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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.
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.
GCP Applied Technologies Inc. (GCP), a global provider of construction products technologies, has announced that Glass Lewis & Co. recommends that shareholders vote for the company's director nominees—Randall Dearth, Clay Kiefaber, James Kirsch, Philip Mason, Danny Shepherd, and Armand Lauzon—in connection with the company's Annual Meeting of Stockholders scheduled to be held on May 28, 2020. In addition, Glass Lewis recommends shareholders vote for the ratification of the amended shareholder rights agreement. In its report dated May 21, 2020, Glass Lewis noted the potential unintended consequences that could occur unless shareholders vote using the blue proxy card, saying, "...given the extent of the change sought by Starboard, effectively targeting every other incumbent director besides the two it placed last year through the settlement, we are not convinced that support of Starboard's entire slate is either justified or advisable." Glass Lewis also said, "...we see evidence in the Company's recent quarterly results and improved performance in 2019 which suggests that current management is addressing certain issues and achieving results, even if not as quickly as some shareholders might demand. In our view, current management does not appear to be a problem at this point, but more likely an integral part of the solution going forward."
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.
Swiss-Irish baked goods group Aryzta (ARZTY) announced that it will "carefully consider" investors' request to hold an extraordinary general meeting aiming to force changes to its board and replace Chairman Gary McGann. In addition, shareholders Cobas Selección, Cobas International, and Veraison Sicav are also seeking the removal of board members Annette Flynn, Dan Flinter, Rolf Watter, and Aryzta CEO Kevin Toland. The reason for Toland's proposed removal is to allow him to concentrate on his responsibilities as CEO. The investors plan to appoint Urs Ernst Jordi to the board and as chairman, and are proposing seats for Armin Bieri and Heiner Kamps on the board and the compensation committee. The shareholders have been urging the company for more changes to help inflate its share price, which has slipped by about 98% during the past five years. They also are pushing for less corporate complexity and more-focused activities, with leading investor Cobas lobbying for changes since at least 2018. Last week, Aryzta announced a strategic corporate review following another decline in market value, with financial advisory group Rothschild & Co. hired "to undertake a review of all strategic and financial options available to the group to maximize value for the benefit of all of the group's stakeholders." The review is expected to be completed by the end of July.
BlackRock (BLK) announced in January that it would vote against companies that do not meet its standards for environmental, social, and governance protocols. The company is caught between conservatives condemning the shift and investors pushing for the company to "walk the talk." Vocal critics include Justin Danhof of the National Center for Public Policy Research and the Competitive Enterprise Institute's Myron Ebell, who see the shift as embracing "politics over profit."
Watford Holdings Inc.'s (WTRE) fifth largest shareholder, Capital Returns Management LLC, said in a letter to the re/insurer's board that it should sell itself or be put into runoff, citing "consistently poor operating and stock performance" in comparison with its industry peers. Capital Returns, which owns 450,000 common shares of Watford, recommended that the board conduct a strategic review and consider "all alternatives to create value for shareholders," including selling itself, possibly to a runoff specialist, or alternatively to administer its own runoff. The investor called on Watford to consider the example of reinsurer Blue Capital Re, which took "proactive steps in 2019 to create value for shareholders when its stock was trading at 60% of its tangible book value." Capital Returns wrote, "Blue Capital Re's board, following a strategic review conducted by financial advisors, considered acquisition proposals from third parties and ultimately made the decision to execute a self-administered runoff. That runoff has been successful and is well on pace to return 92+% of its book value to shareholders."
GCP Applied Technologies (GCP) has issued an open letter to shareholders regarding the election of directors at its annual meeting on May 28. GCP argues that its refreshed board has helped drive significantly improved performance and claims that investor Starboard Value is making unreasonable and risky demands. It urges shareholders to vote for its nominees, noting that if they are elected, six of the board's 10 directors will have joined within the past three years.
First United Corp. (FUNC) has released an open letter that explains the company's commitment to protecting the interests of shareholders while complying with all laws and regulations. The letter comes as First United filed a lawsuit seeking declaratory relief in the Circuit Court for Garrett County, Md. That lawsuit follows a conclusion by the Office of the Maryland Commissioner of Financial Regulation that there is enough evidence to find that Driver Opportunity Partners I LP and each of its proposed candidates for nomination violated a Maryland financial regulatory law when they acquired shares of First United common stock. Driver Opportunity Partners recently said it intends to ignore that finding and Maryland law. The company also demanded that First United do the same.
Teleios Capital on May 20 called for the management of German real estate lender Aareal Bank to be transparent about what it termed "serious bidders" for its Aareon division that had been spurned. Teleios has a 6.5% stake in the bank. The investor also urged a dual-track process for both a majority and a minority sale of the software business. "It is our understanding that for some time, management has regularly received and disregarded expressions of interest in a majority or outright purchase of (division) Aareon from serious bidders," stated Adam Epstein, co-founder at Teleios. Aareal Bank said May 19 it is soliciting bids from financial investors for a substantial minority stake in Aareon.
Investor Daniel Loeb will take over again as sole chief investment officer at his hedge fund Third Point LLC, less than a year after he appointed long-time colleague Munib Islam to be his co-CIO. Islam worked closely with Loeb on shaping some of the firm's biggest campaigns at companies such as Sony Corp. (SNE) and Nestle SA (NSRGY). Islam will retire from Third Point but will continue to advise it in a consulting capacity until the end of the year. While Third Point, like many hedge funds, lost money in the first three months of 2020, the firm gained 7% in April as Loeb shifted focus, and it has returned roughly 14% a year over its lifetime. Third Point is down 10.4% for 2020 after having gained 17% in 2019. Assets shrunk to $14 billion this year from $16 billion at the end of last year. In April, Loeb told investors that Third Point had not adequately prepared for a possible full-blown pandemic and was caught flat-footed when the world was essentially shut down to blunt the virus' spread. Its heavy bets on stocks, especially in the aerospace, airline, and auto-related sectors, hurt performance which was down 16% at one portfolio in the first three months of 2020.
Herbalife Nutrition Ltd. (HLF), which counts Carl Icahn as its largest shareholder, wants to tap junk-bond investors for $600 million to finance share buybacks. The company is looking for investors for the unsecured bond at about an 8% yield. At about 8%, the new 5.25-year bond would yield only slightly more than the company’s existing $400 million of 7.25% unsecured notes due in 2026 that last traded at 100.25 cents on the dollar, according to Trace data. Herbalife's net sales increased 7.7% year-over-year in the first quarter ended March 31, and the company expects only a small dip in preliminary April volumes as a result of Covid-19. Moody’s Investors Service graded the bonds B1, or four levels below investment grade, noting that while the company has good profitability, cash flow, and geographic diversity, there are parts of its business model that are fragile. Its global multi-level marketing structure has been under scrutiny for years by a number of regulatory agencies, and its business model is highly reliant upon its ability to recruit and retain sales representatives around the world, wrote a Moody's analyst. U.S. regulators are currently investigating whether Herbalife violated the Foreign Corrupt Practices Act from 2006 through 2016. The company is expected to resolve the investigations soon, according to a May 7 filing.
