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A new searchable database featuring the comprehensive voting records of all top institutional investors. This includes every proposal that was up for a vote and how the investor voted.
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.
Two-thirds of Pearson shareholders have voted to approve the pay package of new CEO Andy Bird, clearing the way for him to join the struggling publishing company next month. Pearson's board had warned that Bird would only replace John Fallon if shareholders backed the pay proposal. Cevian Capital, Pearson's biggest investor, built a 5.4% stake this summer, betting that new management will turn things around. Bird's compensation has been the subject of significant criticism, with three top-20 shareholders expressing serious concern about the matter. Pearson acknowledged that "a significant minority" of investors had voted against the "highly competitive remuneration package," but added that it was necessary to "secure" Bird. The pay package includes a $3.75 million co-investment opportunity in company shares and a $9.38 million stock award tied to company performance.
IsZo Capital Management, a long-term shareholder of Nam Tai Property Inc. (NTP) with a 10% stake, has issued a letter to shareholders regarding its efforts to convene a special meeting of the company's shareholders. IsZo says it delivered special meeting requests from holders of more than 40% of the company's shares. In the new letter, IsZo asserts that Nam Tai's "contradictory and reactionary response" to this message is further evidence of the need for wholesale change at the company. IsZo reviews its proposed strategy for improving governance, installing quality local management, maintaining a disciplined capital allocation approach, and focusing on existing projects. It reiterates that the right leadership and planning could unlock the value of Nam Tai's current assets, which the company's valuations suggest could be worth up to $40/share. IsZo urges Nam Tai to promptly schedule the special meeting and stop trying to convince shareholders that the current board is acting in their interests.
According to people familiar with the matter, Japan's government contacted several foreign shareholders in Toshiba Corp. (TOSYY) ahead of the conglomerate's annual meeting in what some saw as an attempt to influence voting. Representatives of the powerful Ministry of Economy, Trade, and Industry (METI) called at least three funds ahead of the meeting to inquire if they had collaborated with other investors. The ministry was focused on whether the funds collaborated with Toshiba's top shareholder, Effissimo Capital Management—communication that could violate rules preventing shareholders from "acting in concert." One of the funds interpreted METI's questioning as a signal to back Toshiba's management and not investor proposals at the meeting. Foreign shareholders had proposed electing some new directors to the board, something management had opposed. Reuters reported this month that about 1,300 postal voting forms went uncounted at the meeting, and last month a major investor called for an investigation, saying its vote had not been recognized. Reuters previously reported that Effissimo was kept in limbo by the government over its vote until the day before the gathering. Together, the revelations have deepened concerns about the treatment of minority shareholders and what appears to be a retreat from the push for better governance in recent years. Singapore-based Effissimo, which owned around 15% of Toshiba but has since scaled that back to around 10%, had nominated three candidates to the Toshiba board, saying its governance has not improved since a 2015 accounting scandal. At the meeting, Toshiba CEO Nobuaki Kurumatani saw a precipitous slide in his support to just 58% from 99% a year earlier, marking a rare rebuke of a Japan Inc. chief executive.
Elliott Management Corp.'s Travelport Worldwide Ltd. is nearing a restructuring settlement that would unwind a disputed $1 billion shareholder rescue package. The settlement would cool tensions between Travelport's top lenders and its private-equity backers Elliott and Siris Capital Group LLC. U.K.-based Travelport tried to weather the coronavirus with a financing package supplied by its owners, which had taken it private in 2018. To secure the rescue loan, the company shifted intellectual-property assets out of the lenders' grasp to serve as collateral for Elliott and Siris. Although Travelport got cash to help survive the pandemic, lenders including Blackstone Group Inc. (BX), Bain Capital LP (BCSF), and Mudrick Capital Management LP were upset about losing access to valuable corporate assets. Lenders said Travelport had tripped a debt default by stripping away property that should have stayed available to satisfy their claims. When they threatened to take action against Travelport, the company sued them, arguing it had complied with its debt agreements and struck a wise deal to get through the pandemic. Under the possible new settlement, lenders agreed to backstop $500 million in fresh loans, backed by the intellectual property that had been pledged to Elliott and Siris. First-lien lenders are accepting a discount of 10 cents on the dollar on some of their debt claims, while second-lien lenders are taking a 25-cent discount, reducing Travelport's roughly $3 billion debt load.
Nikola (NKLA) is fundamentally misunderstood, according to Jeff Ubben, founder of ValueAct. The longtime investor and board member of Nikola said critics of the company view it more as a truck producer rather than as a hydrogen supplier. Ubben came to the defense of Nikola after a report by a short-seller described the company as an "intricate fraud." Nikola has become a darling of the stock market even though the company has not sold one vehicle. Investors worldwide are now questioning Nikola founder and Executive Chairman Trevor Milton's claims about the company's operations. Several investors said they were swayed by the track record of Nikola's team, which includes executive vice president Jesse Schneider, formerly of BMW, while others cited the company's partners and shareholders, such as Ubben. However, the company has been vague about its technology, drawing comparisons to Theranos, which collapsed amid claims of a multibillion-dollar fraud. The Securities and Exchange Commission and the Justice Department are now looking into the company.
Uncertainty surrounds a possible sale of Aryzta (ARZTY) to a unit of Elliott Management now that shareholders have voted for Urs Jordi as board chairman during the company's extraordinary general meeting. Elliott and other parties made unsolicited bids for Aryzta this year after the company conducted a strategic review of its business. Aryzta is in advanced talks with Elliott. However, Jordi opposes a sale. "It would certainly be the worst point in time to sell the company right now," Jordi said during the meeting. Jordi said he wants to focus on streamlining Aryzta and being more innovative. Swiss investor Veraison and Spain-based Cobas Asset Management secured 96.6% backing from voters for their candidate for chairman. Shareholders also voted CEO Kevin Toland off the board, which no longer has any Irish directors.
Blackrock (BLK) says it opposed the re-election of more than 5,000 directors this year. The Blackrock Investment Stewardship report for the year ending June 2020 found it had voted against 5,100 directors, up from about 4,800 the prior year. Over 1,700 of these votes were due to a lack of director independence while 1,500 of the directors were voted down due to a lack of diversity. Just 55 of the 5,100 votes were for failing to meet expectations on climate risk disclosure or management. Blackrock noted that investor expectations have never been higher, with a 48% increase in engagements to more than 3,000 this year.
