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Featuring all breaking news and in depth articles and editorial press coverage pertaining to shareholder activism and corporate governance.

BlackRock Votes Against CBA Resolution
BHP Secures Key Investor Support Over Climate Plan
Facebook Faces Renewed Push to Split CEO, Chairman Roles Amid Controversies
Invesco Tried to Forge Zee-Reliance Merger and Retain Punit Goenka
FSC Baulks at Contentious Proxy Rule
Glaxo Board and Bluebell Spar in New Letters
Group of CytoDyn Stockholders Comments on Delaware Court Decision
Jana Partners Takes Stake in Macy’s, Urges Spin Off of E-Commerce Business
California Board Diversity Requirements Face Legal Challenge
Ortelius Announces Glass Lewis Recommends Capital Senior Living's Stockholders Vote Against Management's Proposals
U.S. SEC Breathes New Life Into 2015 Executive Compensation Clawback Rule
DOL Proposal Supports ESG Considerations for Fiduciaries
NextGen Founder Loses Proxy Battle
How Invesco and Indian TV Giant Zee Got Caught in Legal Row
Southwest Gas Holdings Issues Response Letter to Carl Icahn
Blackmores Calls in Proxy Solicitation Firm to Shore Up AGM Support
U.S. Markets Regulator Faces New Lawsuit Over Proxy Advisers
Judge Sides With CytoDyn Against Shareholder Group Mounting Proxy Fight
Private Equity Firms Circle GlaxoSmithKline's $54 Billion Consumer Arm
GSK on Track With Consumer Split as Buyout Report Boosts Shares
Carl Icahn-backed CVR Energy Says Interim CFO to Be Made Permanent
Boardroom Intrigue Builds at Rogers With Its Share Price Trailing Rivals
Hedge Fund Manager Hohn Steps Up Campaign Over Banks' Fossil-fuel Loans
Bluebell Wants Glaxo Chairman Replaced
Healthcare Trust Responds to Elliott's Urging to Put Itself Up for Sale
Southwest Gas Adopts Poison Pill to Hinder Icahn's Deal Protests
Invesco Shoots Letter to Zee Shareholders, Seeks Better Governance
Ortelius Rejects ISS' Recommendation Regarding Capital Senior Living's Stockholders Vote
Emma Walmsley Holds On as Investors Squabble Over GSK's Future
Elliott Urges REIT Healthcare Trust of America to Explore Sale
Elliott Boss's Appearance at Meeting a Blow to GSK Chief Walmsley
Toshiba’s Independent Probe Was Biased, Say Two Former Directors
Opinion: Starboard Could Spur Elanco to Step Up Its Profitability
Macy's Updates App, Launches Live Shopping
BlackRock’s Landmark Move on Proxy Votes Fuels a Big ESG Debate
CytoDyn's Latest Legal Battle Pits the Company Against Its Contractor
Elliott Presses GSK on Progress at Investor Meeting
Scott Ostfeld of Jana Strategic Investments Suggests Macy's to Spin Off its E-commerce Business: Should Any Retailer Do That?
Capital Senior Living 'Sets the Record Straight' for Shareholders
SurveyMonkey Owner Momentive Is Exploring Potential Sale
Citrix CEO Exits Amid Potential Software Company Sale
IFF CEO Announces His Retirement, Adding to Executive Turnover
Dr. Gottlieb Sees Covid's 'Pandemic Phase' Ending When Antiviral Pills, Kids' Vaccines Available
Investor Wants Macy's to Split Its Stores and E-Commerce
Podcast: The Tiny Fund That Took on a U.S. Giant and Won
Starboard's Smith Unveils Colfax Stake, Talks Huntsman, Elanco
Gatemore Capital Management Presents Sensyne Health at 13D Monitor
Box Moves Forward After Investor Fight, but CEO Says Lesson Is That 'Activism Can Be Constructive'
Founder of India's Zee Says Key Investor Wants to Take Over Company
Comtech Comments on Letter From Shareholder
Lexington Realty Trust Sends Letter to Shareholders
With a $2 Billion Deal, Carl Icahn Joins Warren Buffett in Pipeline Disappointment
Video: Why Starboard Value's Smith Still Sees an Opportunity in Elanco Animal Health
Comtech Telecommunications, Facing Proxy Challenge, Shakes Up Leadership
Opinion: Shareholder Democracy Is Getting Bigger Trial Runs
Opinion: Separation of Macy's E-Commerce From Stores Unlikely
Zee Vs Invesco + Reliance: Shareholder Engagement or Proxy War for Control?
Opinion: An Investor's Entry Stirs Bad Memories at US Foods
Opinion: Corporate Social Responsibility Is Dead
Opinion: Hohn vs Odey: the Hedge Fund Battle for the Planet
More Corporate Directors Welcome Rules to Boost Board Diversity
The Investor Riding Japan’s Governance Revolution
2022 Proxy and Annual Report Season
Opinion: Activist Improves Clumsy Plot in Indian TV Drama
BlackRock’s Transfer of Power
Comment: What to Do When Investors Feel There’s a Misalignment on Pay for Performance
CEO and Executive Compensation Practices in the Russell 3000 and S&P 500
Why Canadian Companies Are Preparing for a Wave of ESG Cases Coming Their Way
Dealing With Activist Hedge Funds and Other Activist Investors
SPACs: A New Frontier for Shareholder Activism
Why Is India Inc. Seeing a Surge in Shareholder Activism?

10/15/2021

BlackRock Votes Against CBA Resolution

Financial Standard (10/15/21) McArthur, Elizabeth

Despite its vocal stance on sustainability and net zero ambition, BlackRock (BLK) voted against a Commonwealth Bank of Australia (CMWAY) shareholder resolution to stop the bank financing fossil fuels. The largest asset manager in the world voted against a CBA shareholder resolution which asked the bank to stop funding fossil fuel projects. "BIS [BlackRock Investment Stewardship] voted AGAINST the resolution as it is overly prescriptive and risks unduly constraining management's ability to make business decisions," BlackRock said. "Further, the company has demonstrated its commitment to integrating climate risks into its long-term strategy, including TCFD-aligned [task force on climate-related financial disclosures] reporting since 2018 and a stated goal of net zero emissions by 2050." Activist group Market Forces supported the shareholder resolution asking CBA to stop funding fossil fuel projects. "Commonwealth Bank's updated climate policy, published in August 2021, was little more than greenwash and a recipe for climate catastrophe. Despite its commitment to net zero emissions by 2050, the bank watered down an existing (albeit ineffective) barrier to funding expansionary fossil fuel projects and gave climate-wrecking companies at least another four years to continue with business as usual," Market Forces said. According to Market Forces, approximately 15% of CBA shareholders indicated support for the proposal ahead of the annual general meeting. However, BlackRock maintained: "In general, BIS does not support shareholder proposals that we believe to be overly prescriptive and as such, would risk unduly constraining management's ability to make business decisions, as is the case with this resolution."