Sony (SNE) announced during its annual corporate meeting on Tuesday that the Japanese giant is buying the rest of its financial arm for $3.7 billion. Since last year, shareholder Dan Loeb has been calling on Sony to offload its stake in Sony Financial Holdings. Loeb's hedge fund Third Point wants the conglomerate to spin off businesses and sell some of its assets, such as its capital-intensive chipmaking unit. However, Sony head Kenichiro Yoshida wants to position the company beyond its electronic roots. He views Sony Financial Holdings' local insurance, banking, and credit card businesses as a core business of the conglomerate. In addition to buying the remaining 35% stake that it does not already own in the financial arm, Sony announced that it is changing its name to Sony Group, which will sit atop and oversee its business divisions. Sony's strategic rationale for the move is a stretch, considering it already had a near two-thirds stake and it is unclear why it could not find synergies before.
Synalloy Corp. (SYNL) has issued a letter to shareholders criticizing the business plan recently distributed by Privet Fund Management LLC and UPG Enterprises. Syanalloy claims that it is already executing many of the dissident shareholders' ideas and states that their plan is internally inconsistent. The company defends its current strategic plan, which it says has been effective and is better aligned with Synalloy's businesses.
Bow Street LLC has released an in-depth presentation to Mack-Cali Realty Corp. (CLI) shareholders detailing the need to change the Mack-Cali board of directors by adding independence and restoring a culture of oversight, accountability, and value creation. Akiva Katz and Howard Shainker, managing partners of Bow Street, said, "The legacy directors and management have left Mack-Cali in a precarious position—with a leveraged balance sheet, weak occupancy trends, and lacking a coherent strategy. If Mr. DeMarco and the legacy Board could not create shareholder value during a time of broad economic prosperity, we are deeply concerned about their ability to protect and maintain the value of shareholders' investment during a prospective downturn. Now, more than ever before, it is imperative that the Company be armed with competent leadership overseen by independent fiduciaries who can restore trust with all Mack-Cali stakeholders. It is time to usher in a new era at Mack-Cali. Bow Street's highly capable, independent nominees have the relevant experience and fresh perspectives required to change the culture of the Boardroom and create meaningful value for the Company and its shareholders." Key highlights of the presentation include the need for Mack-Cali to overhaul its board; Mack-Cali's operational underperformance and execution issues, including an increase in debt and a decrease in cash flow; Mack-Cali's legacy of poor corporate governance; and the mechanisms by which Mack-Cali's legacy directors have proactively marginalized and intentionally minimized the impact of the four directors duly elected by shareholders in 2019, including refusing to re-nominate them for election in 2020. Bow Street is calling for shareholders to vote for all of Bow Street's board nominees.
In the first quarter, Carl Icahn's 13F portfolio value fell about 31% from $26.18 billion to $18 billion, and the number of holdings increased by one to 19. Icahn's five largest positions account for about 77% of the entire holdings: Icahn Enterprises (IEP), CVR Energy (CVI), HP Inc. (HPQ), Herbalife (HLF), and Occidental Petroleum (OXY). Icahn took a new stake of about 15% in Delek US Holdings (DK). He did not dispose of or decrease any stakes. He increased his stakes in Occidental to about 8%; Hertz Global Holdings (HTZ) to about 39%; Cheniere Energy (LNG) to about 8%; and Welbilt Inc. (WBT) to about 10%. He also increased his stake in Newell Brands (NWL). His stakes in the following companies were held steady: Icahn Enterprises; CVR; HP; Cloudera (CLDR); Herbalife; Caesars Entertainment (CZR); Xerox Holdings Corp. (XRX); Navistar International (NAV); Freeport-McMoRan Inc. (FCX); Conduent Inc. (CNDT); Herc Holdings (HRI); Tenneco Inc. (TEN); and SandRidge Energy (SD).
Sir Christopher Hohn's TCI Fund Management has filed a complaint against Wirecard (WCAGY) executives in Munich, calling for a criminal investigation into alleged accounting fraud. TCI has sold short 1.5% of Wirecard. In a May 19 statement, TCI said, "The KPMG report published by Wirecard on April 28, 2020, as well as public reporting, including that in the Financial Times and Wirtschaftswoche, reveal anomalies that may have criminal relevance." Since the results of the six-month special audit by KPMG were released that month, Wirecard's shares have lost two-fifths of their value. KPMG said it encountered "obstacles" to its work and was unable to verify that the "lion's share" of Wirecard's operating profits between 2016 and 2018 were genuine. Prosecutors say TCI is raising the suspicion of embezzlement against Wirecard executives tied to the group's acquisition of the Indian company Hermes as well as unsecured loans that Wirecard made to third-party business partners. Wirecard already faces a criminal investigation in Singapore, inquiries by Germany's financial watchdog, BaFin, and a probe by the accountancy regulator. Wirecard called TCI's complaint "completely unfounded," and noted that the fund is not a shareholder in the company. "Wirecard therefore regards the filing as a purely tactical maneuver of a short seller," the company added. Hohn previously called for Wirecard CEO Markus Braun to be fired or sidelined while a full internal investigation is conducted.
Hertz Global Holdings (HTZ) aims to maintain the solvency of its European business as it prepares for a possible bankruptcy filing in the United States. A source said the company on May 15 asked lenders to its European division to sign a waiver by May 22 that will allow it to avoid bankruptcy. Additional sources reported that Hertz would likely request the waiver only if it planned to declare bankruptcy for its U.S. division. The firm's European unit is stronger financially than the U.S. branch because a larger portion of its vehicle fleet can be sold back to automakers at guaranteed prices. After Hertz failed to pay roughly $500 million to creditors by May 4, it lobbied for and was accorded the May 22 extension. The company is pursuing the waiver as the second deadline looms at a time when the coronavirus has battered its business. "It is possible they get a few extra days [beyond Friday] to make the payment, but nothing more," one source suggested. On May 18, Hertz said Kathryn Marinello resigned as company CEO and has been replaced by Paul Stone, who most recently oversaw its North American retail operations. Marinello's leadership failed to financially strengthen Hertz for the pandemic, including her rejection of a $300 million to $500 million loan in March. Marinello has consented to consult for Hertz for the next year, but Jefferies analyst Hamzah Mazari said her resignation may be a bad omen. Mazari cited a recent Wharton Business School study suggesting that just 14% of CEOs stay on through bankruptcy, and added that "given that we only have a few days before the forbearance ends, chances of a [bankruptcy] filing are very high." Hertz shares declined 6.6% to $2.96.
