Call +1 (212) 223-2282
Featuring standstill agreement and nomination deadline windows, provisions and timelines
Featuring all breaking news and in depth articles and editorial press coverage pertaining to shareholder activism and corporate governance.
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.
Foreign investors purchasing a 1% or more stake in a Japanese company will be subject to prescreening if the engaged company is included in 12 specified sectors deemed critical to national security. The 12 sectors cover 400 to 500 of Japan's 3,800 listed companies and include nuclear power, general-purpose products that can be used for military purposes, arms, aircraft, space-related industries, cybersecurity-related, power, gas, telecoms, water supply, railways, and oil industries. The Japan diet revised the Foreign Exchange and Foreign Trade Act to this effect last November, lowering the threshold from 10% to 1% in an attempt to prevent foreign influence in critical companies. Investors are wary that the new framework will add extra paperwork and may result in excessive control on stock trading. To address such concerns, the proposed orders will exempt more foreign financial institutions and hedge funds from the reporting requirement if, for example, no employee is serving as an officer in the engaged company or they do not make shareholder proposals to divest assets. Hedge funds can also be exempt if they are registered with the U.S. Securities and Exchange Commission. Foreign investors owned 29.1% of Japanese equities at the end of March 2019, and accounted for 70.9% of the trading volume by value last year, showing the importance of international investments for Japan's economic growth. The revised law seeks to align Japan's regulatory framework with that of the United States as well as European countries, which have already tightened ownership requirements.
Hammerson (HMSNF) has sold its out-of-town retail parks for £455 million as part of an effort to reduce its £3 billion debt pile. Seven sites, including Elliott's Field in Rugby and the Cyfarthfa park in Merthyr Tydfil, are being sold to London-based private equity firm Orion for £400 million, and another two parks were sold for £55 million. The move is a sign of the difficult market conditions plaguing retail property firms, especially given that the £455 million raised is 22% less than the properties were valued at last summer. Hammerson CEO David Atkins last year promised to sell more assets amid pressure from Elliott Advisors to boost performance, as the company's share price has fallen 40% in the past year. The sale of its stake in a French shopping center raised £363 million, with other retail park sales driving the figure to £1 billion.
Six Flags Entertainment Corp. (SIX) has swung to an unexpected loss of $11.2 million for the fourth quarter, compared with year-earlier net income of $79.4 million. Total revenue was $251 million, down 3% from a year earlier and also below analyst expectations. Six Flags cited challenges in its base business as the reason for the loss, because park admissions were down 5% and attendance, guest spending per capita, and revenue from the base business were flat in 2019. The company also saw $10 million in charges related to agreements and litigation in China, where it terminated development agreements after its partner there defaulted on payment obligations to the company. The result also included a $1.9 million stock-based compensation expense, compared with a $77.5 million benefit a year earlier. Six Flags said it is expecting adjusted pre-tax earnings of $435 million to $465 million in 2020, below the $533 million expected by analysts. The company also said it needs to make more investments to the base business to improve the consumer experience. In January, Six Flags agreed to add Arik Ruchim of H Partners Management LLC to its board after H Partners, which has a 6.51% stake in the company, raised concerns about the company's operations and stock performance.
HP Inc. (HPQ) will implement a poison pill plan after Xerox Holdings Corp. (XRX) pushed ahead with efforts to acquire the PC maker, raising its earlier offer after several rejections. Under the new year-long stockholder rights plan, if any group acquires a 20% share, all shareholders outside the group will be able to buy additional discounted shares, diluting the ownership of the group. HP said in a statement that the rights "will not prevent a combination of HP with another business, but should encourage Xerox (or anyone else seeking to acquire the Company) to negotiate with the Board prior to attempting to impose some combination that is not in the best interests of the HP shareholders." Some analysts say a merger would help the companies in a declining print market, while others have cited their different offerings and pricing models as challenges to integration. Xerox said last month it planned to nominate 11 independent candidates to HP's board and that it had secured $24 billion to finance a $33.5 billion cash-and-stock offer for HP, which is more than three times its size. In December, investor Carl Icahn, who has a 4.2% stake in HP and a 10.9% stake in Xerox, urged HP shareholders who had agreed to the merger to reach out to HP directors for immediate action.
Three people familiar with the matter said Thyssenkrupp (TKAMY) is nearing a full sale of its elevator division. The elevator deal is in its final stretch, with two consortia competing to win the contract and complete what could be Europe's biggest private-equity transaction in over a decade. Under the deal, Thyssenkrupp would likely sell all of the division, Elevator Technology, to realize the highest possible valuation, the people said. Though there is a small chance that Thyssenkrupp could retain a minority stake in the business, the likelihood of that happening has decreased as talks advanced, the sources said. Labor representatives, as well as the group's top shareholder, the Alfried Krupp von Bohlen und Halbach Foundation, have argued in favor of keeping a stake. Thyssenkrupp declined to comment on the report the deal was nearing completion. The two consortia are Blackstone (BX), Carlyle, and the Canada Pension Plan Investment Board; and Advent and Cinven.
ENKRAFT Capital says the share price of PNE AG, a Germany-based wind farm developer, would have to increase by a third to accurately reflect its project pipeline. ENKRAFT is one of PNE's largest investors. The company says PNE AG is worth 6.82 euros per share, or 522 million euros ($563 million), based on the roughly 5 gigawatts of projects that are in the works. In November, ENKRAFT valued the company's stock at 5.50 euros per share. PNE AG says the increase in value is the result of project wins and project pipeline developments. These developments come after a Morgan Stanley-backed fund attempted a takeover of PNE AG, but it was opposed by ENKRAFT, which argued the takeover bid undervalued the firm. Reuters also recently reported that Petrus Advisers acquired a stake in the company.
Anonymous sources said leading Xerox Holdings (XRX) shareholder Carl Icahn in November suggested to HP (HPQ) CEO Enrique Lores that HP purchase Xerox for $45 a share ahead of an initial public offering, but HP executives rejected the offer as overvaluing the printer manufacturer. Icahn owns roughly 11% of Xerox and 4.3% of HP, but does not want to sell his Xerox stake. "I believe so strongly in the synergies that exist in a combination between Xerox and HP and I certainly want to own a piece of those synergies," he stated. Icahn continued that his status as a large investor in both Xerox and HP means he fully backs Xerox's offer for HP and Xerox CEO John Visentin's management of the merged company. "It is of paramount importance that John Visentin and his team are the surviving management of the combined company," he said, adding that he would not support a consensual deal otherwise. HP also adopted a shareholder rights plan that would complicate Xerox's takeover, coinciding with HP's preparations to outline a self-improvement strategy following Xerox's $34 billion acquisition push. HP is preparing to announce that it will assume new debt to release billions of dollars to investors by buying its own shares and paying out special dividends. The goal is to address shareholders ahead of a vote to replace Xerox's board, with one source saying the move to return capital to shareholders stems from conversations with major HP investors who wanted the company to use its balance sheet more aggressively.
Elliott Management announced its acquisition of a 30.4% stake in NN Group NV (NNGRY), and its intent to push for "value creation" at the Dutch insurer. The fund is partnering with former Allianz SE (AZSEY) executive Dieter Wemmer, who also has an NN stake. Elliott stated that the partners' investment "reflects their belief in the material and sustainable value creation opportunity that exists at the company," and added that they "have engaged in a constructive dialogue with NN Group's management and look forward to continued private engagement." NN's market value currently stands at almost $14 billion, and its shares on Feb. 20 were more or less unchanged compared to the past year. NN's new CEO David Knibbe is slated to make his first strategy presentation to shareholders in June. NN is the fourth Dutch firm that Elliott has engaged since 2017, while the fund's most prominent local investment was paint maker Akzo Nobel NV (AZKOY), which it pushed to consider merging with a competitor. An anonymous source familiar with the matter said Elliott wants NN to consider asset sales to boost profitability and reduce costs, and thinks the insurer is too vulnerable to the risk of policyholders living longer than expected.
Elad Roisman, a commissioner at the Securities and Exchange Commission (SEC), has been defending the agency's recent proxy proposals, both the proposal related to proxy advisory firms and a second one related to Rule 14a-8 shareholder proposals. In a recent speech at the Catholic University Columbus School of Law, Roisman argued that these proposals were long overdue. He stressed that the SEC listened to a variety of market participants over the last two decades and held meetings with institutional investors, asset managers, and others, demonstrating a good faith effort to serve the interests of all market participants. Roisman also argued that neither proposal "alters a shareholder's right to vote in any way," but instead addresses the eligibility requirements for shareholder proposals and the requirements of proxy advisory firms that rely on SEC exemptions to make voting recommendations to investors. Regarding the increased eligibility threshold for submitting shareholder proposals, he said the purpose was "not to exclude smaller retail investors" but rather to "ensure that those submitting proposals have demonstrated more than a short-term interest in a company." Among other things, Roisman said he does not believe the provisions allowing companies to review proxy advisors' recommendations in advance "will compromise the independence of these businesses," nor does he believe the proposals are "so burdensome that they will stifle competition" in the market for proxy advisory firms.