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10/14/2021

Invesco Tried to Forge Zee-Reliance Merger and Retain Punit Goenka

The Telegraph (India) (10/14/21)

The battle between the founders of Zee Entertainment Enterprises Ltd. (ZEEL) and shareholder Invesco remained in the spotlight on Wednesday after a string of revelations showed that Invesco had tried to mediate a merger with Mukesh Ambani’s Reliance Industries Ltd. (RELIANCE) back in February that promised to retain Punit Goenka as Managing Director and CEO of the merged entity. The Invesco plan offered terms in the proposed merger with Reliance group entities that mirrored provisions worked into the non-binding merger pact reached last month between Sony and Zee. Late in the evening, Reliance distanced itself from the escalating war of words when it admitted that it had been approached by Invesco to discuss a merger but claimed the discussions had broken down over Zee’s demand for the issue of preferential warrants to raise its stake in the merged entity. In his letter to the Zee board, Goenka said he had been approached by Aroon Balani and Bhavtosh Vajpayee, representatives of Invesco Developing Markets Fund and OFI Global China Fund LLC, with the offer of a merger with a “large strategic group.” On Wednesday, Invesco disclosed the strategic group was none other than Reliance. The fund said that its role was only to “facilitate” a possible deal between Reliance and Zee. Invesco, however, rejected claims it had pushed for the transaction at a lower valuation. “We wish to make clear that the potential transaction proposed by Reliance (the strategic group referenced but not disclosed in the 12 October 2021 communication by Zee) was negotiated by and between Reliance and Goenka and others associated with Zee's promoter family. The role of Invesco, as Zee's single largest shareholder, was to help facilitate that potential transaction and nothing more,” the fund said. It added that various sincere efforts were made over the last two years to bring Zee back to good health and that discussions around strategic alignments have been just one part of this effort.

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10/14/2021

Jana Partners Takes Stake in Macy’s, Urges Spin Off of E-Commerce Business

Wall Street Journal (10/14/21) Cimilluca, Dana; Lombardo, Cara

Jana Partners has taken a stake in Macy's Inc. (M) and is calling for the company to spin off its fast-growing e-commerce business, according to sources. Jana Partners on Oct. 13 sent a letter to the retailer's board urging it to separate the online division, which has approximately $8 billion in annual revenue, the sources said. The retailer's e-commerce business has already drawn interest from firms that could invest in it in conjunction with a spinoff, some of the sources said. Jana thinks that a stand-alone e-commerce business would be worth a multiple of Macy's current market value, which stood at about $7 billion on Oct. 14 after a recent rally. Macy's shares have dropped significantly in the past several years, while the valuations of online-only retailers like Farfetch Ltd. (FTCH) and MyTheresa have climbed. Jana hinted at its interest in Macy's at the 13D Monitor Active-Passive Investor Summit in New York last week, suggesting the company should separate out its e-commerce business. Macy's, which also owns the more upscale Bloomingdale's brand, was hit hard last year by the Covid-19 pandemic, which forced the temporary closure of physical stores. Online sales, however, have spiked as more customers shop from home. This is at least the third time Macy's has been engaged in recent years. But in a sign of how much the retail world has changed due to online shopping and the pandemic, investors such as Starboard Value previously urged the company to unlock the value of its real-estate holdings.

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10/14/2021

Ortelius Announces Glass Lewis Recommends Capital Senior Living's Stockholders Vote Against Management's Proposals

Business Wire (10/14/21)

Ortelius Advisors L.P. , which owns approximately 12.7% of the outstanding common stock of Capital Senior Living Corporation (CSU), on Thursday announced Glass, Lewis & Co. has recommended that the company’s stockholders vote against all of management’s proposals at the upcoming meeting of stockholders on Oct. 22, including the amended financing transactions with Conversant Capital. Ortelius says voting down the amended transactions will enable Capital Senior Living’s Board of Directors to pursue readily-available financing alternatives being championed by sizable stockholders, such as Ortelius and Invictus Global Management LLC. In its report, Glass Lewis says that "on balance, given CSU's improving operational performance and current financial position […] we are less inclined to believe shareholder support for such a large, significantly dilutive, change-of-control financing transaction is warranted at this time. […] We are reticent to give the directors deference when it comes to their assessment of the company's financial position, its review of potential value-enhancing/preserving alternatives, or the evaluation and recommendation of such a significant, transformative financing transaction that effectively amounts to a change of control of the Company at a take-under price.” Peter DeSorcy, Managing Member of Ortelius, notes that "Ortelius and other stockholders, such as Invictus, have made public commitments to promptly provide affordable, contingency-free and potentially non-dilutive capital to address the Company’s liquidity needs. If taken together, the Ortelius and Invictus proposals would provide an immediate injection of $55 million, and the Invictus terms include a subsequent $75 million in the form of a backstopped rights offering for a convertible instrument that could mitigate dilution for participants and minimize leverage over time."

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10/14/2021

U.S. SEC Breathes New Life Into 2015 Executive Compensation Clawback Rule

Reuters (10/14/21) Johnson, Katanga

The Securities and Exchange Commission (SEC) on Thursday voted to revive a rule, left unfinished since 2015, that would expand the regulator’s powers to claw back executives’ compensation when a company had to restate its financials due to a compliance lapse. The SEC said it would seek a further round of public feedback on the rule, which was mandated by Congress following the 2007-2009 financial crisis, with a view to finalizing the rule likely next year. The SEC proposed a draft in 2015, but failed to finalize it. The effort to revive the rule is part of a broader push by the SEC, now controlled by Democrats, to crack down on corporate malfeasance by boosting its tools for penalizing executives. SEC Chair Gary Gensler said that reopening the comment period provides the watchdog “an opportunity to strengthen the transparency and quality of corporate financial statements, as well as the accountability of corporate executives to their investors.” If finalized, the measure would apply to public companies of all sizes and to any executive officer who performs policymaking decisions and who has received incentive compensation, including stock options, dramatically expanding the scope of the agency’s existing clawback powers which were created in 2002. The SEC could use the new power to recover compensation in excess of what the executive concerned should have received in the event a company has to restate its financials due to “material noncompliance” with securities laws. It would also direct U.S. stock exchanges to establish listing standards that would require each issuer to develop and implement such a policy.

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10/13/2021

DOL Proposal Supports ESG Considerations for Fiduciaries

Pensions & Investments (10/13/21) Croce, Brian

The Department of Labor on Wednesday proposed a rule to explicitly permit plan fiduciaries to consider climate change and other environmental, social and governance (ESG) factors when selecting investments and exercising shareholder rights. The proposal makes clear "that climate change and other ESG factors are often material and that in many instances fiduciaries … should consider climate change and other ESG factors in the assessment of investment risks and returns." Ali Khawar, acting assistant secretary for the Employee Benefits Security Administration, on Wednesday said it was important for the Labor Department to tackle this issue in the Biden administration's first year in office. "We're quite concerned that the outcome of the Trump administration's rule was actually going to lead to less retirement security because fiduciaries would feel like they needed to stay on the sidelines, not incorporate these kinds of factors into their decision-making," Khawar said. "And having that hand tied behind their back, we were concerned that ultimately it would lead to worse financial outcomes." On proxy voting, the proposed rule would make changes to the Trump administration's rule that was finalized in December 2020 and took effect Jan. 15. Specifically, the proposal would eliminate the statement in the current regulation that "the fiduciary duty to manage shareholder rights appurtenant to shares of stock does not require the voting of every proxy or the exercise of every shareholder right." Khawar said voting proxies are a part of a fiduciary's core responsibilities. "The bias that the previous administration's rules created was to really favor not voting and not taking action," he said. "But these are assets that are owned by participants and beneficiaries, and the obligations that fiduciaries have in other contexts don't stop when you're taking about proxy voting."

