of an agreement with Starboard Value LP, Box Inc. (BOX) said it would appoint three new directors to its board. Starboard is the third-largest shareholder in the cloud service provider, with a 7.7% stake, behind Vanguard Group and BlackRock (BLK), according to Refinitiv data. Former GoPro (GPRO) CFO Jack Lazar will join the board immediately. A second director will be selected from a list of candidates provided by Starboard, and the board will choose a third director ahead of its annual meeting of stockholders in June. Two current board members, including CFO Dylan Smith, will not stand for re-election, and another board member will retire. Box also formed a committee to work with management to suggest ways to improve growth and margin. Starboard first revealed a stake in Box in September and said it might talk to the company about exploring a sale and making operational improvements. "We see a number of opportunities for substantial shareholder value creation," said Starboard managing partner Peter Feld.
Sources say Hestia Capital Partners LP and Permit Capital Enterprise Fund LP plan to nominate two directors to the 11-member board of GameStop Corp. (GME), in which they jointly own 7.5% of shares. The move comes less than a year after reaching a cooperation agreement with the video game retailer, which agreed to add a director to the board who was proposed by the investors. The investors, which criticize GameStop's board for poor strategic planning and capital allocation, reportedly plan to nominate Hestia partner Kurtis Wolf and Paul Evans, an executive who has experience as a CFO and board member. Hestia and Permit argue that missteps have caused GameStop's share price to fall 63% over the last year, and that one new director was insufficient to change board dynamics. "We believe adding a large stockholder, as well as another stockholder supported voice with financial expertise, will give stockholders a greater say in the future of the company, something that is greatly needed," Wolf and Permit partner John Broderick wrote in a letter to shareholders.
Twitter Inc. (TWTR) expects its financial performance to decline this quarter due to lower advertising spending caused by the coronavirus. The social media company says it will record an operating loss in the first quarter and that sales will decline "slightly" compared with the first quarter of 2019. Previously, Twitter expected sales for the first quarter would rise and operating income could reach $30 million. The company has also been under financial pressure lately after Elliott Management Corp. purchased a stake in the company. Elliott Management would go on to call for the removal of co-founder and CEO Jack Dorsey. The company has since reversed that demand and has taken a board seat.
Investor Bill Ackman says he has made a "recovery bet" on the economy by investing $2.5 billion in equities. Ackman has taken off all the hedges he put in place for his Pershing Square Capital Management through shorts in the credit market, which were put in place to offset the effects of the coronavirus. His fund has used the proceeds to reinvest in several of his portfolio companies, including Lowe's Cos. (LOW), Hilton Worldwide Holdings Inc. (PK), and Berkshire Hathaway Inc. (BERK). Ackman believes the sell-off of companies such as Hilton have been overdone, noting that Hilton in particular does not have a lot of debt and has strong cash flow. Others, like Boeing Co. (BA), will need support to get through the current turbulence, either through government aid or the private sector, according to Ackman. Ackman has called for increased virus testing across the country and also wants a federally mandated nationwide shutdown over the next 30 days.
Since last summer, investor Carl Icahn has been betting $5 billion against shopping malls in the CMBX 6 index, which tracks $25 billion in commercial mortgage-backed securities. Icahn's mall short has grown from $400 million in November to $5 billion today, representing 25% of his total assets of $20 billion. His position puts him against mutual fund giants like Putnam Investments and AllianceBernstein, who are betting that the diversified securities will come out fine even if malls default. Mutual funds had been winning the battle until now, as the coronavirus pandemic pushes shoppers inside and pushes stores to close. On Monday, the value of the BBB negative-rated swaps represented by CMBX 6 fell to 68 cents on the dollar, down from 95 cents before the coronavirus forced retailers to close en masse. The A-rated swaps, which face less chance of default, dropped in value to 81 cents from $1.06. And last week, one of the 39 malls covered by the CMBX 6 index, the Newgate Mall in Ogden, Utah, started the process of filing for bankruptcy, sources said. Icahn's gains are currently helping him offset losses from other investments tanked by coronavirus fears, including Occidental Petroleum (OXY), down 75% this year, and hotel and gaming chain Caesars Entertainment (CZR), down 50%. Still, without someone to buy his swaps, Icahn might have to wait until the securities mature in 2022 to cash in on the CMBX 6 gains.
SoftBank Group Corp. (SFTBY) will sell about $14 billion of shares in Chinese e-commerce company Alibaba Group Holding Ltd. (BABA) in an effort to raise $41 billion to support businesses battered by the coronavirus pandemic. The Japanese conglomerate may raise the rest of the money by selling a stake in domestic telecommunications arm SoftBank Corp. (SFTBY), as well as part of Sprint Corp. (S) after its merger with T-Mobile US Inc. (TMUS). On Monday Son revealed he would unload $41 billion of stock and alleviate investor concerns that at one point shaved more than 40% off SoftBank's value from a February peak. Investors were surprised by the scale of the plan and sent the stock soaring 21% on Tuesday in their biggest intraday gain since listing, a few days after dropping about the same amount. Even so, Softbank's shares are still down about 33% from their 2020 peak, underscoring persistent concerns that plummeting technology sector valuations will damage the heavily-indebted company, which has ties to many unprofitable startups. The reversal sees Masayoshi Son finally using part of his $120 billion stake in Alibaba to repurchase shares and pay down debt, which investors have pushed for him to do for years. "This buyback is music to our ears," said Atul Goyal, senior analyst at Jefferies Group. "But the timing of this announcement is not ideal. We would have ideally preferred such an announcement from a position of strength and not because the stock came under tremendous pressure."
The flagship fund of Daniel Loeb's Third Point declined by nearly 8% in the first two weeks of March, bringing its year-to-date losses to about 13% and putting the firm on track for its worst ever first quarter. The $13.4 billion investor returned 17% net of fees to investors last year. Meanwhile, Scott Ferguson's $3.2 billion fund Sachem Head Capital Management has suffered losses this month in the upper range of 10% to 20%, leaving the fund down a similar amount. Last year Sachem Head started campaigns against five companies and gained 24%. The losses come as the hedge fund industry's most prominent managers are hit by the equity markets' rapid descent into a bear market and a plunge in other risky assets. Third Point has suffered big paper losses on some of its largest bets, including a $2 billion stake in Prudential (PRU), whose shares have dropped over 50% since Third Point last month unveiled a set of demands for it to separate its U.S. and Asian businesses and exit the United Kingdom. Third Point's $700 million stake in EssilorLuxottica, which is among the group's largest holdings, has also taken a hit with shares down more than 30% since the end of February. Loeb is also engaged with Sony (SNE), which has rejected his demands to spin off its semiconductor unit and sell a stake in insurer Sony Financial. Sony's shares have declined about 20% in the past month but are still trading higher than they were when news of Third Point's position emerged.
Delek US Holdings (DK) announced that it is adopting a limited-duration stockholder rights plan after Icahn Enterprises (IEP) accumulated a 14.86% stake in the company and held talks with management. The plan will provide stockholders of the Brentwood, Tenn.-based company with the right to purchase shares at a discounted price, which will dilute the stock and prevent a hostile takeover. Delek declared a dividend of one "Right" for each outstanding share of the company's common stock payable to its shareholders of record on March 30. Investor Carl Icahn wants to combine the independent refiner, transporter, and marketer of petroleum products with the refiner CVR Energy (CVI). Icahn holds a 71% ownership stake in CVR Energy. Delek said the rights pact was followed because the company's present share value does not mirror its long-term worth due to the impact of the coronavirus pandemic. As of Thursday, Delek stock had lost 65.6% year to date compared with a 62.2% decline for the petroleum refining industry.
Occidental Petroleum Corp. (OXY) is approaching a truce with Carl Icahn that would give him two board seats and a third, independent director agreed upon by the company. In return, Icahn will bless Occidental's plan to bring back former CEO Stephen Chazen as chairman. Occidental CEO Vicki Hollub is expected to retain her position. The deal would allow Occidental to resolve a major conflict as it grapples with the dual shocks of a Saudi-Russian oil price war and the coronavirus pandemic, which have sent the stock market plummeting and put crude oil below $30 a barrel. Occidental has lost nearly 90% of its value in less than two years and earlier this month it implemented cost-cutting measures that included cutting its dividend by nearly 90%. Icahn, who had been seeking to replace the entire board and who owns about 10% of the company shares, has lost over $1 billion on his investment between his initial purchase last year and the additional shares he bought recently. A settlement would allow both sides to avoid the expenses of a prolonged proxy fight before the company's annual meeting this spring.