The percentage of females on corporate boards is on the rise, with women gaining seats at a faster rate than men. Women of color, meanwhile, are advancing faster than any other group or gender. The nonprofit 2020 Women on Boards has determined that women now hold 22.6% of the board seats among the country's biggest publicly traded companies in the Russell 3000 Index, a 2.2 percentage point gain from 20.4% last year and a 6.5 percentage point increase over the last four years. Sixty percent of those boardroom seats were newly created and not gained by women replacing men, the group said. However, even though Black and Asian/Pacific Islander women are gaining seats in the Fortune 500 more quickly than any other group or gender, women of color still hold the fewest board seats. The 2020WOB Gender Diversity Index shows that women hold 6,034 board seats of 26,711 among the 2,982 companies on the 2020 Russell 3000 list. Of the 2,966 companies that were on the list in both 2019 and 2020 years, 785 added women directors in the last year. One-third have just one or zero women on their boards. Among the 25 states that have more than 20 companies on the Russell 3000, all but two (Florida and Utah) surpassed the 20% aim for women on their boards in 2020, up from 17 states in 2019. The states that surpassed more than 20% for the first time are Alabama, Colorado, Indiana, Pennsylvania, Tennessee, and Texas.
New Refinitiv data show that Goldman Sachs (GS) ranked as the top adviser to companies engaged by activist investors during the first half of 2020, while Morgan Stanley (MS) dropped into fourth position. During the first six months of 2020, Goldman advised on 21 campaigns, including eBay (EBAY), Twitter (TWTR), and Harley Davidson (HOG), down from 23 in the first half of 2019. Morgan Stanley, which had long held the top spot, advised on eight campaigns compared with nine a year ago. Spotlight Advisors jumped into the No. 2 spot with 17 campaigns, including Tegna (TGNA), Synalloy (SYNL), and GameStop (GME), compared with 21 a year ago. Spotlight works for both companies and activists, while most banks work only for corporations. Evercore Partners worked on 10 campaigns, the same as a year ago, to take the No. 3 spot. During the first half activist investors launched 243 campaigns, marking a 2% increase from a year earlier, Refinitiv data show. Starboard Value was the busiest with seven campaigns launched.
Kevin Toland has been voted off the board of Aryzta (ARZTY) following the group's extraordinary general meeting (EGM) on Sept. 16. Approximately 62% of shareholders voted in favor of his removal from the board. Toland will remain in his role as chief executive of the Swiss-Irish food group. A group of shareholders in Aryzta has spent a number of months campaigning for changes to the board of the company. The investors, led by Switzerland's Veraison and Spain's Cobas, together own about 20% of Aryzta. Urs Jordi, who was put forward by the dissident shareholders to join the board, was elected with just over 96% of shareholder votes. Andreas Schmid, the board's nominee for the role of chairman, withdrew his candidacy after proxy votes had been cast. Jordi was also elected chair of the Swiss-Irish baked goods company, with a two thirds majority. Aryzta has been hit badly by the pandemic, and it has received a number of approaches since announcing a sweeping review of its business in May. Aryzta confirmed last Thursday that the company is in advanced talks with Elliott Management about a potential public tender offer for the entire company. At Aryzta's EGM, Jordi said, "the worst point in time to sell the company is right now."
The responsible investment arm of Institutional Shareholder Services Inc. (ISS) is adding information on race and ethnicity to its database of directors and senior executives. ISS ESG has compiled the data from corporate filings, direct outreach to companies, and other publicly available sources. "This data is both timely and highly relevant for the many institutional investors now working to incorporate these factors into their investment processes," says Marija Kramer, head of ISS ESG. "The depth and breadth of this data...will also underlie new ISS ESG solutions including the launch later this year of a proprietary index covering both directors and named executive officers," Kramer notes. Companies have made fairly modest progress at growing the proportion of minority directors across the constituents of the S&P 500, according to ISS ESG. Some 16.8% of the directors at big companies are racially or ethnically diverse, up from 13.6% in 2015. However, large cap companies are now paying a premium for racially and ethnically diverse CEOs, the research found. Median pay for diverse CEOs in the S&P 500 is now about 10% higher on average compared with their white counterparts, according to ISS ESG.
Starboard Value this week announced that it had raised $360 million through SVAC, a blank-check special-purpose acquisition company (SPAC), with plans to purchase an underperforming private business in the technology, healthcare, consumer, industrials, hospitality, or entertainment industry for merger into a publicly traded company. Starboard co-founder Jeffrey Smith said SVAC stands apart from other SPACs with a background in improving public companies with a team of experts. "If a family places their company...with us, we will take their business to a better place," he said. Smith added that he and the advisers and directors he enlisted for SVAC can identify and address weaknesses and connect to public markets that would not have been previously accessible. Although he admitted that Starboard has a reputation for scaring "insecure" corporate chiefs with its phone calls, such individuals are now flattered to receive calls. "They know I can't do anything without their permission and they want to hear what I have to say," Smith explained. At a time when many companies have seen business upended by the Covid-19 pandemic, Smith highlights the criticality of having top performing executives—yet some boards are using the pandemic as an excuse to maintain the current state of affairs. "Boards cannot accept mediocrity now because the difference between the great and mediocre will be magnified," he warned. After selling nearly 75% of its assets in eBay (EBAY) and exiting Resideo Technologies (REZI), Starboard, which invests some $6 billion in holdings, has plenty of capital for new campaigns. "We are finding great opportunities, and this is a good environment to keep doing what we are doing," Smith declared.
According to its investment stewardship report on the 2020 proxy season, Vanguard has continued its focus on environmental, social, and governance (ESG) issues in terms of engagement and voting. Board composition was discussed in 70% of Vanguard's engagements this year, similar to the 79% of meetings it featured in last year. The asset manager engaged with 258 companies in carbon-intensive industries, the same number as in 2019. In terms of proxy voting around U.S. companies, Vanguard supported 27% of shareholder proposals on board composition matters in 2020, compared with 22% of shareholder measures last year. The firm voted for 9% of shareholder proposals on environmental and social issues, having done so on 7% of such proposals in 2019. It supported fewer governance-related shareholder proposals (31%) in 2020 than in 2019 (42%), however. Overall, for the year ending June 30, Vanguard's investment stewardship team engaged with 793 companies in 27 countries and voted on more than 168,000 proposals on behalf of Vanguard funds. The report's authors say the firm's engagements with companies in the Americas this proxy year were focused on understanding how boards identify, oversee, and disclose material risks such as climate and diversity-related risks. In terms of board diversity, the firm notes that this year has seen more of these proposals targeting workforce diversity with a greater focus on racial and ethnic diversity. Vanguard expects political proposals to be a continuing trend with shareholders seeking transparency about how issuers align their lobbying activities with corporate strategy.