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10/13/2021

How Invesco and Indian TV Giant Zee Got Caught in Legal Row

Reuters (10/13/21) Roy, Abhirup; Kalra, Aditya

Indian TV network Zee Entertainment Enterprises Ltd. (ZEEL) is locked in a legal battle with its top investor Invesco after the U.S. firm, citing corporate governance concerns, called for the CEO’s removal and a revamp of the company’s board. Zee has said it has tightened its governance, but the row is unabated just as one of India’s biggest news and entertainment TV groups plans a merger with the local unit of Japan’s Sony Group Corp. (SONY). Invesco’s legal filings reviewed by Reuters show it wants changes at Zee in light of corporate governance and financial irregularities that have plagued the company, and have even been flagged by India’s market regulator. Invesco’s Developing Markets Fund and its OFI Global China Fund LLC together own a near 18% stake in Zee. They have suggested six new independent board members to be appointed and the removal of Zee CEO Punit Goenka. Invesco has said in Indian tribunal hearings that it is not against the Zee-Sony plan, but its filing does criticize how the two entered into talks. The Sony deal would allow the Chandra family (Zee’s founder Subhash Chandra is father of CEO Goenka) to raise their shareholding to up to 20%, from 4% now, Invesco said, adding that it was “plainly an attempt to distract the general public” and stall the convening of a shareholder meet. Invesco, according to Zee, tried in February to forge a deal with parts of an Indian group in a move that would have allowed Goenka to head the new company and raised his family’s stake in the merged firm. In response, Invesco accepted that it did facilitate talks, which it said were between Zee and Reliance, naming for the first time the conglomerate controlled by billionaire Mukesh Ambani. Invesco added that it would not seek a deal that would dilute long-term shareholder interest.

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10/13/2021

Southwest Gas Holdings Issues Response Letter to Carl Icahn

PRNewswire (10/13/21)

Southwest Gas Holdings Inc. (SWX) announced today that it has issued a response letter to Carl Icahn addressing points Icahn raised in his Oct. 4 letter. Regarding the pending acquisition of Questar Pipelines, Southwest describes Questar as "a compelling, high-return suite of assets with unique strength and stability. As such, the Questar Pipelines acquisition signifies an increased and significantly diversified regulated business mix, as it provides robust, steady, and contracted cash flows." The letter asserts the acquisition is appropriately priced and provides significant value to our shareholders. "While the headline price we are paying is 10.9x estimated 2021 EBITDA, after accounting for approximately $200 million in value associated with the tax basis step-up, the adjusted multiple is 9.8x estimated 2021 EBITDA. This valuation is consistent with trading metrics for similar assets." The letter adds, "with committed term loan financing of $1.6 billion, we anticipate that permanent financing will be in place by May 2022. We expect that the takeout financing will include equity and equity-linked instruments and investment-grade bonds (in addition to assumed debt) that will strengthen our balance sheet and further enhance our earnings metrics." Additionally, the letter claims that Icahn's Oct. 4 letter "does not take into account the material, strategic, and fundamental differences between natural gas and electric utilities, as well as FERC-regulated assets." The letter also cites its ISS Governance Quality Score of 3 on a scale of 1-10, where 1 represents low risk and 10 represents high risk.

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10/13/2021

U.S. Markets Regulator Faces New Lawsuit Over Proxy Advisers

Reuters (10/13/21) DiNapoli, Jessica

The National Association of Manufacturers (NAM) is suing the Securities and Exchange Commission (SEC) for refusing to enforce a Trump-era rule reining in proxy advisers. The SEC in 2020 finalized limits on proxy advisers by requiring them to offer companies an opportunity to view their recommendations and disclose conflicts of interest. Yet the agency's new Democratic leadership has said it will review the rule but refrain from enforcement for now. NAM general counsel Linda Kelly called this an illegal reversal of the Trump-era regulation. U.S. business interests have long demanded a crackdown on proxy advisers, which have the clout to swing votes in corporate director elections and on controversial issues including climate change, gender pay equity, and lobbying. Kelly said NAM, which filed suit with equipment supplier Natural Gas Services Group Inc. (NGS) in the western district of Texas, wants the SEC to start enforcing the rule. "Our members are starting to get ready for next proxy season," she stated. "In the regulatory process, this whipsawing undermines the predictability regulated entities are looking for and capital markets need." Kelly added that Natural Gas Services has led unsuccessful campaigns to correct information promulgated by proxy advisers, leading the company to join NAM in the litigation. Institutional Shareholder Services Inc. and Glass, Lewis & Co. have contended that the Trump-era rule would delay the advice they issue to shareholders and restrict their independence.

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10/13/2021

Judge Sides With CytoDyn Against Shareholder Group Mounting Proxy Fight

Portland Business Journal (OR) (10/13/21) Hayes, Elizabeth

Delaware judge and Vice Chancellor Joseph R. Slights III has sided with CytoDyn (CYDY) in a lawsuit filed by a dissident investor group that has been seeking to change the biotech company's board. He faulted the group, led by Portland, Ore., businessman Paul Rosenbaum, and cited issues with the Nomination Notice they submitted for its slate of board candidates. The suit was filed to impede CytoDyn's blockage of the nominations. The company has been lobbying to win Food & Drug Administration approval for its leronlimab medication, formulated as a therapy for HIV, cancer, and Covid-19. The lawsuit charges CytoDyn with hindering a fair proxy contest, described as "only the latest in a pattern of corrupt acts." Slights noted that the company's bylaws require investors to notify in advance about issues they wish to place on the agenda for the annual meeting, which is slated for Oct. 28. He also said the current CytoDyn board's rejection of the investor group's Nomination Notice is warranted. "Where (Rosenbaum et al) ultimately went wrong here is by playing fast and loose in their responses to key inquiries embedded in the advance notice bylaw, and then submitting their Nomination Notice on the eve of the deadline, leaving no time to fix the deficient disclosures when the incumbent board exposed the problem," Slights wrote in his opinion. He also determined that the evidence did not validate assertions that CytoDyn's board engaged in "manipulative conduct" in its dealings with the Rosenbaum group. Slights wrote that the group's Nomination Notice "fell short of what was required," especially in disclosing who was backing their efforts and information about potential conflicts. "Rather than offer specific information, or even general information, regarding their supporters, plaintiffs chose to disclose nothing," he declared. "They also failed to provide information regarding an obvious conflict involving a nominator and a nominee. These omissions, in turn, left their Nomination Notice fatally incomplete." Slights concluded that the Nomination Notice failed to provide timely notice as defined and required by CytoDyn bylaws. Two of the investor group's board candidates, Bruce Patterson and Jeffrey Beaty, are associated with IncellDx, a company that Slights observed as having a "complicated relationship" with CytoDyn. Patterson formerly consulted with CytoDyn, assisting with assay tests. The judge wrote that last May Patterson proposed that CytoDyn buy IncellDx for $350 million and employ him. He then resigned as a consultant and "expressed excitement regarding his future employment with CytoDyn." Though CytoDyn rejected the proposal, Patterson filed for a patent on behalf of IncellDx concerning methods for treating certain infections using means similar to leronlimab, a move that CytoDyn successfully blocked.

