U.S. Senators Introduce Bill to Rein in Proxy Advisers
" Reuters (11/14/18) Price, Michelle"
A bipartisan group of senators has introduced a bill that would mandate that the Securities and Exchange Commission (SEC) directly regulate proxy advisers. The bill comes as the U.S. Chamber of Commerce, the National Association of Manufacturers, and other corporate lobbyists are campaigning to curb proxy advisers, which they say have too much influence over corporate democracy. Proxy advisers often support shareholder proposals on issues such as climate change and employee diversity, bringing them into conflict with company management and effectively hijacking the boardroom, some say. They argue proxy advisers should be regulated in a manner similar to rating agencies; and they note that the firms are potentially conflicted because Institutional Shareholder Services, for example, offers consulting services to the same companies on which it provides voting recommendations. The senators' Corporate Governance Fairness Act bill would call for the SEC to regulate proxy advisers directly under the Investment Advisers Act, making the firms subject to periodic SEC examinations, including a serious review of the firms' conflicts of interest policies. The bill has been endorsed by the Consumer Federation of America, the New York Stock Exchange, and the Society for Corporate Governance.
Dell Reportedly Taps Banks to Raise More Cash for Tracking Stock Offer
" CNBC (11/13/18)"
Dell Technologies (DVMT) is working with investment banks to add more cash to a $21.7 billion offer to purchase back a "tracking stock" linked to its software company VMware following investor opposition, according to sources. The move comes after a number of investors in the tracking stock, including Carl Icahn, said they would not accept the offer. The investors believe it transfers too much value to Dell's owners, founder Michael Dell and private equity firm Silver Lake. The acquisition of the tracking stock would result in Dell becoming a publicly listed company without an initial public offering. A majority of the holders of the tracking stock must approve the deal. Dell issued the tracking stock in 2016 to purchase EMC, a data storage company, for $67 billion because it could not pay for the full transaction in cash and did not want to increase its debt burden. EMC owned a majority stake in VMware, which Dell inherited. The security relies on, or "tracks," the financial performance of VMware, and has been trading at a substantial discount to VMware's stock. This has emboldened Icahn to argue that Dell's offer undervalues the tracking stock. Dell has thus far offered $109 in cash for each tracking share, up to $9 billion in total, with the remainder payable with 1.3665 shares of Dell's Class C common stock for each tracking share. Dell anticipates using a special dividend from VMware to fund the $9 billion part of the deal. The parties are near a deal, according to sources.
Elliott's Demands Seeking to Unlock Hyundai's Capital Draw Mixed Views
" Korea Herald (11/14/18) Chung-un, Cho"
The latest letter sent to South Korean automobile giant Hyundai Motor by Elliott on Nov. 13 drew mixed views in the market on Nov. 14. Some say its requests are reasonable, while others say it is geared toward increasing share prices for affiliates of the automaker in which the hedge fund holds stock. Elliott increased its pressure on Hyundai Motor, demanding it return 12 trillion won ($10.6 billion), or 31% of its market capitalization, to shareholders and blaming top executives for mismanaging capital and thereby causing share price underperformance as well as lower-than-average returns. Elliott also urged Hyundai Mobis to return 4 trillion won, or 22% of its market value, to shareholders, "preferably in the form of share buybacks given the deep valuation discounts." Elliott's demands were supported by a report from automotive consultancy Conway MacKenzie. "Given the cost of delay and the lack of progress made thus far by the Group," Elliott said, "we reserve the right to put forward the various Conway MacKenzie recommendations, among other ideas, as shareholder resolutions in the next general meeting absent an appropriate response from (Hyundai)." Demands from the hedge fund are nothing new, said Kang Sung-jin, an analyst at KB Securities. Some industry observers speculated that Elliott is trying to increase the value of the stock it holds in three Hyundai affiliates before cashing out. Elliott in April said it holds a combined 1.5 trillion won worth of common shares in Hyundai Motor, Kia Motors, and Hyundai Mobis. However, the value of all three has plunged recently. "(Elliott) appears to be making a pre-emptive action to persuade shareholders and to take a favorable position in the general assembly, having Hyundai Motor's announcement on governance reform in mind," Kang said. Hyundai scuttled its governance reform plan in May in the face of strong opposition from investors including Elliott. A new plan by the automobile manufacturer has not been announced yet, despite pressure from the Moon Jae-in government to increase transparency in its governing structure this year. "I don't think Elliott is trying to boost its shares in Hyundai affiliates (for short-term profit making), their plan appears to be very strategic and is designed for long-term engagement," said Bruce Lee, founder and CEO of Zebra Investment.