Jeff Ubben, the founder of ValueAct and an early investor in Nikola (NKLA), has strenuously defended the electric truck start-up and its leadership against fraud allegations from a short-seller. Nikola says it designs and manufactures trucks that run on hydrogen fuel cells or batteries, and hydrogen fuelling stations. In a scathing report released last week, short-seller Hindenburg Research called Nikola "an intricate fraud" and claimed the company was exaggerating progress on its technology. Hindenburg alleged Nikola faked a video and passed off technology it had bought as its own. "Nikola is a prototype shop," Ubben said. "We are not trying to sell trucks, we are trying to sell hydrogen." Ubben recently left ValueAct, taking with him an environment-focused investment fund that he now runs at a new firm called Inclusive Capital Partners, which has an investment in Nikola. Ubben sold more than half the Nikola stake in late August and he now has 5% of the company, versus 12% before; he said the sale was forced on him by investor redemptions during the transition from ValueAct. Nikola shares have fallen 40% since the publication of the Hindenburg report, which as a short-seller profits if Nikola's stock price declines. U.S. regulators are looking into Nikola to examine Hindenburg's claims. In a detailed rebuttal published on Monday, Nikola and founder Trevor Milton countered what they described as "false and misleading statements" by Hindenburg. Ubben added that the bulk of Nikola's profit will come from hydrogen stations, which he said are about seven or eight years away.
In its corporate management meeting on Wednesday, Nintendo (NTDOY) said it had "already embarked on multiple other visual content projects" alongside Illumination's Mario movie, which is planned for release in 2022. "Visual content" initiatives may not be limited to film, it said, suggesting that it could expand its game franchises via other mediums such as television or comic books. "The scale of our investments will vary based on the type of project, but we will continue to invest in these entertainment expansion initiatives to increase the number of people who have access to our IP," it said. While its core business remains making and selling games, Nintendo has increasingly moved to leverage its popular IP in various ways in recent years. Nintendo said in Wednesday's meeting that any expansion of its game franchises must have a "deep relationship" with its interactive game experiences. Earlier this year, ValueAct Capital, which holds a stake in Nintendo, claimed the Japanese firm had the potential to transform itself into a broader digital entertainment company to rival Netflix. ValueAct said in a letter sent to its investors that although Nintendo has not prospered as much as video game companies like EA and Activision, the company was now going through a digital transition that was sure to pay off. The Nintendo theme park is due to open soon at Universal Studios Japan. ValueAct went on to claim that it had several meetings with members of Nintendo management and said that it believed in the vision of the company's chief executive, Shuntaro Furukawa. Management has been "welcoming to those who take the time to understand the unique Nintendo way," it said in its letter.
Aryzta's (ARZTY) potential sale to Elliott Management's Elliott Advisors unit has been thrown into doubt with a boardroom coup by dissident investors, who secured shareholder approval to appoint a new chairman. At an extraordinary general meeting (EGM) in Zurich, the Veraison (VZ)-led dissident group acquired 96.6% support from voters for Urs Jordi, former head of Hiestand International, to join the board. Shareholders also supported Jordi to become the new chairman. "It would certainly be the worst point in time to sell the company right now," Jordi said. "We need to streamline our organization." Veraison and Aryzta's preeminent shareholder, Cobas Asset Management, stated on May 13 that they had partnered to push for improved valuation following a decline in Aryzta's stock market value in recent years. The company simultaneously announced that it had hired investment bank Rothschild (PIEJF) to undertake a "strategic review" of the business, which resulted in unsolicited bids, including Elliott's. On May 21, the Veraison-led coalition urged Aryzta to hold an EGM to consider proposals that chair Gary McGann and non-executives Dan Flinter, Annette Flynn, and Rolf Watter be ousted and replaced by its nominees, including Jordi, Kamps founder Heiner Kamps, and former Aryzta Switzerland CEO Armin Bieri. In July, Flinter and Watter said they would be retiring at the meeting regardless of the outcome, while McGann announced his resignation from the board in August and Flynn announced her own hours before the EGM. Investors approved Kamps and Bieri's appointment at the meeting, while the dissidents also secured investor backing to remove Aryzta CEO Kevin Toland from the board in order to focus on his duties as group CEO. Watter said Toland has committed to staying with the group. Meanwhile, Aryzta's candidate for board chairman Andreas Schmid dropped out of the race on Tuesday. This leaves the company without any Irish board members, but has led to a higher weighting of non-executives with baking sector background. Aryzta has a market value of roughly €730 million, with stock having lost most of its value since the firm raised some €800 million in an emergency share sale in late 2018. McGann said at the EGM that "it would be difficult to overstate the challenges faced by Kevin and his senior team and the circumstances inherited by them—ranging from cultural, structural, commercial, operational, and strategic issues, all of which needed serious attention and in a number of cases deep remediation. Significant progress has been made on all fronts in executing a leadership strategy in global bakery. I acknowledge that the financial turnaround has been slower than you had expected and we had hoped for, and that significant further work is needed, particularly in one of the regions, which is now underway." McGann restated that Aryzta cannot be fixed by a "silver bullet." "The market is always slow to re-rate a company that has come through such a traumatic period and needing such a level of renewal in so many aspects of the business,” he admitted. "I do, however, believe that if we keep doing the right things, executed well and in the context of the right strategy, the market will eventually reward it."
Jeff Ubben's bet on Nikola (NKLA) is still looking good even though the shares have fallen about 30% from the $50.05 they traded at two days before Nate Anderson's Hindenburg Research accused the company of being an intricate fraud built on dozens of lies. Ubben's new fund, Inclusive Capital Partners, is now Nikola's second-biggest investor, holding 5.6% of its shares. Nikola went public on June 4 following a merger with a special-purpose acquisition company (SPAC) called VectoIQ. Ubben, who joined Nikola's board of directors, received perks as an early investor and insider in the SPAC. His fund acquired 20,362,024 shares at an average price of $7.54 per share, which is well below the $10.00 initial public offering price on May 16. Inclusive Capital Partners' shares appear to have been transferred from Ubben's previous firm, ValueAct. One of the year's hottest SPACs, VectoIQ soared as high as $93 per share on June 9.