Hedge fund D.E. Shaw has raised $2 billion in commitments after opening up to new capital for the first time in seven years. The firm turned away further investor interest, capping how much it will accept at $2 billion, according to a source. That's the amount it thinks it can put into attractive investments in current turbulent markets, the source said. The capital commitments are for D.E. Shaw's $13 billion flagship Composite fund, which declined 0.5% in 2020 through March 20, the source said. The fund trades across a variety of asset classes. D.E. Shaw is one of a number of firms raising cash to take advantage of steep price dislocations across stocks, bonds, and commodities. Global markets have seen volatile swings this month, prompted by the coronavirus pandemic and an oil price war between Russia and Saudi Arabia. D.E. Shaw accepted cash only from existing investors, and will take in the capital beginning April 1.
Some WeWork board members are readying to oppose SoftBank Group Corp.'s (SFTBY) move to back away from part of its bailout of the shared-office provider, presaging what could be a tough internal fight just as the startup grapples with fallout from the coronavirus pandemic. Independent WeWork directors have spent recent days considering legal remedies and other options after SoftBank hinted it would back out of a deal to spend up to $3 billion to purchase shares from the company's employees and investors. A spokesperson for the board's committee of independent directors said they were "committed to taking all necessary actions to ensure that the tender offer which SoftBank has promised to our employees and shareholders is completed." A spokeswoman for SoftBank, which accounts for 50% of WeWork's board, said it "continues to honor its obligations" in the deal.
As the coronavirus wreaks havoc on equity markets, bonds, and energy prices, short-seller Marc Cohodes is warning that the resulting near-freeze in leveraged lending will punish private equity funds that own highly indebted companies. Cohodes is betting against the hedge fund industry, which he says is headed for losses as firms mark down holdings. However, Cohodes believes the fallout could be a boon for long-short hedge funds once clients start moving their cash out of private equity and start looking for skilled stock-pickers. Investor Bill Ackman also warned of risks to private equity if the crisis persists, though he is still buying shares of Blackstone Group Inc. (BX) amid the sell-off. The market for leveraged loans has ballooned in the past decade amid record-low interest rates, but the COVID-19 pandemic has triggered fears of a global recession and nearly shut markets for such loans and high-yield bonds. Worries are growing because of the quality of some borrowers, as a Morgan Stanley (MS) report in November found that almost 60% of the companies acquired in leveraged buyouts had debt loads above six times earnings, compared with 51% in 2007. In the short run, banks may ensure that indebted companies have access to revolving credit lines and increase them or allow some borrowers to switch to payment-in-kind to preserve cash. Last year, Omega Advisors founder Leon Cooperman cautioned that private equity returns can't last with higher borrowing costs, as falling rates were the main reason leveraged buyouts generated high exit multiples.
In an agreement with Blackwells Capital, Colony Capital (CLNY) will nominate a consulting firm CEO and form a joint venture with Blackwells that will acquire Colony common stock on the open market. In exchange, Blackwells—which owns about 2% of Colony common stock—will withdraw its slate of five nominees for the Colony board, vote its shares in favor of the board's nominees, and support all the board-recommended proposals at the 2020 annual meeting. Colony will nominate Jeannie Diefenderfer, founder and CEO of the consulting firm courageNpurpose and a former Verizon Communications (VZ) executive, for election to the board. As for the joint venture, Colony will commit $13.23 million in common stock and/or cash, and Blackwells will commit $1.47 million in cash. Colony will be the managing member of the joint venture, with Blackwells retaining customary minority protections. Blackwells Chief Investment Officer Jason Aintabi said, "We stand behind [Chairman and CEO Tom] Barrack, and his vision in rotating to a global digital platform along with the recruitment of a first class executive in Marc Ganzi to lead Colony." Aintabi had previously called for the removal of Barrack and opposed Colony's plan for Ganzi to succeed him.
Impala Asset Management LLC has filed documents nominating two directors to the board of Harley Davidson (HOG). If it succeeds, Impala has CEO candidates in mind who could take Harley back to its roots and focus on its core market, the 35- to 60-year-old Americans who buy expensive motorcylces. That would take the company away from its current strategy, which has seen it enter new market segments such as electric motorcycles in the United States and low-priced bikes overseas. In its filing, Impala criticized Harley's board and former CEO Matt Levatich's "More Roads" strategy, saying that it hasn't stopped the company's sales slide. The fund wants Harley to spend its resources on marketing and sprucing up its core line-up of chrome cruisers. The investment firm also believes the American brand has been tarnished by a series of moves that have alienated its core customer base, including closing its Kansas City plant and moving that work to Thailand. Harley has two new middleweight bikes due out in late 2020, and its plan also calls for investment in classic heavyweight bikes. Harley's first electric bike received rave reviews from critics, but its rollout to dealers was delayed in October because of last-minute quality issues. Harley's share of the heavy motorcycle market in the United States has slipped from 50.7% to 49.1%; sales in the United States dropped for a fifth year in 2019.
Willis Towers Watson is suggesting that boards and companies consider a few guiding principles when assessing the effectiveness of their executive compensation programs and whether to make any changes due to the upheaval created by the outbreak of the coronavirus. Boards and companies should take a long-term view, balance alignment between shareholders and executives, and understand the impact of long-term pay programs on executives. They should also consider the symmetry of business impacts, maintain their underlying compensation philosophy, and focus on a holistic approach and materiality. The suggestions are based on Willis Towers Watson's consulting experience and lessons learned from the 2008 financial crisis. Due to the challenging situations they are likely to face through 2020, boards and companies should address in-year performance cycles, set performance targets, customize performance plans, and consider selective retention awards for key executives. Boards and companies may need to monitor share granting practices and underwater stock options, and consider alternative approaches for measuring compliance with share ownership guidelines. Also, the board and management should have ongoing discussions about the impact of the market turmoil and disruption to business to make sure that executives and employees are fairly treated given the circumstances.
The Covid-19 outbreak is forcing companies to adapt their investor day plans. GoDaddy (GDDY), for instance, hosted a day of virtual presentations, product demonstrations, and Q&A, while Moody's Corp. (MCO) held an online fireside chat and Fiserv (FISV) postponed until the fall but did release new cost-saving targets. Investment conferences, non-deal roadshows, and annual general meetings are among the other events that have been affected by the pandemic. Of the 26 respondents to a survey by CIRI, the Canadian IR association, 18% said they have postponed an investor day and 12% have changed their event to a virtual format. Meanwhile, an analysis of filing data by Intelligize reveals that more than 150 U.S. companies have withdrawn annual guidance since March 16. "Capital markets days are typically seen as an opportunity to present a new medium-term strategy, showcase the depth and breadth of operational management, and demonstrate how different parts of the business generate value," says Kate Bundy, head of events and roadshows at financial communications firm Citigate Dewe Rogerson. "In the current environment, meeting any of these objectives is likely to be challenging. Many of our clients are withholding guidance for 2020 due to a lack of visibility, as they remain unable to quantify the impact of the Covid-19 crisis on this year's results."
Some advisors now favor companies adopting and announcing shareholder rights plans, also known as poison pills, in response to large stock price declines. A handful of companies have implemented poison pills in recent weeks to guard against the possibility of a rapid buildup of a large stake, and a number of others facing takeover threats and investor campaigns have considered implementing, and in some cases have implemented, rights plans. Although the decision to implement a rights plan will be case-specific, there is a significant benefit to having a poison pill "on the shelf and ready to go" to deter any abusive tactics in a timely manner. However, companies should not rush to adopt a rights plan because they are viewed negatively by proxy advisory services and some institutional investors. Companies should base the implementation decision on their specific circumstances and vulnerability to threats, and incorporate features that do not overreach but strike the right balance. They should understand what form of rights plan would be acceptable to Institutional Shareholder Services or Glass Lewis. Once adopted, companies should quickly engage with shareholders to address the motivation for the move and respond to any concerns.