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10/12/2021

GSK on Track With Consumer Split as Buyout Report Boosts Shares

Reuters (10/12/21) Aripaka, Pushkala; Burger, Ludwig

GlaxoSmithKline (GSK) said it is "firmly on track" to spin off its consumer health business in 2022, following Bloomberg News' report that the brand could draw bids from private equity firms like Advent (ADN), CVC (CVC), and KKR (KKR). The report also cited unidentified sources in suggesting major pharmaceutical and consumer goods companies might be interested as well. The consumer health unit could also be valued at 40 billion pounds ($54 billion) or more. GSK's London-listed shares rose by up to 4.8% to 1,460.2 pence following the news. "GSK is far advanced with its plan for the separation of Consumer Healthcare," declared the U.K. drugmaker's representative, adding that the company was on course for the split in the middle of next year. GSK outlined a strategy in June to spin off its consumer arm into a separately listed company to focus on its underperforming pharmaceuticals business, and has defended those plans following Elliott Management's suggestion that GSK remain open to potentially selling the unit. "The feedback we have received from our shareholders is that they are very keen to own the new Consumer Healthcare company as a listed entity through the demerger," the spokesperson said. "The GSK board will fulfill its fiduciary duties to evaluate any alternative options." Shareholders will by the terms of GSK's plan receive stock in the new consumer health group amounting to at least 80% of the 68% stake that GSK currently owns, with Pfizer (PFE) controlling the remaining 32%. The group has said the so-called New GSK would sell the remaining 20% "in a timely manner," while Pfizer also plans to sell its shares. Elliott responded that a conservative estimate would value GSK's stake in the consumer unit at about 34 billion pounds, or around 50 billion pounds overall. Meanwhile, GSK investor Bluebell Capital Partners said last month the consumer business should attract interest from trade buyers and, potentially, private equity shareholders. Elliott argued that a sale of the unit to an industry peer would generate a "meaningful premium" to its estimated value due to potential synergies of up to 10% of the unit's revenues. Bluebell also sent an open letter to GSK Chairman Jonathan Symonds calling for both his and CEO Emma Walmsley's replacement, reflecting disappointment over an Oct. 7 investor meeting. GSK replied, "We completely reject the content and claims made in this letter, which are not representative of the discussion at the meeting or the majority of our shareholders' views."

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10/12/2021

Hedge Fund Manager Hohn Steps Up Campaign Over Banks' Fossil-fuel Loans

Financial Times (10/12/21) Hodgson, Camilla

Hedge fund manager Chris Hohn has stepped up a campaign against the banking industry over its financing of fossil-fuel projects and criticized regulators for “allowing” systemic risk to build as a result. Hohn, co-founder of The Children’s Investment Fund Foundation, wrote to the Bank of England, the European Central Bank, the European Banking Authority, and the U.S. Financial Stability Oversight Council this week to propose a series of reforms. These include setting stricter capital requirements for carbon-intensive lending, and requiring banks to improve climate-related disclosures. Hohn has previously demonstrated success through the “Say on Climate” campaign that has enlisted other investors and prompted dozens of companies to set out plans for dealing with their greenhouse-gas emissions and to allow investors to review them. The financial sector is under increasing pressure from investors, activists, and policymakers to develop decarbonization plans and green their portfolios and services to address global warming. Hohn said that banks were not producing credible plans, nor curbing carbon-intensive lending. At the same time, central banks were failing to police climate-related risks, he said. TCI does not hold any bank investments. “Banks are unwilling to change their lending practices away from dirty companies” and central banks were “allowing systemic risk to build,” Hohn said. Last year, global banks provided $750 billion in financing to coal, oil, and gas companies, according to Rainforest Action Network. Hohn said voluntary initiatives “are not working” and must be replaced with regulation. His proposals include a requirement for lenders to disclose the emissions associated with their loan books and underwriting businesses, and to produce five-year emissions reduction plans, since 2050 goals alone “are meaningless.” Additional capital requirements should also be imposed for lending to fossil-fuel expansion projects, his letters to central banks and regulators said.

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10/12/2021

Bluebell Wants Glaxo Chairman Replaced

Bloomberg (10/12/21) Kumar, Nishant

Hedge fund Bluebell Capital Partners has asked pharmaceutical manufacturer GlaxoSmithKline (GSK) to replace both Chairman Jonathan Symonds and CEO Emma Walmsley, as specified in a letter from partners Giuseppe Bivona and Marco Taricco. In September the fund invested some 10 million pounds ($14 million) in Glaxo. The letter's authors wrote that Symonds "does not have a precise understanding of the causes of the prolonged and severe underperformance" of company shares. "We have reached the conclusion that a more radical change agenda than we have previously envisaged is required." The drugmaker has been defending its strategy in recent months after it was disclosed in April that Elliott Investment Management had acquired a stake. Both Elliott and Bluebell agree with Glaxo's plans to spin off its consumer unit, but they oppose the decision to retain Walmsley to lead the remaining business. Glaxo stock climbed by up to 4.8% in London after Bloomberg reported the consumer unit is attracting interest from private equity firms. "We completely reject the content and claims made in [Bluebell's] letter," Glaxo stated. "We remain absolutely focused on tackling the root causes of previous historical underperformance." The company also said its board is confident it has the "right strategy and right team to deliver a step-change in growth." In July, Elliott published a letter urging Glaxo to seek out a possible successor to Walmsley. Bluebell has echoed this, referring to her non-scientific background and calling on the drugmaker to be more amenable to a sale of the consumer business. Symonds recently held a meeting with investors where Gordon Singer, head of Elliott Investment Management's London office, again questioned Glaxo's performance. Glaxo called the meeting to disclose an update on its plans to split the consumer division from the pharmaceutical and vaccines business next year. The company expects to appoint a new chair for the consumer business by year's end, and has pledged to strengthen the pharma and scientific expertise on the board of the pharmaceutical and vaccines unit that will remain after the spin-off.

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10/11/2021

Emma Walmsley Holds On as Investors Squabble Over GSK's Future

The Telegraph (U.K.) (10/11/21) Bradshaw, Julie; Gill, Oliver

Change at GlaxoSmithKline (GSK) was not indicated to the approximately 30 investors attending a Zoom meeting last week hosted by the Investor Forum. Elliott Advisors challenged the board ahead of GSK's planned spin-off into pharmaceuticals and consumer businesses, questioning the suitability of CEO Emma Walmsley as head of the "New GSK" pharmacy brand. The hedge fund also remains unconvinced about listing the £50 billion consumer health business. It wants Chairman Jonathan Symonds to instead approach private equity and large corporations such as Johnson & Johnson (JNJ) and Procter and Gamble (PG) about a potential takeover. BlackRock (BLK), Legal & General (LGGNY), and Norges Bank and Capital were apparently supposed to have attended the meeting. A source says at least one top 10 investor they know would applaud a change in management. "Long-only investors will never side with an activist unless they really feel like they are not being listened to," they said. "But I think investors want to know what is going on, that there are robust succession plans in place. Most won't be super happy, but they are biding their time and waiting to see what happens." Elliott and fellow investor Bluebell are demanding radical change and fresh leadership, worrying GSK that other shareholders will demand the same. GSK's poor share price is arguably the biggest aggravation, but more positively, final stage trials for a vaccine in older adults against RSV could be completed earlier than planned next year, putting GSK and Pfizer (PFE) on equal footing. Walmsley may survive the turmoil, as she is believed to have the support of top investors including BlackRock and leading shareholder Dodge & Cox (DODGX). Royal London Asset Management, Jupiter Asset Management (JUP), and M&G (MGPUF) backed her as well. "What's the point in putting in a new boss now, it won't make any difference," stated one industry consultant. "It would be difficult to do much with the pipeline in the short-term. I've been involved with GSK for years and it was very set in its ways before Emma came to the job. She has changed all that and been hugely disruptive. She's hugely focused and has put the right people in the right place." Yet even Walmsley's supporters agree that her time in the medium to long term is running out. GSK's board is hoping she can remain in power until after the spin-off. "This is not the beginning, this is not the end. We will continue to listen to shareholders," Symonds is said to have remarked at the meeting.