On Monday evening, Cracker Barrel (CBRL) spurned the nomination of Raymond Barbrick, who had been put forth as a potential company director by the investor Sardar Biglari. Biglari responded with a letter on Tuesday blasting the company, arguing that its investment in Punch Bowl Social was a bad idea and its decision to quickly pull the investment in March was even worse. "The ruinous behavior falls on the board itself for supporting the purchase of a risky, unproven bar business unrelated to Cracker Barrel’s successful brand," he wrote. "Since the beginning of our involvement nearly a decade ago, we have had a positive impact on Cracker Barrel, one that led to a change in the executive suite, an overhaul of the company's board of directors, an increase in the dividend payout ratio (from 24% to 87%), a reduction in low-returning new store openings, and the launch of a licensing business." The author likens these claims to "a snowstorm taking credit for the existence of snowplows." Biglari invested in Cracker Barrel in 2011 and then proceeded to run three unsuccessful proxy campaigns, and his presence spurred the company to change. Cracker Barrel took several actions to appease Biglari, the biggest being the naming of Sandra Cochran to be the CEO. The author notes that activists have the benefit of holding companies accountable by threatening directors' future on their boards, but Biglari's role in this was largely interchangeable with other activists. Many of the strategies that Biglari brought up at the time were also common. The biggest impact Biglari has had on Cracker Barrel has been his simple existence, which resulted in the dividend increase.
FirstGroup (FGROY) expects profits to rebound just two months after expressing concern about its ability to stay afloat as a business. The U.K. rail and bus operator, which is facing pressure from U.S.-based Coast Capital Management, reported a "stronger than expected" financial performance for the period from April to August. Coast Capital, which holds more than 10% of FirstGroup shares, has engaged the company on splitting off its North American businesses. FirstGroup put its U.S. businesses up for sale this year, and now says it has received "significant interest from potential buyers." Although the coronavirus pandemic has delayed the sale process, CEO Matthew Gregory say it is a priority this autumn. Revenues have recovered as passengers slowly return from lockdowns. FirstGroup has received government support and expects to meet its banking covenants at the end of this month.
Money manager Jeffrey Ubben of Inclusive Capital Partners was among the top executives, policy makers, scientists, and investors on Tuesday addressing the need for climate action and discussing climate solutions such as sustainable investing at the first-ever Bloomberg Green Festival. Ubben, who left his hedge fund to launch a new firm focused on social and environmental investing, described climate as a "new place" for excess return. The stock market has moved into an era where equity values are increasingly reflecting environmental and social failings, he said during the virtual event. Investors have an opportunity to engage companies on making improvements in those areas and thus find the "new place" for excess returns, he said. "To a certain extent, we caused the harm we're trying to address," he said. "If you can fix climate change or at least mitigate it, that's the next breakout opportunity."
Aryzta (ARZTY) announced that its candidate for company chairman, Andreas Schmid, has dropped out of the running. "I had made myself available as a candidate for the chair of the board of directors of an independent company or a company with strong industrial interests," Schmid explained. "It has become clear after recent developments that this solution is no longer an option, therefore, I have decided to withdraw my candidacy for the board of directors of Aryzta." The company stated last week that it was in advanced discussions to be taken over by a unit of Elliott Management. Schmid's withdrawal comes the day before an extraordinary general meeting was scheduled, where his candidacy was to be challenged by a coalition of dissident investors. The Veraison (VZ)-led group, which includes primary shareholder Cobas Asset Management, controls more than 20% of Aryzta and has been lobbying for change at the company for a number of months. Aryzta has a market value of slightly more than €570 million, with stock having fallen more than two-thirds since the company raised roughly €800 million in an emergency share sale in late 2018. The group has been struggling to curb a decline in earnings, particularly in the U.S., and negative investor sentiment toward its capital structure. The dissident investors have pushed Aryzta to sell off another €600 million in assets to lower debt and "return the business to profitable growth."
A judge has rejected Vivus Inc.'s (VVUSQ) reorganization plan and gave a rare approval to the formation of a shareholder committee in the chapter 11 proceedings. Judge Laurie Selber Silverstein on Friday denied a plan that would have given the equity of the bankrupt drugmaker to an Icahn Enterprises LP subsidiary. The development represents a setback for Carl Icahn's investment firm.
Volkswagen AG's (VOW) heavy-truck business boosted its bid for Navistar International Corp. (NAV), offering to buy the rest of the U.S. manufacturer for $3.6 billion. Traton SE increased its offer to purchase the portion of stock it does not already own to $43 a share, up from $35 a share offered in January. Navistar said its board will review the proposal, which sent the company’s shares surging as much as 20% Thursday in New York. It is unclear whether the higher offer will draw Navistar management back to the negotiating table after talks were put on hold amid the coronavirus pandemic. Bloomberg reported last week that Traton was seeking to restart talks to win over Navistar’s management and main shareholders, which include investor Carl Icahn. Traton already owns almost 17% of Navistar, trailing only Icahn. Navistar's third-largest shareholder is MHR Fund Management, the hedge fund founded by Mark Rachesky, with a 16.3% stake. The higher price would yield "respectable" returns for Icahn and MHR, Tom Narayan, an analyst at RBC Capital Markets, wrote in a report. Officials representing the German side and Navistar had been discussing the potential range of a higher offer that would be sufficient to secure access to the target's books. Navistar had resisted allowing due diligence because it considered the initial bid to be too low.