Sony Corp. (SNE) said Tuesday that it plans to buy the portion of its financial unit, Sony Financial Holdings Inc. (SNYFY), it does not own already. Sony owns 65% of the unit, which offers life insurance, auto insurance, and banking products. On Tuesday Sony said it would pay about ¥2,600 a share, a 26% premium to Monday's closing price, to retake 100% control of Sony Financial. The financial company's shares rose nearly 17% to ¥2,412 after the news broke before trading in Sony Financial shares was halted. In a presentation last year, shareholder Third Point LLC called on Sony to consider selling its Sony Financial stake to invest in growth or for shareholder returns. More broadly, it argued that the complexity of Sony's portfolio was pushing the company's stock price below what it should be. Sony CEO Kenichiro Yoshida has largely rejected its criticism, saying that the parts of Sony have synergies with one another and that the company is more stable, with steadily profitable businesses such as insurance. In a response to Third Point last year, Yoshida said the financial businesses "share a high affinity with the Sony brand which customers associate with safety and reliability."
SoftBank Group Corp. (SFTBY) will seek buyers for about $20 billion of its shares in T-Mobile US Inc. (TMUS). Banks are working to round up investors for what would be one of the largest stock trades in market history, according to people familiar with the matter. SoftBank owns roughly 25% of T-Mobile after the company's recent merger with SoftBank-controlled Sprint. Another 44% is owned by T-Mobile's longtime parent, Deutsche Telekom AG (DTEGY), with the rest trading publicly. Under the planned multipart deal, Deutsche Telekom would secure the right to buy T-Mobile shares in the future to bring its ownership stake above 50%. In turn, SoftBank would be released from agreements that would have barred it from selling most of its T-Mobile shares for years. The planned T-Mobile sale would rank among the largest open-market stock trades ever, and investors often demand big discounts to take on trades of that size. SoftBank has said it plans to sell up to $41 billion in assets to prop up its struggling portfolio and buy back its own shares, which trade at a steep discount relative to net asset value. The sales are meant to boost the price of SoftBank's Japan-listed shares and mollify Elliott Management Corp., which has been pushing for changes at the company. SoftBank on Monday reported a $13 billion quarterly loss, dragged down by its Vision Fund, which owns stakes in dozens of tech-sector companies.
Elliott Management revealed last week that it has purchased 440,000 shares of Oracle (ORCL) stock, a stake worth roughly $21.3 million at the time. While the position is small relative to Oracle's $167 billion market cap, it may signal Elliott's interest in the company. In the same SEC 13F form reporting its latest holdings to the Securities and Exchange Commission, Elliott revealed it had entirely divested from Citrix Systems (CTXS), in which it had built a 7.1% stake in June 2015 and pushed for change. The Citrix board ultimately entered a "cooperation" agreement with the hedge fund, which led to the exit of longtime CEO Mark Templeton and a spin-off of its GoTo line of products. Citrix was trading just above $50 a share in the summer of 2015, and by the time Elliott exited this month, the stock had improved dramatically, reaching $150 a share. Elliott's engagement is led by Jesse Cohn, who has taken on high-profile roles in a range of technology companies. For example, in 2017, Cohn launched a bid against channel giant Cognizant (CTSH), pushing it to shift its business before exiting the company at an almost 50% profit after 18 months.
Mack-Cali Realty Corp. (CLI) has sent a letter to shareholders addressing the claims included in Bow Street's recent proxy materials. The company criticizes Bow Street's proposed plan and questions the independence of its board nominees. Mack-Cali says Bow Street's analysis ignores evidence that supports the company's current strategy, and questions Bow Street's motivations in launching a proxy battle. Mack-Cali also disputes Bow Street's claim that the board kept the company from pursuing Rizk Ventures LLC's proposal to acquire the company.
GCP Applied Technologies (GCP) has issued a statement in response to a report issued by Institutional Shareholder Services Inc. (ISS) regarding the election of directors at GCP's upcoming annual meeting. The ISS report backs all of Starboard Value's board nominees. GCP claims that ISS is historically biased toward Starboard and ignores the risk of significant business disruption by giving Starboard control of the board. According to GCP, ISS fails to recognize meaningful progress and positive business momentum under the company's significantly refreshed board and new chief executive officer.
On May 18, Hertz Global Holdings (HTZ) appointed Paul Stone as CEO. The move followed a substantial quarterly loss and a missed loan repayment. The company, backed by Carl Icahn, has suffered a "sudden and dramatic negative impact" on its business due to the coronavirus crisis. Hertz said recently that lenders had given it until May 22 to develop a viable financial structure that "better reflects the economic impact of the coronavirus." Stone replaces Kathryn Marinello, who will remain with the company in a consulting position for up to one year.
On May 18, Alibaba (BABA) founder Jack Ma resigned from SoftBank's (SFTBY) board. His departure occurred on the same day SoftBank's Vision Fund reported an $18 billion annual operating loss, fueled by $10 billion worth of losses at WeWork and Uber (UBER). To replace Ma, SoftBank will propose three new board appointments at its June 25 general meeting, as requested by Paul Singer's Elliott Management, which has called on the Japanese conglomerate to improve board diversity and create a new subcommittee to oversee the investment process at the $100 billion fund. The hedge fund also has pressured SoftBank CEO Masayoshi Son to make share buybacks and improve governance. Son said SoftBank would raise 1.25 trillion yen against its stake in Alibaba.
Elliott Investment Management amassed stakes in Oracle (ORCL) and Dropbox (DBX) during the first quarter and exited QEP Resources (QEP) and Citrix Systems (CTXS). Elliott also acquired holdings in Cornerstone OnDemand (CSOD), New Relic (NEWR), Spirit Aerosystems (SPR), and 8X8 (EGHT); and sold stakes in NortonLifeLock (NLOK) and Vornado Realty Trust (VNO).
Bill Ackman's Pershing Square Capital Management has disclosed new stakes in private equity firm Blackstone Group Inc. (BX) and Park Hotels & Resorts Inc. (PK). The firm said in a Friday filing that it owned almost 549,000 shares of Blackstone and 678,000 Park Hotels shares, valued at $5.4 million, as of March 31. Pershing Square returned 16.5% on its investments last year through May 12, mainly thanks to a large hedging bet that paid out $2.6 billion, or about 100 times its original value. Ackman has since exited the bet and redeployed the capital by investing further in his portfolio companies. Pershing Square had a record year in 2019 with a 58.1% return on its investments.