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10/11/2021

Elliott Urges REIT Healthcare Trust of America to Explore Sale

Reuters (10/11/21) Khandekar, Amruta

Elliott Investment Management on Oct. 11 called for Healthcare Trust of America (HTA) to launch a strategic review and weigh a possible sale of the real estate investment trust. Elliott, which is one of HTA's biggest shareholders, said the company's longstanding underperformance compared to its rivals has fueled frustration, and shareholders want it to aim for a sale. HTA shares rose 2.1% at $32.38 in afternoon trading. The move comes months after HTA CEO Scott Peters stepped down, which Elliott called "abrupt and unexpected." "HTA faces a challenging stand-alone future given a disadvantaged ability to compete for acquisition targets, the inherently risky task of having to identify and integrate a new CEO, and the difficult mission of repairing and rebuilding the company's culture," Elliott stated in a letter to HTA's board. HTA, which invests in real estate mainly comprising medical office buildings, is currently headed by interim CEO Peter N. Foss. Shareholders think that HTA should conduct the review, including solicitation of bids, prior to making a decision about its new CEO, Elliott said, cautioning the absence of such a review would make it hard to attract a suitable candidate for the role. Elliott said it was confident that "highly credible buyers" would make offers at a significant premium to the HTA stock's current trading price. In response to Elliott's letter, HTA said it had held a number of talks with Elliott representatives after it was first contacted by the hedge fund and shared the information with its full board. "We are open minded and committed to delivering superior returns for all HTA shareholders," HTA noted.

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10/10/2021

Elliott Boss's Appearance at Meeting a Blow to GSK Chief Walmsley

This is Money (10/10/21) Lawson, Alex; Dunkley, Emma

Gordon Singer, head of Elliott Investment Management's London office, recently made a surprise appearance at a GlaxoSmithKline (GSK) investor meeting. Singer reportedly questioned CEO Emma Walmsley's leadership at the meeting. Singer, son of Elliott boss Paul Singer and seen as heir to his father's empire, also demanded to know what was holding back the drug company's share price, which has slumped below pre-pandemic levels after hitting summer highs. GSK chairman Sir Jonathan Symonds and senior independent director Vindi Banga had called the meeting to reassure investors on the progress of plans to split the group. A source familiar with Elliott's tactics said the unexpected appearance of one of the investor's most senior bosses would have been a deliberate move to send a message to GSK top brass. Elliott took a multi-billion pound stake in GSK earlier this year, and in July called for a sale, rather than a spin-off, of its consumer business. It also demanded a process to pick the next boss of "New GSK" — the remaining biopharma arm after the spin-off — increasing pressure on Walmsley. GSK's board has said she will stay on as chief executive. Last month, Bluebell Capital went public with the same aims, insisting it was not acting in concert with Elliott. One investor on the call last week said: "Gordon wanted to know what was holding back the share price, which looks undervalued, and what confidence Jonathan and Vindi had in Emma. Elliott wants a process to prove Emma is up to the job."

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10/10/2021

Toshiba’s Independent Probe Was Biased, Say Two Former Directors

Bloomberg (10/10/21) Furukawa, Yuki; Mochizuki, Takashi

A disputed meeting of Toshiba Corp. (TOSYY) shareholders last year was held properly and a subsequent independent report supported by Effissimo Capital Management was misleading, claimed two former executives of the electronics conglomerate who were dropped from the board. Masayasu Toyohara and Masaharu Kamo said the annual meeting in July 2020 was conducted properly, rejecting the conclusions of a 139-page report by a law firm this year that determined Toshiba had worked with Japan’s trade ministry to prevent shareholders from exercising their rights. The two former Toshiba vice presidents said they sent a letter to the company outlining their views, aiming to ensure a proper accounting before the results of another probe are due to be issued, possibly as soon as this month. The dispute between Toshiba and Effissimo, its biggest shareholder, turned into open warfare earlier this year, prompting the exits of the troubled company’s chief executive officer and board chairman. At stake is who will control Toshiba’s future as it considers an outright sale of the business, the sale of a significant minority stake to a private equity buyer, or a break-up. Toyohara said he spent four hours being interviewed by the independent report’s authors, which consisted of them trying to confirm email exchanges that they found through digital forensics. “The whole session was to back up a story they wrote ahead of time, rather than try to find what really happened,” Toyohara said. The two former executives said the report failed to present concrete evidence that corporate governance codes or Japanese law was violated. Toshiba said in a statement its governance committee, set up in August to look into the findings of the independent report, is continuing its review and declined further comment. “The criteria for assessing whether a company’s governance is appropriate is different from those for assessing the violation of laws and regulations,” Effissimo said in a statement through its PR representative. “We believe it sound for each of the shareholders to assess the company’s state of governance, and subsequently exercise voting rights based on such assessment.”

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10/9/2021

Opinion: Starboard Could Spur Elanco to Step Up Its Profitability

CNBC (10/09/21) Squire, Kenneth

Starboard has suggested that Elanco Animal Health (ELAN) could raise its profit margins through operational improvements. "Starboard has extensive experience in improving margins of portfolio companies from the board level," writes 13D Monitor President Kenneth Squire. Starboard has a 1.61% stake in Elanco, whose stock drew excitement on its first day of trading because its management promoted opportunities to grow revenue at or above industry growth rates and to enhance margins by about 1,000 basis points over five years. However, in 2018 Elanco's EBITDA margins were 21% compared to 38% for Zoetis (ZTS), its closest rival. Zoetis also presents a relevant case study for Elanco as it was also spun out from a larger firm, and its management executed its value creation plan, enabling Zoetis' stock price to overtake the S&P500 by 330% since its IPO. Elanco's management expected to realize 31% EBITDA margins by 2023, and though they gave the impression that its approach would be independent of other large deals and that it would concentrate exclusively on executing on its own pipeline, in August 2019 the company announced a merger with Bayer's (BAYRY) Animal Health business for roughly $7.6 billion. This caused Elanco's stock to drop 24%. Elanco said the acquisition was too lucrative an opportunity to ignore, so management accelerated the timeline of its margin target goal and announced the realization of 31% EBITDA margins by 2022. Yet Elanco's post-merger margins were well below those of Zoetis, which saw EBITDA margins of 40% by 2019. Last year Elanco's management amended its guidance and expressed hopes to achieve 31% EBITDA margins by 2024. "To confuse and frustrate shareholders even more, management has claimed that they have realized significant cost savings, but this is not resulting in margin expansion," Squire writes. "Instead, the gap between Elanco and Zoetis remains: 2,455 basis points in 2020 and 2,086 basis points estimated for 2021." The results have been erosion of confidence in Elanco's management for executing its plans, an underperforming stock price, and a large margin and multiple gap with Zoetis trading at 26 times 2022E EBITDA to Elanco's 18 times. Squire contends that "improved operational execution...will inspire greater confidence from shareholders, and lead to an improved valuation multiple." He notes that Starboard cannot make director nominations until next January, "but this seems like a logical situation for an invitation on the board for Starboard so hopefully it will not come to that."