Many public companies are exploring their options for holding annual shareholder meetings as a result of the outbreak of the cornonavirus. Berkshire Hathaway (BRK.A), Starbucks (SBUX), and several other high-profile companies have announced a switch to virtual-only annual meetings this year. As of March 15, the Centers for Disease Control and Prevention guidance is recommending that for the next eight weeks organizers cancel or postpone in-person events that consist of 50 people or more throughout the United States. Public companies that are considering changing the date, time, and location of an annual meeting, including a switch to a virtual or hybrid meeting, will need to review their charter and bylaws, applicable requirements under state law, and stock exchange rules. They should take into consideration the viewpoints of proxy advisory firms. Companies also should comply with the March 13 guidance from the Securities and Exchange Commission by disclosing the decision as promptly as possible to shareholders, intermediaries in the proxy process, and other market participants.
T-Mobile (TMUS) and Sprint (S) have completed their merger, allowing Japan's SoftBank Group (SFTBY) to dispose of its struggling U.S. telecommunications business. SoftBank had an 84% stake in Sprint, acquired in 2013, and the deal leaves it with only a 24% stake in post-merger T-Mobile US, which will be a SoftBank Group equity method affiliate rather than a subsidiary. Although the deal lifts a significant burden from SoftBank's balance sheet, the investment company faces a number of other challenges. On Thursday, a tender offer for existing shareholders of The We Co., owner of office-sharing service WeWork, expired. SoftBank says initial conditions for the tender offer were not met, but some shareholders are threatening legal action, and the matter could draw further lawsuits later on. On March 23, SoftBank announced it would sell 4.5 trillion yen in assets over the next 12 months to prop up its lagging share price, probably at the request of shareholder Elliott Management, which could prove challenging in the current environment. Moreover, Moody's Japan downgraded SoftBank's issuer rating by two notches on March 25. SoftBank Group said the decision was based on a "misunderstanding" and requested that Moody's withdraw its rating. On Friday, one of SoftBank's investee companies, a British satellite communications startup that is an equity method affiliate, filed for bankruptcy. SoftBank Group booked 225.1 billion yen in operating losses in the three months through December.
Thanks in part to the influence of shareholder Carl Icahn, Occidental Petroleum (OXY) has appointed Stephen I. Chazen as the non-executive chairman of the board. Chazen was a key part of the team that spun off California Resources (CRC) and allowed it to get through the last downturn while completing capital projects and maintaining the dividend even as oil prices plummeted. Although Icahn's track record at oil and gas companies like Chesapeake Energy (CHK) and SandRidge Energy (SD) is "less than stellar," according to this article, his demands at Occidental seem to be paying off. The company reduced its dividend to $0.11 per quarter starting in July, and top salaries will drop more than 50%, with the CEO's salary dropping 81%. Occidental also announced another $600 million of cost savings, aiming to lower corporate operating costs to $7 per BOE. The company is on track to break even in terms of cash flow, and an expected 5%-6% drop in production could be beat by continuing operational improvements across the industry. The remaining sale of assets to Total (TOT) is likely to be the only sale that completes in this fiscal year, as the market for asset sales has become hostile very quickly.
In their third annual Gender Pay Scorecard report, which tracks pay equity at 50 major companies, Arjuna Capital and Proxy Impact gave only three companies an "A" grade for pay equity: Citigroup (C), Mastercard (MA), and Starbucks (SBUX). The report gave a failing grade of "F" to Oracle (ORCL), Verizon (VZ), AT&T (T), Qualcomm (QCOM), and Analog Devices (ADI), while Hewlett-Packard (HPE) earned a "D" grade. Intel (INTC), Apple (AAPL), and eight other companies received a "B" grade, and seven companies including eBay (EBAY), Alphabet (GOOGL), and Microsoft (MSFT) received a "C" grade. The report also notes a lack of detailed information released by the 50 corporations, prompting Proxy Impact to prepare 16 shareholder resolutions to force disclosure of additional data. Shareholders want U.S. companies to make the same pay disclosures as U.K. companies, which are held to a much stricter reporting standard. Major U.S. firms have resisted such disclosures, but there is rising support among their shareholders. For example, a shareholder resolution filed by Arjuna and Proxy Impact at Microsoft received nearly 30% of support from investors, representing about $240 billion in share value.
A number of activist investors continue to engage companies in private and public and take advantage of reduced valuations to increase their positions in existing engagements and build new positions. Major law firms representing a significant number of funds that utilize engagement as a strategy have even made recent statements on how the coronavirus pandemic has created potential opportunities for their clients. However, in some instances, activist investors are engaging more reasonably, compromising on previous settlement arrangements and standing down on matters of concern, say David A. Katz and Sabastian V. Niles, partners at Wachtell, Lipton, Rosen & Katz. A short-term focus in the current environment likely could be viewed as mere profiteering. Management teams and boards that are distracted by a campaign will be unable to focus their full efforts on combating the pandemic to the detriment of all stakeholders, including shareholders. But funds that support long-term sustainable value creation and engage in constructive, private dialogues with companies will differentiate themselves. These funds should recognize the need to evolve and focus on promoting stability at this time, argue Katz and Niles.
Glass Lewis expects all governance issues and most proposal types to be impacted by the coronavirus pandemic. Among the key governance areas Glass Lewis is paying particular attention to are shareholder activism and mergers and acquisitions, which surged during the global financial crisis. Glass Lewis expects to see a similar wave of shareholder activism, mergers and acquisitions, lawsuits, and consolidation as macro conditions improve, and where boards prefer to focus on day-to-day business health and stability, the ongoing trend for settlements with investors is likely to continue. While the content of most shareholder proposals will likely not include any consideration of the pandemic or related crisis, the context for assessing environmental or social shareholder proposals on the basis of materiality to the returns or risk of a business has changed significantly. Glass Lewis also will be monitoring governance issues involving compensation and balance sheets, board composition and effectiveness, and oil and gas companies. The proxy advisory firm will exercise appropriate discretion and pragmatism to prioritize timing, certainty, disclosure, and voting on such proposals. Glass Lewis also has updated its virtual meetings policy to give the market certainty about its support for such meetings to preserve company and shareholder interests.
In a conversation between Nasdaq senior vice president Karen Snow and Betsy Atkins, founder of Baja Corp., Atkins discusses the rise of corporate social responsibility and environmental, social, and governance (ESG) matters as paradigms for judging the success of a business. These trends, she says, have come from Europe, and she predicts that board term limits will start to appear in the United States as well. Meanwhile, the issue of data privacy, which also started in Europe, has picked up in parts of the United States with laws such as the California Consumer Protection Act. In terms of shareholder activism, which continues to grow, Atkins talks about the rise of "this group [of activists] called Reluctivists or Constructivists," meaning otherwise passive investors who undertake reluctant proxy campaigns to push for change at companies. There are more kinds of activist campaigns, she says, and more of these campaigns are prompting real change at companies, even years after their conclusion.
Corporate deal-making has been upended by the coronavirus pandemic as companies postpone initial public offerings (IPOs) and abandon takeover deals. The value of announced mergers in the first quarter through Monday is down 33% from a year ago to $572 billion, a seven-year low, and the decline is even more acute in the United States at over 50%. Xerox Holdings Corp. (XRX) said Tuesday it is ending its more than $30 billion hostile pursuit of printer maker HP Inc., citing market turmoil. Marathon Petroleum Corp. (MPC) was close to selling its sprawling Speedway gas-station unit for more than $20 billion before a dip in oil and stock prices deterred its suitor, though the company will likely revisit a sale or spinoff of the unit after things stabilize. Paint maker Axalta Coating Systems Ltd. (AXTA) said Tuesday that it has ended talks about a sale to PPG Industries Inc. and buyout firm Clayton Dublier & Rice. The financial and economic swoon has created opportunity for cash-rich investors, including private equity firms and hedge funds, which stand by ready to offer financial lifelines to the hardest-hit companies. Hostile mergers and acquisitions could also generate merger activity as companies that weather the crisis well move on those that struggle to recover. There are a few companies forging ahead, such as eBay Inc. (EBAY), which is pushing forward with a sale of its classified-ads unit.