On March 2, SoftBank Group Corp. (SFTBY) CEO Masayoshi Son will address investors for the first time since the implosion of WeWork. Sources say he could cite the approved sale of Sprint Corp. (S), a rally in Uber Technologies Inc. (UBER) shares, and Elliott Management Corp.'s purchase of SoftBank stock as signs of progress at his company. So far, Son has downplayed any pressure from Elliott, which disclosed a nearly $3 billion stake in SoftBank this month. He has called the hedge fund an "important partner" and says that he is in broad agreement with its push for buybacks and boosting the stock price. However, he appears less receptive to Elliott's suggestion that it sell more of its stake in Alibaba Group Holding Ltd. (BABA) and rein in the $100 billion Vision Fund, which accounted for more than $10 billion of losses in the past two quarters. Sources say Elliott, in private talks with the company, raised issues about the clarity of its strategy. They also indicate the hedge fund's involvement will be a focus for investors and that executives are preparing for questions about Elliott's intentions and how far it will go to increase the stock's value. Elliott has said it took the stake in SoftBank because the Japanese company's shares are woefully undervalued compared with its assets, and among other things, it wants SoftBank to set up a special committee to review investment processes at the Vision Fund and is calling for a buyback of as much as $20 billion.
Eldorado Resorts Inc. (ERI) CEO Tom Reeg is already looking to slim down Caesars Entertainment Corp. (CZR) despite the fact that his company's $17.3 billion acquisition of the casino giant has not yet closed. Sources say he is considering selling an interest in Caesars' online and sports gambling businesses and outsourcing the company's entertainment operations—on top of property sales and personnel decisions made by both companies as they prepare for the merger. Caesars agreed to a sale last year at the urging of its largest shareholder, Carl Icahn. Sources also note that several Caesars executives, including President Tom Jenkins and CFO Eric Hession, are expected to depart once the deal closes.
Seven & i Holdings (SVNDY), the Japanese owner of convenience store chain 7-Eleven, is in exclusive talks to acquire Marathon Petroleum's (MPC) Speedway gas station chain for about $22 billion in an effort to expand in the United States. Marathon announced plans to spin off Speedway after a second campaign by Elliott Management that pushed for a break-up of the group into a convenience store business, a midstream processing unit, and an independent merchant refiner. In October Marathon estimated that Speedway has an enterprise value of $15 billion to $18 billion. Seven & i has already bought U.S. assets, having spent $3.3 billion in 2017 to buy parts of Sunoco's convenience store and gas station business, and North America accounts for one-third of the Japanese company's annual revenue of $61 billion. While the company has ¥1.3 trillion ($11.6 billion) in cash, a $22 billion acquisition would weigh heavily on its balance sheet. If it goes through, the deal would extend a run of acquisitions that led Japanese companies to spend nearly $100 billion on 1,271 outbound deals in 2019 to escape weak growth in their domestic market.
Harbert Discovery Fund LP and Harbert Discovery Co-Investment Fund I LP (collectively, HDF), the beneficial owners of more than 11.8% of the oustanding shares of Enzo Biochem Inc. (ENZ), say Institutional Shareholder Services Inc. has recommended that shareholders vote on the blue proxy card against Enzo's proposal to amend its bylaws in order to increase the size of the board and re-nominate Barry Weiner. Enzo's delayed 2019 Annual Meeting of Shareholders is scheduled for Feb. 25, 2020. ISS's report states that "ultimately, it is unclear how this (proposal) would benefit shareholders," and that "the proposed increase in board size appears to be a late-stage entrenchment maneuver in response to what appears to have been robust support for the dissident campaign." Kenan Lucas, managing director and portfolio manager of HDF, commented on the report: "We are gratified by ISS's analysis, which supports in the strongest possible terms what we have said since Enzo delayed the Annual Meeting: this is a Board willing to go to any extreme to entrench themselves and attack the rights of its own shareholders. While we are disappointed by the Board's actions, we look forward to the Annual Meeting being held on February 25th, where the voices of shareholders can finally be heard—and after which we can all focus on enhancing the value of Enzo and helping it reach its full potential."
Japan's Kirin Holdings Co Ltd. (KNBWY) remains opposed to Independent Franchise Partners' call for the company to sell assets that are outside of its core beer business. Independent Franchise Partners, which owns a 2% stake in Kirin, wants the company to focus on beer. The company, however, says investments in other areas like healthcare are important. "The board is strongly opposed to Franchise Partner's proposal that all non-beer assets be sold," the company said in a statement.
Independent Franchise Partners, a U.K.-based firm known as FP, is pushing for change at Japanese brewer Kirin (KNBWY). Though Kirin has outperformed for an annualized 10.5% total shareholder return over the last five years, much of that followed asset sales, and shares began retreating when it embarked on greater diversification, including the acquisition of a 30% stake in cosmetics company Fancl last year. Analysts are skeptical that Kirin will get $60 million of operational benefits from the Fancl stake by 2024, as is targeted. FP, which owns a 2% stake in Kirin, asserts that offloading the ancillary businesses and refocusing on beer would shrink a conglomerate discount. Kirin boss Yoshinori Isozaki defended his strategy last week and rejected the suggestion of a large share buyback, though the company did address some governance concerns raised by FP, offering to improve board independence and tie performance to compensation. These concessions are weak considering that the degree of true independence among Kirin's nominees is questionable and its compensation plan is less attractive than FP's, which suggests using more long-term incentives. However, Kirin may not need to compromise further because Japanese boards are still moving slowly on governance, and about two-thirds of Kirin's shares are held by domestic shareholders who may accept less dramatic change.
Argo Group International Holdings Ltd. (ARGO) has appointed Thomas A. Bradley as chairman of the board of directors upon the retirement of current Chairman Gary V. Woods on April 16, 2020, following the Bermuda-based re/insurer's annual general meeting (AGM). Meanwhile, Kevin J. Rehnberg has been named CEO, effective immediately, and has been nominated to stand for election to the board of directors at the AGM. Rehnberg was named interim CEO when Mark E. Watson III retired in November 2019 after reports that the Securities and Exchange Commission had moved to investigate the company's disclosures about executive compensation. The following month, Argo said five of its directors would retire by the time of the 2020 AGM. The changes in the executive team followed months of engagement by Voce Capital Management LLC about alleged excessive corporate expenses for Watson.
Broadcaster Tegna (TGNA) has appointed Karen Grimes to its board as an independent director under pressure from investor Standard General. Grimes spent 20 years as a partner, senior managing director, and equity portfolio manager at Wellington Management Co. Standard General has criticized Tegna's stock performance and strategy, and it has been seeking seats on the broadcaster's board. Tegna has announced that adding any of Standard General's four board nominees would not be in the best interest of shareholders, noting that it has added six new independent directors to its board in the past five years and now has 11 independent directors among its 12 board members. Separately, Tegna has also announced a dividend of 7 cents a share, payable on April 1 to shareholders of record on March 6.
Sources say that L Brands Inc. (LB) is close to a deal to sell majority control of Victoria's Secret to Sycamore Partners in a transaction that values the lingerie brand at around $1.1 billion. The private-equity firm is expected to purchase 55% of Victoria's Secret and take the struggling business private. L Brands will keep the remaining 45% interest in the separate company, which will include the Pink chain. After shedding a number of brands in recent years, L Brands' operations would essentially be reduced to running the Bath & Body Works chain. Billionaire Leslie Wexner, who has helmed the retail company for over five decades, will step down from his roles as chairman and CEO, the sources said, but likely remain on the L Brands board of directors and retain stakes in both firms. He presently owns nearly 17% of L Brands shares. In 2019, Barington Capital Group LP built a small stake in L Brands and urged the company to weigh splitting Bath & Body Works from Victoria's Secret. L Brands added two new directors and signed an agreement with Barington to have the fund act as a special adviser.
Argo Group International Holdings Ltd. (ARGO) has nominated Bernard C. Bailey and Fred R. Donner to stand for election to its board of directors at its annual shareholder meeting on April 16. The nominees were jointly agreed upon by Argo and Voce Capital Management LLC as part of a previously announced cooperation agreement, which also prompted the appointment of Carol A. McFate to the Argo board this month. Bailey is the president of Paraquis Solutions, a private consulting company focused on corporate governance and strategy, and is also on the boards of Telos Corp. and Egis Capital Partners. Donner is a senior managing director at FTI Consulting and has over 30 years of experience in leading and advising companies through restructurings, international expansion, risk management, and capital market transactions.
SoftBank Group Corp. (SFTBY) will borrow up to 500 billion yen ($4.5 billion) by putting shares of its Japanese telecom unit SoftBank Corp. up as collateral. The company's stock rose on the news, which comes a month after investor Elliott Management revealed a $3 billion stake in SoftBank and advocated for a share buyback of up to $20 billion, along with governance changes and more transparency about its investments. SoftBank will need more cash to meet Elliott's demands about buybacks and share value, and founder Masayoshi Son has adopted a more conciliatory stance as he struggles with the $100 billion Vision Fund. The fund lost money in the three months ended in December, one quarter after the meltdown at office-sharing startup WeWork triggered a record loss for the company. Son is trying to raise capital for a second fund, but last week said he is no longer targeting $108 billion and that SoftBank may finance the effort on its own. Last year, SoftBank unveiled a record buyback, sparking a rally that pushed shares to the highest since its peak in 2000, but between WeWork and Uber Technologies Inc.'s (UBER) disappointing public debut these gains were wiped out in the next few months. SoftBank surged again this month after Singer disclosed his stake and Son won regulatory approval to sell his Sprint Corp. (S) to T-Mobile US Inc. (TMUS). SoftBank has 13.75 trillion yen of interest-bearing debt, with more than 2.6 trillion yen of bonds coming due in the next three years, and 3.8 trillion yen of cash and equivalents.