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10/8/2021

Macy's Updates App, Launches Live Shopping

Retail Dive (10/08/21) Walk-Morris, Tatiana

Macy's (M) announced on Wednesday that it is updating the design and navigation features of its mobile shopping app, which will be launched for iOS and Android devices on Oct. 15. Shoppers will be allowed to curate their personal style, browse the retailer's selection, and build lists of their favorite products. Macy's also enhanced product filters, personalized recommendations, and simplified the returns process. The retailer has added in-store price checks, store maps, product availability alerts, BOPIS, and curbside pickup functions as well. The department store is also hosting a weekly live shopping event called Macy's Live, where customers can chat with stylists and hosts, see real-time product reviews and recommendations, and peruse featured items. Afterwards, they can watch archived shows and shop on demand. Macy's increased concentration on online sales has invited speculation on whether it should fully separate from its e-commerce business. The retailer noted in its Q2 earnings report a 6% decline in digital sales from last year, but a 45% gain compared to Q2 2019. Investor Scott Ostfeld with Jana Strategic Investments was reported saying that Macy's could take a cue from Saks Fifth Avenue (SKS) and spin off its e-commerce business to elevate its stock price. He reportedly said Macy's e-commerce unit could be worth $14 billion, up from $6.9 billion currently.

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10/7/2021

Scott Ostfeld of Jana Strategic Investments Suggests Macy's to Spin Off its E-commerce Business: Should Any Retailer Do That?

Retail Dive (10/07/21) Howland, Daphne

Macy's (M) shares outpaced the stock market much of Wednesday afternoon after Scott Ostfeld, partner and co-portfolio manager of Jana Strategic Investments, suggested it split its e-commerce business into a separate company the way Saks Fifth Avenue did earlier this year. Speaking at the 13D Monitor Active-Passive Investor Summit, Ostfeld said that Macy's stock price could double if it made such a move. Macy's e-commerce operation alone could be worth $14 billion, compared to its current $6.9 billion valuation, Reuters reported Ostfeld as also saying. When asked about this, a Macy's spokesperson pointed to what CEO Jeff Gennette told analysts during the company's Q2 earnings call, when he described Macy's as a "comprehensive retail ecosystem" with a "powerful combination" of "physical stores in the best malls and the most productive off-mall locations integrated with a best-in-class e-commerce." As Ostfeld reportedly noted during the lunchtime "Activist Lightning Round" panel he participated in Wednesday, Saks Fifth Avenue (SKS), with help from private equity, has already taken this path, as has its off-price business and its sibling retailer, Canadian department store Hudson's Bay Co.(HBC). With its current turnaround strategy yet unproven in the face of the decline of the department store model, Macy's is a target for this kind of speculation, observers say. "There is certainly a case to be made that Macy's stores are terrible and that they are dragging down the potential of the business," said GlobalData Managing Director Neil Saunders. "However, the solution is not to split the business into separate units, the solution is to improve the stores and fix the issues that plague them. E-commerce has an important role to play in this as it drives people to stores for order collection and if stores are used for fulfillment it helps with the productivity of expensive retail space."

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10/7/2021

Capital Senior Living 'Sets the Record Straight' for Shareholders

Business Wire (10/07/21)

Capital Senior Living Corporation (CSU) on Thursday sent a letter to its shareholders "setting the record straight around its plans to raise up to $154.8 million through a series of recently amended financing transactions between the company and Conversant Capital." The company also recently issued a supplemental presentation rebutting what it termed as misleading and factually inaccurate claims made in recent public statements by Ortelius Advisors and Invictus Global Management. In Thursday's letter to shareholders, the company noted it will hold a special meeting of stockholders on Oct. 22 to approve plans to raise up to $154.8 million through the combination of the private placement of convertible preferred stock, common stock and warrants to Conversant Capital; an amended common stock rights offering to existing stockholders, with a revised subscription price of $30 per share; and an incremental $25 million accordion from Conversant for future investment at the company’s option, subject to certain conditions. "We, the members of your Board of Directors, believe that the amended transactions are in the best interests of shareholders and are writing today to strongly urge you to support the amended transactions to protect your investment in the company," the letter states. It notes that CSU is over-levered, with no unencumbered assets. "Based on our current cash burn and near-term liabilities, the company will likely run out of cash by year-end. The amended transactions provide immediate liquidity to address working capital deficits, fund greatly needed capital expenditures, resolve near-term debt maturities, and stabilize the company. There are no credible, actionable and immediate alternatives to the amended transactions that will resolve the company’s urgent need for significant capital. Voting against the amended transactions likely will send the company down the path of insolvency."

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10/7/2021

Citrix CEO Exits Amid Potential Software Company Sale

Channel E2E (10/07/21) Panettieri, Joe

Citrix Systems (CTXS) CEO David Henshall has exited the software company amid speculation that Citrix could be up for sale. Chairman Bob Calderoni has been named interim CEO and president, effective immediately. Citrix in September began exploring a potential company sale, according to reports at the time. The move comes amid multiple pressure points for Citrix. The company’s desktop as a service (DaaS) and virtual desktop infrastructure (VDI) are under pressure from public clouds such as Microsoft Azure, Amazon Web Services and Google Cloud Platform. Citrix now offers various services in public clouds. But now the company also faces new, potentially intense competition from Microsoft Windows 365. The Microsoft (MSFT) approach allows channel partners and MSPs to focus on a DaaS software stack from a single software vendor that develops and controls the entire code base — from Windows software to the underlying cloud infrastructure. In theory, that means partners will find the Microsoft Windows 365 approach less complex than Citrix technology. Companies such as Nerdio are helping partners to accelerate Microsoft Windows 365 deployments. Meanwhile, some Citrix investors are growing impatient. For example, Elliott Management has amassed a more than $1 billion stake in Citrix and reportedly wants the software company to take action to boost its lagging stock price. On the financial front, Citrix expects to report revenue at the midpoint to the high end of its previously announced guidance range of $765 million to $775 million for the third quarter ended Sept. 30, the company said. Citrix will report full financial results for the third quarter on Nov. 4, before markets open.

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10/6/2021

Starboard's Smith Unveils Colfax Stake, Talks Huntsman, Elanco

Reuters (10/06/21) Herbst-Bayliss, Svea

Starboard Value announced a stake in Colfax Corp. (CFX) and called the industrial equipment manufacturer undervalued. "The company is at an inflection point," declared Starboard founder Jeffrey Smith at the 13D Monitor Active-Passive Investor Summit on Wednesday. Colfax's stock price rose 3.55% in pre-market trading on the news of Starboard's interest. The company announced plans earlier this year to spin off its industrial and medical devices businesses into publicly traded firms following a strategic review of its operations. Smith believes that by improving operational performance through enhanced execution at MedTech, which will ultimately fuel a higher valuation multiple, Colfax can generate significant value for investors. Colfax, currently trading at $47.34, could trade closer to $76 in 2023 with an opportunity to trade near $94 the following year. Smith added that Starboard plans to lobby for changes at chemicals producer Huntsman Corp. (HUN), in which it owns an 8.4% stake and is valued at about $6.8 billion. Huntsman has augmented its portfolio mix and has strong businesses, but Smith says there is room to boost revenue. "The company is not getting credit for what it has done," he noted. "We believe this company is a good company." Smith said Huntsman could improve its valuation multiple by expediting revenue growth and increasing profitability, which should lead to more value for all shareholders. He suggested average annual revenue growth could exceed 5.5% rather than holding at less than 1%. Smith also said adjusted EBITDA margins could surpass 18% compared to 13% currently, highlighting Huntsman's differentiated products and barriers to entry, which make it a "compelling investment." Smith also talked about Starboard's investment in animal health company Elanco (ELAN), citing opportunities similar to its competitor Zoetis (ZTS). "We believe there is an opportunity to narrow the margin gap with Zoetis through operational improvements," he stated, although "execution has disappointed and credibility has eroded." Financial results have remained largely slack despite alleged productivity gains.