German industrial conglomerate Thyssenkrupp (TKAMY) said it is planning to transition into a company with "the leanest possible holding" after unveiling a restructuring strategy that could contract its workforce by 20,000 employees and entail the merger of its steel business with a competitor. The group will put businesses with a combined yearly turnover of roughly €6 billion up for sale, including its stainless steel plant in Italy and its factory-building arm. Thyssenkrupp also verified that it was in discussions to consolidate its steel business despite the collapse of a merger with Tata (TTM) last year, and said it would seek partners for its shipbuilding unit. Investors Elliott Management (RRTS) and Cevian have been pressuring the conglomerate to adopt a leaner structure for years. Earlier this year, Thyssenkrupp sold its single most profitable unit, its lift and escalators business, to private equity groups Advent (AWI) and Cinven for €17.2 billion. The company said the need for its steel business' reorganization was "only heightened as a result of the [coronavirus] crisis, as there will be a structural increase in existing overcapacities in Europe." Martina Merz, Thyssenkrupp's third CEO in just over a year, said the firm had "taken some difficult decisions that were long overdue" and would "emerge smaller but stronger." The Krupp Foundation, which is Thyssenkrupp's biggest shareholder and controls nearly 21% of its stock, said it backs the company's actions despite its mandate to protect corporate integrity. "We have confidence in the executive board and expect it and all management teams to pursue the announced course with vigor," the foundation declared. "Thyssenkrupp has no time to lose." Cevian founding partner Lars Förberg, whose firm owns 18% of Thyssenkrupp stock, said the announcement is an "important step" for the company, and that it was "now crucial that this plan is implemented with urgency and decisiveness."
SoftBank Group Corp. (SFTBY) reported an $18 billion loss at its Vision Fund business, underscoring ongoing problems with the firm's portfolio companies. About $10 billion of that loss came from WeWork and Uber Technologies Inc. (UBER). Elliott Management has been pressuring Masayoshi Son, head of SoftBank Group, to buy back company shares and improve the company's governance. Son attributed the company's losses to the coronavirus pandemic. With his typical emphasis on the total value of SoftBank's assets rather than profits, which are buffeted by the Vision Fund's opaque valuations, Son admitted that shareholder value has fallen and net debt increased this year. The turmoil has given leverage to Elliott.
SoftBank Group Corp. (SFTBY) is in talks to sell a significant portion of its T-Mobile US Inc. (TMUS) stake to controlling shareholder Deutsche Telekom AG (DTEGY), boosting the German company's nearly 44% stake in T-Mobile to above 50%. Deutsche Telekom already has voting control of T-Mobile under a prior agreement with SoftBank, which recently held about 25% of T-Mobile's common stock. T-Mobile took its current form on April 1 after it absorbed the SoftBank-controlled Sprint Corp., consolidating the U.S. wireless sector into a market dominated by three national networks. SoftBank is expected to retain rights to 48.8 million shares it surrendered to complete the merger that will be reissued if T-Mobile's stock price reaches certain milestones within two years. SoftBank is seeking to sell assets and improve its performance after suffering big investment losses and coming under pressure from Elliott Management Corp. SoftBank said in March that it would aim to sell $41 billion of assets to boost its liquidity and help fund a big new stock-buyback program. The new stock sale under discussion would allow SoftBank to cash out some of its bet on Sprint, which has become a rare bright spot for the Japanese conglomerate as many of its other investments have been hit hard by the Covid-19 crisis. SoftBank and Deutsche Telekom had agreed to lockup provisions that prevent SoftBank from selling most of its position in T-Mobile over the next four years. Deutsche Telekom reported on Friday that its first-quarter revenue and profit both increased despite the early effects of Covid-19 on its operations.
Dan Loeb's Third Point LLC bought a substantial stake in Walt Disney (DIS) during the first quarter, with the acquisition of 1.4 million shares, according to a 13F filing. The fund exited its entire holding in Campbell Soup (CPB) with the sale of 2.4 million shares, and also exited both TD Ameritrade (AMTD) and Charles Schwab (SCHW). The fund cut its Baxter International (BAX) stake by 5.92 million shares; it retains a stake of 11.58 million shares in Baxter. The fund lost 16% during the quarter, attributable to the Covid-19-related selloff. Analysts have a cautiously optimistic outlook on Disney stock, which has plummeted 25% year-to-date.
According to a 13F filing with the Securities and Exchange Commission, Carl Icahn has taken a position in Delek US Holdings (DK). Icahn acquired 10.5 million shares worth $166,000 during the first quarter of 2020. In March, he disclosed a 14.8% stake in the company, prompting it to adopt a shareholder rights plan. "We have no choice but to take action to prevent a creeping change of control without a premium and on terms that would not deliver sufficient value for all shareholders," Delek said at the time. Meanwhile, Icahn increased his position in Occidental Petroleum (OXY) by 66 million shares, or 293%; Welbilt (WBT) by 2 million shares; Newell Brands (NWL) by 2.5 million shares; Hertz Global Holdings (HTZ) by 11 million shares; and Cheniere Energy (LNG) by 0.5 million shares. At the time of the filing, Icahn's total portfolio of 19 stocks was worth $18 billion. Occidental Petroleum is Icahn's fifth-biggest portfolio holding with a total of 88.6 million shares, making up 5.70% of the total portfolio. Icahn's No. 1 stock remains Icahn Enterprises (IEP), followed by CVR Energy (CVI). Icahn has said Delek "could present an excellent synergistic acquisition opportunity" for CVI.
Elliott Management and former Monarch airline owner Greybull Capital are the latest investors approaching Virgin Atlantic as it seeks emergency financing in the wake of the coronavirus pandemic that has grounded the airline's fleet. Virgin Atlantic presented investment options to 12 interested parties at the beginning of last week. Apollo, Centerbridge, Cerberus, Deutsche Bank, and Davidson Kempner also have shown interest. Apollo may want to combine an interest in Virgin Atlantic with its $1.2 billion stake in travel website Expedia. Elliott is thought to be the top contender to save the airline alongside Apollo, according to The Sunday Telegraph.
Land & Buildings Investment Management is no longer a shareholder of Gaming and Leisure Properties (GLPI), according to a 13F filing with the Securities and Exchange Commission (SEC). When Jonathan Litt's Land & Buildings announced at the end of last year that the real estate firm had taken a stake in Gaming and Leisure Properties, the investor noted that the gaming real estate investment trust was the largest investment for his company. He also suggested that Gaming and Leisure Properties should combine with rival Vici Properties (VICI). The SEC filing does not reveal exactly when Land & Buildings sold its stake in the first quarter and its profit or loss on the transaction. Penn National Gaming (PENN) and Eldorado Resorts (ERI) were the primary tenants for Gaming and Leisure Properties. Land & Buildings also exited its stake in Eldorado Resorts during the first quarter. Still, Land & Buildings continues to maintain some gaming exposure. MGM Resorts International (MGM) and MGM Growth Properties (MGP) are among Land & Buildings' top 15 equity positions, according to the most recent 13F filing, and the value of those stakes comes to about $16.5 million.
