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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.
The $1 billion U.K. fund Asset Value Investors is considering submitting shareholders proposals at the annual meeting of Fujitec due to concerns about the Japanese elevator manufacturer's cross-holdings. The investment management firm is engaging Fujitec over its large equity stakes in other companies. Joe Bauernfreund, manager of the firm, says those stake are like "dead capital" because they do not "maximize return on equity." Fujitec's cozy commercial relationships with other companies prevents outside investors from pushing for change that could result in more promising returns for shareholders. Investors in Japanese companies now are focusing more on balance sheets and cross-holdings, he says. Asset Value Investors' new campaign at Fujitec calls for divesting stakes, as well as buying back shares, setting up board committees or performing a strategic review.
A push to revamp the board of Mack-Cali Realty Corp. (CLI) from one of its largest investors received a boost Friday with two prominent shareholder advisory firms urging investors to support some its director nominees. Institutional Shareholder Service Inc. urged shareholders to elect all eight directors nominated by Bow Street LLC, while Glass Lewis & Co. encouraged them to vote for five of its nominees. ISS said in a report Friday that, despite the transition risk associated with Bow Street’s plans to remove Mack-Cali Chief Executive Officer Mike Demarco and the bulk of its board, several of its nominees have extensive experience in the sector, and have expressed a willingness to serve as interim CEO. It said while the company has made strides in transforming its business, there were serious obstacles to improving its operating performance, including excessive leverage and a development-heavy approach that consumes cash. Given the apparent inability or unwillingness of the legacy directors to challenge the company’s chairman, Bill Mack, Demarco, and others on the board, ISS said it saw little reason to preserve a strong minority of legacy directors. Glass Lewis said in its own report Friday that investors should support five of Bow Street’s nominees, arguing as well that change was needed at the company to improve its governance. The advisory firm said increased representation for Bow Street on the 11-member board would send a strong message to the Mack-Cali-backed board members that the “regressive governance tactics employed over the last year were profoundly misguided.”
Shareholders elected three associates of investor Carl Icahn to the board of Occidental Petroleum (OXY) on Friday. Icahn opposed Occidental's decision to acquire Anadarko Petroleum for $38-billion last year. In addition to electing all 11 directors, shareholders authorized the company to issue 400 million shares in part to give it a means of continuing to pay preferred dividends in stock, and potentially to swap shares for its debt. They also authorized the issue to Warren Buffett's Berkshire Hathaway (BRK.A) of warrants for up to 80 million common shares. The first shareholder votes on the Anadarko deal also resulted in the approval of a poison-pill measure. Earlier this week, Anadarko investors sued Occidental, alleging it concealed its inability to weather collapsing oil prices. Occidental has posted a $2.2-billion first-quarter loss from write downs and the collapse in oil prices this year.
Washington state lawmakers have amended the Washington Business Corporation Act (WBCA) to mandate gender diversity on corporate boards. Public companies that are subject to the WBCA are now required to either have a gender-diverse board by Jan. 1, 2022 or comply with new board diversity disclosure requirements. A board that is comprised of at least 25% of individuals who self-identify as women, for at least 270 days of the fiscal year preceding a public company's annual meeting of shareholders, will be considered to be gender diverse, under the amended law. Companies with boards that are not sufficiently diverse must disclose in their annual proxy statement to shareholders or post on their primary website a board diversity discussion and analysis. If a company fails to provide a diversity discussion and analysis in accordance with the WBCA, voting shareholders may pursue a superior court order requiring the company to provide the information to shareholders.
Hong Kong Exchanges and Clearing (HKXCY) has gained backing among fund managers and stockbrokers for its plan to attract more technology giants to list in the city by expanding the use of dual-class shares. The exchange has proposed permitting corporate shareholders, founders, and key managers to own shares with more voting rights than other investors. Fund managers and stockbrokers are concerned about a small number of shareholders wielding outsize influence on a company's future, and they hope more safeguards will protect ordinary shareholders. The exchange is inviting U.S.-listed mainland Chinese tech firms due to the increasingly frayed relationship between the U.S. and China. At least 38 U.S.-listed mainland tech giants, including Tencent Music (TME), are currently ineligible for listing in Hong Kong because they have corporate shareholders with a weighted voting rights (WVR) structure, which is allowed in the U.S. and Singapore. The HKEX said roughly 42% of all U.S.-listed mainland tech firms have WVR structures, while 84% of the 50 biggest technology unicorns in mainland China have corporate investors. The 2018 listing reform allowed companies with multiple share classes with different voting rights to list on the exchange. "The new rules would particularly benefit any innovative businesses that are a part of an ecosystem of companies, or those that are locked in a corporate structure after rounds of pre-IPO funding," said Dechert partner Stephen Chan. However, the Hong Kong Investment Funds Association says the sunset clause limiting the WVRs shares to no more than 10 years, with an option to renew by no more than five years subject to the approval of independent shareholders, is too long.
Six U.S. companies identified in a Reuters review of regulatory filings have moved to shield their executives’ compensation from the pandemic’s economic fallout as they laid off or furloughed workers. The six are: Sonic Automotive Inc. (SAH), which operates 95 U.S. car dealerships; plush toy seller Build-A-Bear Workshop Inc (BBW); restaurant operator Red Robin Gourmet Burgers Inc. (RRGB); retailer Signet Jewelers Ltd. (SIG); fashion brand DKNY owner G-III Apparel Group Ltd. (GIII); and fracking sand producer Covia Holdings Corp. (CVIA). Reuters found 75 other companies that disclosed they are considering changes to executive pay plans in light of the pandemic’s impact on their businesses. In an April 21 filing, for example, Sirius XM (SIRI) said it “may be prudent” to change executive pay terms to ensure it can attract and retain “senior management talent.” Critics say protecting executives’ pay in downturns undermines practices intended to tie compensation to shareholder returns. Nell Minow, vice chair of corporate governance consultant ValueEdge Advisors, said such plans need both an upside and a downside. “Otherwise, there is no point,” she said. Others counter that the moves to protect executive pay might serve investors as well as executives. “It’s critical to motivate the team and get through the crisis,” said Yonat Assayag, partner at pay consultant ClearBridge Compensation Group. “Through that lens, a lot of these decisions are very much aligned with shareholder interests.”