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10/6/2021

Box Moves Forward After Investor Fight, but CEO Says Lesson Is That 'Activism Can Be Constructive'

MarketWatch (10/06/21) Swartz, Jon

Box Inc. (BOX) CEO Aaron Levie said the proxy fight with dissident investor Starboard Value in September taught him important lessons that inspired him to move his cloud-storage company into new directions. Starboard pushed to eject board members, including Levie, who called the shareholder vote "a decisive tally" that left him "conflicted" about the challenge he survived. "Activism can be constructive," he said. "[Starboard's] actions transformed the company, but we took a different path going forward," in reference to earlier changes made in consultation with Starboard before the fight. "That said, I'm OK, with a democratic form of capitalism, which is great and healthy. It keeps companies moving forward." Box aims to transform itself from a file-sharing startup to a cloud-content management company with an annual revenue run rate of almost $900 million in fiscal 2022. On Wednesday at annual developers conference BoxWorks, the company announced new productivity tools like the Box Sign e-signing software for all U.S. customers and the ability for Box Shield to counter ransomware attacks. The company also introduced a new Notes experience that makes it easier to work from anywhere, with better compatibility on Microsoft Corp. (MSFT), Salesforce.com Inc.'s (CRM) Slack Technologies, and Zoom Video Communications Inc. (ZM). "This is the evolution of a platform we have built for 15 years," Levie said. "This time is a time for a breakout in how content is shared and collected and collaborated on. Content is at the heart of how we work today in this remote-work environment." Levie added that Box has changed course, on three overriding themes: work teams are distributed and hybrid; everything is being digitized; and cybersecurity and compliance are vital. "The next stage of the cloud is to manage and structure data," said Levie, who described the proxy victory as "recognition that our strategy is working." Institutional Shareholder Services supported Box and advised its shareholders to back board directors Levie and Peter Leav because the current board has made "significant changes" to drive a turnaround. "ISS recognized that the Box of today is not the Box of 2019," the adviser firm stated. Box in August grew fiscal 2022 revenue guidance to between $856 million and $860 million, exceeding analyst estimates of $853.4 million. Company stock has gained 45% over the past year and 38% so far this year, easily topping growth of the S&P 500 index's 27.5% and 15.7% in those periods.

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10/6/2021

Founder of India's Zee Says Key Investor Wants to Take Over Company

Reuters (10/06/21) Phartiyal, Sankalp

The founder of India's Zee Entertainment Enterprises (ZEEL) made a rare appearance on the media company's Hindi news channel late on Wednesday, accusing institutional investor Invesco of plotting a hostile takeover. "I urge Invesco to behave like a shareholder not like the owner... they want to take over this company in defiance of India's laws," said Subhash Chandra, who founded Zee TV in the early 1990s. Chandra currently holds no official position at Zee but his son Puneet Goenka is the CEO and the family owns 3.99% of the company. His comments come as Zee prepares for a merger with the India unit of Sony Group (SONY) in a deal that would keep Goenka as the boss of what would become the country's largest broadcaster. Invesco Developing Markets Fund and OFI Global China Fund LLC, which together account for 17.88% of Zee's shares, want the company's chief executive officer Goenka to go and the board revamped. The funds have filed a case in India's companies court to pressure Zee to call an extraordinary general meeting (EGM) of shareholders, a demand the company's board has rejected citing a lack of approvals by capital markets regulator and the federal government. Invesco and OFI filed the court case after Zee said it was planning the merger with Sony. On Wednesday, Chandra made an emotional appeal to Zee's Indian shareholders and the federal government to save the media company. "I ... urge the Zee board to tell Invesco that we agree to calling an EGM but you tell us what your deal is," Chandra said. "We will place before shareholders the Invesco deal and the Sony deal and let them decide."

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10/6/2021

Comtech Comments on Letter From Shareholder

Business Wire (10/06/21)

Comtech Telecommunications Corp. (CMTL), a provider of next-generation 911 emergency systems and secure wireless communications technologies, on Wednesday confirmed receipt of a letter from Outerbridge Capital Management LLC. The company issued a statement saying it is "focused on executing our strategic plan to create long-term value for shareholders and all stakeholders. While we disagree with Outerbridge’s assessment of our business and are disappointed by their latest comments, our Nominating and Governance Committee continues to review their proposed candidates in accordance with its standard procedures. Our Board will present its recommended slate of director nominees in Comtech’s definitive proxy statement, which will be published prior to the 2021 Annual Meeting." Earlier this week, Comtech announced fiscal 2021 results, the statement noted. "In the face of persisting headwinds related to the pandemic and unprecedented supply chain disruptions, we significantly improved our book-to-bill ratio year-over-year, delivered backlog growth of $38 million year-over-year, and won substantial new multi-year NG-911 and satellite earth station technologies contracts that are expected to generate several hundreds of millions of dollars of incremental revenue. As a testament to our unique market position, we were recognized by Frost & Sullivan for achieving the most significant year-over-year market share gains of any NG-911 primary contract holder and by Northern Sky Research for our leadership in the growing satellite cellular backhaul market."

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10/15/2021

Opinion: Separation of Macy's E-Commerce From Stores Unlikely

Morningstar (10/15/21) Swartz, David

The Wall Street Journal reported that Jana Partners has bought an interest in Macy's (M) and proposed that the company split its e-commerce business from its physical retail division. The e-commerce unit is expected to top $8 billion this year, much larger than that of Saks Fifth Avenue, which means it could be even more valuable. Jana suggests each of Macy's businesses could be valued at $7 billion, which approaches the firm's current cumulative market capitalization. Morningstar's David Swartz writes that both practical and strategic reasons underpin the unlikelihood of a separation. "Thus, we are not changing our fair value estimate of $20.50 per share and view Macy's as fully valued," he explains. "We do not think Macy's management will be amenable to Jana's proposal and do not view it as realistic. The idea of splitting its physical and online retail is contrary to Macy's Polaris plan, which is largely based on complete connections between the two channels, including online delivery to stores, returns of online sales in stores, more technology within stores, and a universal loyalty program. While we do not think Polaris will provide Macy's with a competitive edge (hence our no-moat rating), its board and CEO Jeff Gennette are fully committed to it." Swartz also cites positive early results, indicating Macy's is rebounding from the pandemic. "We forecast a 2021 operating margin, excluding real estate, of 7%, its highest since 2015, on 36% sales growth," he writes. "Apart from requiring a shift in strategy, splitting Macy's would also be costly and create significant technology, logistical, and management issues. We had a negative view of no-moat Gap's [GPS] proposed (and eventually dropped) spin-off of Old Navy two years ago for similar reasons."