A recent survey by Boston Consulting Group (BCG) found that 59% of the portfolio managers and senior analysts it polled think shareholder activism will spike amid the devastation caused by the spread of Covid-19. "A lot of people expect activism to both resume and to be much more active once the crisis stabilizes," said Hady Farag, partner and associate director at BCG. "Activists sit on tons of cash, and on average stocks are 20% cheaper over the last month, so it's a buying opportunity." BCG found that 58% of survey respondents also indicated that they think companies should seek out acquisitions that will help strengthen their businesses. Seventy-three percent of investors say companies should focus on preserving liquidity, even if that means not investing in areas that would give them a competitive advantage. Sixty-one percent think companies should avoid aggressively repurchasing shares despite low stock valuations, and 59% say they would support dividend cuts in the near term. Moreover, 79% of investors surveyed want companies to provide revised earnings guidance for the current fiscal year within the next three months. Eighty-nine percent want management to start preparing for the eventual turnaround in the economy, even if that means the companies will miss earnings estimates. Fifty-five percent of respondents were either "bullish" or "extremely bullish" about the market in 2021, but 85% were either bearish or neutral on the remainder of the year.
The Securities and Exchange Commission (SEC) should include a "Stop, Look, and Listen" communication in proposed rules relating to proxy advisory firms in instances where the registrant provides a written response to the voting recommendation of a proxy advisor, according to Frank M. Placenti of Squire Patton Boggs LLP. The current draft of the proposed rules mandates that registrants receive a proxy advisor's final recommendation two days before its publication. Although the inclusion of the registrant's response in theory would provide investors with the opportunity to consider both sides of the story before voting, this is not likely to be generally effective because some proxy advisors, including the largest in the United States, use electronic default voting. The goal of informed shareholder participation in governance would be undermined because such "robo-voting" may influence the outcome of a given proxy proposal by as much as 20% (or more in certain cases), voting data show. The SEC should modify the proposed rules to provide for some interruption or alteration of the default electronic voting process. The reform will be far less effective if it provides a "look and listen" period without having first "stopped" default voting.
The Covid-19 crisis presents both obstacles and opportunities for shareholders considering or conducting an activist campaign at a company. Many shareholders are facing practical impediments, partly in the form of share ownership issues from brokers and banks operating at reduced capacity and partly in the form of delays in documentation from director nominees. Shareholders contemplating nominations should start early and initiate the process to preserve their rights and flexibility if a campaign proves desirable. Even after nominations, the strain on resources at the Securities and Exchange Commission may affect the speed and ease of the proxy filing process. It may also be more difficult for active solicitations to get attention, because the Covid-19 pandemic has spurred historic levels of market volatility, prompting many investors to focus on current portfolio valuations. Despite these challenges, the market volatility also creates opportunities for shareholder campaigns as many companies face depressed valuations and significant business disruption. A straightforward platform may resonate best with nervous investors, and settlements may become more likely as sides find added incentive to come to terms rather than risk going to a vote. The market slump also offers an opportunity to economically increase holdings in companies where activists have a high-conviction thesis.
Directors must work to assess and respond to the ways in which the coronavirus pandemic may affect their companies, communicating with a unified voice. Priorities include maintaining liquidity, keeping open channels with regulators, responding to strategic threats, and taking advantage of strategic opportunities that may arise due to changed market circumstances. It is critical that boards continue to work with management in engaging shareholders and other stakeholders on corporate operations and other concerns, including environmental, social, and governance issues. Directors should also review their compensation plans, as well as their dividend and buyback policies, in light of current financial circumstances. Throughout the pandemic, directors need to maintain frequent communication with senior management teams, reassuring executive officers that employee safety is one of the company's highest priorities.
Institutional investors and companies will need more forward-looking and proactive approaches to materiality in the coming decade, according to a report from the World Economic Forum. Many institutional investors are starting to develop these capabilities. The increasing relevance of environmental, social, and governance factors has led institutional investors to bring strategies in-house and complete their own analysis about which issues are material to a company. The#MeToo movement is a prime example of how a largely ignored issue can be thrust into the limelight. The report notes that identifying the most important forward-looking factors will be a challenge for companies and institutional investors, which will have to examine the environmental and social impacts of corporate practices. Institutional investors and non-governmental organizations that engage companies are powerful influencers, along with policymakers and consumer sentiment. As a result, institutional investors also will need to examine the responsiveness of key decision-makers within companies.
The Equilar Gender Diversity Index (GDI) rose to 0.43 (1.0 represents parity among men and women) in the fourth quarter of 2019, marking the ninth consecutive quarterly increase for the measure. The percentage of women on the boards of Russell 3000 companies increased from 20.9% in the third quarter of 2019 to 21.5%, the highest level ever for the GDI. Equilar reports that 114 companies now have boards with between 40% and 50% women, compared with only 15% of board seats held by women in January 2017. The increase continues to reflect the trend of boards facing more pressure from investors to improve diversity. "In recent years, many investors have updated their voting policies regarding expectations around board gender diversity," says Brigid Rosati, director of business development at Georgeson. Among companies that previously had zero women on their boards, almost 16% added a woman in the fourth quarter—this is a sharp increase from 8% in the fourth quarter of 2018. Still, at the current rate of growth of women on boards, gender parity would not be achieved until 2030.
The coronavirus has compelled many investors to either walk away from campaigns or settle them early. Starboard Value LP, for example, has reached a settlement with Box Inc. (BOX) that will put three independent directors on the company's board. Elliott Management Corp., meanwhile, recently ended its opposition to Capgemini SE's (CGEMY) bid for Altran Technologies SA, disclosing its willingness in a regulatory filing to sell its Altran shares to the French company. The shift comes at a normally busy time for investors—proxy season—when they have the opportunity to nominate directors ahead of annual meetings that tend to take place in the spring. Some investors with concentrated portfolios are under pressure themselves. Mantle Ridge LP has been buffeted by a steep decline in Aramark Corp. (ARMK) shares. Mantle Ridge owns a nearly 18% interest in the food-service giant, whose stock has plunged with schools and other institutions nationwide shut down.
Several major hedge funds have been performing relatively well this year. The flagship hedge fund of Ken Griffin's Citadel LLC, called Wellington, is up 4.5% this year and has gained less than 1% in March. Israel Englander's firm Millennium Management is up less than 1% for the year and down almost 1% so far in March, while Paul Singer's Elliott Management told investors it has made money so far in March and gained this year. The dollar share class of BH Macro, European hedge-fund giant Brevan Howard’s fund, was up about 19% so far this year through March 13. The funds' gains are small but compare with a loss of 21% for the S&P 500 so far this year and a 13.8% drop in March. The relative strength comes after most hedge-fund strategies have disappointed investors in recent years amid a sustained lack of volatility. It could also be a bright spot for investors hit by the market selloff. Even so, some big hedge funds have run into difficulties. Bridgewater Associates' All-Weather funds tumbled as much as 14% this year through March 16, and a leveraged version of the firm's flagship macro fund, Pure Alpha, was also down 21% at that point.
The 2018 iteration of the U.K. Corporate Governance Code included a number of changes that have impacted U.K. and Irish companies. Pension levels for executive directors have fallen, but a majority of companies have not aligned executive pensions with those of the wider workforce, according to data from CGLytics. Average CEO tenure for U.K. companies remains low and boards are coming under pressure to ensure chairs limit their tenure. Appointments to the board are increasingly female, with females chairing 8.6% of the boards of U.K. and Irish companies in 2019, up from 6.1% in 2018. Looking to the 2020 annual general meeting season, it remains to be seen whether any more U.K. and Irish companies opt to designate a director as responsible for workforce engagement. Failure to put in place a vesting period of five years is likely to increase opposition to remuneration policies. Environmental, social, and governance standards will begin to impact proxy voting this year. Also, chairs who hold more than two external directorships may come under fire in the coming months.
Companies are debating whether to hold annual general meetings due to the travel restrictions and bans on mass gatherings enacted during the outbreak of the coronavirus. Countries are considering making it easier for companies to hold virtual meetings and introducing rules that would lengthen the delay for holding meetings. Companies and shareholders are looking to innovate and governments should be focusing on providing clear guidance, says Amra Balic, head of investment stewardship in Emea for BlackRock (BLK). Big investors want to retain the right to ask questions for online meetings. Say, a shareholder communications platform backed by investor Bill Ackman, has offered public companies free use of its investor engagement tool for upcoming shareholder meetings. Executive pay is expected to remain a key issue, with investor advisor Pensions & Investment Research Consultants having called on companies this month to freeze bonuses for executives in response to the disruption caused by Covid-19. The extreme pressure companies are facing also has prompted some shareholders to consider granting businesses a reprieve when it comes to their policy of using their vote at annual meetings.