Starboard Value's investment in Papa John's (PZZA) is paying off. Shares in Papa John's soared 6% Wednesday after CEO Rob Lynch said the company saw a second straight month of record sales in May, thanks in part to coronavirus quarantines. The company's stock is up more than 70% since Starboard first made its investment in Feb. 2019, translating to a profit of about $200 million on its 20% stake. The hedge fund helped boot controversial founder chairman John Schnatter as chairman, then took over the board and filled the CEO slot with turnaround maverick Lynch. Smith also tapped basketball player Shaquille O'Neal to be the public face of the company. Shares in Papa John's are up 100% from the month before Starboard arrived.
Trian Partners has sold 4.9 million shares of General Electric (GE) and its remaining 3.9 million shares of Legg Mason (LM). Nelson Peltz's hedge fund said it made the moves “primarily to provide for new positions.” Trian sold the General Electric stock at a price 42% lower than where it was at the end of 2019, but said it continues to back CEO Larry Culp. The hedge fund now owns 59.3 million General Electric shares, according to a form that it filed with the Securities and Exchange Commission. Trian is still the 14th-largest shareholder in General Electric, according to S&P Capital IQ. Trian partner Ed Garden will continue to serve on the GE board, the fund said. After Peltz joined Legg Mason's board, Franklin Resources (BEN) struck a deal to buy the money manager. Peltz and Garden will continue to serve on the Legg Mason board until the transaction closes.
The board of WeWork is scheduled to vote on appointing two new directors on Friday amid an ongoing battle between investor SoftBank Group (SFTBY) and a competing WeWork faction. An attorney for WeWork told Delaware Chancery Court Judge Andre Bouchard that the meeting is designed to fill two vacant seats by former legal counsel for General Electric (GE) Alex Dimitrief and former Convergence Group chief financial officer Frederick Arnold. SoftBank and the rival board faction are clashing over the former's move to ditch a $3 billion agreement to purchase stock from former WeWork CEO Adam Neumann and other shareholders. SoftBank initially agreed to the purchase in 2019 as it bailed out WeWork, but told stockholders in March that some of the deal's conditions had not been met. Two independent WeWork directors sued SoftBank, and one is Benchmark Capital partner Bruce Dunlevie, whose firm had planned to sell its WeWork shares to SoftBank. The new directors will be on a special board committee that will decide whether Dunlevie and fellow board member Lew Frankfort can properly represent WeWork in the lawsuit. Bouchard on Wednesday denied bids by Dunlevie and Frankfort to block WeWork from adding new directors. "We believe SoftBank has no basis to question the special committee's authority to bring this action and we are pleased by the court's recognition that any effort by SoftBank to challenge that authority must be presented" to the judge, stated a spokesman for the plaintiffs. WeWork officials supported by SoftBank claimed that they are acting in the best interest of the company.
Bill Ackman said in a May 27 conference call that Pershing Square Capital Management sold off its investments in Warren Buffett's Berkshire Hathaway Inc. (BRK.A), Blackstone Group Inc. (BX), and Park Hotels & Resorts Inc. (PK). He said Pershing Square exited Blackstone and Park Hotels because it was not able to build large enough positions at attractive prices before markets rebounded. Ackman continues to view Berkshire as a sound investment, but he believes recent market volatility might create better opportunities to deploy capital on higher-returning investments. He said the markets have changed significantly since Pershing Square first disclosed its position in Berkshire in August 2019. "The one advantage we have versus Berkshire is relative scale," Ackman explained. "Berkshire has the problem, if you will, of deploying $130 billion worth of capital." However, he noted that Pershing Square has about $10 billion of capital to invest and therefore can be more nimble. "We should take advantage of that nimbleness, preserve some extra liquidity, in the event that prices get more attractive again," he added. Further, Ackman used the proceeds from a credit hedge to reinvest in some of its portfolio companies, such as Lowe's Cos. (LOW), and those companies have gained as much as 47% from the price he purchased them at after the coronavirus outbreak. "We still think everything we own is undervalued," he said.
Sources say preliminary figures show that Starboard Value LP is close to having its entire slate of eight directors elected to the board of GCP Applied Technologies Inc. (GCP) at the chemical company's May 28 annual meeting. However, they noted that not all votes have been cast, and the result could change. If Starboard—which owns 9% of GCP—gains control of the board, it would mark the first time one of its proxy contests has ended in a vote since it unseated all 12 directors at Darden Restaurants (DRI) in 2014. Currently, GCP has nine board members and will expand the size to 10 at the annual meeting. The company ran a slate of 10 director candidates. Standard Industries Inc. and its affiliated entity 40 North Management LLC, which together own 24.4% of GCP's stock, backed Starboard. Observers note that it was a tough battle for the company, with Starboard and 40 North controlling nearly one-third of the vote.
The Bank of East Asia Ltd. (BKEAF) has postponed until Sept. 30 the deadline for it to update shareholders on a review of its business portfolios and assets, because of "impediments caused by the Covid-19 virus." The bank in March said it had agreed to a review of its businesses, putting on hold protracted legal proceedings calling for change at the lender advanced by Elliott Management, which has almost an 8% stake in the bank. Elliott previously urged the bank to consider putting itself up for sale in an open letter to shareholders, in which it also said the lender was poorly managed. Profit at the bank declined by 50% in 2019 due to a substantial increase in impairment losses in its mainland China business. Goldman Sachs (GS) is conducting the review of its businesses.
Carl Icahn has sold out of his 39% stake in Hertz Global Holdings (HTZ) after a six-year bet that lost him almost $1.6 billion. Icahn first took a position in the company in 2014 to agitate for the ouster of then-CEO Mark Frissora, and Hertz is on its fourth CEO since then. When the Covid-19 pandemic decimated the travel industry, Hertz was caught with too much debt accumulated over years of management turmoil and turnaround attempts. Hertz was sold by Ford Motor Co. (F) to private equity funds in a 2005 leveraged buyout and taken public the next year. The company also levered up to buy Dollar Thrifty Automotive Group Inc. in 2012. “It's a saga about gross mismanagement,” said Maryann Keller, a onetime auto-industry consultant who was on the board of Dollar Thrifty when Hertz acquired the company. “It could have been salvaged had [Icahn] picked the right management."