In a recent filing, Starboard disclosed that it held a 1.2% stake in ACI Worldwide (ACIW) and a 2.1% stake in Resideo (REZI) as of March 31. Starboard also said it exited its position in casino operator MGM Resorts International during the first quarter. Shares in ACI are down 36% this year, while Resideo has dropped 54%. In February, ACI appointed former Advent International executive Odilon Almeida as its new CEO. Starboard has pushed for change at several companies this year, including CommVault Systems Inc. (CVLT), GCP Applied Technologies Inc. (GCP), Mednax Inc. (MD), Merit Medical Systems Inc. (MMSI), and EBay Inc. (EBAY).
Institutional Shareholder Services (ISS) on May 15 recommended that GCP Applied Technologies (GCP) investors should elect six of Starboard Value's eight director nominees to the company's board, effectively passing control of the board to an activist shareholder. The proxy adviser said GCP is "in need of a comprehensive turnaround plan that can be effectively executed by management and overseen by the board," and Starboard has outlined a plan and has seasoned executives to implement it. Proxy advisers are traditionally cautious in supporting an activist seeking board control, but ISS advises this, noting that GCP's board is apparently opposing outside viewpoints. GCP announced in April that it intends to expand the board by one seat to 10. GCP and Starboard, which controls 9% of the company, have been engaged in an increasingly contentious proxy fight since early April when the hedge fund nominated eight candidates, including Starboard research director Peter Feld, to the board. Investors are slated to vote on the board's composition on May 28. ISS said GCP's performance has been disappointing since the company was spun out of W.R. Grace (GRA) four years ago. "The reported financial results continue to be mixed at best, with very limited evidence of stabilization within just a few parts of the business," ISS said. Starboard garnered significant backing for its campaign when Standard Industries and its affiliated entity 40 North Management, which collectively own 24.4% of GCP's stock, announced their support for the hedge fund in April. Standard Industries, 40 North, and Starboard altogether control about 33% of GCP's shares, strengthening their position to lobby for changes to the board. Gabelli Funds and JP Morgan Asset Management are among GCP's top 10 investors, as are BlackRock (BLK), Vanguard, and State Street.
Cobas Asset Management and Veraison Capital are pushing for changes at Swiss-Irish baked goods group Aryzta (ARZTY). Cobas and Veraison, which hold a combined 17.3% stake in Aryzta, argue that the company is trading at a significant discount to its intrinsic value and that its value has declined significantly compared to the overall market since its 2018 share sale. "Trust in Aryzta must be rebuilt. The shareholder group is convinced that the food industry offers sustainable value creation potential even in the environment currently shaped by Covid-19," Cobas said in a statement. "The shareholder group believes that Aryzta should be more focused and significantly reduce the complexity of the group." Since taking over in 2017, CEO Kevin Toland has overseen almost €400 million of asset sales, reducing net debt and pursuing a cost-cutting program designed to deliver €200 million of savings in the three years to July 2021. However, the asset disposal program has come at a massive cost, as the 2018 sale of the problematic Cloverhill Bakery facilities in Chicago was at a deep discount. Earlier this year, Aryzta completed the disposal of most of its 49% in French frozen foods group Picard for a total of €247 million, which falls well short of the €447 million Aryzta spent buying into Picard five years ago. The asset sales and emergency capital increase have allowed the group to reduce its reported net debt to less than two times earnings from almost four times in the middle of 2018, but that ignores almost €900 million of subordinated debt. The value of these bonds has fallen sharply in recent months, and shares in Aryzta are down 70% this year and 85% from where they were trading at the time of the 2018 rights issue. The entire market value of the company now is about €305 million, or about 60% of what was raised at the time. Aryzta announced on Wednesday that it had hired Rothschild & Co. last month to review "all strategic and financial options" by the end of July.
GCP Applied Technologies Inc. has issued a statement in response to a filing made by Starboard Value LP on May 14, 2020, saying that "Starboard has once again reversed course, this time by changing its position regarding GCP's stockholder rights plan after initially declaring it was going to vote against the rights plan." GCP says shareholders should consider that if Starboard succeeds in its attempt to replace a supermajority of the board it can change its position again, and its nominees could remove the rights plan if they are in control of the board, which is a risk given that another GCP shareholder, 40 North, has previously indicated a desire to purchase more shares and sought and received HSR approval to increase its ownership to nearly 50%. GCP also says that Starboard continues to reject GCP's proposal to use a universal proxy card in connection with the upcoming 2020 Annual Meeting of Stockholders.
HC2 Holdings (HCHC) on Thursday announced a settlement with MG Capital to bring four newcomers onto the company board. This concludes a proxy contest between first-time activist and MG director Michael Gorzynski, who runs MG Capital, and HC2 CEO Philip Falcone. Gorzynski had criticized Falcone's handpicked board for poor governance, conflicts of interest, and overlooked regulatory issues, and lobbied for his removal. Gorzynski stated that he wanted to reduce HC2's annual costs and refocus on HC2's core assets. MG Capital has been given two seats, with Gorzynski receiving the first one and the second going to Kenneth Courtis, one of MG's six director candidates. Avram Glazer, who owns an HC2 stake of about 5.3%, also joined the board and was appointed its chairman. In April, HC2 said it planned to put Glazer, the executive co-chairman and director of soccer club Manchester United (MANU), onto its slate for investors to vote on at the annual meeting in July. The fourth board seat went to Shelly Lombard, a representative of HC2 shareholder JDS1. HC2 said its board will expand from six members to 10 after the new additions, and lose three seats after the annual meeting. As part of the agreement, MG has withdrawn its consent solicitation and nomination for election of directors at the 2020 annual meeting. HC2 Interim Non-Executive Chairman Warren Gfeller will maintain his directorship, as will Wayne Barr. Proxy advisers ISS and Glass Lewis backed MG's campaign, with ISS advising that shareholders elect three MG directors but not Gorzynski. Glass Lewis, meanwhile, supported all six MG directors to replace the entire board.
Swiss-Irish baked goods company Aryzta (ARZTY) has appointed consultants to review the strategic and financial options available to it to maximize shareholder value. The review, which will begin in April and conclude by the end of July, follows concerns among shareholders about ongoing drops in the company's share price, which has fallen from a 2014 high of about 18.00 Swiss francs to 0.35 today. Earlier, investors Veraison and Cobas Asset Management said the company should make changes to help boost its share price, as they announced a tie-up that encompasses 17.3% of shares. They called for the group to reduce complexity and undertake more focused activities. Cobas, Aryzta's largest shareholder, has been pushing for changes since at least 2018. Last week, Aryzta said it had implemented a range of measures to reduce costs during the Covid-19 pandemic restrictions, saving it more than €50 million. This includes pausing production in a total of eight bakeries since April 30, furloughing around 30% of its staff, and suspending future capital expenditure with the exception of maintenance and health and safety. Aryzta also said last week that it had received consent from its lenders for a precautionary amendment of its financial covenants.