Pearson (PSO) is facing a significant investor revolt over the U..S-style pay package being offered to hire former Disney (DIS) executive Andy Bird, which includes an unusual co-investment structure. Under the plan, Bird would buy $3.75 million of Pearson shares when he takes over as chief executive next month, but would be in line for an award up to the value of $9.375 million, paid in three separate tranches. Although Pearson is confident about winning the vote at an extraordinary meeting next Friday, three top-20 shareholders told the Financial Times they had serious concerns. One investor who plans to oppose the deal said that he was uncomfortable with the board’s warning that Bird would only join the group if the pay proposal was approved by shareholders. Pearson has for years struggled with its digital transition and the downturn of its traditional textbooks business, suffering seven profit warnings under the seven-year tenure of its outgoing chief executive John Fallon. Although Pearson’s headquarters are in London, Bird will be based in the U.S. The outcome of the vote will largely be determined by Pearson’s four biggest shareholders: Lindsell Train, Schroders, Silchester International Investors, and Cevian Capital, which collectively control just over 40% of the stock. Pearson has been in close contact with its top shareholders and took their views into account before calling the EGM, but other investors have expressed their concerns to the company. A second big shareholder who plans to vote against the pay package said it raised a number of flags, including the sheer size of the potential payout. Investors have also been critical of what Pearson called “underpins” that will be used to decide the final payout, arguing they are imprecise and not very difficult to meet. EdenTree Investment Management is also planning to oppose the remuneration deal. Neville White, its head of responsible investment policy and research, said there are “many elements that are dubious” including the “golden hello” and Bird’s decision to be based in the U.S. Institutional Shareholder Services and Glass Lewis have recommended shareholders oppose the amended pay policy.
Investors seem optimistic about the news that Nvidia will spend up to $40 billion to acquire the U.K.-based chip-design house Arm Holdings from Japanese tech investment giant Softbank. SoftBank (SFTBY) American depositary receipts were up about 10% Monday, while Nvidia stock (NVDA) is up more than 6%. Terms of the sale of Arm call for Nvidia to pay $12 billion in cash as well as 44.36 million Nvidia shares, $1.5 billion in Nvidia stock for retention bonuses for Arm staff, and a $5 billion earn-out in either cash or stock. With the rally in Nvidia's shares, the value of the deal has increased by about $1.4 billion. On completion of the deal, SoftBank's stake in Arm will be between 6.7% and 8.1%, depending on the size and nature of the earn-out provision. SoftBank will not have any Nvidia board representation. The deal does not include Arm's Internet of Things Services Group, Treasure Data, which SoftBank has reportedly been shopping separately. SoftBank recently completed a plan to raise $41 billion in cash through asset sales to pay down debt and buy back stock, which it announced in March under pressure from Elliott Management. SoftBank also recently announced plans to sell about a third of its remaining position in SoftBank Corp. for $13.5 billion, in an offering that will reduce its stake to about 40% from 62%. At a $38.5 billion sale price, SoftBank's return on its Arm purchase is a relatively modest 24.2%, but the company's asset sales program is now approaching $95 billion. Both Financial Times and Bloomberg over the weekend said SoftBank executives have been considering taking the company private. SoftBank's rally reverses a recent decline spurred by concerns about the company's apparent strategy to aggressively invest in tech equity options.
A blank check company sponsored by Jeffrey Smith's hedge fund Starboard Value has raised gross proceeds of $360 million. Starboard Value Acquisition (SVAC) has closed on its initial public offering of 36 million units at $10 per unit. Shares of the special purchase acquisition company rose 0.2% on Monday to $10.05.
Glass Lewis is replacing its head of research and head of sales with two outsiders. Eric Shostal joins the firm as senior vice president of research and engagement, replacing Aaron Bertinetti, an eight-year Glass Lewis veteran who had been global head of research. Shostal most recently worked at BlackRock Inc. (BLK) in its investment stewardship group. Glass Lewis also hired Dan Concannon as chief commercial officer, where he will oversee the company’s worldwide sales functions. Both Concannon and Shostal once worked at Institutional Shareholder Services (ISS), Glass Lewis' larger competitor. "Dan and Eric have deep experience in environmental, social, and governance and shareholder engagement within the institutional investment community," said Glass Lewis COO John Wieck in a statement. "We are thrilled to bring their leadership and expertise to Glass Lewis to meet the evolving needs of our clients." The changes come one year after Katherine Rabin stepped down as CEO at a time Glass Lewis was facing increasing competition from ISS and increased regulatory oversight by the Securities and Exchange Commission.
Climate Action 100+ (CA100+), the investor group whose 518 members include BlackRock (BLK) and Pimco, has written to the world’s largest greenhouse gas-emitting companies to demand they put in place a "net-zero strategy" for 2050 or earlier. The organization, which represents more than $47 trillion in assets, said it also wanted the 161 companies to set medium-term objectives to reduce emissions by 45% by 2030 compared with 2010 levels in order to meet their net-zero emissions target. CA100+ added that it would assess the progress made by each of the targeted businesses through a new benchmark that will be released in 2021. The move comes as asset managers have become increasingly concerned that climate change could have a financial impact on their investments. Founded in December 2017, CA100+ has become one of the best-known investor initiatives of all time, but it has also faced accusations that companies were using their dealings with the investor group to hide bad behavior and shy away from concrete action. In the letter sent to the chief executives and boards, CA100+ signalled it would get tougher by requiring that companies include all emissions, including so-called end-use emissions, in their net-zero strategies. It also called on the businesses to set targets to deliver emission reductions in line with keeping global warming to under 1.5 degrees Celsius above pre-industrial levels. CA100+ said significant progress had been made in pushing companies to tackle climate change, with 50 of the businesses it targets having indicated they will aim to achieve net-zero emissions by 2050 or sooner.
SoftBank (SFTBY) executives have revived discussions about taking the technology group private as the conglomerate seeks to redefine its strategy. The talks are driven by frustrations over the persistent discount in SoftBank's equity valuation. The take-private discussions have also been accelerated by what people close to the company’s senior management say are a number of fundamental changes to SoftBank's long-term business strategy since it launched the Vision Fund in 2016. Sources say the company sees itself increasingly as an investor and asset manager rather than a direct operator of businesses. Intense shareholder scrutiny of SoftBank's recent aggressive bets on U.S. technology stocks have also bolstered the appeal of becoming a private company, the people said. A potential delisting of SoftBank would strike a heavy blow to the Tokyo stock market, as the company is the second-heaviest weighted stock in the Nikkei 225 Average. The talks about a management buyout led by founder Masayoshi Son, who holds a 26% stake in the company, have gained impetus as SoftBank nears the end of an asset sale program launched in March that was meant to fund $41 billion in share buybacks and debt repayments. That program was launched in March after SoftBank shares fell to their lowest levels since 2016 during the stock market rout. At the time, SoftBank briefly explored a take private deal with the support of Elliott Management and Abu Dhabi state fund Mubadala. Since then, SoftBank shares have recovered rapidly to reach their highest levels in 20-years last month, but executives attribute the rally in the stock mainly to gains in Alibaba's share price rather than a narrowing of the SoftBank discount. Internal opposition to a management buyout remains strong, according to two sources, partly because a large part of SoftBank's relationship with Japanese lenders hinges upon its status as one of the country's most valuable listed companies.