GameStop Corp. (GME) has filed a detailed investor presentation titled "Driving Value for All Stockholders," highlighting its recent refreshment of the board and management, as well as leadership's progress on executing the business transformation plan "GameStop Reboot." The information provided in the presentation addresses the board's contention that its slate of director nominees is better qualified than the two candidates nominated by Hestia Capital Partners and Permit Capital Enterprise Fund to guide GameStop through its turnaround and deliver returns to all stockholders. The presentations points out that within the last two years GameStop has added six new independent directors—including two directors added under a cooperation agreement with Hestia-Permit—and enhanced the company's corporate governance practices. On GameStop’s newly refreshed board, which features nine out of 10 independent directors, seven directors have joined in the last 19 months. The directors targeted by the dissident stockholders, Thomas Kelly and Jerome L. Davis, have announced their intention to continue to serve as board members to steward the transition of the new directors in direct response to stockholder feedback requesting an orderly transfer of institutional knowledge, before retiring in June 2021. The board refreshed the company’s leadership team in 2019, intentionally recruiting executives, including CEO George Sherman, with experience working with large retailers that have undergone successful business transformations.
CIM Commercial Trust (CMCT) has responded to a notice from Engine Capital that it converted its Schedule 13G filling to a Schedule 13D filing. The board agrees with Engine's belief that CMCT must narrow the gap between the current share price and net asset value; it also believes in increasing the underlying value of the shares. These objectives "can sometimes be in conflict over the short term," it notes, but the board disagrees with the assertion that it may be favoring the interests of the company's external operator and administrative services provider (CIM or CIM Group). Affiliates of CIM and officers and directors of CMCT own for their own respective accounts more than 20% of CMCT's common stock. CMCT sold approximately $991 million of assets in 2019 and through these sales, the company was able to distribute $42 per share in a special dividend to shareholders in 2019. The board and CIM believe that Engine's suggestion that CMCT liquidate its real estate assets in the near term "reflects a fundamental misperception of the private real estate market as it exists today" and would destroy shareholder value. The company addresses other issues raised by Engine, including CMCT's at-the-market program, fees paid in common stock, costs, and CMCT CEO David Thompson, as well as ISS' critical comments regarding its executive compensation.
Starboard Value, one of the largest shareholders of GCP Applied Technologies Inc. (GCP), with an ownership interest of approximately 9% of the company's outstanding shares, has delivered an open letter to GCP shareholders in connection with the company's upcoming Annual Meeting of Shareholders. The letter says Institutional Shareholder Services Inc., Glass, Lewis & Co., and Egan-Jones Proxy Services support Starboard's calls for change at GCP. ISS recommended that shareholders vote to elect six of Starboard's nominees, concluding that "providing the dissident with a majority of seats appears to be necessary to ensure that its nominees will be able to assess potential missteps by the incumbent board and properly oversee a revised turnaround plan." Glass Lewis recommended that shareholders vote to change "the entirety of the Board's current leadership" given GCP's "long-term underperformance and governance concerns." Egan-Jones recommended the election of all eight of Starboard's nominees, noting that "we commend the qualifications and track record of the Starboard nominees." In reports published by all three proxy advisory firms, there is unanimity around the need to change out the entire leadership structure of the current board, Starboard points out.
Mack-Cali (CLI) says four directors that won seats on the board after being nominated by Bow Street in 2019 held secret talks with Bow Street to become part of a campaign to remove the real estate investment trust's chief executive officer. Mack-Cali said it never intended to remove the Bow Street directors from the board and invited all of them to be renominated on the company's slate this year. All four accepted the invitation. However, Mack-Cali did ultimately remove Alan Batkin, Frederic Cumenal, MaryAnne Gilmartin, and Nori Gerardo Lietz from its slate after learning the four had joined Bow Street's slate seeking control of the board. Mack-Cali takes issue with Bow Street's contention that it ignored the four directors and cites conflicts of interest and their affiliations with Bow Street, "which call into question the nominees' ability to act as independent directors." Mack-Cali's annual meeting is scheduled for June 10.
Bow Street is sending a letter to Mack-Cali Realty Corp. (CLI) shareholders highlighting the need for independence, accountability, and oversight in the Mack-Cali boardroom following a series of broken promises made by the legacy board of directors and management. Ahead of Mack-Cali's annual meeting on June 10, Bow Street urges shareholders to vote the gold proxy card for all of its independent nominees. Bow Street's letter says Mack-Cali has sought to remove from the board "the only four truly independent directors, aiming to replace them with hastily selected nominees interviewed and approved by [CEO Michael] DeMarco; sidelining these four truly independent directors in the Boardroom by excluding them from strategic discussions and decision making, and relegating them to committee positions designed to minimize their impact; manipulating the outcome of the 2019 annual meeting to permit William Mack to remain on the Board and retain his Chairmanship, despite being voted off the Board; failing to force Mr. Mack to recuse himself from conversations with prospective third-party bidders while he was hiring advisors to prepare a bid himself; supporting a CEO who lied on an earnings call regarding credible strategic interest to purchase Mack-Cali at nearly double the current share price; and misleading shareholders by concealing the conclusions of the Shareholder Value Committee." The letter adds that debt has increased in the absolute, and leverage has increased from 7x to 12x Net Debt/EBITDA as of last quarter. Mack-Cali's leverage is now at the highest levels in the company's 20-year history. Funds from operations have declined nearly 30%, from $1.83/share in 2015 to $1.30/share today. Further, during a period of broad economic prosperity, Mack-Cali's Net Asset Value has decreased from $34/share to $33/share.
France's state-backed investment bank BPI has launched a new fund that will back domestic companies. Last year, Finance Minister Bruno Le Maire said the fund would enable France to defend against investors that are seeking to engage domestic companies. Engagement at French companies rose last year, with Elliott Management, Amber Capital, and Ciam pursuing campaigns at spirits company Pernod Ricard (PDRDF), Lagardère (LGDDF) and insurer Scor (SCRYY), respectively. However, Nicolas Dufourcq, who leads BPI, said in an interview that the investment bank would choose which companies to invest in independently, without interference from the French government. "We are not some sort of white knight fund," according to Dufourcq. BPI has identified a handful of listed companies in which it plans to buy stakes worth up to 1 billion euros in the coming months. The first round of the fund, called the "lake of cash," closed with 4.2 billion euros in pledges.