Fir Tree Partners, the owner of 6.1% of outstanding shares of Kyushu Railway Co., issued a statement regarding its shareholder proposals for the company's June 23 annual meeting. Fir Tree states that it is committed to enhancing the long-term value of JR Kyushu by fostering sustainable growth, an optimal capital structure, and best governance practices in line with Japan's Corporate Governance Code. Fir Tree says it is critical that JR Kyushu have the right board members and investor disclosures in place to address the impact of Covid-19. During the past six months, with the help of independent third parties, Fir Tree identified five potential board candidates, all of whom JR Kyushu's management rejected in favor of keeping a board seat unoccupied. Furthermore, JR Kyushu continues to refuse to provide investors with standard financial disclosures in line with Principal 3.1 of Japan's Corporate Governance Code. To protect the interests of all stakeholders, Fir Tree has submitted two proposals: one to nominate three independent directors to the board, and another to require the disclosure of revenues, EBITDA, net operating income, and appraised cap rates for each of the company's real estate assets.
Phil Falcone will retain his board seat at HC2 Holdings (HCHC), avoiding removal that MG Capital (DLP) founder Michael Gorzynski pursued, according to a settlement announced on Thursday. Gorzynski lobbied to replace HC2's entire board of directors, including Falcone, with the backing of three proxy advisers. Institutional Shareholder Services and Glass Lewis also questioned Falcone's suitability as HC2's CEO. However, Gorzynski only won two board seats, and two new directors were appointed by HC2. Investors' disappointment with this news was evident yesterday when HC2 stock fell more than 20%, closing at $2.40 per share. Falcone had in recent months strived to improve his chances of reelection by agreeing to separate the roles of chairman and CEO. HC2 nominated Lancer Capital's Avram Glazer as new chairman, with Falcone staying CEO while Glazer also obtained a 5.3% stake in HC2. Falcone later added two more new board members to HC2's proposed slate, including independent consultant Shelly Lombard at the request of Julian Singer, who recently filed a 13D announcing a 6.4% share. The settlement directs both Glazer and Lombard to join the HC2 board, along with Gorzynski and Kenneth Courtis from the MG Capital side. Although the board will immediately expand to 10 members, three of the current directors announced that they will not seek reelection at the annual meeting on July 8. "Ken and I want to thank the board for carrying out HC2's director refreshment process in a thoughtful manner," said Gorzynski in a joint statement with HC2. "We no longer view ourselves as MG Capital nominees, but rather HC2 directors firmly committed to advocating for stockholders' best interests in the boardroom."
On May 12, the United Kingdom's Financial Reporting Council (FRC) published an updated version of its guidance on corporate governance and reporting during the Covid-19 pandemic to include a new section on interim reports. The new section states that directors will need to exercise judgement about the procedures they apply to assess the going concern assumption at the half-yearly date. The guidance states that if going concern has become a significant issue since the last annual financial statements, directors should undertake procedures similar to those that they would have carried out for annual financial statements. The previous FRC guidance, published on March 26, encouraged boards to act to ensure the continued operation of an effective control environment and consider how to secure reliable and relevant information, on a continuing basis, to manage future operations. Directors were also encouraged to monitor capital maintenance, ensuring that sufficient reserves are available when the dividend is made, not just when it is proposed. The guidance also addresses the current difficulties in making forward-looking judgements in financial statements and aims to help boards focus on areas of reporting of most interest to investors.
A Delaware lawsuit claims the former directors of Kate Spade & Co. sold the company for far less than it was worth to rival fashion house Coach Inc. to escape pressure from investors including Jana Partners LLC, as well as its largest shareholder, Caerus Investors, and Starboard Value. The suit targets Kate Spade's board at the time of the 2017 deal, which made it a subsidiary of Coach, now Tapestry Inc. (TPR), for $18.50 a share. The suit claims that the deal came just a year after Kate Spade's board rejected a $22-per-share buyout offer from Coach, opting instead to pursue a long-term strategy that valued it at $22.50 to $25.50 a share. "In pursuing a sale, the board backtracked from its earlier positions regarding an acceptable price and disregarded the fact that the most valuable option for stockholders was to engage in no transaction at all," the suit says. The board was allegedly desperate to avoid a proxy battle because most of its members held lucrative positions on other boards, and losing one seat can lead to a documented ripple effect on unrelated directorships. Deal negotiations were also marred by conflicts of interest, particularly incentives that pushed financial adviser Perella Weinberg Partners LP to favor a sale to Coach, and the merger allegedly gave departing Kate Spade CEO Craig Leavitt a golden parachute worth $25 million.
British asset manager Legal & General Investment Management (LGIM), which owns a 0.5% stake in Exxon Mobil (XOM), wants the company to make a more serious commitment to combating climate change. LGIM has announced that it will oppose the re-election of Exxon's chief executive officer as chairman of the board, support a shareholder proposal for an independent chairman, and support another proposal for increased transparency on political lobbying. LGIM is particularly concerned about Exxon's role in climate change, noting that Exxon has persistently refused to disclose its full carbon footprint and set company-wide emissions targets even as a growing number of energy companies rally around "net zero" emissions. Exxon has said it "disagrees that the combination of Chairman/CEO positions impedes its ability to provide effective oversight or that it constitutes a conflict." In February the company added new responsibilities for the lead director, a separate position from chairman. Regarding climate change, Exxon has said it supports the Paris climate agreement, but it has also committed to an expansion plan that calls for more aggressive drilling than many of its peers, arguing that oil companies will need to cumulatively invest trillions of dollars in oil and gas production by 2040 to handle demand.
GCP Applied Technologies (GCP) has issued a letter to shareholders urging them to support its director nominees at its upcoming annual meeting. The letter argues that GCP's board is overseeing strong financial performance, driving a positive business trajectory, and leading the company toward growth. Under the leadership of CEO Randy Dearth, GCP says it delivered an increase in gross margin by 140 basis points year-over-year in 2019 and has driven long-term investment for organic growth. GCP also cites 5% sales growth in North America and a 17.6% increase in adjusted EBITDA for the first quarter of 2020. It claims that Starboard Value and 40 North have self-serving motives in nominating directors to the board and resisting a "consensual resolution" on board representation.