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10/13/2021

Opinion: An Investor's Entry Stirs Bad Memories at US Foods

Crain's Chicago Business (10/13/21) Cahill, Joe

Joe Cahill writes in Crain's Chicago Business that Sachem Head Capital Management disclosed a 5.1% stake in US Foods (USFD), with the investor calling the company's shares "undervalued" and laying out actions it might discuss with management, other shareholders, and "other interested parties." Such actions, as detailed in Sachem Head's filing with the Securities and Exchange Commission, include mergers, asset sales, and management or board changes. Cahill says the move calls up bad memories of the Kraft Heinz (KHC) debacle. Of concern is two typical moves of dissident investors: selling off non-core assets and an outright sale of the entire company. The former strategy can raise share prices fast, especially if non-core businesses are underperforming compared to core operations. But US Foods has few non-core assets. Beyond that, it runs a smaller, relatively profitable cash-and-carry business. Splitting up its core business along geographic or market lines would produce smaller businesses in an industry where scale is critical to success. Meanwhile, selling the company would likely invite government opposition to a merger with the most logical buyers in the food service industry. In 2015, White House antitrust enforcers blocked the planned sale of US Foods to industry leader Sysco (SYY). The current antitrust-aggressive administration also likely ensures a failed acquisition by Sysco or Performance Foods Group (PFGC). "The best hope for a sale of US Foods appears to lie with so-called 'financial buyers,'" Cahill writes. "Private equity, in other words." However, Kraft Heinz owner 3G Capital fits the definition of the kind of company that would be interested. "The question is whether 3G or any private-equity firm would see sufficient upside in US Foods," Cahill says. "Sachem Head calls the stock undervalued, but it hasn't performed all that badly. In the three-year period ending Oct. 6, US Foods stock rose 21.5%, outpacing Sysco's 12.6% rise, but trailing Performance Food Group's 61.6% gain. In the 12 months ended Oct. 6, however, US Foods led the pack with a 55.6% rise." To generate even more value, a private-equity firm would have to raise earnings significantly and increase cash flows to cover the huge debt that a buyout entails. US Foods carries some $5.7 billion in debt, which could double in a debt-financed merger. The company has a market capitalization of $8.5 billion. "The simplest and quickest way to boost margins and cash flow, of course, is to slash costs," Cahill writes. But if the Kraft Heinz episode offers any insight, it is that drastic overhead reductions could also shrink sales growth.

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10/12/2021

More Corporate Directors Welcome Rules to Boost Board Diversity

Bloomberg (10/12/21) Boyle, Matthew

A PwC survey of 851 corporate directors indicates that those who backed mandatory policies to increase board diversity grew markedly over the past year. The poll found 33% of directors said "no action" was necessary to realize diversity on public company boards, compared to 71% in the 2020 survey. Nearly 66% of respondents supported stock-exchange listing rules requiring disclosure of board diversity, such as those Nasdaq Inc. (NDAQ) recently deployed, while 20% supported laws mandating minority directors, like legislation California passed last year. Investors including BlackRock Inc. (BLK) and Vanguard Group Inc. are increasingly opposing members of non-diverse boards, and the new California statute fines non-compliant companies. Recruiter Heidrick & Struggles (HSII) determined that the percentage of new Black directors on Fortune 500 boards rose almost threefold last year compared with previous years, but the boards of the largest U.S. companies remain predominantly White. Doubts about diversity efforts, especially among male directors, are a contributor. One in three male board members said the push for more diverse directors leads to boards nominating "unqualified" and "unneeded" candidates, a sentiment repeated by less than 20% of female directors. "I'm very concerned about that statistic," said PwC's Tim Ryan. "When I see that it tells me we have work to do." Evidence is scant that the boost in female directors has reduced board competency. Moreover, nearly 60% of polled directors said diversity is fueled by "political correctness," an increase from the last two years' surveys. Fifty percent of respondents also called shareholders "too preoccupied" with diversity, a slight increase from 2020. The new Nasdaq rule does not require any changes, but does obligate companies that lack women or diverse members to explain why. Securities and Exchange Commission Chair Gary Gensler also has said his agency is considering separate recommendations for company disclosures of diversity data. Meanwhile, California has directed state-based boards to meet gender and other diversity requirements, and that law will head to trial this month.

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10/11/2021

Opinion: Activist Improves Clumsy Plot in Indian TV Drama

Reuters (10/11/21) Galani, Una

After weeks of near-silence, Invesco (IVZ) on Monday published an open letter outlining its concerns over the way boss Punit Goenka and his family have run broadcaster Zee Entertainment (ZEEL). The 18%-owner also called criticized the terms of an $11 billion merger Goenka has worked out with Sony Pictures. The founding family, Invesco argues, is favouring itself at the expense of minority investors by proposing to gift itself a 2% equity stake via a “non-compete” clause despite the fact that Goenka will lead the enlarged entity for five years. The author of this opinion piece calls that "a fair point and a major step by the top investor towards galvanizing other shareholders to oust Goenka and appoint six fresh faces to the board." She adds "that Invesco has gotten this far, and even going to the courts to assert its right to demand an extraordinary general meeting, is already a big win for corporate governance in India." Established U.S. boardroom activists including investor Carl Icahn and Paul Singer’s Elliott Management tend to steer clear of companies dominated by large shareholders and markets where courts are inefficient. Zee became an easier target after debt troubles forced the group’s fading patriarch Subhash Chandra and his related entities to sell down their stake from over 30% in 2019, to its current less than 4%, giving the fund manager a chance to increase its ownership. In a previous governance era, when banks were easier to persuade to roll over loans, the founder known as the father of Indian television might have held onto his shares and his cast-iron grip over the company. Instead, Invesco is in a rare position to aggressively push for a reworked deal with Sony, or another buyer.

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10/8/2021

BlackRock’s Transfer of Power

New York Times (10/08/21) Sorkin, Andrew Ross

Starting next year, some of BlackRock's (BLK) biggest institutional clients will have the ability to cast their own votes at shareholder meetings instead of BlackRock voting for shares on their behalf. The move could shift responsibility for the votes of as much as $2 trillion in shares held in BlackRock accounts, or about 40% of its nearly $5 trillion index fund business. Allowing investors to vote their shares gives BlackRock some cover, especially when it comes to what has become its thorniest issue: its size. In recent years, BlackRock has been simultaneously criticized for having too much power and for not using it to push for more changes at companies in which it invests. “It will allow them to say that they are putting voting power back into the hands of the beneficial asset owners and also deflect some of the criticism that BlackRock has received,” said Douglas Chia, the president of Soundboard Governance. Supporters of more shareholder engagement welcomed the move. “When the biggest asset managers control a sizable chunk of the voting at the biggest companies, shareholder advocates trying to make change can often end up feeling like one David against two Goliaths,” said Matthew Prescott, a senior director at the Humane Society of the United States. “Whatever BlackRock’s motivation, dividing up even part of that power seems like it’ll be a good thing.”

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10/4/2021

Why Is India Inc. Seeing a Surge in Shareholder Activism?

Business Standard (India) (10/04/21) Kumar, Bhaswar

Shareholder activism appears to be on the rise in India. Recent events include shareholders of Kinetic Engineering Ltd. rejecting the company's proposal to boost managing director Ajinkya A. Firodia's remuneration, shareholders at Balaji Telefilms rejecting proposed pay increasing for two members of the company's promoter group, and shareholders at Eicher Motors Ltd. rejecting Siddhartha Lal's reappointment as managing director. Shareholders also recently voted against remuneration proposals for the chairmen of Balkrishna Industries Ltd., Hero MotoCorp Ltd., and Bajaj Auto Ltd. Meanwhile, on Sept. 11, Invesco Developing Markets Fund and OFI Global China Fund had requested that the board of Zee Entertainment Enterprises convene an extraordinary general meeting to elect six of their nominees and proposed the removal of CEO and managing director Punit Goenka and two other directors from the board, which resulted in the resignation of directors Manish Chokhani and Ashok Kurien. Further, the California State Teachers Retirement System, based on recommendations from Glass Lewis, will vote against the appointment of Yasir Al-Rumayyan, chairman of Saudi oil producer Aramco and the governor of that country's sovereign wealth fund, as an independent director on the board of Reliance Industries. Observers say Indian companies need to prepare for a more transparent future with higher corporate governance standards.

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