Merit Medical Systems (MMSI) has entered into an agreement with Starboard Value and its affiliates, which control an 8.7% stake in the company, on the nomination of three independent directors who will be up for election at the annual meeting in June. Merit Medical will subsequently withdraw its own director nominations. Three current directors will not stand for reelection, and a fourth will resign no later than immediately following the meeting. The board also will organize a new operating committee to establish operating margin targets in collaboration with management.
Hertz Global Holdings (HTZ) said in a Tuesday filing that it has paid about $16.2 million in retention bonuses to a range of key executives including CEO Paul Stone and CFO Jamere Jackson, rewarding them $700,000 and $600,000, respectively. Employees who received the retention bonus forfeit the right to participate in the company's 2020 annual bonus plan. Last week, the car rental company, which counts Carl Icahn as its largest shareholder with a nearly 39% stake, filed for chapter 11 protection in Delaware bankruptcy court. Hertz, which had nearly $19 billion of debt and 38,000 employees worldwide at the end of 2019, has lost a large portion of its revenue since the start of the Covid-19 crisis.
ENKRAFT has accelerated a campaign at German renewables group Energiekontor (EKT), arguing that a recent shareholder vote shows growing dissatisfaction about perceived conflicts of interest at the board level. ENKRAFT had previously submitted changes to the group's three-member supervisory board, which includes Energiekontor's two co-founders, who collectively own 51.53% of the group at a value of 288 million euros ($314 million). The investors desire a new strategy for Energiekontor, and have said that if founders and management cannot come to an agreement on a new approach, then the value of the company could be better realized via a sale. Records on the company website indicate that at the May 20 annual general meeting (AGM) most minority shareholders refused to support the supervisory board. Excluding the co-founders' voting stake, the percentage of "no" votes at the meeting was about 33% of the total submitted by minority shareholders. "The voting results in the AGM [are] evidence that minority shareholders do not feel adequately represented anymore by the board," noted ENKRAFT managing director Benedikt Kormaier. ENKRAFT said it controls nearly 3% in Energiekontor. "The majority of outside shareholders are evidently not comfortable with the conflicts of interests the founders inherently have between their role in the supervisory board and their role as largest shareholders," Kormaier said. Energiekontor shares have climbed by about 8% since ENKRAFT's demands were first publicized earlier this month.
Four Mack-Cali Realty Corp. (CLI) directors, elected after a proxy fight with Bow Street LLC last year, have issued a rebuke of the board's old-guard majority, saying they are disregarding concerns about the strategic direction of the real estate investment trust. "Mack-Cali has dismissed us as instruments of Bow Street in an attempt to shift attention from the severe governance problems that have hobbled the company and denied value to its shareholders," the group said in a new statement. "This is blatantly false." The four argue they are all fully independent and aim solely to serve shareholders, provide proper oversight, and ensure that the company's decisions were rooted in strong corporate governance. The directors accuse the others of putting a "rubber stamp" on decisions favored by CEO Mike DeMarco and lead director Alan Bernikow. They take issue with the fact that after a lengthy strategic review last year, only one of several recommendations made by a special committee of the board was implemented or made known to shareholders. Bow Street LLC owns a 4.9% stake in Mack-Cali and has nominated the four dissident directors for re-election, as well as four new candidates. Mack-Cali has refused to include the four dissident directors on its own slate for re-election. Mack-Cali has defended itself against Bow Street's accusations that it failed to adequately explore a potential sale, arguing that a proposal from the investment firm Rizk Ventures in December was not credible. Mack-Cali has also denied Bow Street's claims that at least four other prospective bidders have expressed interest since January.
U.S. investor Mittleman Brothers says BGH Capital's $468 million takeover proposal for Village Roadshow is blatantly opportunistic. Mittleman Brothers has more than a 5% stake in the Australian leisure company. Chris Mittleman, chief investment officer of Mittleman Brothers, said the economic fallout from the coronavirus pandemic was "likely transitory, and any effort to acquire the shares of minority shareholders at a massively markdown price" would be a "shameful act under the circumstances." BGH's proposal of up to $2.40 a share—though less if cinemas and theme parks are not involved—would deprive minority shareholders of their equity interest at a price that represented a 45% to 40% discount to the $4 a share indicative proposal made by the private equity firm in January, according to Mittleman. Before the global health crisis, Mittleman had said the company should not be taken over for less than $5.42 a share. The investor said it was greatly concerned about the Village Roadshow board's engagement with BGH on the non-binding proposal. Mittleman added that it plans to discuss the matter with other investors in the Village Roadshow.
EasyJet (ESYJY) founder Stelios Haji-Ioannou was unsuccessful in his effort to oust the airline's top three executives on May 22, giving it a brief respite in its fight for survival during the Covid-19 pandemic. Haji-Ioannou's family has a stake in easyJet of 34% and is its largest investor. With air travel largely halted and easyJet planes parked around the globe, Haji-Ioannou had ratcheted up his public campaign for management to scuttle a $5.6 billion order for 107 new Airbus (EADSY) aircraft that he says easyJet can't afford. A virtual shareholder meeting was called to remove the chairman, chief executive, finance director, and one other director that became a proxy vote on easyJet's broader strategy. The company said more than 99% of votes cast by independent shareholders supported the board. "The airline industry is facing unprecedented challenges and the board's immediate priority has been to take the necessary steps to successfully guide easyJet through this period of uncertainty," said Chairman John Barton. "The board seeks good relationships with all of the company's shareholders and hopes to be able to re-engage constructively with Sir Stelios." EasyJet's financial position is healthy enough to get through the crisis, and the new planes are needed to replace ageing jets and will help it stay competitive when flying resumes, according to management. Haji-Ioannou said he will continue to learn why the Airbus deal is going forward.