SoftBank Group Corp. plans to borrow up to 500 billion yen from 16 financial institutions using a 20% stake in telco SoftBank Corp. as collateral—shares that are worth 1.4 trillion yen as of today's market price. The loan, which will be used to boost the group's cash on hand and for general business purposes, comes as SoftBank's finances are under pressure. Investor Elliott Management has amassed a nearly $3 billion stake in SoftBank and is calling for $20 billion in stock buybacks using the group's stake in e-commerce giant Alibaba (BABA). SoftBank is also struggling to attract investors for a second Vision Fund, and talks to secure $3 billion from Japan's three biggest banks to bail out office sharing startup WeWork have stalled.
Nelson Peltz's Trian Fund Management has turned a $70.3 million profit in the nine months since it disclosed a new stake in money manager Legg Mason (LM), standing to make a 55% return on its $128 million investment. These profits add to the roughly $196 million Trian made off of its last investment in Legg Mason between 2009 and 2016, which yielded a 61% return. Peltz was on the company's board for five of those years, and when he built the new stake in May, Legg Mason expanded its board for him to return as a director along with Ed Garden, a fellow Trian co-founder. Trian said in May that it would want Legg Mason to focus on reducing costs, driving revenue growth both organically and through acquisitions, and improving profitability. Since then, a $50-a-share takeout price worth about $4.5 billion proved to be an even more important driver of value.
Sources say SoftBank Group Corp. (SFTBY) has put $2.5 billion of its own cash into new investments since October in hopes of restoring its money-making credentials as it courts investors for a successor to its Vision Fund. They added that the Japanese technology conglomerate is considering investing another $2.5 billion of its own money. This follows recent comments from SoftBank CEO Masayoshi Son that the company may spend up to two years investing its own money in a bridge fund to build a portfolio giving investors enough confidence to participate in a second Vision Fund. He said SoftBank has already invested "billions" of U.S. dollars but did not provide an exact figure. SoftBank had committed $38 billion of its own money toward a target $108 billion fundraise for the second Vision Fund, but Son said investor "concerns" about the performance of the first $100 billion Vision Fund has delayed its launch. SoftBank has 3.8 trillion yen ($34.65 billion) in cash on hand, but Elliott Management Corp. is pushing the company to buy back shares to increase the value of what the hedge fund considers underperforming stock.
Franklin Resources (BEN) has agreed to purchase competing asset manager Legg Mason (LM) for $4.5 billion in cash. Both companies announced that Legg Mason shareholders will receive $50 a share, a 23% gain above the stock's closing price on Feb. 14. Franklin also will assume roughly $2 billion in Legg Mason debt. The merged company will oversee about $1.5 trillion in assets under management, "well-balanced" between individual investors and pensions and other major institutions. The companies expect to conclude the deal by the third quarter. Legg Mason's portfolio includes nine investment managers that operate under their own brands, including bond specialist Western Asset Management and stock picker ClearBridge Investments. Franklin has pledged to "preserve the autonomy of Legg Mason's affiliates" and their brand names, while affiliate EnTrust Global has agreed to buy back Legg Mason's stake in the firm. The merger ends persistent uncertainty about Legg Mason's future since investor Trian Fund Management LP acquired a stake in the company and gained representation on its board.
MG Capital, run by former Third Point executive Michael Gorzynski, wants to remove HC2 Holdings Inc. (HCHC) Chairman, CEO, and President Philip Falcone and the rest of the board. Gorzynski wrote Feb. 18 in a letter to shareholders that he thinks HC2 has traded at a discount of more than 80% to the value of its underlying assets because of a number of management missteps. MG Capital, which has a stake of more than 5% in the company along with its partners, has nominated a slate of six directors to replace Falcone and the rest of the board. "We believe that HC2's indefensible record of long-term underperformance and value destruction stems from exceptionally poor corporate governance, rampant conflicts of interest, ineffective balance sheet management, and the absence of a credible business strategy," Gorzynski said in the letter. Since Falcone took control of HC2 six years ago, the company has delivered "exceptionally poor" returns for shareholders, Gorzynski said, pointing out that total shareholder returns were negative 33% in the 12 months prior to MG Capital disclosing its stake, and were negative 66% and negative 72% over the past three- and five-year periods, respectively. "As long as Mr. Falcone controls the company, we feel stockholder value remains at risk," Gorzynski wrote. He cited a "haphazard corporate strategy," too much debt, and "unjustifiably high corporate expenses." Shares in HC2 had declined 33% in the year before MG Capital revealed its stake in the company in January. Since then, HC2 agreed to sell its Global Marine Group, discussed selling Continental Insurance, and considered alternatives for DMB Global Inc. (DBMG). In addition to Gorzynski, MG Capital's nominees include George Brokaw, Kenneth Courtis, Robin Greenwood, Liesl Hickey, and Jay Newman.
Independent Franchise Partners (FP) is demanding that Kirin (KNBWY) choose between a significant change to its board or risk a proxy battle at its annual meeting. FP, which owns about 2% of Kirin's shares, said it was willing to withdraw all four of its shareholder proposals if the company agreed to accept its two candidates for independent directors and if the group's business plan for 2027 was submitted to the new board for "a thorough and independent review." The proposal comes after the company rejected FP's demands for a ¥600 billion ($5.5 billion) share buyback, changes to executive compensation, and nomination of new non-executive directors. The confrontation between the brewer and one of its biggest investors comes as more Japanese boards face public conflicts with investors ahead of what could be Japan's most contentious season of shareholder meetings. Two other Japanese companies, Sekisui House (SKHSY) and Sun, also face demands from shareholders for a board shakeup. At Sun, Oasis Management has called an extraordinary meeting of shareholders to replace the current top management with a new board of directors it nominated.
On Feb. 18, DuPont de Nemours Inc. (DD) said it has decided to remove CEO Marc Doyle and CFO Jeanmarie Desmond after less than a year in those roles. The company said it is bringing back Edward D. Breen, executive chairman, as CEO. Breen joined DuPont in 2015 when it was under pressure from Nelson Peltz's Trian Fund Management LP and was the architect of the megamerger with Dow Chemical Co. and the subsequent split into three separate companies. Breen brought Trian into the deal discussions with Dow to ensure the fund supported the merger. Meanwhile, Lori D. Koch, previously head of investor relations, has been named CFO. "We did not meet our own expectations," Breen said in a statement. "We need to accelerate operational improvement."
Amherst Holdings will acquire Front Yard Residential Corp. (RESI) for $12.50 a share in a deal valued at $2.3 billion, including debt. The deal will expand Amherst's holdings to more than 36,000 homes. Front Yard put itself up for sale last year after launching a strategic review following a settlement with Snow Park Capital Partners, which had argued that the company's shares were trading at a substantial discount to the value of its assets. The deal comes as Wall Street firms increasingly set their sights on single-family rentals, as rising home prices have investors betting that Americans priced out of the for-sale market will generate demand for rental houses.
Hudson's Bay Co. (HBAYF) says Institutional Shareholder Services, Glass Lewis, and Egan-Jones have recommended shareholders vote for a plan to take the retailer private. HBC announced in January that a shareholder group led by Executive Chairman Richard Baker increased its going-private offer to $11 a share, winning the support of competing shareholder Catalyst Capital Group, which had opposed an earlier offer of $10.30 a share. HBC's board has unanimously recommended that shareholders back the improved offer. The deal requires at least 75% of the votes cast by all shareholders and at least a simple majority of votes cast by minority shareholders, including Catalyst. The shareholder vote is scheduled for Feb. 27.
Intelsat SA (I) rose as much as 34%, the most intraday in 12 days, after Appaloosa reported a 7.4% stake in the company and called for the satellite operator to turn down the Federal Communication Commission's (FCC's) C-Band plan. Appaloosa said it sent a letter to Intelsat expressing its dissatisfaction with the FCC order on the C-band spectrum auction. Questions about the ultimate proceeds for satellite operators have erased 50% from Intelsat's market value since the start of 2020.
Three years ago, RBR Capital pressured Swiss fund house GAM to significantly lower costs and cut hundreds of jobs, but the investor was unsuccessful. Now, GAM has been forced to rethink its strategy following the departure of a star asset manager following a 2018 scandal, a decline in assets under management, and a change in leadership. RBR no longer holds a stake in GAM, but Bluebell Capital Partners, with an undisclosed stake, is calling for GAM to be broken up, and Krupa Global Investors, which holds 3% of the company's shares, is calling for GAM to find a buyer. Meanwhile, under new CEO Peter Sanderson, GAM is undertaking the kind of aggressive cost-cutting that RBR had recommended, but he has stressed that deep job cuts are unnecessary. However, some analysts believe more must be done. "What they have announced so far is not enough to reach any satisfactory position, unless you have crazy assumptions on further growth," says Andreas Venditti, an analyst at Vontobel.