Special purpose acquisition companies, or SPACs, are now a hot ticket on Wall Street, with big-name dealmakers, small-name money managers, and tech entrepreneurs all looking to raise millions or even billions of dollars via blank-check companies. So far this year, no fewer than 91 SPACs have raised more than $35 billion, approaching half the total raised by SPACs on U.S. exchanges in all previous years. Bill Ackman is among the moguls to watch in this space. In July, the founder of Pershing Square Capital Management raised $4 billion in a blank-check company, which was the biggest SPAC ever. The hedge fund plans to invest at least another $1 billion when a company is identified. Ackman has held talks with Airbnb and payment processor Stripe. He previously raised $1.4 billion in a 2011 London listing via Justice Holdings, which merged with Burger King Worldwide after one year.
Volkswagen (VWAGY) subsidiary Traton has increased its offer to buy Navistar (NAV) to $43 per share, but a deal is far from certain, according to sources. Traton went public with the offer after merger discussions with the board broke down. Navistar board members include Carl Icahn and a representative of his one-time protégé Mark Rachesky. Icahn and Rachesky each control roughly 16% of Navistar's stock, while Traton has a 16.8% stake in the company and also controls seats on the board. Traton hopes to pressure the board to take the deal or risk angering shareholders if it falls apart and its stock price falters. Rachesky recently said that he is looking for an offer of more than $70 a share. But another large shareholder said Navistar should sell if Traton raises its January offer of $35 per share by a few dollars.
Pearson (PSO) shareholders are set to vote next week on whether to approve a $9 million signing bonus for new CEO Andy Bird. The contract, which would award him more than $10 million a year in pay and bonuses, has frustrated some of Pearson's shareholders, and Institutional Shareholder Services (ISS) and Glass Lewis have recommended that shareholders vote down the agreement. Fund manager Lindsell Train is the largest shareholder in Pearson, followed by Schroder Investment Management, Silchester International, and Cevian. Pearson's top four investors control 40% of its shares. One top shareholder has accused Chairman Sidney Taurel of effectively saying that this is the best deal that Pearson could reach. However, Pearson has already consulted its top four investors and is expected to win the vote. "Clearly the board would not have called an EGM (extraordinary general meeting) without having secured the commitment of shareholders," said an insider. Still, if shareholders follow the recommendation of ISS and Glass Lewis, Pearson would have to resume its search for a new CEO.
ValueAct was "very disappointed" in Citigroup's (C) performance under Michael Corbat and his deputies since it established a stake in 2018, and that was a key factor in Corbat's retirement announcement last week, according to sources. ValueAct was disappointed that the bank missed important performance goals for returns and expenses that it had set for itself in 2017, and that eroded the lender's credibility, the sources said. ValueAct never urged the ouster of Corbat, according to the sources. Rather, the firm, led by partner Dylan Haggart, was vocal with the bank's board and management about the company's shortcomings, fostering tension inside the company. ValueAct owns approximately 27 million shares of Citigroup and is underwater on the investment as of this week, according to the sources. Last week, Citigroup said that Corbat would leave the company in February, and that Jane Fraser would become the first female head of a large Wall Street bank. CNBC reported Thursday that Corbat had moved up his retirement date because of pressure from regulators over the company's internal controls and as investors including ValueAct became impatient. Since ValueAct established its stake in 2018, Citigroup has replaced most of its leading executives. ValueAct wants to "create accountability, and with that boards tend to be sharper, more on their game," a source said. "If it works, that extra urgency drives performance. The CEO becomes lauded and everything works out great. If it doesn't, it helps you arrive at decisions earlier." ValueAct spokesperson Drew Stroud said that the investment firm has "provided our perspectives on strategic priorities, budgeting, and performance expectations" to Citigroup. He said Citigroup "appreciated our open and constructive dialog with Mike, the entire Citi management team, and the board." Citigroup spokesperson Jennifer Lowney said that the bank had a "constructive relationship" with ValueAct and "they continue to be an important partner. We have benefited from their expertise and value their perspective." She said that "as far is Mike is concerned, his decision to retire was entirely his own and he always planned to do so in 2021."
There is increasing collaboration among investors and the convergence of strategies between activist investors and private equity (PE) firms. Today's crossover activist-PE investors combine the value-enhancing plan element of traditional activists with the buyout capital characteristic of private equity firms, partly driven by activists' large cash piles. Such crossover activist-PE strategies may take several forms. For example, Elliott Management several years ago created a PE arm called Evergreen Coast Capital to participate in buyouts of entire companies. Conversely, the private equity firm KKR built a 10.7% stake in Dave & Buster's Entertainment (PLAY) earlier this year and signaled a desire to seek board or management changes. Cannae Holdings and hedge fund Senator Investment Group LP recently joined forces to launch a bid for the property data company CoreLogic Inc. (CLGX). Meanwhile, Third Point sponsored a special purpose acquisition company (SPAC) called Far Point Acquisition Corp. and teamed with PE firm Silver Lake Partners to acquire Global Blue Group AG (GB). Activists generally own significant minority stakes in the companies they engage, unlocking value for the benefit of all public shareholders, while PE firms have generally unlocked value outside of public markets. While the tension between public and private market models will continue to exist, crossover strategies will likely continue to be more commonplace. In order for an activist-PE campaign to win over investors, it needs to combine a solid strategic and operational plan with the capital to acquire and invest in the business.
As investors, executives, and politicians demand greater racial and ethnic diversity in Western corporate boardrooms, they say the lack of ethnicity data is slowing progress on efforts to improve diversity in the top echelons of global corporations. "We would like to see the makeup of all directors," said Benjamin Colton, co-head of stewardship efforts at State Street Corp. "We understand there may be directors who don't want to self-identify, and in those cases we might engage on that a little more." Among the top 200 companies in the S&P 500, African Americans hold only about 10% of board seats and Hispanic or Latino people hold only 4% of board seats. That representation falls below their shares of the U.S. population of 13% and 19%, respectively. Factors including insular social and professional networks have kept boardrooms largely white for years. The concern about underrepresentation of minority groups is leading to new data-gathering efforts and legislation. In addition, several researchers have each launched new efforts to gather more diversity data, both drawing on information from groups such as the Latino Corporate Directors Association. These efforts are in early stages, however, and the data are patchy. Researcher Just Capital says 21% of 931 companies in the Russell 1000 index now offer at least some information about their boards' racial diversity, but it is often narrow or vague. More corporate disclosures are likely, but some directors might not want certain characterizations publicly listed, or might recall how such information has been used to exclude minorities. Recently, California legislators passed a bill mandating boards have one director from an underrepresented community by the end of next year, and requiring the state to publish a report on companies' compliance.