Hestia Capital Partners and Permit Capital Enterprise Fund, which are hoping to install two directors on the GameStop (GME) board of directors, say that seven board members destroyed $2.5 billion in shareholder value over the past five years while causing the company to become loaded with debt. Hestia Capital and Permit Capital have a 7.2% stake in GameStop and argue that the seven board members are responsible for GameStop taking on $825 million in debt to finance stock buybacks at approximately $30 per share, even as they sold their own stock for about $48 per share. Hestia Capital and Permit Capital also say the board is attempting to take credit for selling Spring Mobile, when it was actually other investors that encouraged the company to do so, and it occurred only after pursuing a misguided acquisition of Telecom and Simply Mac. Further, they allege, the seven directors have hand-selected their successors, who don't have the experience needed to right the company.
Four Mack-Cali (CLI) directors who were elected to its board in 2019 say they've been excluded from significant talks and decision-making and were assigned to committee roles that were "designed to be uninfluential, in a coordinated effort by CEO Michael J. DeMarco and lead independent director Alan Bernikow." Alan Batkin, Frederic Cumenal, MaryAnne Gilmartin, and Nori Gerardo Lietz were elected to Mack-Cali's board last year after being nominated by Bow Street, and Mack-Cali did not include them on its slate this year. "Simply put, our views have been unwelcome and concerns we have raised were consistently ignored," stated Batkin, Cumenal, Gilmartin, and Lietz. They say that Mack-Cali has dismissed them as instruments of Bow Street, but the four directors say they're "four fully independent individuals. Simply put, our views have been unwelcome and concerns we have raised were consistently ignored." They also say they're not planning to conduct a "fire sale" of the company, as Mack-Cali asserts, but are merely interested in boosting shareholder value. Bow Street has renominated the four for this year's director elections.
German media group Axel Springer has submitted an initial bid for the classifieds business of eBay (EBAY), which is facing pressure from Elliott Management and Starboard Value. Axel Springer is backed by private equity firm KKR (KKR). EBay, which sold its StubHub business last year, has spent the past few months weighing its options. The e-commerce group would be moving forward with one of the biggest sale processes since the outbreak of the coronavirus. Analysts estimated that the classifieds business could sell for between $8 billion and $12 billion before the global health crisis, but it is unclear if a deal now could be finalized at that price. Shares of rival classifieds businesses have fallen in recent weeks, and debt financing for leveraged buyouts is also harder to raise during the pandemic. Other suitors for the classifieds business include South African ecommerce group Naspers (NPSNY); the classifieds group Adevinta (ADEVF); and a private equity consortium comprising Blackstone (BX), Permira, and Hellman & Friedman.
SoftBank Group Corp.'s (SFTBY) $100 billion Vision Fund reported this week that it lost $17.7 billion in the latest fiscal year, the biggest loss in its 39-year history. As shares in the group are hammered and SoftBank Group founder Masayoshi Son plans to sell $42 billion in assets, there are signs of tension around Vision Fund manager Rajeev Misra. Misra has come under fire for an alleged effort to tarnish internal rivals including COO Marcelo Claure, and the company has acknowledged that it is conducting an internal review. Elliott Management Corp., meanwhile, has built a $3 billion stake in the company, asking SoftBank to name three independent directors and create a new board committee to improve the Vision Fund's investment process. Sources say Elliott wants SoftBank to get to the bottom of Misra's alleged campaigns against his colleagues, expressing dismay at the infighting among top managers. Some insiders speculate that Son needs Misra's financial expertise to navigate the next few months of asset sales, share buybacks, and loan repayments. Still, there are long-term risks for Son in tolerating what many see as a divisive culture and chaotic infighting that have plagued the Vision Fund. Misra's fate is ultimately intertwined with the Vision Fund, which now risks becoming one of Son's worst missteps. "Misra personifies what Vision Fund is about—a bunch of dealmakers obsessed with leverage who have no business running a venture capital fund," said Amir Anvarzadeh, a strategist at Asymmetric Advisors in Singapore. "But it would be naive to put all of their problems at Misra's feet. Son has the ultimate word."
Driver Management Co. LLC, one of the largest shareholders of First United Corp. (FUNC), has made available documents demonstrating First United's anti-shareholder practices and issued an open letter to shareholders. Shareholders can visit www.RenovateMyBank.com to review evidence pertaining to First United's campaign to lobby the Maryland Commissioner of Financial Regulation to allegedly penalize Driver. Driver says a lawsuit filed by First United on May 20 "is entirely without merit and a clear sign of a desperate Board pathetically seeking to avoid accountability." Driver says it has nominated three highly qualified and completely unaffiliated director nominees to improve First United's 11 member board, which currently has an average director tenure of more than 15 years.
Pershing Square Capital's Bill Ackman in a tweet called on Elon Musk to weigh moving Tesla (TSLA) to Nevada or Texas, urging Musk to consider cities in which Howard Hughes Corp. (HHC) has a presence. Pershing Square owned more than 12 million shares in Howard Hughes and is one of the biggest shareholders. Pershing Square had added to its stake, according to the latest first quarter filing dated March 31. Howard Hughes has 54 million shares outstanding. Ackman's pitch comes after Tesla became wrapped up in a dispute over its Fremont, Calif., operations.
Starboard Value LP has written an open letter to GCP Applied Technologies Inc. (GCP) shareholders concerning the firm's upcoming Annual Meeting of Shareholders. Starboard, with a 9% stake in GCP, is calling on shareholders to support a better path forward for the company by voting for all eight of Starboard's nominees on Starboard's white proxy card. The letter also notes that Starboard's turnaround plan and nominees have support from Institutional Shareholder Services Inc.; Glass, Lewis & Co. LLC; and Egan-Jones Proxy Services.