Shareholder engagement rose in the wake of the 2008 global financial crisis and could follow suit during the outbreak of the coronavirus. Shrunken stock price valuations have made companies even more vulnerable to investors that employ engagement strategies. Although launching a campaign during the Covid-19 pandemic and global economic shutdown may have bad optics, shareholders may attempt to drive the narrative that certain changes need to be made if the company is to recover shareholder value. However, Covid-19 may not lead to increased shareholder engagement. The historical drivers of shareholder engagement no longer apply, and the 2008 financial crisis may not serve as a useful predictive model for the current market environment. Moreover, shareholders face unprecedented uncertainty, are not insulated from the recent market volatility, may have limited access to capital for additional investments, may not be able to count on mergers and acquisitions, and may have limited ability to credibly criticize company performance and management strategy. Companies should consider taking actions such as assembling an engagement response team, reviewing their shareholder profile, and assessing their vulnerability to engagement.
The coronavirus pandemic has created unique challenges for companies' executive compensation programs. Due to the outbreak occurring at the beginning of the fiscal year for many companies, and the resulting volatility in the stock markets, companies face some uncertainty about setting goals and payout ranges for incentive plans because the scope of the impact of COVID-19 is unknown. Companies also must consider the impact on equity awards, especially those making annual awards at the end of February or early March following the stock market declines, as well as the impact on in-cycle incentive cycles and performance share grants. In many cases, companies have approached annual incentives and long-term performance plans differently. The primary approaches companies are taking to address the impact of COVID-19 on executive compensation include establishing a framework for applying discretion in assessing performance and tracking the impact on annual goals. Companies are also looking to create the right board culture and convert long-term incentive values using a longer average share price.
In a recent interview with the Silicon Valley Business Journal, Box Inc. (BOX) CEO Aaron Levie discussed his company's new agreement with Starboard Value LP to replace three board members. The hedge fund holds a 7.7% stake in the cloud content management company. "We worked with Starboard very collaboratively to agree on: how do we bring in individuals with additional experience, people that have built massive companies and can help see around the next set of corners that we're going to face as a business as we continue to grow and drive more profitability? It made a lot of sense that we would bring very experienced operators around the table. And then it really becomes a math exercise of how to make the seats available and make sure that we can build, again, a board of very experienced, strong operators," he said. "It's a pretty natural evolution when you look at kind of going from a startup to a public company where you do have a much more independent board of experienced operators. So we saw this as a pretty natural evolution of the board of directors. And, you know, Starboard certainly was an additional catalyst to that. But our agreement with them, I think, was structured around the fact that we want to drive shareholder value." He added, "I think from the very beginning, we decided that our interests were extremely, extremely aligned—I mean, we felt the company was undervalued. We felt like we could be growing faster. We felt we could drive greater profitability. I think that that was very aligned with what Starboard felt about the business as well. So, I think when you have that type of alignment with an...investor, it's a lot easier to collaborate and find a mutually agreeable solution to the problem."
ShareAction said on March 26 that the use of virtual annual general meetings (AGMs) by companies during the coronavirus outbreak should be temporary. In a letter to the head of Britain's business ministry, Alok Sharma, the responsible investment campaign group said making virtual AGMs the norm could prevent investors from attending and holding companies to account. "A significant proportion of retail shareholders are older people who tend to be less comfortable with using the kind of technology required to host a digital AGM. In addition, physical AGMs allow retail shareholders and the board a unique and unscripted opportunity to meet and have conversations in person," wrote policy manager Rachel Haworth. "If attendees can only submit questions in advance and cannot 'raise their hand' and ask them in real time, this could allow companies to cherry-pick which questions they answer." The letter comes after the London Stock Exchange said it would support temporarily allowing companies to hold their AGMs electronically this year because of the pandemic. Meanwhile, the Chartered Governance Institute published guidance on annual meetings during the epidemic, which was developed in conjunction with the Financial Reporting Council and law firm Slaughter & May. According to the guidance, virtual-only meetings are not viable given they may not constitute valid meetings, but the articles of some companies allow them to hold hybrid meetings, or a combination of physical and electronic meetings. However, companies have the option of changing their articles to allow online meetings.
In its climate proxy voting guidelines for 2020, Institutional Shareholder Services (ISS) says that factors used to evaluate a company's environmental performance fall under five primary categories: climate norms violations; disclosure indicators; current performance indicators including greenhouse gas emissions data; future performance indicators drawing from the ISS Carbon Risk Classification (CRR); and Carbon Risk Classification. The factors are used to assess a company's risks associated with the impacts of climate change, along with its preparedness to face and mitigate those risks in an increasingly carbon-restricted economy. ISS says it will generally recommend voting against proposals to provide management with the authority to adjourn an annual or special meeting absent compelling reasons to support the proposal. It will also recommend voting against proposals to reduce quorum requirements for shareholder meetings, and will generally recommend voting to ratify auditors unless the auditor's independence or competence is in serious question. ISS will generally support management proposals to move the scheduling or location of a shareholder meeting if the request is reasonable, but vote against shareholder proposals to do so unless the current scheduling or location is unreasonable. ISS will vote case-by-case on the issue of auditor indemnification and limitation of liability, as well as on shareholder proposals asking companies to prohibit or limit their auditors from engaging in non-audit services. It will also vote case-by-case on shareholder proposals asking for audit firm rotation.
Several hedge funds that have suffered losses due to the impact of the Covid-19 pandemic on the markets are seeking to raise fresh money, including LMR Partners, Baupost Group, Citadel, and Capital Four Management. These hedge funds have to stem losses on their existing cash piles before they can earn performance fees for improving performance. "Fresh money would reset the bar, allowing them to share in more of the upside they expect—or claim—to be able to generate," says Bloomberg Opinion columnist Mark Gilbert. "And there are undoubtedly opportunities in the market carnage." He cites Bill Ackman, who said this week that his Pershing Square Capital Management firm has done "about the most bullish thing we've done" in investing $2.5 billion in equities in a "recovery bet" in recent weeks. In a Bloomberg Television interview, Ackman said, "We are all long. No shorts." Gilbert notes that "the current market dislocations may, if anything, make it harder [for hedge funds] to get in and out of trades quickly and profitably." He adds, "Investing in a hedge fund is bound to have good times and bad times; clients have to be willing to accept there will be periods of losses, provided the performance over time is good enough to justify the fees. But it takes a certain amount of chutzpah to ask investors to increase their allocations to a losing strategy, even in normal financial times. As things stand, it's outrageous...It would take a special kind of optimism—the blind kind, perhaps—to throw good money after bad by investing in a hedge fund that has failed to distinguish itself so far in the prevailing maelstrom."
A recent S&P Global research note indicates that shareholder campaigns against a company's strategy or management often lead to a credit rating downgrade. "We found that the credit impact of the activism was largely unfavorable, albeit only moderately so, with most related downgrades being of one notch," the rating agency wrote. "Assuming the trend in 2015-2019 continues, a company subject to shareholder activism has a one-in-nine chance of seeing a rating action, with that action twice as likely to be negative as positive."
The havoc wrought by the coronavirus could give investors leverage to place new limits on CEO compensation packages and link them more closely to an array of social and environmental issues when companies' annual general meetings (AGMs) convene this spring. Executive pay is one of the issues expected to dominate AGMs worldwide, many of which will be held virtually via video-conferencing to avoid virus spread. Many firms were linking executive pay to new measures even before the outbreak. Now there is considerably more political and reputational risk. "There is a massive corporate reckoning coming," warns Todd Sirras, managing director of U.S. consultancy Semler Brossy, which advises companies on executive compensation. He expects boards will increasingly adopt pay plans tied to such new metrics as worker health or carbon emissions. In a study of about 4,800 North American and European companies with some type of pay incentive, about 11% included an environmental or social metric for the 2018 financial year, voted on at meetings held in 2019, according to Institutional Shareholder Services. Brett Miller, head of data solutions for ISS ESG, the responsible investment arm of ISS, estimates the number could reach 25% for the financial year 2019 and increase even more as boards add new targets due to the pandemic.