In June, Jeff Ubben stepped down from ValueAct Capital, the hedge fund he founded, and launched Inclusive Capital Partners, which backs companies tackling problems that address environmental, social, and governance (ESG) issues. Ubben is reckoning with the investment philosophy that guided his success during the ValueAct years, especially the relentless focus on shareholder primacy. Company owners now have too much power, he said, expressing regret about his time at ValueAct, where he carved out a reputation as a thoughtful, long-term investor who would work with the companies his firm engaged. Today, Ubben says this distinction was mostly false. "We had plenty of business plans built on buying companies and firing the workforce of the acquired company, and then buying the next one," he said. Ubben worries that company directors spend too much time on questions like whether they should raise prices. He believes the same dislocation between valuation and opportunity exists today as it did at the start of his investing career. Shareholder-first capitalism has, he says, made businesses so good at maximizing profit that there is little left to squeeze and left them ill-equipped to react to other issues investors care about. Ubben is also contemptuous of much of the ESG world's tendency toward corporate spin, which "may be a great way to grow your asset management business" but will do little to improve the world. Instead, Ubben hopes that by partnering, as investor or board member, he can help oil majors resist shareholder pressure to repurchase shares or undertake other methods for short-term gain. The investor now envisions a future where bosses are paid based on "total societal impact."
Activist investors are focusing on Japan because of its attractive valuations and regulatory environment that now welcomes shareholder engagement. Some remarkably undervalued companies can be found in the broader Japanese market. What is more, shareholder proposals are more accepted, along with the idea of working with investors due to changes such as the introduction of the Corporate Governance Code and the Stewardship Code in 2014 and 2015. Domestic institutional investors, who are key to any corporate votes and decisions, no longer ignore foreign investors. The share of domestic institutional investors voting "yes" to shareholder proposals has risen from less than 2% in 2015 and 2016 to more than 8% in 2019. Similarly, management of Japanese companies is showing signs of openness to change. There has been a steady increase in high-profile engagement in Japan over the past 18 months, but more high-profile success stories will need to emerge.
Although corporations in the U.S. have in recent years pledged to increase minority representation on their boards, a new survey suggests they have made little progress. Underrepresented ethnic and racial groups comprise 40% of the total U.S. population, but account for just 12.5% of board directors, up from 10% in 2015, according to a new analysis by the Institutional Shareholder Services' ESG division. Black directors make up 4% of the total, while Black women account for just 1.5% of the more than 20,000 directors included in the analysis. Companies are now facing increasing pressure to appoint more Black directors, especially amid the racial reckoning that started after the death of George Floyd in police custody in May. A group of 44 executives and organizations last week announced the Board Challenge, a campaign calling on companies to add a Black director within the next 12 months. Meanwhile, some states are passing legislation forcing companies to improve board diversity. In California, a recently passed bill would require companies headquartered in the state to have at least one board member from an underrepresented ethnic group, or who identifies as gay, bisexual, or transgender, by the end of 2021.
During the tenure of outgoing Prime Minister Shinzo Abe, Japanese companies have opened up more to outside scrutiny. In 2014, the Abe government set corporate governance as one of the main agendas in its growth strategy, aiming to improve the return on equity of companies and lure foreign investors. One of the key strategies to strengthen corporate governance was for listed firms to increase the number of independent, outside directors. Last December, four years after the introduction of a nonbinding Corporate Governance Code, the government again amended the law to mandate large companies appoint independent, outside directors. These law revisions and guidelines led to a dramatic increase in the number of outside directors. According to Japan Exchange Group Inc., only 21.5% of the companies listed on the first section of Tokyo Stock Exchange had at least two independent directors in 2014, but the figure now stands at 95.3%. Shigeru Matsumoto, managing director at the Japan Association of Corporate Directors, notes that when it comes to companies' profitability, the reforms have not produced solid results yet. To bolster corporate governance, Matsumoto said company leaders need to face a stricter evaluation system by independent directors while giving more financial incentives when they deliver results. He added that it is critical to introduce more generous pay as a performance incentive to motivate top leaders. Takaaki Wakasugi of the Japan Corporate Governance Research Institute also stressed the importance of incentive systems, but said it will be a challenging task considering the deeply rooted traditional corporate and social culture. Moreover, since the seniority salary system has been the norm, CEOs are not used to a performance-based pay system.
The former CIO of Japan’s $1.3 trillion state pension fund intervened personally to influence the Harvard Management Corp. (HMC) in what investors call a “dark arts” campaign to shield the CEO of Toshiba (TOSYY) from activist shareholders. The revelations surrounding Hiro Mizuno, former CIO of the Government Pension Investment Fund, have raised concerns over the Japanese technology group’s tactics to neutralize activists in the run-up to its July 31 annual meeting. Mizuno had private discussions over voting intentions with Narv Narvekar, chief executive of Harvard Management Co., as Toshiba looked to sway investors and proxy advisory services. The abstention of Harvard, which held a stake of about 4.5% in Toshiba at the time of the AGM, was crucial for Kurumatani, who survived the vote with just 58% approval. Last week, Singapore-based activist fund Effissimo, Toshiba’s largest shareholder with a stake of almost 10%, sent an online survey to an undisclosed number of other investors asking whether they had voted “in a manner inconsistent with intentions.” When faced with financial disaster in 2017, Toshiba engaged Goldman Sachs (GS) to issue $5.4 billion in new equity, a controversial move that brought activists on to the shareholder register. When those activists became a threat ahead of the AGM, Toshiba engaged the same Goldman Sachs team to sway the opinion of proxy advisory services ISS and Glass Lewis, as well as large global asset managers including BlackRock (BLK) and Fidelity. “Toshiba and its allies became increasingly frenetic ahead of the AGM,” said one large Toshiba shareholder. “The more vulnerable Kurumatani's position seemed, the more unorthodox the methods of securing his survival seemed to become. It was dark arts at their best.”