Top EasyJet PLC (ESYJY) shareholder Stelios Haji-Ioannou is calling for the ouster of the U.K. airline's leadership, including CEO Johan Lundgren, Chairman John Barton, and CFO Andrew Findlay. Shareholders will vote on the motion at EasyJet's annual shareholder meeting on Friday. The clash centers on an order for more than 100 Airbus SE A320neo jets that comprise the bulk of 4.6 billion pounds in capital spending planned through fiscal 2023. Haji-Ioannou says the purchase will drain cash as the air-transport industry faces years of subdued demand in the aftermath of Covid-19; he wants EasyJet's existing fleet cut to 250 aircraft from 318. EasyJet says it has revised the order in light of the Covid-19 pandemic and also deferred the delivery of 24 planes to an undetermined date. The airline says it has reduced near-term capital expenditures by more than 1 billion pounds, though it has yet to announce job cuts of a level announced by peers. Haji-Ioannou has generally failed to attract broad shareholder support in previous battles with management, but he has prompted some change, including, potentially, the departure of Barton's predecessor as chairman in 2013 and EasyJet's higher-than-average payouts. This time, Haji-Ioannou's call to cut spending comes with the industry mired in the deepest crisis in its history, which could turn more shareholders to his way of thinking. A defeat for Lundgren would still come as a surprise, as he and his family own about 34% of EasyJet, and the company reckons it could have the backing of shareholders controlling 45% of votes. Invesco (IVZ), Ninety One U.K., and Phoenix Asset Management, who together hold about 15% of EasyJet stock, have publicly pledged their support to management, and major shareholder advisory firms have also recommended that people vote against Haji-Ioannou's resolutions.
The Securities and Exchange Commission's (SEC's) Investor Advisory Committee (IAC) said Thursday that the agency should take the global lead in mandating material environmental, social, and governance (ESG) disclosures. "If the SEC does not take the lead, it is highly likely that other jurisdictions will impose standards in the next few years that U.S. issuers will be bound to follow, either directly or indirectly, due to the global nature of the flow of investment into the U.S. markets," the panel said in a report. The ESG disclosures should be based on the same information the businesses use to make their own decisions so both retail and institutional investors can use it for investment and voting choices, the IAC recommended. "Investors are demanding (quality ESG disclosures), but there is a patchwork approach. There is a lot of not material information out there," said the author of the recommendation, Allison Bennington, former chief global affairs officer at ValueAct Capital.
Sony (SNE) has begun a consolidation process and started to reorganize the company, showing that management is committed to expanding the conglomerate. The purchase of the remaining shares of its financial unit followed the company's decision to merge its imaging, sound, and mobile communications divisions into a single unit two months ago. Sony is taking this approach despite Third Point Management's pleas for Sony to disband itself into two separate entities. However, the author believes that the company's current strategy makes sense for long-term investors. Sony has always been a conglomerate, and by taking its financial arm completely private Sony is following others that have made the finance business a stable profit-generating machine. Sony has numerous advantages over its competitors, and its P/E ratio shows that the stock is undervalued at the current price. While sales are down 5% year-over-year due to the Covid-19 pandemic, Sony has enough liquidity to survive the crisis and drive growth once the economy recovers. By being a leader in both gaming and imaging and sensing, Sony can minimize its downside and hedge itself against the underperformance of some of its units. It makes no sense for the company to strip some part of its business and stick with only one, because both have a high potential to create value.
Hertz Global Holdings (HTZ) is stuck in a deadlock with creditors, including owners of asset-backed securities (ABS) tied to fleets of vehicles, with a May 22 deadline to either extend a forbearance agreement or make roughly $400 million in lease payments. Sources say Hertz may need to seek bankruptcy protection if an agreement cannot be reached. Top shareholder Carl Icahn could still make an 11th-hour rescue to protect his $1.6 billion investment. An increase in used-vehicle prices from tepid levels in the last two months has given ABS holders less incentive to again extend the forbearance period. J.D. Power says those prices bottomed out in the week ending April 19, down more than 15% from where they were prior to the federal lockdown. Prices were down less than 10% by the end of the first week of May. A liquidation scenario entails a risk for bondholders, because although quick vehicle sell-offs can help maximize the value of rapidly depreciating holdings, swamping the market with too many cars depresses prices. Few bondholders expect used-vehicle prices to plummet to such a level that owners of the largest, highest-rated portions of the ABS would take losses. Sources say while Hertz ABS have faced downgrades, any harm from liquidations would likely be felt in smaller, lower-rated portions of the securities. Senior segments of Hertz debt issued between 2015 and 2019 changed owners on Thursday for between 93.5 and 95 cents on the dollar, while Trace says a lower-rated portion of a 2015 deal slipped around 19 points to trade at 81 cents. Any action by Icahn could force him to deal with bondholders like Apollo Global Management (APO), which has been purchasing Hertz debt at distressed prices to offset a short bet in the credit-default swaps market.
Shareholder activism in Canada has trended upwards since 2008, and its regulatory framework is more amenable to shareholder activism than the United States. For example, it allows a shareholder with a 5% interest in a company to requisition a special meeting, and a shareholder can accumulate 10% of a company's shares before publicly disclosing its interests. Traditional activist activity seems to have decreased globally in response to Covid-19, as many activists take steps to preserve cash and preserve investor relationships amid a backdrop of global uncertainty. Asset divestitures or spin-offs, share buybacks, and increased dividends may not be compelling demands in the current environment. A recent survey of institutional investors revealed that 91% of them would consider investing with a lower rate of return if it meant including sustainable or societal impact investing considerations. However, the foregoing does not reflect the complete picture based on discussion we have had recently with market participants. However, authors expect activists to cite management's performance during the Covid-19 crisis and their own ability to provide much-needed liquidity, among other factors, in future campaigns for change.
SEC Chair Jay Clayton this week warned about the risks of relying on simple ratings when considering environmental, social, or governance (ESG) issues as part of an investment decision. Clayton said any analysis that combines separate metrics into a single ESG rating would be imprecise. "I have not seen circumstances where combining an analysis of E, S, and G together, across a broad range of companies, for example with a 'rating' or 'score' — particularly a single rating or score — would facilitate meaningful investment analysis that was not significantly over-inclusive and imprecise," said Clayton. The SEC has asked for feedback from asset managers about ESG ratings as concerns rise about the spread of so-called "greenwashing" by companies.