Anonymous sources reported that Evergy (EVRG) is in discussions with Elliott Management about a deal to evade a board challenge and give the hedge fund a voice on who will sit on certain seats at the utility. Elliott announced in February that Evergy needed to improve its performance or weigh merging with another power company, and Evergy expressed confidence in its plan to deliver long-term shareholder value. According to the sources, Elliott could gain a say on the appointment of up to two directors on Evergy's 15-member board, and the company also would establish a committee of directors to ensure the utility is following policies that boost shareholder value. The deal could precede a March 6 deadline to nominate board members to be voted on at Evergy's shareholder meeting. Evergy's shares rose 2.1% Feb. 18 following the news, and ended trading at $73.88, giving the utility a market capitalization of nearly $17 billion. Elliott has urged a halt to Evergy's share buyback program, slashing operations and maintenance costs, and allocating more cash into infrastructure network development. Elliott also said Evergy could generate about $5 billion in value by implementing these actions.
SoftBank Group Corp.'s (SFTBY) Vision Fund has posted an operating loss of 225 billion yen for the fourth quarter, compared to 176 billion yen profit in the same period a year earlier, a reminder of the inherent risk in betting on untested startups. Group profit reached 2.6 billion yen for the quarter versus 438 billion yen a year prior, including a 332 billion yen dilution gain related to the secondary listing of portfolio firm Alibaba Group Holding Ltd. (BABA). The results may deepen concerns about founder Masayoshi Son's ability to secure funding for a second Vision Fund and give ammunition to Elliott Management, which recently amassed a $3 billion stake in the conglomerate and is pushing for change including $20 billion in stock buybacks. Son's investing credentials took a hit in the third quarter when the Vision Fund recorded an $8.9 billion operating loss following weakness at several major bets, and the fund has also lost key employees. Analysts have said it is difficult to evaluate SoftBank's performance due to a lack of disclosure around Vision Fund's internal valuations. Softbank stock rose to its highest price in seven months on Feb. 11 when a U.S. federal judge rejected an antitrust challenge to the proposed takeover of SoftBank's U.S. wireless subsidiary Sprint Mobile (S) by T-Mobile US Inc. (TMUS).
Two Americans are joining nine Japanese executives and investors in an effort to overthrow top managers at Sekisui House (SKHSY), a Japanese builder with $22 billion in annual sales. The investors want shareholders to replace Chairman Toshinori Abe and his allies in April 23 elections for the Sekisui House board. Their proposed directors include former Sekisui Chairman Isami Wada, who blames his 2018 departure on Abe's control of internal directors who owed Abe their jobs. After an internal investigation blamed Abe for a $51 million fraud loss from a bogus land sale and recommended his dismissal, the Abe bloc outvoted outside directors and got rid of Wada. The insurgent board candidates include Wada, two foreign-based Sekisui executives, sitting directors Fumiyasu Sugur and Koji Yamaa, and two Americans: Pamela Fennell Jacobs, chief sustainability officer at Spouting Rock Asset Management, and Chart Group Chairman Christopher Douglas Brady. Wada called for investors to vote against Abe in last year's board election, and while Abe was reelected because there was no opposition candidate at that time, he received only 69% of shareholders' support compared to more than 95% for outside directors. Most of the "no" votes came from big U.S. asset managers such as Vanguard. Sekisui House revenues and earnings have held almost steady since Wada's departure, and the share price has risen with the rest of the market, but Wada says a string of asset sales show the company is struggling to land new deals. Investment manager Ken Hokugo notes that it is "very rare" for a Japanese company to vote out a sitting director, but there have been some recent signs of change. University of Delaware professor Charles Elson says that the Sekisui House insurgents "are within striking distance of winning" if they can convince Japanese investors they now have a better choice.
On Feb. 17, institutional investors managing $37 trillion in assets called on Japan to reduce its carbon emissions. The country has been criticized for being the only G7 nation still building new coal-fired power plants. "Japan's approach to reducing emissions is being watched closely throughout Asia," said Rebecca Mikula-Wright, director of the Asia Investor Group on Climate Change. "If investors see strong and positive policy signals that encourage deeper emissions reductions by 2030, and a clear path to net-zero emissions by mid-century, they will respond with greater investment in clean technology and climate-resilient infrastructure." The investor coalitions planning to sign an open letter to Japanese Prime Minister Shinzo Abe include more than 630 investors representing about half of the world's assets under management. The letter calls on Japan's government to submit a more ambitious target for cutting emissions ahead of a United Nations summit in Glasgow in November, which is seen as a decisive test of international commitment to the 2015 Paris Agreement to combat climate change.
Sources are reporting that Xerox Holdings Corp. (XRX) will host a dinner for HP Inc. (HPQ) shareholders on Tuesday evening as it seeks investor support to overcome HP's resistance to its $35 billion takeover bid. Xerox last week increased its cash-and-stock bid for HP by $2 to $24 per share ahead of a tender offer it plans to launch in early March. In addition, it is asking HP shareholders to replace the company's entire board of directors with Xerox's nominees at the company's annual shareholder meeting later this year. HP is expected to dismiss the sweetened offer as inadequate when it unveils its most recent quarterly earnings a week from now. Xerox CEO John Visentin is expected to attend tomorrow night's supper, with other such meetings possible in the coming days. HP negotiated with Xerox last year at the behest of investor Carl Icahn, a top Xerox shareholder who has since also acquired a stake in HP, according to the sources. The talks sputtered after the companies failed to agree on the amount of confidential information they shared with one another, the sources said.
On Feb. 14, Instructure Inc. (INST) said it will sell itself to Thoma Bravo for $49 a share after the private equity firm increased its bid for the U.S. educational software company twice within the last two days. The board accepted Thoma Bravo's new all-cash offer, which is $1.40 a share higher than its initial offer of $47.60, made in early December. It also represents more favorable terms than its $48.50 a share tender offer from earlier this week. According to Josh Coates, executive chairman of Instructure's board, "This best and final offer is a significant increase over the original bid, and at this stage in the process, it should be clear that this is the best path for the company and stockholders moving forward." Shareholders now have until Feb. 25 to vote on the deal. Concerns with the initial bid were raised by shareholders Praesidium Investment Management, Rivulet Capital, Lateef Investment Management, and Oberndorf Enterprises, with some saying it undervalued the company. Meanwhile, regulatory filings show that Jana Partners, which bought Instructure shares in the third quarter, sold its position in the fourth quarter, and P. Schoenfeld added a new position in the fourth quarter.
SoftBank (SFTBF) CEO Masayoshi Son said during a news conference on Wednesday that he is in no rush to sell down his shares in Alibaba (BABA). The remark comes after investor Elliott Management called for big buybacks, and raises questions about how Softbank could fund any potential buybacks, including those on the scale Elliott wants. Elliott, which has amassed a holding of almost $3 billion in SoftBank, is pushing for changes, including $20 billion in stock buybacks, according to sources. SoftBank has a 26% stake in Alibaba, which is its biggest asset and Son's most successful technology bet to date. "I believe Alibaba has lots of room to grow," said Son. SoftBank's stake in Alibaba is worth about $150 billion, which is more than the $110 billion market capitalization of SoftBank itself. Son's group has few other assets that it could use. SoftBank is already highly leveraged and struggling to attract outside money for a second tech fund.
On Feb. 13, a coalition comprising Korean Air heiress Cho Hyun-ah, Korea Corporate Governance Improvement (KCGI), and Bando Construction proposed that former SK Group Vice Chairman Kim Shin-bae be installed as an inside board director of Hanjin Group. The coalition owned a combined 32.06% stake in Hanjin Group's holding company as of Jan. 31. The move is part of a bid to oust the current chairman at the March 24 shareholders meeting. Other candidates include former Samsung Electronics vice president and head of China Bae Kyung-tae and ex-Korean Air executive Kim Chi-hoon. In its shareholders' proposal, KCGI said Hahm Chul-ho, a former Korean Air senior vice president and T'way Air CEO, is a nonpermanent inside board candidate. Further, the coalition proposed to add four more outside directors. If approved, the candidate group would increase the Hanjin KAL board to 12 members from six.
The Federal Reserve recently finalized a rule, effective April 1, that eases requirements allowing activist investors to take larger ownership stakes in banks and maintain greater board representation without triggering control under federal banking law. Investors controlling banks are subject to extensive oversight and stricter regulation by the central bank. Under the rule, bank investors can accumulate larger ownership interests subject to a revised presumption of non-control, now set at 10% instead of 5% of voting securities. Further, they now can nominate slightly less than a quarter of the board if they maintain between 5% and 24.99% of voting securities, and investors with a voting stake of less than 5% can nominate nearly half of the board while avoiding control presumptions. In addition, the rule allows an investor to convert its controlling stake to a non-controlling interest if the investor divests below 15% of voting securities, or divests between 15% and 25% and waits for two years to pass. According to John Pompeo, a principal at The Gallatin Group, "While it may remain true that some investors are less inclined to [engage] banks due to broader regulatory considerations, ambitious investors can now undertake more aggressive campaigns to advocate for changes that will deliver market value for shareholders without attendant burdens of Fed oversight and approval."