Ousted Telecom Italia CEO Says He Was Misled by 'Dysfunctional' Board
" Bloomberg (11/13/18) Rascouet, Angelina; Lepido, Daniele"
Former Telecom Italia (TIM) CEO Amos Genish was sent on a business trip to South Korea over the weekend, then sacked Tuesday. He was let go by a board stacked with representatives from Elliott Management Corp., which had become increasingly weary of the executive, who is also a board member. Elliott is TIM's second-biggest investor. Genish criticized the process, arguing he didn't get a fair fight at a board meeting arranged behind his back. "It was not a clean process," Genish said in a phone interview. His firing is "very disappointing" and "unusual" and not aligned with the best practices of corporate governance, he said. Genish, appointed by TIM's top shareholder Vivendi SA in September 2017, has been caught between the two investors ever since Elliott achieved control of the board in May. Genish said he's had difficulty working with the board for many months and that the environment had become "dysfunctional." He said he's "extremely worried" about TIM's future and that he expects "volatile times" ahead as Elliott advocates a breakup of the group. Genish will retain his seat on the board and says he will continue to defend the interest of the company as a director.
FirstGroup Investor Calls for Split of U.K. Transport Group
" Bloomberg (11/12/18) Deveau, Scott"
Coast Capital has penned a letter to FirstGroup Plc's chairman calling for the bus and rail operator to implement measures to boost its performance, including reinstating a dividend and separating its U.K. and North American assets. “FirstGroup in its current guise is designed for failure—your 10 years of extraordinary underperformance are proof enough of that,” wrote James Rasteh, founder of Coast Capital. The fund, which says it is a top five shareholder in the Aberdeen, Scotland-based company, also wants FirstGroup to overhaul its board, consult shareholders on hiring a new CEO and management, and launch a sale-and-leaseback on at least some operating assets in its student bus business. “We have collectively compromised too much, for too long, to now settle for half-way solutions,” Rasteh wrote in the Nov. 6 letter, adding that other investors share its opinion. Shares in FirstGroup have declined roughly 27% this year amid poorly performing U.K. rail lines and increased competition from low-cost carriers. Coast Capital has consulted “every CEO in the industry” plus several former FirstGroup managers in devising its proposals, the letter stated. It has also submitted the names of potential director nominees, none of whom have been contacted by the company, Rasteh said.
Premier Foods CEO to Step Down After Battle With Shareholders
" Bloomberg (11/13/18) Mathis, Will; Pham, Lisa"
Premier Foods Plc, which is under pressure from Oasis Management Co., announced Tuesday that CEO Gavin Darby will resign early next year. Premier Foods also said it is in talks with possible buyers of its Ambrosia brand of frozen custard, rather than the Batchelors soup and noodle brand whose divestment Oasis had pushed for. The moves follow a long fight with Oasis, which had been urging the board to remove Darby, arguing that he drove the company into a “zombie-like state.” In July, shareholders voted to keep the CEO in place, even after Paulson & Co. joined the push for new management. “We welcome Gavin Darby's departure, and are optimistic about the path ahead,” Oasis said. “We look forward to Premier Foods accelerating and realizing its true potential.” Darby, who has led the company for nearly six years, was under pressure to revitalize profit and reduce debt. The CEO faced additional scrutiny after McCormick & Co. (MKC) abandoned a takeover effort in April 2016, saying Premier's board wanted too high a price. The decision to resign was related to a change in strategy and had nothing to do with the Oasis campaign, Darby said.
Nordea May Be About to Get Cevian as New Owner
" Bloomberg (11/13/18) Magnusson, Niklas"
Cevian Capital recently analyzed both Nordea Bank Abp (NRDBY) and its competitors and may be considering purchasing a stake in the Helsinki-based bank, the Dagens Industri newspaper reported Monday. Nordea shares, which have dropped by nearly a fifth this year, rose as much as 3.1% on Tuesday, their biggest gain since mid-July. Cevian's appearance could pressure the largest Nordic bank to focus more on addressing its weak revenue development, according to Jefferies. It also comes on top of recent criticism by Nordea's biggest shareholder, Sampo Oyj, for the bank's “disappointing” returns. Nordea is 19% cheaper now than it was at the end of last year, amid concerns about its return on equity, its revenue performance, and allegations of anti-money laundering breaches. According to Dagens Industri, Cevian may have already bought as many as 34 million shares.