The author, a member of the Securities and Exchange Commission (SEC) Investor-as-Owner Subcommittee, argues that it is time for the SEC to address environmental, social, and governance (ESG) disclosure. Investors have informed the SEC Investor Advisory Committee has learned that they consider certain ESG information material to their investment and voting decisions, regardless of whether their investment mandates include an "ESG-specific" strategy. Because of the patchwork approach to disclosure outside of the United States and the lack of clear disclosure obligations in the United States, third party ESG data providers have sprung up to fill the void between what companies disclose publicly and the information investors seek to make investment and voting decisions. The plethora of ESG data providers, all with different standards and criteria, has led to a significant burden on issuers, as each data provider uses different information sources to conduct its analysis and produce its work product. The Subcommittee recommends that the Commission "begin in earnest an effort to update the reporting requirements of Issuers to include material, decision-useful, ESG factors." Doing so will help provide investors with the material, comparable, and consistent information they need to vote, while also giving issuers a framework for disclosing said information themselves instead of relying on largely third party ESG data providers. It will also "level the playing field" among all issuers regardless of market cap size or capital resources and enable the SEC to take control of ESG disclosure for the US capital markets.
The new IR Magazine Shareholder Activism Report found that small-cap IROs faced a growing number of shareholder campaigns last year. The report was based on the results of a survey of 382 IROs and 218 buy-side representatives, reports IR Magazine (28 May, Szabo). According to the report, 15 percent of small-cap companies were targeted by an activist investor over the past year, while just 8 percent of mega-caps experienced shareholder activism. In spite of the fact that small caps frequently found themselves facing shareholder activism, they were least likely to have an activism defense plan. Indeed, 62 percent of mega caps have a strategy for shareholder activism, but just 30 percent of small caps also have a strategy. Still, according to the report, small caps that do have strategies review them at a rate higher than the average for all companies.
JANA Partners has built a stake of about 4.9% in Hillenbrand (HI), according to the hedge fund firm's most recent 13F filing. The investment makes Barry Rosenstein's firm the fourth largest shareholder in Hillenbrand, a diversified industrial company that its best known for making caskets. Already looking to sell off assets, Hillenbrand completed the sale of its Cimcool business to DuBois Chemicals in March. JANA added two independent directors to the board of Bloomin' Brands (BLMN) in April after the casual dining company agreed to settle its campaign. The hedge fund's biggest position is food processor Conagra (CAG). JANA has focused on managing longer lockup funds structured more like private equity funds since closing its JANA Partners and JANA Nirvana hedge funds last year. The JANA Strategic Investment Fund, which has a three-year lock-up compared with quarterly lockups for its former funds, gained 52% in 20019, according to the firm.
Environmental, social, and governance (ESG) issues are relevant to the long-term performance of a company and should be mentioned in the earnings call. This is especially true in the era of Covid-19, which has elevated the importance of employee safety and pay, the treatment of suppliers, and broader stakeholder issues at a time of increasing expectations for corporate behavior. More ESG information is appearing with greater frequency in proxy statements, 10Ks, and across a variety of other disclosure formats. Investor-focused ESG calls and webinars are becoming more common, and IR teams have been encouraged to adopt ESG approaches by the National Investor Relations Institute, reflecting the growing investor pressure for more and better ESG information. Integrating ESG issues into the earnings call can be difficult, however, as limited disclosure makes meaningful discussion and analysis difficult. The authors recommend establishing the foundation for success by getting C-suite support and conducting an assessment to identify the most financially material ESG issues. IR leaders should build up to the earnings call by incorporating ESG content into extant disclosures, and they should also share ESG-specific questions with sell-side analysts to shape the Q&A discussion. There must also be a plan for how to use each of the four earnings calls in the fiscal year so as to make ESG and long-term strategy content a consistent component of the company's value creation narrative.
The percentage of asset owners that have chosen to utilize sustainable investment practices climbed to 80% in 2019 from 70% in 2017, according to a survey of 100 institutional investors by Morgan Stanley Investment Management. Another 15% said they are seriously contemplating adoption of sustainable investment practices. "There is substantial demand for sustainable investing, more than I could have imagined five years ago. It's no longer regional. It's across the globe," said Theodore Eliopoulos, vice chairman and head of strategic partnerships at MSIM. "We're seeing the convergence of long-term performance, risk consideration, and mission alignment for asset owners. They stand side-by-side for investors, who are no longer substituting one of these factors for another," he said. The most robust driver of commitment to sustainable investment—81%—was demand from investors, followed by the possibility of good investment returns (78%); evolving policy and regulation (76%); and risk management (75%). Sixty-three percent said the most important result of implementing sustainable investment strategies was the reputational benefit, while 49% said the practice assisted with employee retention and 43% said it helped to improve environmental outcomes. Although 22% said they invest only with money managers using sustainable investment approaches, 35% said they are contemplating doing so. Eighty-eight percent said environmental issues matter most. Gender diversity and education are the top social issues, at 67% each.
Hertz's (HTZ) financial engineering contributed to the company's decision to seek bankruptcy protection. Before a sudden collapse in bookings caused by coronavirus travel restrictions, Hertz took on too much debt, participated in overpriced mergers and acquisitions, and faced accusations of playing accounting games to boost its earnings. Top shareholder Carl Icahn and other recent investors never saw Hertz achieve the pricing power from all its merger activity due to new competition from ride-hailing companies and a number of management missteps. Icahn has built a 39% stake since 2014, which probably cost him about $1.6 billion, based on a Bloomberg average share-cost estimate. The government rejected a bailout, and asset-backed securities holders appear to have decided that allowing Hertz to fall into bankruptcy will prove no impediment to them getting most of their money back. Such an outcome is more unlikely for Hertz's unsecured lenders, or its shareholders. Icahn now risks being wiped out.
The Australian Institute of Company Directors (AICD) is concerned that corporate boards may put less emphasis on diversity for board appointments during the coronavirus pandemic. "They might take the easy path and go to people who are well known to them, the usual suspects," says AICD chief Angus Armour. The proportion of women on the boards of Australian Securities Exchange (ASX) 200 companies was 30.7% in April, unchanged since January, but up from 29.6% in April last year and 23.6% in April 2016, according to AICD. Female directors account for only 34% of new appointments to the ASX 200, and the number of companies with female chairmen rose to 18, up from 13 a year ago and just eight in 2016. New Hope, Pro Medicus (PMCUF), TPG Telecom, and Silver Lake Resources (SVLKF) had no female directors as of April. Shareholders increasingly expect boards to be balanced in terms of gender and ethnicity, and probably will not take the news about the four companies very well, says Vicky Binns, a director of Cooper Energy (COPJF). The share of female directors on ASX 100 boards was steady in April at 31.8%, which suggests that the smaller companies in the ASX 200 made the most progress.