Delta Value Group Investment Partnership, owned by investor Kenneth Traub, has paid $5.88 million to acquire 8% of Tuesday Morning Corp.'s (TUES) shares. Delta Value says it plans to have "cooperative and constructive discussions" with the company. Those talks could include the acquisition of all Tuesday Morning shares. Delta Value began buying Tuesday Morning shares on Dec. 16 and has continued to do so every week. Tuesday Morning recently reported a 30% decline in profits to $11 million for the three months ended Dec. 31. The company also reported a 4% decrease in sales to $324.4 million.
Starboard Value reported a 7.5% stake in Mednax Inc. as of Feb. 4, 2020, according to a filing with the Securities and Exchange Commission. Starboard said it bought the shares based on the belief that the shares were "undervalued." Starboard on Nov. 27, 2019, delivered a letter to Mednax nominating a slate of eight directors. Starboard is discussing board representation and board composition with Mednax Management and the board. Starboard will file a preliminary proxy statement with the SEC to be used to solicit votes for election of Starboard's nominees at Mednax's Annual General Meeting.
Emerson Electric Co. (EMR) will not pursue a break-up, it told investors on Thursday, after a review launched last year into whether to separate its industrial automation operations from its air-conditioning business. Emerson shares fell about 2.3% to $73.14 on Thursday on the news. Emerson said in a presentation to investors it will not break up "unless a major strategic acquisition catalyst is actioned" and noted that it had earmarked $4 billion for acquisitions, stating that "we are a multi-business company." Through a series of cost cuts and operational changes, Emerson aims to reach 44% gross margin by 2023 from 42.5% in 2019, and $4 billion in operating cash flow by 2023 from $3 billion in 2019. Breaking up Emerson was one of the demands made by hedge fund D.E. Shaw & Co. LP last October, when it owned more than 1% of the company. Emerson has since revealed some corporate governance changes and appointed a new board member that won D.E. Shaw's endorsement and avoided a challenge to its board. D.E. Shaw has declined to comment on whether it remains a shareholder and how it reacted to the company's announcement.
Bloomin' Brands (BLMN) has announced a board restructuring and the departure of several executives, including its chairman. Executives Jeff Carcara and Michael Kappitt will depart and Elizabeth Smith will step down as executive chairman, though she will continue to serve on the board. Bloomin' Brands' lead independent director James Craigie has been appointed chairman effective March 6, while Outback President Gregg Scarlett will take over for Carcara and Kapitt. In November Bloomin' Brands said it was exploring strategic alternatives including the possible sale of the company. The company is set to report its fourth quarter and annual results on Feb. 18. Meanwhile, investor Jana Partners has continued to push for changes at Bloomin' Brands and plans to nominate at least two people to the company's eight-member board of directors. In the past few years, Jana, which owns 7.4% of shares, has tried to convince the brand to either put itself up for sale or split into two organizations.
SoftBank Group (SFTBF) is open to some of the changes that investor Paul Singer would like to see made at the Japanese company. The remarks from SoftBank founder Masayoshi Son came after the company reported a second quarter of losses from its startup investing. Elliott Management disclosed a stake of almost $3 billion in SoftBank this month, arguing the company's shares are substantially undervalued compared with its assets. Son said he is in broad agreement with Elliott about SoftBank buybacks and share value. SoftBank also said it is introducing new governance standards for its portfolio companies. He urged investors to focus on SoftBank's shareholder value, rather than operating profit. "The only measure by which SoftBank, an investment company, should be evaluated is whether shareholder value rises or falls," he said. Son said he held discussions with Singer a couple weeks ago.
Quarterly profit at SoftBank Group Corp. (SFTBF) was almost wiped out as the Japanese technology giant was hit for a second straight quarter by losses at its $100 billion Vision Fund. Softbank's dismal performance shows how the bailout of start-up WeWork last year and other missteps have put a chill on the tech investing scene. The poor results also have given shareholder Elliott ammunition to lobby for change. The hedge fund has recently emerged as a prominent shareholder. Elliott is pushing for changes including $20 billion in stock buybacks, sources said last week. Softbank founder Masayoshi Son has long argued SoftBank's shares are undervalued, a position shared by Elliott. Group profit was 2.6 billion yen ($24 million) in the October-December quarter versus 438 billion yen a year before. The Vision Fund posted an operating loss of 225 billion yen ($2.05 billion) for the quarter compared with a 176 billion yen profit in the same period a year earlier.
Xerox Holdings Corp.'s (XRX) largest shareholder, Carl Icahn, is the "activist of activists," according to this opinion piece, and has approximately an 11% stake. Xerox Chairman Keith Cozza is the CEO of Icahn Enterprises LP, Icahn's holding company, and other board members also have links to Icahn. Xerox CEO John Visentin sees "eye to eye" with Icahn. Icahn has long been an aggressive investor, and under Visentin, Xerox has become just as aggressive. Visentin has "managed to breathe new life into the 113-year-old printer company," buying back shares, streamlining the company, boosting free cash flow, and consistently topping Wall Street's expectations. The company's share price rose 87% last year, according to Bloomberg data. The most visible manifestation of the new aggressiveness is Xerox's move to purchase its much bigger competitor, HP Inc. (HPQ). Icahn has a 4% stake in HP. The effort accelerated on Feb. 10, when Xerox increased its offer to $24 a share from $22, bringing its bid to $35 billion—despite the fact Xerox has $9 billion in revenue and HP has $58 billion. Not too long ago, a bold move like this by Xerox would have been out of the question. In the materials it has provided to HP shareholders, Xerox said that a merger will have synergies worth $2 billion and will generate nearly $6 billion in free cash flow. Visentin intends to use that money to purchase smaller, more innovative companies while investing in research and development—all with the aim of generating growth and profits. "There is no way of knowing whether Visentin can pull this off if he lands HP," the opinion piece says, but "his track record so far at Xerox should give shareholders hope. Indeed, he is so clearly right about the first-mover advantage of consolidation that what HP really ought to do is turn around and make a tender offer for Xerox, which would require a lot less debt. And then it should install Visentin as CEO." But instead HP has "reverted to form, contending that the Xerox bid is inadequate, that its financing is shaky, and generally avoiding coming to grips with reality. But sometime soon, HP will have to set the date for its annual meeting, and at that point its shareholders will have a say in the matter. Xerox, ever the aggressor, is proposing a slate of directors to replace HP's current board."
In a Feb. 12 letter to Occidental Petroleum Corp. (OXY) shareholders, Carl Icahn, who owns 3% of the company, called on leadership to disclose whether they were approached by any potential buyers before agreeing to acquire Anadarko Petroleum Inc. for $37 billion. Icahn contends that CEO Vicki Hollub and Chairman Eugene Batchelder were attempting to preserve their own jobs ahead of the interests of investors. He wrote, "Why did they decide to embark on this ill-advised bet that has already destroyed over $30 billion in stockholder value; and if oil continues its decline, we believe will jeopardize the dividend, leaving stockholders to suffer even more?" In the letter, he argues that the Anadarko deal was a "defensive maneuver" that allowed Occidental to be the acquirer rather than be acquired itself, and that Hollub and Batchelder structured the deal in a way that avoided a shareholder vote due to concerns that the vote would fail and because doing so allowed them to avoid disclosing in regulatory filings whether it had been approached by a potential acquirer. "You don't have to be Sherlock Holmes to realize that these actions point to the fact that Hollub and Batchelder are hiding something important, such as the possibility of an acquirer," Icahn said. "If ever there was a time for a CEO and Board to be held accountable, it is now." In November, Icahn nominated a slate of directors to replace the entire Occidental board ahead of its annual general meeting, which has yet to be scheduled.
Hawaiian Electric Industries (HEI) has appointed Eva Zlotnicka of ValueAct Capital to its board of directors as well as the board's Compensation Committee. Zlotnicka is a managing director of the ValueAct Spring fund and head of stewardship at ValueAct Capital, one of HEI's shareholders. The appointment comes a few months after a Nov. 8 letter in which Jeff Ubben, founder and chairman of ValueAct, said that HEI "failed to lead the transition away from oil-fired generation to renewable energy" and urged it to look outside the company for new leadership. HEI Chairman Jeff Watanabe responded in a Nov. 12 letter that Ubben's letter was "misguided, factually inaccurate, and misleading." Ubben said in a Feb. 12 news release that "we appreciate HEI's collaborative approach and look forward to supporting their efforts going forward."
MGM Resorts International (MGM) CEO Jim Murren has announced he will leave the company before his contract expires, giving no reason for the premature departure. In his 12 years as CEO, Murren led MGM through the recession, the aftermath of the 2017 shooting massacre on the Las Vegas Strip, and the firing of 1,000 employees last year under the banner of MGM 2020, a cost-cutting effort spurred by investor Corvex Management, whose founder Keith Meister was named to MGM's board last year. Murren has been criticized for several public relations blunders, including suing victims of the Last Vegas shooting massacre, which took place on grounds owned by MGM. MGM was the first company to eliminate free parking at its Las Vegas properties, a move other companies quickly followed. Wall Street has remained hostile to Murren, and shares of MGM Resorts International rose 7% following news of his departure.