Japan has finalized amendments to its Stewardship Code, adding medium- to long-term sustainability considerations—including environmental, social, and governance factors—to the stewardship responsibilities of institutional investors, as well as expectations that they clearly specify how they incorporate sustainability issues within their investment decisions. The code is now applicable to other asset classes besides Japanese listed shares, as far as it "contributes to fulfilling stewardship responsibilities." Moreover, the code requires service providers of institutional investors to contribute to the enhancement of the functions of the entire investment chain, as well as have clear policies and structures for conflicts of interest, management, and disclosure. Asset managers also must disclose these governance structures, and directly exercise their voting rights and participate in stewardship activities on their own behalf. Existing signatories of the code have until the end of September 2020 to update their disclosures to reflect the changes. Institutional investors that intend to sign up to the revised code are called to inform the Financial Services Agency of their intention to do so.
With corporations facing unprecedented economic hardships as a result of the coronavirus pandemic, Forbes columnist Michael Peregrine writes that it is only a matter of time before the consequences trickle down to the various boards of directors. He urges boards to anticipate this trend and plan for it. Peregrine credits the National Association of Corporate Directors' risk-oriented publications for effectively detailing such "black swan" incidents as global economic depression, national political upheaval, and public health catastrophes for its members. In his view, the consequences of the inevitable "blame game" may be felt by boards in two different ways. "First," Peregrine writes, "it may accelerate the recent willingness of the Delaware courts to move away from their long-held, director-friendly standard of conduct for board risk oversight duty." Second, it may recast how the board approaches its enterprise risk evaluation.
The recent swings in the financial markets because of the coronavirus pandemic could provide investors with more of a reason to question companies about nonfinancial risks. Environmental, social, and governance (ESG) investing was accelerating in popularity prior to the virus beginning to circulate, as investors sought out companies that have taken steps to manage nonfinancial risks related to climate change, board diversity, or human rights matters in the supply chain. However, the pandemic has demonstrated more broadly the importance of other factors that are significant to ESG investors. These include disaster preparedness, continuity planning, and employee treatment via benefits like paid sick leave. Companies should expect more investors to ask questions about resilience and contingency planning, seeing the issues in light of the pandemic as relevant to a company's long-term performance, according to Jeff Meli, global head of research at Barclays PLC. Eventually, those discussions could evolve to broader ESG considerations, including topics such as whether telecommuting could curb a company's carbon footprint, he said. "There is obviously a lot of volatility and a lot of big open questions just in the very near term that need to get answered," Meli said. "...Over the long term, I think if anything this would likely accelerate the focus on ESG from an investor standpoint." Barclays plans to provide ESG assessments for each of the companies it covers, and Citigroup Inc. (C) in a note to clients said investors are asking more questions about issues like employee benefits and mortgage relief, with the goal of identifying corporate strategies to limit the economic fallout from the pandemic. The bank said the pandemic likely will impact priorities in ESG, as well as discussions on the pros and cons of having temporary workers and stock buybacks becoming the new concern of corporate governance.
More than 40% (105) of the no-action letters responded to by the Securities and Exchange Commission staff from Oct. 1, 2018, through July 31, 2019, related to a variety of environmental, social, and governance (ESG) matters, according to a survey by Shearman & Sterling. The largest group related to environmental matters, sustainability, and climate change (34 no-action letters). Other top topics for shareholder proposals included human rights issues (18), political contributions and lobbying (10), and inequitable employment practices and the gender pay gap (8). The most common reasons for requesting exclusion were the ESG-related proposal concerned the ordinary business of the company or micromanaged the company (64), the proposal had been substantially implemented (40), or the proposal was economically irrelevant (9). Relatively few (18) of the ESG-related no-action letters included discussion of board analysis of the shareholder proposal. Meanwhile, 66 cited the "economic relevance" (Rule 14a-8(i)(5)) and "ordinary business" (Rule 14a-8(i)(7)) exemption or both. Also, 64 ESG-related no-action letters included arguments for exclusion based on micromanagement. Twenty letters were decided based on the micromanagement question.
Morrow Sodali's 2020 Institutional Investor Survey reveals that environmental, social, and governance (ESG) risks and opportunities played a greater role for all respondents when investing and engaging with companies during the last 12 months, with climate change being top of investors' list (86%). Continuing the trend identified last year, 91% of respondents say engagement at board level is the most effective way for investors to influence board policies and engagement. Almost half of investors would consider voting against a director to influence outcomes. Investors are more likely to support activists' case if the company portrays weak governance practices (64%) and if it can be shown that there is a track record of misallocation of capital (50%). Also, investors now prioritize presence of ESG risks (32%) before a credible activist business strategy when deciding whether to support ESG activists. Overwhelmingly, 91% of respondents expect companies to demonstrate a link between financial risks, opportunities, and outcomes with climate-related disclosures. Investors widely agree (81%) that stakeholder engagement approach and outcomes should be included in companies' disclosure when they explain their corporate purpose.
New European Union (EU) regulations requiring investment managers to disclose sustainability risks and sustainability factors relevant to their investment activities are set to take effect on March 10, 2021. The regulation on Sustainability-Related Disclosures will apply to alternative investment fund managers (AIFMs), UCITS management companies, and portfolio managers and investment advisers authorized under MiFID. The aim is to enhance transparency regarding integration of environmental, social, and governance matters (ESG) into investment decisions and recommendations. The United Kingdom will implement the regulation, which will apply to U.K. AIFMs, UCITS management companies, and portfolio managers authorized under MiFID. AIFMD rules apply to EU/U.K. managers of EU AIFs (e.g., Irish or Luxembourg structures), as well as managers of non-EU AIFs under the national private placement regimes through cross-references in Articles 36 and 42 of AIFMD (that establish such regimes). This could mean that the pre-investment disclosure obligations will apply not only to if they market their funds in the EU/United Kingdom who market their EU or non-EU funds, but also to non-EU AIFMs (e.g., U.S. or Swiss investment managers) who market their Cayman and other non-EU funds under Article 42 private placement regimes in the United Kingdom or any EU jurisdictions. Asset managers and investment advisers will need to develop policies and procedures, website disclosures, and pre-contractual disclosures—as well as disclose sustainable investments—to comply with the new regulations.
The coronavirus outbreak has made it likely that many businesses nationwide will stop paying rent on April 1. Delaying or skipping rent payments could ward off some bankruptcies and layoffs. Some tenants will try to renegotiate their leases, while others will take advantage of the moratorium on evictions implemented in many cities. Other businesses will be forced to liquidate. Without rental revenue, however, many properties could default on their mortgages, forcing already struggling banks to write down loans and raise capital to cover for their losses. Many big-name investors are pointing to commercial mortgages as a stress point in the nation's financial system, with Carl Icahn saying on CNBC earlier this month, "You're going to have this blow up, too, and nobody's even looking at it." Icahn said he is shorting bonds tied to commercial mortgage debt, and he compares the surge in these property loans in recent years to the pre-2008 housing bubble. Meanwhile, Colony Capital Inc. CEO Thomas Barrack has warned of a "potential blockage" in the commercial mortgage market as stable properties suddenly fail to generate cash flow. "Addressing this major looming crisis in liquidity in a coordinated manner will be essential in averting a crisis in credit and a long-term economic recession," he said.
There are several key areas that corporate boards may want to consider amid the Covid-19 pandemic. Regarding issues of health and safety, boards must set a tone at the top through communications and policies that protect employee well-being and act responsibly to slow the spread of Covid-19. Boards should also monitor efforts to identify, manage, and prioritize potentially significant risks to business operations, including any outbreak-related vulnerabilities that may increase the risk of a cybersecurity breach. Moreover, boards need to consider and continually reassess their business continuity plans in light of developments. Key issues to consider include employee/talent disruption, supply chain and production disruption, financial impact and liquidity, internal controls and audit function, key person risks and emergency succession plans, incentives, and board/governance continuity. Companies must further consider whether they are making sufficient public disclosures about the impacts of Covid-19 on their business and financial condition. Given the Securities and Exchange Commission's (SEC's) emphasis on discussing how boards oversee the management of material risks, companies may want to expand proxy statement disclosure of board oversight of Covid-19-related risks. Further, companies may want to consider buying back stock to take advantage of significantly depressed stock prices. Boards must continue to communicate with significant shareholders while monitoring for changes in stock ownership.