Standard Life Aberdeen (SLFPF) suffered the first significant revolt against virtual shareholder meetings at a large U.K. company this year. The asset manager was hit by a substantial investor backlash on Tuesday after coronavirus forced its top management to post a series of videos on its website to accompany the publication of its annual report in lieu of a full annual general meeting (AGM). Slightly more than 37% of investors voted against Standard Life Aberdeen's proposal allowing it to convene future shareholder meetings remotely, a change that the company expected to be accepted as uncontroversial given the current ban on large gatherings. In a statement, Standard Life Aberdeen said it had no plans to abolish the traditional AGM. It said it would engage with its institutional shareholders over their concerns and planned to publish an update on its findings within six months.
Japan recently detailed new rules restricting overseas investment through amendments to its Foreign Exchange and Foreign Trade Act, which aims to preserve industries in the interest of national security. The government also clarified exemptions that establish whether outside investors are subject to the rules. Bloomberg Opinion columnist Anjani Trivedi notes, "The changes underscore Japan's sharp retreat from the encouraging reforms undertaken since 2015." She argues that these reforms had been succeeding. According to Trivedi, "Shareholder proposals for auditor or director changes were up, as were returns. Hedge funds such as Dan Loeb's Third Point LLC and Paul Singer's Elliott Management Corp. have all had their eyes on the likes of Sony Corp. (SNE) and Softbank (SFTBY). On Tuesday, London-based [investor] Asset Value Investors Ltd. took on elevator and escalator maker Fujitec Co. to improve governance and returns." However, she notes that "of the 10 largest companies on the Tokyo Stock Exchange, seven fall into the core category. Health care and pharmaceutical companies, which currently have a small weight, are expected to be added as the importance of the viral outbreak increases. That's also a sector hedge funds are active in." Japanese companies already are struggling due to the Covid-19 pandemic, and Trivedi believes "the new rules will make this worse, dashing the prospects of change at progressive companies that might have been willing to take certain types of activist hedge funds onto their boards." She adds, "Japan has always had a top place in the minds of foreign investors. It will be harder to justify now. Hedge funds and other investment managers may find it's best to watch from the sidelines."
The boards of Australia's biggest 300 companies continue to lack cultural diversity, according to a study by the Governance Institute of Australia and Watermark Search International, an executive recruitment firm. Directors from non-Anglo-Celtic cultural backgrounds fell to 5% from 5.4% of board members between 2016 and 2020. The proportion of board directors from anywhere outside Australia declined to 29.3% from 30.4% over the same period. The number of companies with 50% or more women on their boards rose to 20 from 16 over the past 12 months. However, less than half the number of Australian Securities Exchange (ASX) 300 companies' boards have more than 30% female directors in 2020. The boards of 29 ASX 300 companies have no women at all this year. Female directors tend to have better qualifications, with 7% having Ph.D's vs. 4% of men, and 40% having either an M.B.A. or a master's degree vs. 33% of men. The study also shows that female directors are far more likely to have formal governance training.
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.
The Climate Disclosure Standards Board (CDSB) on Tuesday said many large European public companies are not adequately disclosing their environmental and climate-related risks. The CDSB made its conclusion after analyzing data from Europe's 50 largest companies. In spite of European Union reporting guidelines, 78% of those companies did not adequately report climate and environmental risks, and 42% omitted potentially material environmental or climate-related information for their sector. Meanwhile, one in five companies disclosed no operational, strategic, or financial impacts related to environmental and climate-related principal risks. CDSB officials warned that companies' climate shortcomings could compromise the objectives of the European Green Deal and the 2050 climate neutrality target.
Investors are focusing more on the social component of their environmental, social, and governance analysis of companies during the coronavirus pandemic. According to a recent report, "ESG Amplified," by Goldman Sachs Asset Management, investors are concerned about how companies are treating employees, customers, and suppliers during the global health crisis. A report by UBS Global Wealth Management, "Sustainable Investing After Covid-19," says investors are scrutinizing human rights, employee well-being, and community relations. Goldman says companies that focus on job safety and help address societal needs by supplying medical equipment will be better positioned to survive and recover from the economic downturn. UBS says increased investor attention on social issues could lead to investment in areas such as health care, medicine, and education. Sustainable practices may be boosting corporate stock performance, according to UBS. Citing data from Morningstar, UBS says the returns of 70% of "self-identified sustainable equity funds" ranked in the top halves of their categories in the first quarter of 2020. UBS also notes that global and regional sustainable investing indices have outperformed conventional peers so far this year.
Public pronouncements on how companies are reacting to the outbreak of the coronavirus have stressed the connections between financial decisions (such as share buybacks), employee actions, and executive compensation. Sacha Sadan, director of corporate governance at Legal & General Investment Management, recently encouraged companies not to focus solely on their shareholders, but to address all stakeholders, especially their employees, supply chain relationships, and the environment and the communities in which they operate. And Michelle Edkins, BlackRock's (BLK) global head of investment stewardship, has emphasized that companies can still demonstrate that they have effective leadership during the pandemic. "The concept of long-term sustainability would suggest that companies that come through this crisis and do well would be exactly the kind of companies you would look to as role models," according to Edkins. Companies and their boards will need to be more sensitive about how they are viewed by investors and other constituents. Past downturns have fueled concerns that large corporations and their executives will unfairly benefit from the health crisis. Executive compensation plans can serve as an important tool for addressing these concerns. Boards and management can take a principles-based approach to executive compensation, focusing on creating alignment, clarifying objectives, setting strategy, establishing priorities, defining accountabilities, motivating performance, and reflecting the company's purpose and values.
There is hope that a compromise will be reached on the Securities and Exchange Commission's (SEC's) contentious new proposed rulemaking around proxy advisors. In November, the SEC put forth proposed rules that would allow companies to review and revise proxy recommendations before they're sent to clients. Corporate players say the proposal would let companies correct errors in reports before votes are cast, while investors and proxy advisers say it's a solution in search of a problem and would hurt the independence of proxy recommendations. The SEC is now expected to remove the pre-review section from its proposal and instead move forward with a contemporaneous review period and "speed bump" concept. In a March 10 speech, SEC Commissioner Elad L. Roisman described the speed bump idea as a time period during which the proxy voting advice business would have to disable any automatic submission features. Business groups have expressed support for both the initial proposal and the potential compromise. Several investor groups said the compromise sounds promising, but said they do not want the SEC to interfere with proxy voting platform technology. Elliott Management Corp. submitted a comment letter on March 30 in which it said that if the SEC does move forward with the speed bump rule, it should initiate a separate rule-making process. Furthermore, Elliott wrote, "the requirement that proxy advisory firms must notify their clients of an issuer's objections to the content of the report is a form of compelled speech and is prohibited by the First Amendment." Proponents of the SEC's proxy proposal say another rule-making process is unnecessary for the speed bump because its central ideas are included in the original SEC proposal. Proxy advisers disagree, arguing that the mechanics of the proxy voting process are extremely complex, time-sensitive, and critical to their corporate governance.