ValueAct Capital Management Chairman Jeff Ubben said his company will invest in BP (BP) following BP CEO Bernard Looney's Feb. 12 presentation illustrating the energy company's plan to eliminate almost all of its carbon emissions within 30 years. ValueAct made the investment through its $1 billion Spring Fund, which concentrates on social and environmental investing. Without disclosing ValueAct's stake, Ubben said BP's strategy is the kind of investment the hedge fund is seeking. He also said he sees no value in investing in firms with so-called environmental, social, and governance commitments, arguing that impactful investment requires shareholders to get involved with companies where their core business deals directly with climate change. Ubben said the ValueAct Spring Fund has joined the board of power producer AES (AES) to help facilitate its transition from fossil fuels, as well as the private board of Nikola.
Toshiba Machine said on Feb. 12 it would officially oppose a takeover offer by investor Yoshiaki Murakami and hold a shareholders meeting on March 27 to potentially win approval for the adoption of defense measures. The molding machine company said the decision was based on a conclusion by an independent committee that reviewed Murakami's proposal. A takeover by Murakami would likely harm corporate and shareholder value, the company said. Murakami in January bid up to $235 million to take control of the company.
Amber Capital has increased its stake in Lagardere above 10%, French regulator AMF said in a filing Feb. 12. AMF said that the investor holds 10.58% of the French media and travel retail group, and 7.93% of voting rights as of Feb. 6. Amber Capital previously had a stake of approximately 5.3%. It has called for Lagardere to take more steps to increase shareholder value.
SoftBank Group's (SFTBY) stock rose 14% in Tokyo on Feb. 11 following the approval for the sale of the Sprint wireless operator to T-Mobile US (TMUS), despite opposition from New York, California, and other states. Sprint shares climbed 78% in U.S. trading. This is a windfall for SoftBank founder Masayoshi Son after a grueling year marked by the collapse of WeWork's valuation and setbacks in other assets. Investor Elliott Management recently acquired a stake in SoftBank, claiming its shares are undervalued. SoftBank and T-Mobile said they should close the deal for Sprint by April 1. Elliott has called on SoftBank to buy back its shares due to their discount, saying it could spend up to $20 billion by divesting shares in companies like Sprint and Alibaba Group (BABA). Elliott further wants SoftBank to strengthen the independence and diversity on its board and instill more transparency within its investment strategy.
Goldman Sachs (GS) has invited its major trading clients, including hedge funds, to sit in on a meeting with SoftBank (SFTBF) Chairman and CEO Masayoshi Son. The meeting is scheduled to be held on March 2 somewhere in Manhattan, N.Y., according to an email from Goldman Sachs. The email did not explain what will be discussed during the meeting. Industry observers believe Son may be seeking help repelling Paul Singer's Elliott Management. Elliott Management recently acquired a $2.5 billion stake in SoftBank in the hopes of raising the stock price. Meanwhile, Son in the past has expressed a desire to avoid hedge funds, which tend to favor short-term trades; in contrast, Son has said that SoftBank has a 300-year plan.
U.S. investment firm RMB Capital has asked Japanese clothing firm Sanyo Shokai to seek a strategic buyer. RMB made the request in a December letter to the company's board, according to Masakazu Hosomizu, a Chicago-based portfolio manager for the investment company. RMB owns about a 5% stake in Sanyo Shokai. Hosomizu said RMB decided to go public about the letter because of Sanyo Shokai's non-committal response. Sanyo Shokai has not been able to revive the company on its own, according to RMB. A Sanyo Shokai spokeswoman said the company had a meeting in January after it received the letter, but declined to comment on details of the conversation. RMB has not decided its strategy from here, but making shareholder proposals to elect board members is "a possibility," said Hosomizu. "I'm hoping this will serve a trigger for change at the company," he added.
Jonathan Litt's Land & Buildings Investment Management (L&B) has built a new position in American Homes 4 Rent (AMH) of less than 1%, or about 2.5 million shares. Sources say the firm also has nominated a minority slate of directors in an effort to improve the real estate investment trust's performance. It remains uncertain how many directors it has nominated for the 10-member board. Litt said on Twitter on Feb. 11 that "AMH is one of L&B's largest investments." The sources note that Litt believes the company is being outperformed by its peers in the single-family home rental industry. According to the sources, Litt believes American Homes has a stronger balance sheet than Invitation Homes (INVH) and that its shares would be worth 35% more if it traded at a similar multiple. Further, he attributes the gap in valuation to inconsistent communication from the management team and a need to improve margins and revenue growth, and he believes the board needs to be refreshed given that insiders account for nearly half of the current roster.
In a recent regulatory filing, Primo Water Corp. (PRMW) indicated that its nearly five-year water supplier partnership with Cott Corp. (COT) resulted in Cott's $775 million offer for Primo on Jan. 13, downplaying the influence of Legion Partners LP in compelling the transaction. In the narrative of how the deal came together, Primo noted that Legion increased its ownership stake from 5.2% in May 2018 to 9.1% in August 2019, which made it the company's second-largest shareholder. The narrative also touches on letters from Legion to Primo shareholders on Sept. 17 and Oct. 29 that were critical of Executive Chairman Billy Prim, CEO Matthew Sheehan, and several board members over the company's "underperformance." In calling for an independent chairman and approval of several new independent board members, Legion managing directors Chris Kiper and Ted White wrote, "We contend Primo is an incredible business with significant scale, but is being held back by a lack of critical expertise on the board and an inability or unwillingness to objectively evaluate the performance of management and directors." Primo's board unanimously agreed to accept Cott's offer at a Jan. 11 special meeting, and on Jan. 15, Legion said it sold its entire holding for a projected $49.56 million. Kiper said on Jan. 13 that Legion was "not entirely happy with the price," as Cott's offer represents a 31.5% decline from Primo's all-time high of $20.43 on Aug. 24, 2018. Kiper said Legion was "just days away from nominating directors for a proxy fight" over the Primo board, and "they chose to sell at an offer that undervalues the company substantially."
Bill Ackman's Pershing Square Capital Management recently trimmed about $185 million worth of stock in Chipotle Mexican Grill (CMG), though it still holds a 5.4% stake. Pershing Square first invested in Chipotle in 2016, buying just over 2.8 million shares of the company at $415 per share, and has since doubled its original investment. At that time Chipotle was still in the midst of a string of food safety issues, but shares rebounded in 2018 to make it one of the S&P's recent top-performing stocks, with 50% gains that year and over 90% in 2019. Ackman played a major role in helping Chipotle recover by bringing on Brian Niccol as CEO in 2018. Niccol has driven the stock's rebound by pushing into digital platforms like delivery, implementing better quality control, introducing new menu items, and switching from regional to national marketing. Pershing, which soared 58% last year in part thanks to its bet on Chipotle, has trimmed its position and taken profits several times in 2018 and 2019 on about $800 million worth of shares. Chipotle stock, which is up 3.5% so far in 2020, beat analysts' estimates for fourth quarter sales and profits last week, reporting an 18% rise in fourth quarter revenue year-over-year thanks to more customers and higher menu prices. Digital sales rose by 78% in the quarter, and nearly a fifth of the company's overall sales came from digital orders alone.
In a Feb. 7 letter to the Securities and Exchange Commission (SEC), Carl Icahn called a proposed overhaul of shareholder voting rules "a big step backward" for corporate governance. The letter responds to a series of SEC proposals announced in November that would rein in proxy advisory firms and make it harder for investors to get their petitions on corporate ballots. Icahn and other investors argue that the changes will unfairly tip the scales toward management in proxy votes, making it harder to hold companies accountable. On the other side of the fight are corporate executives who claim that shareholder campaigns unfairly target them and prevent management from executing on long-term strategies. The SEC has seen a deluge of comment letters from pension funds, hedge funds, and religious and social groups rejecting its plans. Earlier this month, SEC Commissioner Elad Roisman gave a speech defending the agency's approach, saying that much of the criticism has been "based entirely on misinformation" and rejecting the notion that the SEC is doing the bidding of business interests. Icahn, who has broadly defended President Trump's de-regulatory agenda, did not accuse the SEC of intentionally working for big business but warned that the agency's proposals would give corporate insiders inappropriate new standing to sue proxy advisers for issuing analysis with which companies simply disagree. In the SEC's plans, proxy advisers would be required to share their recommendations twice with management before shareholders could see them.
A new report from the Hampton-Alexander Review finds that women held 32.4% of board seats at FTSE 100 companies in 2019, up from 30.2% in 2018. Women held 28.6% of key executive positions at large U.K. companies, up from 27% the year before but short of a 33% goal set by the review in 2016. The review notes that the appointment rate remains "significantly skewed" toward men, despite studies indicating that companies with diverse executive teams perform better and post bigger profit margins compared to those with limited or no diversity. About 6% of CEO positions and 15% of CFO positions at FTSE 100 companies were held by women in 2019. In terms of gender diversity, the United Kingdom was behind France, Sweden, Belgium, and Finland but ahead of the United States, the Netherlands, and Germany. A separate study last week found that Britain's largest companies rarely set targets for ethnic diversity on boards, resulting in calls from the Financial Reporting Council to improve their record.