In this video, Pershing Square Capital Management's Bill Ackman says he is going all long on markets because the United States is getting to the proper place with respect to the coronavirus pandemic.
In this video, Pershing Square's Bill Ackman says a 30-day national lockdown would be the most effective way to battle the coronavirus pandemic.
Proxy advisory firm Glass Lewis will not recommend against the use of virtual-only shareholder meetings in response to the COVID-19 pandemic. For companies opting to hold a virtual-only shareholder meeting due to COVID-19 during the 2020 proxy season, Glass Lewis will generally refrain from recommending to vote against members of the governance committee on this basis, provided that the company discloses its rationale for doing so, including citation of COVID-19. Additionally, should these companies opt to continue holding virtual-only shareholder meetings in subsequent years, future proxy statements should include robust disclosure concerning shareholder participation. Glass Lewis' standard policy on virtual shareholder meetings will apply after June 30, 2020, and it expects robust disclosure in the proxy statement concerning shareholder participation. Shareholders have previously expressed concerns regarding companies' use of this meeting format, which has the potential to silence dissenting shareholders and could insulate management and the board from criticism and controversy. However, given the ramifications of the ongoing pandemic, even groups and shareholders that have argued ardently against the practice of holding virtual-only meetings are considering whether the current circumstances warrant an exception. Glass Lewis is generally neutral on the use of virtual-only meetings, so long as they are structured to ensure meaningful shareholder participation and companies disclose the shareholder protections they are providing.
The Laurel Hill Advisory Group reports that average support for say-on-pay votes at Canadian companies in 2019 was 90.9%, down from 91.9% average support in 2018. This aligns with the 2019 amendments to the Canada Business Corporations Act that will make it mandatory for "prescribed corporations" to hold a say-on-pay vote, though this will not take effect until after the 2020 proxy season. Investment managers have noted that institutional investors seem to be increasingly exercising independent judgement related to say on pay. Laurel Hill notes that this might happen because CEO and executive pay has increased faster than total shareholder return, or because CEO and executive pay is considered to be misaligned with the size and stage of the business. Generally, the tipping point for when management is expected to engage with shareholders opposing a say-on-pay vote is 80% for Glass Lewis and 70% for Institutional Shareholder Services (ISS). The Canadian Coalition for Good Governance recommends that boards enhance disclosure of any adjustments made to financial performance measures within the issuer's executive compensation structures. For director pay, ISS will now recommend a "withhold" vote in the event of two consecutive years of high director pay unless the company provides satisfactory reasons for this in its disclosure. It may be useful for directors to monitor director pay among peer company boards and consider where their pay levels fall. Beginning in 2019, ISS' research reports for Canada began including additional information on company performance using economic value-added (Eva) metrics, which apply uniform adjustments to financial statement accounting data. Therefore, ISS will incorporate Eva metrics into its quantitative pay-for-performance models.
Lisa Culbert, counsel for legal design and operations, and Ramandeep Grewal, partner, with Stikeman Elliott in Toronto, say recent amendments to the Canada Business Corporations Act (CBCA) require diversity disclosures of "designated groups" beyond gender, and unlike the Canadian Securities Administrators' (CSA) National Instrument 58-101 Disclosure of Corporate Governance Practices, venture issuers are not exempt from the CBCA diversity disclosure requirements. The four designated groups covered by the CBCA requirements are, as defined under the Employment Equity Act, women, indigenous people (First Nations, Inuit, and Metis), persons with disabilities, and members of visible minorities. The requirements apply to proxy circular disclosure regarding the board and senior management. Further, NI 58-101 and the new CBCA diversity disclosure provisions require disclosure of director tenure limits. Culbert and Grewal note that "there is growing guidance on what some consider to be lengthy tenure," pointing to the expanded version of the ISS Governance QualityScore, which identified lengthy director tenure as nine years. Under the QualityScore, a five-board maximum emerged as the new standard in 2019 for non-executive directors and a two-board maximum for the CEO, in addition to sitting on the board of the company where they are CEO. Culbert and Grewal's 2019 analysis of the annual proxy circular disclosure of the S&P/TSX 60 found that 40% of issuers have between 21% and 30% representation by women on their board. Regarding gender diversity targets, 47% of issuers have no reported target, while 36% have a target of 30% women board members. Most issuers do not impose term limits, but 14% have set term limits of 15 years.
Proposed rules from the Securities and Exchange Commission (SEC) would transform how proxy advisory firms make recommendations and raise the thresholds for submitting shareholder proposals, while the economic impacts of the coronavirus pandemic could affect proxy vote outcomes for certain public companies, according to Courteney Keatinge at proxy-voting advisory firm Glass, Lewis & Co. "Particularly when it comes to compensation, when companies are not doing very well financially, [shareholders] don't want to see executives doing very well either," she said. The SEC on March 4 released "conditional" regulatory relief, providing companies impacted by COVID-19 up to 45 extra days to file disclosures due between March 1 and April 30. Issuers who delay disclosures must provide "a summary of why the relief is needed in their particular circumstances," the SEC mandated. SEC Chairman Jay Clayton admitted that the virus turmoil may prevent certain issuers from compiling these reports within required time frames. "We also remind all companies to provide investors with insight regarding their assessment of, and plans for addressing, material risks to their business and operations resulting from the coronavirus to the fullest extent practicable to keep investors and markets informed of material developments," he said. The SEC on March 13 issued guidance on the process companies should follow if they opt to change the date, time, or location of an annual meeting. That includes publishing a news release, filing the announcement on EDGAR, and taking "all reasonable steps necessary" to notify other intermediaries in the proxy process and other relevant market participants of the changes. Keatinge said more companies may follow Starbucks' (SBUX) lead and host virtual-only shareholder meetings this proxy season. SEC guidance on virtual meetings directed issuers planning to conduct such meetings to alert all market participants of such plans in a timely manner and disclose clear directions on the logistical details of the meeting, including how stockholders can remotely access, participate in, and vote.
Amid the ongoing pandemic, dozens of large companies are extending pay and benefits to employees whose livelihoods are affected by the coronavirus. AT&T Inc. (T), for example, is offering up to 160 hours of paid time off to workers whose children are at home and need supervision. For its part, JPMorgan Chase & Co. (JPM) is giving $1,000 bonuses to some branch and operations workers who can't work from home, to help defray costs such as child care and transportation. Facebook Inc. (FB) said it would give full-time workers an additional $1,000 in their next paycheck and would continue to pay contractors. But there have been exceptions. Airlines and hotels have instituted unpaid leaves and furloughs. Large companies typically have more resources to weather disruption than do small companies. They are also acting with consideration of the court of public opinion. Some 54% of companies say they will continue for some period of time to pay hourly staff whose workplaces shut down due to the virus, and 51% will pay people who stay home because of cold and flu symptoms, according to a survey of 805 big companies by consulting firm Willis Towers Watson. The pandemic in certain respects is turning out to be a natural experiment in stakeholder capitalism, the vision laid out last August by the Business Roundtable. The group adopted a definition of corporate purpose that promotes "an economy that serves all Americans," scuttling its previous focus on shareholders above all others. The group's statement of purpose, signed by more than 180 chief executives, specifically referred to employees as stakeholders. Joshua Bolten, the president and CEO of the Business Roundtable, recently pointed out that stakeholders' interests are aligned. If employees, customers, suppliers, and communities aren't supported, "there will be no business for shareholders to own when we come out of this crisis," he said. Still, there are limits to what even large companies can do. And once the first big company starts to lay off workers, others may quickly follow suit.
Adoption of dual-class voting stock structures among Fenwick – Bloomberg Law Silicon Valley 150 firms (10.9% in 2017, 13% in 2018, and 12.7% in 2019) has surpassed the companies included in the Standard & Poor's 100 Index (9.0% in 2016 to 2019) in recent years, according to Fenwick's annual survey of corporate governance practices. Classified boards increased from 50.7% in 2018 to 52.7% in the 2019 proxy season for the SV 150, while the S&P 100 increased to 5.0% in the 2019 proxy season from 3.0% in the prior year. Among S&P 100 companies, majority voting rose from 10% to 96% between the 2004 and 2019 proxy seasons, and among the SV 150 the rate has risen from zero in the 2005 proxy season to 57.3% in the 2019 proxy season. Stock ownership guidelines have generally increased over time in both groups, but the SV 150 only recently surpassed the level of the S&P 100. The SV 150 continues to add female directors at a higher rate than S&P 100 companies; the share of SV 150 companies with at least one woman director increased from 82% to 91.3% over the past year. Most SV 150 companies would meet California's new standard mandating inclusion of women on boards of directors in 2019. SV 150 companies tend to have fewer executive officers than S&P 100 companies, and the average number per company in both groups continues to decline. Companies in the SV 150 paid on average $4.3 million on audit fees compared to $22.9 million paid by S&P 100 companies, with an average increase of 3.7% from the prior year.