Through the end of the week of April 19, 11% of the Russell 3000, or a total of 342 companies, had announced executive base pay cuts due to the financial fallout from the outbreak of the coronavirus, according to an analysis of disclosures by The Conference Board, in collaboration with Semler Brossy and ESGAUGE Analytics. Among the companies that announced pay cuts, one-third of CEOs will not collect a base salary. When announced for executives, cuts tend to extend to cash retainers for board members. The majority (64%) of companies reducing executive base salaries are extending cuts to the cash retainers paid to their board's non-employee directors. Although in most cases the percentage of the reduction applied to director cash retainers is the same disclosed for the company's CEO, 26% of companies reported that director pay was reduced by a higher percentage than CEO pay. More than 60% of the announcements came from hard-hit business industries such as hospitality and retail. Mid-market companies accounted for most of the announced pay reductions.
Hertz Global Holdings Inc. (HTZ) is likely to face bankruptcy in the coming weeks. As of May 8, the situation had come to a three-way standoff between Hertz's creditors, lenders, and investors. Due to pressure from those who hold its asset-backed securities, Hertz has been given until May 22 to come up with $400 million. The company's banks will have to decide between allowing this funding or letting the company file for bankruptcy. Meanwhile, investors including Carl Icahn, who has a 39% stake in Hertz, could invest more in the company to keep things rolling and protect their investments. In the last week alone, Hertz has lost an estimated $35 million for Icahn across his 55 million shares. Hertz could raise money by selling off its rental fleet, but for this to work, it would need to get close to retail value, which has become difficult as used vehicle sales have dropped drastically during the pandemic. If Icahn decides not to invest more money, he could watch his investment disappear entirely in the event of bankruptcy. According to GuruFocus, Hertz has three severe warning signs of extremely low interest coverage, increased long-term debt, and declining revenue per share. It faces a cash-to-debt ratio of 0.05, which is lower than 89.58% of its competitors, alongside an equity-to-asset ratio of 0.07, which is lower than 94.47% of other companies in the industry. With an Altman Z-Score of 0.54, the rental car company finds itself falling well into the realm of distress, which implies that bankruptcy could be a definite possibility in the next two years.
Investment management firms are showing mixed results on advancing their environmental, social, and governance (ESG) goals in-house, according to a survey of 81 firms by Segal Marco Advisors. Slightly more than a quarter of respondents have no women on their boards of directors, and nearly half have all-white boards. Fifty firms reported having assessed gender pay equity, and only five reported having no pay gap between men and women serving in the same roles. On environmental issues, 12% of respondents said they have a trackable carbon offset program for airline travel, and less than half of their buildings were LEED certified. "We have been asking investment managers how they approach ESG (with their clients) but we also think it's telling how those firms are dealing with those issues in their own operations," said Maureen O'Brien, Segal Marco vice president and corporate governance director. "We wanted to get a sense of that."
In an interview with CNBC, Trian Partners CEO Nelson Peltz said he is optimistic that a Covid-19 vaccine will be developed reasonably soon. Peltz also said he is deploying the fund's capital in new investments and that Trian has "a couple of candidates that we really like," because the recent market sell-off made the equities a compelling buy. In the interview, Peltz acknowledged Warren Buffett's advice to invest cautiously and said that he is entitled to his own opinion, which includes buying two specific companies he likes. Though the billionaire investor said he wasn't buying the stock market outright, he said he is optimistic about the Covid-19 vaccine outlook. Peltz said he was uplifted by a conversation he had with pharmaceutical giant Pfizer's (PFE) chief financial officer, who said he expects to have three to four potential coronavirus remedies in development by July. Peltz also praised the Trump administration and said that he plans to vote to reelect the president in November. The investor's comments contrast sharply with those of other major hedge fund managers, including Appaloosa Management's David Tepper, who told CNBC that this is the second-most overvalued market he has ever seen. Duquesne Family Office's Stanley Druckenmiller said earlier in the week the risk/reward for owning stocks right now is "as bad as I've seen it in my career."
Falling stock prices at Twitter (TWTR) and Occidental Petroleum (OXY) helped Elliott Management and Carl Icahn achieve board gains at the companies, respectively, in March. Investor campaigns surged in 2007 and 2008 when stocks plummeted during the financial crisis and Great Recession, and the pattern may repeat itself amid the economic chaos fostered by the coronavirus pandemic. Recent findings by a group of researchers from U.S. universities reveals that shareholder campaigns are much more likely to be successful at companies in which actively managed mutual and pension funds already make up a high percentage of ownership. Active funds, on average, support campaigns at a rate more than 12 percentage points higher than passive funds. Clothing giant PVH (PVH), oil producer Noble Energy (NBL), oil-and-gas equipment supplier Flowserve (FLS), and air carrier American Airlines (AAL) are among the weakened companies with the highest share of ownership in the hands of active funds that investors might view as an attractive engagement opportunity. Active funds hold 39% of PVH's shares, account for more than 30% of ownership of both Noble Energy and Flowserve, and own 26% of American Airlines shares.
In a recent interview with Fortune, Box (BOX) CEO Aaron Levie discussed how the Covid-19 pandemic has impacted the company, from remote working to being more cautious about hiring and spending. He also talked about its agreement with investor Starboard Value, which in September began urging the company to improve its finances. This led to Box's new financial plan, which emphasized profitability after years of losses. In March, Box agreed to add three Starboard-approved board members and create a new board committee "to identify and recommend opportunities for further improvement in growth and margin performance." Levie says the settlement with Starboard "was super important," noting that the company's new Starboard-approved financial plan was "ultimately very fortuitous" given that the pandemic has required companies to be more financially prudent.
Seven in 10 proxy statements this year open with a letter to shareholders highlighting environmental, social, and governance (ESG) developments and other business achievements, up from 62% last year, according to a review of 50 S&P 100 proxy statements filed as of mid-April. Overall, 20% of reviewed companies included a letter for the first time this year or elevated the signatory. Disclosure of engagement addressing climate change and environmental sustainability rose by one-third to 86%. The share of proxy statements featuring ESG initiatives rose from 82% to 92%. Nearly eight in 10 companies (78%) disclosed that at least one board committee oversees environmental sustainability matters, while 68% stated that their compensation committee oversees human capital issues, up from 70% and 58%, respectively. The share of companies associating at least one director with expertise in ESG rose from 30% to 42%. Aggregate diversity numbers based on gender, ethnicity, or nationality were provided by 68% of companies, up from 56%. Average board diversity was 47%, with women accounting for 30% of directors and 44% of boards having one director under the age of 50.