Sources say Finnish engineering company Kone Oyj (KNYJY) faces the daunting challenge of acquiring German multinational conglomerate Thyssenkrupp's (TKAMY) elevator unit as a crucial deadline looms, with Thyssenkrupp labor representatives and executives concerned that a sale to Kone and co-bidder CVC Capital Partners would entail an unpredictable competition review. The Kone consortium submitted the highest bid of $18.6 billion for the elevator business in the latest round in January, while Thyssenkrupp has requested final offers by Feb. 11, with plans to reduce bidders to two. The sources report that Thyssenkrupp hopes to sign a deal by the end of this month. Kone is vying with three rival bidding consortia led by Blackstone Group (BX), Advent International, and Brookfield Asset Management (BAM). Certain private equity suitors have offered major Thyssenkrupp shareholders the chance to keep a minority stake in the elevator unit, and discussed plans to relist the business in Germany within several years. "We are skeptical about offers from strategic investors," said Thyssenkrupp's labor union IG Metall. "A bid from Kone would take time to pass through the EU competition process, and Thyssenkrupp needs the money quickly."
In a letter to the board of R.R. Donnelley & Sons (RRD), Chatham Asset Management is pressuring the company to rescind the "poison pill" rights defense it implemented in August 2019. Chatham—which is R.R. Donnelley's largest shareholder, owning 12.9% of outstanding shares—said in the letter, "By attempting to shield the board and management from stockholder criticism and input, the poison pill serves no legitimate corporate purpose and is contrary to the interests of both the company and its stockholders. While we are willing to meet with the board to discuss Chatham's concerns about the poison pill, Chatham reserves the right to seek whatever remedies are available if its concerns are not resolved." Under the rights distribution, each stockholder who held a share as of Sept. 9 received one right per share entitling the holder to buy a new series of preferred stock from the company. In a filing with the Securities and Exchange Commission, R.R. Donnelley said the distribution could have an overall "anti-takeover" effect, which could lead to substantial dilution of shares in the event any person or group tried to take over the company without the board's approval. According to Chatham, the "poison pill poses a significant obstacle to the exercise by investors who have substantial equity holdings in the company of one of the most fundamental stockholder rights—the right to communicate with the board and management about issues that go to the heart of the company's business plan, affect value creation for the entire enterprise, and implicate the interests of every stockholder. Chatham wishes to initiate a dialogue with the company about such matters, in particular in light of the recent abysmal performance of the company's common stock," which has dropped more than 34% since the beginning of the year.
Investment bank Moelis (MC) is hiring Raymond James' (RJF) head of engagement response and contested situations. Duncan Herrington, a veteran banker and lawyer, will join Moelis in March. Investors like Elliott Management, Starboard Value, and Third Point have been engaging companies on improving their performance for years. Last year was a record year for new campaigns as three dozen newcomers pursued the engagement strategy. A total of 147 investors launched campaigns against companies, according to data from investment bank Lazard. A record number of the campaigns focused on mergers. Herrington will serve as managing director in the bank's New York office. He will help defend Moelis clients facing engagement campaigns.
Chipotle's (CMG) stock price dropped in early trading after Pershing Square revealed that it reduced its stake in the company. The hedge fund had a 5.4% stake in Chipotle at the end of the fourth quarter of 2019, down from 6.4% previously.
Jeffrey Smith's Starboard Value recorded a 16% gain in 2019, about half the gain of the Standard & Poor's 500 and lagging behind several of its peers, said a person familiar with the results. In contrast, Bill Ackman's Pershing Square Holdings rose 58.1% in 2019, Chris Hohn's TCI Fund Management jumped 40.6%, Keith Meister's Corvex Select Partners and its offshore equivalent gained about 40%, and Jeff Ubben's ValueAct Capital Master Fund climbed 32%. In recent weeks, Starboard nominated a slate of directors for Merit Medical (MMSI) and GCP Applied Technologies (GCP), publicly pressured eBay (EBAY) to sell one of its businesses, and filed 13Ds disclosing that it owns 9.3% of Green Dot Corp. (GDOT) and that various Starboard entities own 9% of Merit Medical.
Xerox Holdings Corp. (XRX) boosted its offer to purchase HP Inc. (HPQ) by $2 to $24 per share on Feb. 10, following many rejections of its previous buyout offer by the computer maker. In December, Carl Icahn, who has a 4.2% stake in HP and a 10.9% stake in Xerox, called for HP shareholders who had agreed to the merger to reach out to the computer maker's directors for swift action. Xerox said its new offer is $18.40 in cash and 0.149 Xerox shares for each HP share—valuing the company at approximately $35 billion—and that it intends to launch a tender offer on or around March 2. "This bid increase puts more pressure on Xerox to extract costs as a combined entity. I'd look for HP to question the economics of the synergies after Xerox raising their bid," said Morningstar analyst Mark Cash. Xerox said in January it would nominate 11 independent candidates to HP's board and that it had secured $24 billion in financing for an offer. Some analysts have argued a merger would help the companies in a declining printing environment, while others have mentioned challenges to integration, given their different offerings and pricing models. "While we believe the printing market is ripe for consolidation, we question why Xerox would want to acquire one of the largest players in a slowing computer market," Cash said.
Mall owner Simon Property Group (SPG) has reached a deal for an 80% stake in smaller rival Taubman Centers (TCO) at $52.50 a share, leaving the Taubman family with 20% ownership. The deal represents a 51% premium over Taubman's Feb. 7 closing price and answers a question that was first asked in 2003, when Taubman foiled a hostile takeover bid from Simon and Westfield. In 2016, investor Jonathan Litt took a position in Taubman and started pushing for changes to the company's corporate governance, as the Taubmans control 30% of the voting rights despite owning only 2% of the company's stock. Moreover, the board's staggered structure meant that all nine directors normally stood for election at different times instead of at the annual meeting. Litt did not manage to unseat Bobby Taubman from the company's board, but he did prevail in compelling the real estate investment trust to hold de-staggered elections. One analyst noted shortly after merger talks with Simon opened late last year that "Taubman seemingly does not control its own destiny in terms of an M&A transaction," because all nine members of the board will be up for election this year, meaning Simon could have run a slate of directors that would vote in favor of a tie-up. Simon is the largest mall operator in the country with a portfolio of 233 malls, outlets, and other properties in North America, Europe, and Asia, valued at about $100 billion. Taubman has just 24 properties with a net value of about $11 billion, but it is widely viewed as the highest-quality mall operator in the country with the best anchor tenants and mix of stores.
SoftBank Group (SFTBY) is expected to post a slide in profits for the past quarter amid heightening concerns about its ability to secure funding for a second Vision Fund. The Japanese conglomerate is expected to post a 20% fall in operating profit to 345 billion yen in the October-December quarter, which would follow a quarterly operating loss of 704 billion yen when the value of companies including WeWork and Uber (UBER) plunged. SoftBank has come under increasing pressure for its lack of transparency, especially around its $100 billion Vision Fund, and the emergence of Elliott Management as a prominent SoftBank shareholder is likely to highlight the conglomerate's recent difficulties. Elliott has amassed a stake of almost $3 billion in SoftBank and is pushing for change including $20 billion in stock buybacks. SoftBank shares are up about 8% year-to-date, boosted by positive sentiment toward China's Alibaba (BABA) and news of Elliott's involvement. SoftBank Corp., the telecommunications firm that is two-thirds owned by SoftBank Group, reported a 15% rise in quarterly profit on Friday.
Investors and corporate groups worldwide are weighing in on proposals from the Securities and Exchange Commission (SEC) that could dramatically change the rules for proxy advisory firms and how shareholder proposals are submitted. The new rules would require proxy advisers to disclose more information about their processes and any conflicts of interest and give companies the opportunity to offer revisions to their reports. By the end of the comment period on Feb. 3, the proposals had prompted more than 14,000 comment letters, with a variety of investor groups, government officials, scholars, unions, and thousands of individual investors opposing the proposals. Investors say the proposals post a threat to shareholder rights and corporate governance best practices, while corporate groups argue that proxy adviser regulation is needed to prevent conflicts of interest and errors. In its comment letter, Third Point LLC said the timing "does not seem to us like coincidence, as shareholders are demanding increased transparency from public companies." Amy Borrus, deputy director of the Council of Institutional Investors, ties the proposals to a business lobbying campaign meant to make it "harder and more costly for institutional investors to get the independent research and advice they need to hold executives accountable." Many commenters mentioned the growing trend of environmental, social, and governance (ESG) proposals, because the rule changes would introduce major impediments to ESG integration. The question now is whether SEC officials are open to some compromises over practices that both sides acknowledge may have room for improvement, such as by giving companies a limited opportunity to fact-check for inaccuracies but not allowing them to change things they simply disagree with. The prospect of something less than sensible in investors' eyes is already triggering talk of delay or blocking tactics, including lawsuits challenging the SEC's regulatory process and even freedom of speech protection for proxy firms.
The Securities and Exchange Commission (SEC) aims to reduce small shareholders' ability to put resolutions on corporate ballots, arguing that they place an onerous burden on companies, and cost tens of thousands of dollars apiece for research, printing, and mailing of ballots. Opponents say the proposal would limit regular investors' authority to hold executives accountable, while supporters cite the current regulation's laxity. "We were...observing that a small handful of folks were continuously providing some of the same proposals year after year, and the majority of shareholders were not getting on board," noted SEC executive William Hinman. The proposal includes raising the minimum stake required to submit a resolution from $2,000 to $25,000, assuming one year of continuous ownership, and proscribing representatives from submitting proposals on behalf of multiple investors at the same meeting. The Chamber of Commerce is backing the SEC proposal, with chamber official Thomas Quaadman claiming the current system allows "a small minority of interests...to advance idiosyncratic agendas at the expense of Main Street investors." The SEC also is weighing new regulations on proxy advisory firms, which mutual funds and other large investors pay to research items on shareholder ballots and offer vote recommendations. Institutional investors and asset managers have generally supported proxy advisory firms in taking issue with the SEC's proposed rule. "The proposal will effectively provide companies with a mechanism to influence proxy advisory firms' voting recommendations," said T. Rowe Price (TROW) CEO William J. Stromberg.