Hertz Global Holdings Inc., one of the country's biggest rental-car companies, filed for bankruptcy protection over the weekend, saddled with nearly $19 billion in debt and around 700,000 automobiles that have been largely idled during the coronavirus pandemic. The company has lost money for the last four years in a row, including $58 million last year. While the Covid-19 outbreak certainly had an impact on Hertz, the company was suffering well before the current crisis. Chiefly, Hertz had to contend with tough competition in the car-rental space along with the emergence of Uber (UBER), Lyft (LYFT), and other ride-hailing firms. Back in March, Hertz laid off 12,000 workers and furloughed an additional 4,000 employees—25% of its workforce—because of declining economic conditions stemming from the pandemic. Some of Hertz's problems have been self-inflicted, and it restructured a number of times and hired four CEOs in quick succession. Further, a private equity firm heaped a lot of debt on the company. Carl Icahn acquired a large position in Hertz's stock, which it disclosed in August 2014. Its share price, though around what would be its apex, had been hurt by accounting irregularities. Icahn called for a change in management, citing the accounting and operational difficulties.
Occidental Petroleum Corp. (OXY) could be set to bounce back from Covid-19, because oil and gas companies have started to recover. Since Feb. 20, Occidental has dropped 79% and bounced back 66.56% off its low, a less marked recovery than its peers, such as ExxonMobil (XOM), which fell about 50% and has bounced back 50.68%. Occidental would need to climb 187% to reach its $42.97 price on Feb. 20. Nonetheless, oil and gas should continue to recover as economies reopen and cuts in production lead to a gradual correction in commodity markets. Occidental's strong assets and expertise position it to capitalize on a demand for energy, and the stock could reach $25 per share over the autumn, generating a 66.78% upside. Carl Icahn has a stake in Occidental, and also is currently invested in energy companies such as Delek US Holdings (DK), CVR Energy (CVI), Cheniere Energy (LNG), and SandRidge Energy (SD). On May 16 Icahn increased his stake in Occidental by 292.65% by adding 66 million shares to his position. On March 25 Icahn and Occidental entered into an agreement to add three new Icahn-designated directors to Occidental's board. Icahn had been in the red, added a great deal of capital to his position, and now essentially controls three board seats.
The economic fallout from the coronavirus pandemic has taken a toll on Softbank (SFTBF) at a time when investors are looking for founder and Chairman Masayoshi Son to deliver another miracle. Elliott Management and other investors are engaging Softbank. Son recently reported a loss of $13 billion, the worst performance in the history of the company, and told investors that he would be more "cautious." He considered taking Softbank private in March, but executives persuaded him to sell off assets instead. Softbank's board has lost a third high-profile director in recent months in Son's close ally Jack Ma, founder of Alibaba (BABA). Son predicted that 15 of the 88 Vision Fund start-ups will go bust and refused to rule out more losses from a second wave of coronavirus infections. Unprecedented share buybacks and a promise to sell off $41 billion in assets allowed SoftBank's share price to rally 71% from a March low and outperform the benchmark Topix index.
Norges Bank Investment Management as of May 20 plans to publish and explain all votes against company boards at shareholder meetings. The firm, which operates the assets of the 10.2 trillion Norwegian kroner ($986 billion) Government Pension Fund Global, will publish the reasoning behind its votes against a company board one day after shareholder meetings. "In most cases, we will support the board's recommendation," NBIM stated. The firm is hoping the move to be more transparent over its voting decisions will aid the market in better understanding its views. "As a global investor, we depend on an efficient voting process," Carine Smith Ihenacho, chief corporate governance officer, said in the statement. "We see that in several markets, there are still manual voting processes, several layers of intermediaries, and a lack of electronic solutions. We depend on issuers, investors, business participants, and regulators cooperating to make relevant information available, propose improvements, develop good electronic voting solutions, and modernize frameworks." NBIM also published on May 20 four position papers delineating its perspectives on board independence, multiple-share classes, shareholder rights in equity issuances, and related-party transactions. The perspectives outlined in the papers "will serve as a basis for our discussion with boards," NBIM said. With respect to board independence, the position paper said a board should "guide company strategy and monitor management performance without conflicts of interest. A majority of shareholder-elected board members should be independent of management, dominant shareholders, and business relationships." And "in majority-controlled companies, at least a third of board members should be independent." Further safeguards should be implemented where board decisions "are particularly vulnerable to conflicts of interest," with management not serving on audit or compensation committees, for instance.
Carl Icahn's hedge fund recently filed its 13F for the first quarter of 2020, indicating that its largest buys were Occidental Petroleum (OXY), Delek Holdings (DK), and Newell Brands (NWL). Occidental was the firm's fifth-largest holding in the first quarter, accounting for 5.7% of Icahn's total portfolio, up from 3.6% last quarter. The stock's price has fallen 65.1% year-to-date compared to a 37% decline for the Energy Select Sector SPDR ETF. The firm's largest holding was in Icahn Enterprises LP, which made up 52.9% of its total portfolio, followed by CVR Energy (CVI) and HP (HPQ). In the last quarter, energy stocks accounted for 16.9% of Icahn's total portfolio, while industrial stocks accounted for more than 50% of the portfolio.
After significant opposition from investors, the Securities and Exchange Commission (SEC) seems to be moving away from a key provision of a proposed rule that would have given public companies a first look at independent proxy advice before it is delivered. However, it seems to be going ahead with a "speed bump" that would impose a delay in, and changes to, the investor voting process. The purpose of this change is to prevent investors from blindly following proxy advisers' recommendations, but in fact, most institutional investors already craft their own guidelines and criteria for vote recommendations. The author contends that the speed bump idea is both unnecessary and extremely different from the original proposed rule, so it should require the rulemaking process to start over. It also continues a trend in which the SEC seems to think that institutional investors cannot think or vote for themselves. At a time when shareholders and taxpayers alike are demanding accountability in corporate decision-making, institutional investors should continue to hold the SEC accountable for pushing forward with measures to stifle the voice of shareholders.