Italy's Network Plan Turns up Heat on Telecom Italia CEO: Sources
" Reuters (11/12/18) Flak, Agnieszka; Jewkes, Stephen"
Italy is prepping legislation that could result in a merger of Telecom Italia's (TIM) network with smaller competitor Open Fiber, an issue that is causing friction between the company's CEO and some board directors, according to a source. Open Fiber has been rolling out a fiber optic network across Italy, in direct competition with TIM. Industry observers say such duplication makes little economic sense. Another source said the legislation could be an amendment to a draft law approved in September that still needs parliament's approval. If that bill gets sidetracked, it could be part of another law, the source said. TIM, whose leading shareholder is French media group Vivendi, has already started a process to put its network assets into a separate company, NetCo, which would be completely controlled by TIM. TIM CEO Amos Genish has not ruled out selling a stake in NetCo at some point, but wants TIM to retain control. In June, Genish said he was eager to talk about combining TIM's fiber-to-the-home broadband assets with those of Open Fiber, but not the entire infrastructure. The network matter was front and center earlier this year when Elliott took a stake in TIM to call for for a governance overhaul and restructuring, including a spin-off and partial sale of NetCo. Since Elliott's involvement, Genish has been caught in the middle of the struggle between Vivendi and Elliott, which eventually wrested board control away from the French group at a shareholder meeting in May. Genish hopes to finalize a three-year plan launched in March to overhaul TIM and shore up its finances, but he has come under pressure due to more robust competition at home and a large financial outlay to secure airwaves in Italy's fifth-generation mobile auction. TIM's shares have fallen almost 30% this year, and some Elliott-appointed directors are now advocating Genish's resignation because he opposes TIM losing control of its infrastructure, according to sources.
Blue Harbour Discloses New Stake in Jack in the Box
" Bloomberg (11/09/18) Deveau, Scott"
Blue Harbour Group disclosed a new stake in restaurant chain Jack in the Box Inc. (JACK) and may push for changes at the company. The investor owns a 6.8% stake in the fast-food company and believes it is undervalued, according to a regulatory filing. Blue Harbour has concluded Jack in the Box made the right decision to sell Qdoba Restaurant Corp. and divest a majority of its remaining company-owned units. Jack in the Box is now in a position to reap the benefits of a more focused corporate entity with improved profitability, according to Blue Harbour. The firm has held talks with management and other parties, and may continue to seek discussions on topics including capital structure, board composition, and strategic alternatives, the filing shows. "As Jack in the Box executes its plan, our lens will be steady on the company’s progress toward unlocking and delivering value we see in it," said Blue Harbour managing director Robb LeMasters in a statement. Jack in the Box reached an agreement last month with Jana Partners, the fund run by Barry Rosenstein, which will see two new directors appointed to the board.
Barclays Investor Bramson Lobbying Non-Executive Directors
" Bloomberg (11/09/18) Spezzati, Stefania"
Despite a blowout quarter for Barclays Plc's (BCS) investment bank, a source says Sherborne Investors' Edward Bramson is stepping up a campaign to shrink the British lender's trading business by garnering support from its non-executive directors. Bramson reportedly has been courting fellow shareholders in California, New York, and London in recent weeks, and has told some that he could boost his stake in the lender. The source notes that Bramson's current investment of more than 5% allows him to call a general meeting of shareholders, but this is not the preferred route. According to the source, Bramson has reiterated that he does not want Barclays to pour more capital into its corporate and investment bank, which is its lowest-return business. Barclays' stock has fallen more than 20% since CEO Jes Staley assumed control in December 2015. Bramson is expected to meet Nigel Higgins, who was appointed to succeed John McFarlane as chairman and is seen as a likely supporter of Staley, in the next few weeks, the source said.
P&G Moves to Streamline Its Structure
" Wall Street Journal (11/08/18) Al-Muslim, Aisha"
Procter & Gamble Co. (PG) on Thursday announced plans to revamp its management structure, shrinking the number of business units from 10 to a half-dozen and giving the heads of those products control over regional sales teams and some functions previously overseen by headquarters. The new organization, which is part of an effort by the conglomerate to streamline its operations, will take effect July 1, 2019. Each of the six business units' CEOs will report to P&G Chief Executive David Taylor. The CEOs of the business units are the same that are currently overseeing those product categories. Four unit presidents will now report to these unit CEOs, and the roles of two of the sales presidents will be diminished. Each unit CEO will be responsible for direct sales, as well as product innovation and supply chains for the 10 biggest geographic markets. P&G's decision to streamline its structure comes after investor Nelson Peltz joined the company's board of directors near the end of this year's first quarter after a prolonged proxy battle. Peltz had previously petitioned for a simplified structure, saying it would improve agility, accountability, and responsiveness to local needs.