Evergy Inc. (EVRG) must find a new CEO to succeed Terry Bassham, who announced his retirement in late August. Bassham drove the $14 billion merger that formed Evergy and before that spent six years as CEO of predecessor Great Plains Energy Inc. In early August, the company rolled out a "Sustainability Transformation Plan" that calls for $4.8 billion in upgrades to Evergy's network, accelerating plans to replace coal-fired power plants with renewable energy sources. Such fundamental shifts would challenge any company, but Evergy's degree of difficulty jumps because success will require outside parties to cooperate. Elliott Management looms over the selection of its CEO, and the pace of switching out coal for wind and solar hinges on regulators in two states agreeing to big changes in how utilities finance power plants. Elliott approached Evergy's management in October to discuss ways of maximizing value. When Elliott made its involvement public in a January letter, it said it controlled the equivalent of 11.3 million shares of Evergy. The letter described underperformance by the company that called into question its management and basic strategy, suggesting a sale of the company or a new business plan. Evergy and Elliott reached an agreement in late February that added two new board members and formed a special committee to explore the two paths. Evergy executives and directors decided to work with Elliott, albeit after initially making changes in the company's bylaws to make a takeover more difficult. A release announcing Evergy's new strategic plan noted that the investor could work with the board during a 90-day period to review and evaluate the best management team to execute the plan. Like Elliott's January letter, Evergy's new strategic plan puts forth a strategy of pumping more money into the utility's system. Both the letter and the plan emphasize boosting the rate base and relying more heavily on renewable energy. However, carrying out the new strategy will require buy-in from regulators and lawmakers in Kansas and Missouri.
The federal proxy rules generally apply to solicitations of proxies with respect to securities registered under Section 12 of the Securities and Exchange Act of 1934. However, very few California corporations have a class of securities registered under Section 12. If a corporation has shares held of record by 100 or more persons and a form of proxy is distributed to 10 or more shareholders of the corporation, then the proxy must afford an opportunity on the proxy to specify approval and disapproval of each matter or group of related matters intended to be acted upon at the meeting for which the proxy is solicited, other than elections to office. The proxy must also provide that when the person solicited specifies a choice with respect to any such matter, the shares will be voted in accordance with the specification. A failure to comply with these requirements will not invalidate any corporate action taken, but the failure may be the basis for challenging any proxy at a meeting and the Superior Court may compel compliance with these requirements. These requirements do not apply to any corporation that has an outstanding class of securities registered under Section 12 of the Exchange Act or whose securities are exempt from registration pursuant to Section 12(g)(2).
In the past few months, the Republican-controlled Securities and Exchange Commission (SEC) has issued a raft of new and proposed rules that may harm investors. The changes include proposals to streamline mutual fund and exchange-traded fund disclosures, as well as new rules on corporate disclosures and regulating proxy advisors. The SEC will vote soon on a controversial measure to raise the threshold for shareholder resolutions, and it may be close to expanding exemptions for companies to sell shares outside of public-offering rules. Much of the new framework is designed to allow for more discretion in what needs to be disclosed, and many of the rules have been designed to help foster the private markets. However, investor advocates say the SEC is making it easier for companies to curtail disclosures, which reduces transparency in public markets. They argue that the regulatory rollback will make it tougher to push through shareholder-friendly resolutions in areas like executive pay and disclosures of environmental, social, and corporate governance (ESG) factors. One of the more sweeping sets of changes, in an area known as Regulation S-K, covers disclosures for public companies. Several changes appear purposefully vague, and there are significant gaps in what the rules do not require. The SEC has signaled concerns about ESG ratings in the fund industry, and an investor advisory committee to the SEC recently recommended developing an ESG regulatory framework, but Republicans remain opposed. "From an investor's perspective, the changes are terrible to varying degrees," says Tyler Gellasch, executive director of Healthy Markets, an investor advocacy organization. "The rules limit shareholder rights and information in the public markets in the name of capital formation." Amy Borrus, executive director of the Council of Institutional Investors, says new rules on proxy voting could "tilt recommendations in favor of management to avoid the threat of legal action. There's a risk that companies threaten to sue when they don't like the proxy advisor's recommendation. It's indirect pressure."
Positive developments in the board-shareholder dynamic in the last several years have hinged on corporations knowing who their shareholders are. Shareholders like Ed Garden of Trian Partners and Jesse Cohn of Elliott Management are still poised to engage struggling companies in public campaigns against managements and boards. But shareholders no longer need to be Trian or Elliott to get the attention of corporations. Companies have taken a more proactive approach to engagement, and they are listening to more shareholder voices. However, the Securities and Exchange Commission has proposed cutting back the 13F filing requirement dramatically. Boards seeking to identify shareholders and organize outreach have used the quarterly filings on Form 13F. A change in the disclosure rule would mean that only the most proactively vocal shareholders and the largest shareholders will be visible to boards.
In a recent letter to shareholders, Bill Ackman proposed establishing retirement accounts at birth for every child born in America. Forbes contributor Ric Edelman argues in favor of this idea, a version of which he proposed in 2017 with the T.R.U.S.T. Fund for America. A May 2020 report from Stanford University's Center on Longevity called this solution "an innovative proposal" to solve our nation's retirement security problem. Edelman founded the Funding our Future Coalition with the Bipartisan Policy Center, now with some 50 partnering agencies and corporations working on improving retirement security for Americans. The T.R.U.S.T Fund for America would have the federal government establish an investment account for each baby born in the U.S. and provide it with one-time funding of $7,500. Ackman did not explain how to pay for his idea, which he said would cost $26 billion, but Edelman believes he has an answer. The accounts would be funded by issuing a new type of EE Savings Bond called TRUST EE Bonds, which would pay the same rate as current EE Bonds and it would increase the federal government's annual borrowing by just 0.3%. Ackman assumes the accounts would grow 8% per year; Edelman assumes a lower return of 7.27%, which is the average projected return of the nation's public pension plans. In 30 years, like other EE Savings Bonds, the TRUST EE Bonds would mature and become eligible for redemption at twice their face value. Investors would be paid from the accounts themselves, so the program would be completely self-funding, both initially and on an on-going basis. When each baby reaches age 66, they would begin receiving monthly income from their account, in an amount equal to what is then provided, on average, to Social Security retirement beneficiaries. The T.R.U.S.T. Fund for America would be able to provide this income for each person to age 100, and if a retiree dies before that age, the account's balance would be returned to the U.S. Treasury for distribution to retirees who live past 100.