Investment funds that use engagement as a strategy are starting to adopt the tactics of private equity firms. Some investors have created their own private equity investment arms and provide a diversified portfolio of strategies for investors. Elliott, with its private equity arm Evergreen Coast Capital, is a prime example of this investment product diversification. Investment funds are looking to use their spare capital to acquire entire companies. At the same time, some private equity firms have also started to acquire minority positions in companies as a way to force a dialogue about a buyout. Golden Gate, Hudbay Minerals, and Sycamore Partners are among the firms that have tested this approach. This convergence is a reflection of the strength and institutionalization of the engagement strategy, along with private equity's pursuit of flexibility. The current frothy valuations and competitive investment landscape suggest that private equity and investment funds will continue to utilize each other's strategies in pursuit of stronger returns.
Martin Lipton, founding partner, and David A. Katz and David E. Shapiro, partners, Wachtell, Lipton, Rosen & Katz, stress the important role that directors on corporate boards play in navigating the path forward amid the COVID-19 pandemic. There are several issues that directors face, including maintaining close contact with the CEO and working with management to ensure the safety and well-being of the company's employees, other stakeholders, and the public at large. Directors also must understand the risks to the company and its stakeholders from the COVID-19 pandemic, and discuss, as a board, management's strategies for minimizing and mitigating these risks. They should review the viability of the enterprise from a short-term and long-term perspective and make changes accordingly; receive a board-level briefing on company indebtedness, understand the company's near-term liquidity needs, and work with management to secure liquidity needs; and provide the CEO and management with assistance in handling communication with internal and external constituents. Among other things, directors should frequently communicate with, and seek guidance from, applicable regulators and other government agencies with oversight; respond to activist engagement; work with management in engaging shareholders and other stakeholders on corporate operations, impact to strategy, and other important concerns, including environmental, social, and governance issues; review compensation plans and consider whether changes are necessary; evaluate the company's current and future dividend and buyback policy as well as capital allocation and liquidity generally; and maintain respect among board members and promote effective decision-making through stressed and stressful conditions.
Michael Albano, Sandra Flow, and Francesca Odell, partners at Cleary Gottlieb Steen & Hamilton LLP, said companies considering whether to move to a virtual or hybrid annual shareholder meeting in response to the COVID-19 outbreak must determine whether they are permitted to under the company's state law of incorporation and its bylaws and take steps to properly notify shareholders of any change. If virtual meetings are permitted under state law, companies should then examine their bylaws to determine whether they would permit holding a virtual or hybrid meeting. Management and/or the board of directors generally will have discretion in determining the proper venue and format for the annual meeting. Next, companies must take steps to comply with filing requirements and other obligations set forth by the Securities and Exchange Commission (SEC) and state law. The SEC's Coronavirus Guidance indicates that if a company has already filed its proxy statement and has notified shareholders of the location and timing for its annual meeting, any change needs to be communicated. The company should issue a press release disclosing the change in format, file the release with the SEC as supplemental proxy materials, and add it to posted proxy materials. If a company has yet to file its proxy statement and is considering the possibility of moving to a virtual or hybrid meeting, disclosure indicating the possibility of a change and the reason for such a change should be included in the proxy statement, both in the meeting notice and in the meeting logistical information. Further, companies should consider the overall benefits and costs of moving to a virtual or hybrid meeting. They should recognize that certain meeting elements, such as the presentation of shareholder proposals, may be more cumbersome, and virtual meetings can create more uncertainty in shareholder vote counts because shareholders can more easily attend and change their vote at the last minute. Among other things, companies should consider whether they have the necessary infrastructure, procedures, and conduct rules in place to host a virtual annual meeting.
BlackRock (BLK) is increasing its focus on sustainability-related issues and relevant disclosures in 2020, due to the growing impact of these issues on long-term value creation. The investment manager is also mapping its engagement priorities to specific U.N. Sustainable Development Goals, such as gender equality and clean and affordable energy, and providing a high level, globally relevant key performance indicator (KPI) for each priority so companies are aware of its expectations. Board composition, effectiveness, and accountability remain a top priority for BlackRock, which expects to have access to a non-executive, and preferably independent, director. For environmental risks and opportunities KPI, BlackRock plans to hold relevant committee members, or the most senior non-executive director, accountable for inadequate disclosures and the business practices underlying them. For matters of corporate strategy and capital allocation, BlackRock plans to engage with companies to review its reporting expectations and encourage them to make the connection between long-term planning and business-relevant sustainability risks and opportunities. BlackRock expects pay outcomes to be correlated with a business relevant long-term performance metric, and will hold compensation committee members accountable for pay outcomes. Human capital management also will be a priority this year for BlackRock, which expect boards to oversee strategies in this area.
The National Association of Corporate Directors (NACD) polled almost 200 directors for a "pulse survey" on how boards are reacting to disruptions caused by the coronavirus pandemic. The research found that 76% of directors surveyed report that their boards have discussed COVID-19 with management, while 49% report they've reviewed internal corporate communications strategies. Slightly fewer—42%—have taken steps to establish expectations for board/management communications. The NACD survey further showed that 67% of directors expect to evaluate the effectiveness of management's plans to protect the health and welfare of the employee population at their next board meeting. Seventy-four percent say that their board gets enough information from management, and 71% say management's response so far has been effective.
The Wall Street Journal quotes various corporate governance experts, who say temporary succession planning could become a more pressing issue in the coming weeks as companies brace for the possibility of C-suite absences related to the coronavirus. If needed, CFOs are likely contenders to temporarily fill a CEO or chairman post in such a crisis. National Association of Corporate Directors CEO Peter Gleason observes that most boards have been in close enough contact with the management team that they know the capacity of the executive officers very well. But amid the pandemic, he noted, boards would also need to prepare a scenario in which the emergency successor is also ill because he/she was in the same environment as the executive who contracted the virus. Gleason asks, "Is there somebody a layer down who can man the ship for a short period of time?"
Wall Street Journal columnist John D. Stoll contends that a movement that was designed to make corporate boards better and more diverse "may instead leave some of them flat-footed" as their companies deal with the coronavirus crisis. In particular, he is concerned that fewer "overboarded" directors—those who hold a half-dozen or so public board seats at the same time—will leave some companies vulnerable. JPMorgan Chase & Co. (JPM), for instance, was once connected to 48 different companies via its directors' affiliations. Today, that number has dwindled to nine. Stoll asserts that such affiliations have proven invaluable in previous times of crisis. "When GM was skidding toward bankruptcy," Stoll notes, "Ford Motor Co. relied on a longtime board member with deep connections and multiple board seats—ex-Goldman Sachs Group Inc. President John Thornton—to help it survive its own liquidity crisis."
According to the Proxy Preview 2020 report from As You Sow, the Sustainable Investments Institute, and Proxy Impact, 429 environmental, social, and governance (ESG) shareholder resolutions have been filed this proxy season. Two-thirds of the filings address climate change, political spending, and treatment of women on boards and in the workplace. More than 300 of these proposals are expected to be voted on this spring. Heidi Welsh, co-author of the report and executive director of the Sustainable Investments Institute, said more investors are pressuring companies to address such ESG issues, even as the Securities and Exchange Commission works to change the rules for the shareholder proposal process despite strong opposition from many investor groups. "Companies (that) don't want to publicly air these matters on their proxy ballots may get what they want in the rule this spring, but curtailing shareholder rights doesn't mean these risks will evaporate. The ultimate outcome will depend on litigation and the 2020 election results," said Welsh. Further, As You Sow CEO Andrew Behar said the 2020 proxy season "will test if investors and companies will help define a new economic paradigm or if these endorsements are just empty words," pointing to the Business Roundtable's recent policy change to support stakeholder capitalism.