Three private equity bidders for Thyssenkrupp's (TKAMY) elevator unit, which they value at about €15.5 billion, reportedly are prepared to offer Germany's most powerful union, IG Metall, job guarantees. Final offers in what could be one of Europe's biggest private equity deals are due next week. Thyssenkrupp, however, is still considering a possible float of the elevator division. The union represents most of the elevator unit's 5,000 German employees. In addition to the three private equity consortiums, led by Blackstone (BX) and Carlyle (CG), Advent and Cinven, and Brookfield (BAM), Finnish lift maker Kone (KNYJY), in partnership with private equity group CVC, also has submitted a bid. Sources say the bidders "will do what they have to do" to win over union leaders, especially because they have been told they must present their takeover plans to union leaders as part of the process. IG Metall has indicated that it is warming to private equity bidders, but workers' representatives are concerned about Kone's bid, because being purchased by a competitor could lead to another run-in with antitrust authorities in Brussels and Washington. Sources add that Thyssenkrupp's management would prefer to avoid a protracted negotiation with the European Commission and will consider the certainty and speed of any potential offer. Thyssenkrupp's supervisory board, which includes representatives from IG Metall, Cevian, and the Krupp Foundation, will assess the rival bids at a Feb. 27 meeting.
Barclays (BCS) has once again come under scrutiny from investor Edward Bramson, prior to the bank's annual results on Feb. 13. Analysts anticipate the bank will report pre-tax profits of £6 billion for 2019, up from £5.7 billion in 2018, supported by a rise in the investment bank's performance. But Bramson, who runs Sherborne Investors, recently extended the duration of his stake in the bank to July 2022 through a complex loan arrangement, spurring speculation that he could revive his siege. Bramson last year pressured Barclays to shrink the investment bank, but was defeated when he failed to win a seat on the board at its annual meeting.
A new analysis by responsible investment charity ShareAction finds that BlackRock (BLK), Vanguard, and State Street (STT) voted against their proxy advisers' recommendations about three-quarters of the time on environmental and social lobbying proposals. The findings challenge accusations that asset managers "robo-vote" or automatically follow the recommendations of proxy advisers, which some corporate groups have used to argue for tighter regulation of proxy advisers. The Securities and Exchange Commission (SEC) has proposed new rules to reform the proxy industry after an influential lobbying campaign warned that proxy advisers have too much power. The report found that 65% of big investors examined backed company management on environmental, social, and political lobbying proposals more often than their proxy adviser, which raises questions about their commitment to sustainability. According to the ShareAction report, ISS recommended that investors back 79% of the environmental, social, and political resolutions examined, compared to 54% at Glass Lewis.
BlackRock Inc. (BLK) has continually reduced its stake in Peabody Energy Corp. (BTU). As of Dec. 31, BlackRock owned a 5% stake, down 14% from the end of January 2019. The decrease follows BlackRock's announcement that it would make climate change an integral part of its business plans. The asset manager has pulled debt and equity investments in thermal coal companies from its $1.8 trillion active portfolios. In contrast, Elliott Management Corp., Peabody's biggest shareholder, increased its control over the mining business. Peabody is the largest coal mining company in the United States.
Enzo Biochem Inc. (ENZ) has disclosed that Harbert Discovery Fund LP filed a lawsuit against the company and the members of its board of directors in the U.S. District Court for the Southern District of New York. Enzo commented as follows: "We are disappointed but not surprised by the actions of Harbert. Harbert has acted to disenfranchise Enzo shareholders and taken the extraordinarily aggressive step of filing a meritless lawsuit against our Company and our directors in order to deny shareholders their right to vote on a proposal to expand the size of the Board, a proposal we added to the Annual Meeting agenda as a result of feedback from investors. Harbert is demanding that the court invalidate our proposal to provide shareholders an additional choice of how to constitute their Board or, alternatively, asking the court to require approval by an 80% supermajority of outstanding shares. This lawsuit underscores in stark terms that Harbert is not interested in shareholder democracy or allowing other shareholders the ability to decide the future of Enzo's Board composition and structure. By filing this lawsuit, Harbert demonstrates its fear that the majority of Enzo shareholders will support the Enzo proposal and Harbert's willingness to resort to extraordinary tactics to circumvent the will of Enzo shareholders. This reveals what we have previously stated is Harbert's true aim: to take effective control of the Company regardless of the desires of Enzo's other shareholders. This appears to be the real reason why Harbert has rejected our multiple attempts to resolve this contest amicably."
French markets regulator Autorité des Marchés Financiers (AMF) has recommended a €20 million fine against Elliott Management for allegedly obstructing an investigation into a takeover bid and failing to adequately disclose its positions. The penalty would be among the largest ever levied by AMF; two years ago, Natixis Asset Management was fined a record €35 million, which later was reduced to €20 million. A hearing was held on Feb. 7, and now AMF's sanctions committee will determine whether the hedge fund broke the law and how much it should be fined. The matter involves Elliott's 2016 investment in Norbert Dentressangle, a French logistics group that was in the process of being taken over by U.S. rival XPO Logistics (XPO), with the hedge fund taking a stake in hopes of winning a higher price from the buyer. AMF is concerned with whether Elliott correctly disclosed the size and nature of its positions. According to AMF, Elliott allegedly concealed the kind of instruments it held the shares through, declaring they were one type when they were another in an effort to hide its intentions—a move the regulator says harmed other minority shareholders by depriving them of information and impeded the proper functioning of the market. Elliott disputes AMF's claim and contends that it is being singled out by the regulator. This comes as Elliott continues to engage French companies Altran (ALTKF) and Pernod Ricard (PDRDY), while Amber Capital pushes for changes at Lagardère (LGDDF) and Suez (SZEVY).
Christer Gardell, co-founder of Cevian Capital, has urged Ericsson (ERIC) to seriously consider a proposal that would allow the United States to take a controlling stake in both it and its rival Nokia (NOK). Cevian is Ericsson's largest shareholder by capital, but not by votes. Gardell called the U.S. offer "real" and predicted that the United States would "do whatever it takes and costs" to close the deal. U.S. Attorney General William Barr said Thursday that the United States and its allies should prepare a serious bid for a controlling stake in Ericsson and Nokia. That bid is designed to counteract China-based Huawei's growing influence. Gardell said it would be "very risky" for Ericsson's board not to at least consider the U.S. proposal. The business ministers in both Sweden and Finland declined to comment on the revelations. Two former prime ministers of the two nations said that Ericsson and Nokia should come to terms with their strategic importance in the fight against Huawei.
On Feb. 6, the Korea Economic Research Institute (KERI), Korea Enterprises Federation, Korea Listed Companies Association, Federation of Middle Market Enterprises of Korea, and the Kosdaq Listed Companies Association co-hosted a forum titled, "Improving governance structure for national pension independence." The discussion focused on the National Pension Service's (NPS) increased interference in corporate management. In his opening address, KERI President Kwon Tae-shin said, "Now, it is not just overseas hedge funds, but NPS is also interfering in the management of Korean companies. The problem is that the firms have to endure these attacks without any defensive measures." He added that because the purpose of establishing the NPS was to guarantee the future income of people, "we must express serious concern that the government is using the funds for other purposes." In recent months, NPS has adopted stewardship code guidelines aimed at more active shareholder activism. "The misconduct of some corporations can be punished through related laws. But the idea that the government will use the national pension fund to sanction companies does not serve its original purpose," former Health and Welfare Minister Choi Kwang said. Meanwhile, Sunmoon University professor Kwak Kwan-hoon argued that some members of the NPS Trustee Responsibilities Committee lack expertise in investment decisions, operation, or corporate management. He said, "To solve this problem, the NPS' investment judgment and voting rights should be left to experts and the current committee should only manage and supervise the decision-making by experts."
BlackRock Inc. (BLK) cited the value and costs of shareholder proposals in a letter to regulators weighing reforms to the proxy process, taking a middle ground in a hotly contested rulemaking process. The asset manager's comment letter to the U.S. Securities and Exchange Commission (SEC), provided by a spokesman on Thursday, did not specifically address controversial ideas like raising the current threshold of $2,000 worth of stock needed to file some resolutions. Instead in the letter, dated Feb. 3, BlackRock Vice Chairman Barbara Novick wrote, “Shareholder proposals can be a valuable part of an investment stewardship process, however, it should be acknowledged that the costs of these proposals are borne by all shareholders.” Activist shareholders have asked the SEC to hold off on reforms that could come to a vote as soon as next month and would make it harder for investors to stage votes on environmental, social and governance topics at corporate annual meetings. BlackRock has faced criticism from investors who want it to oppose the changes as a way to back up the vows by its Chief Executive Larry Fink to put more attention on climate change and other issues.
The Securities and Exchange Commission received thousands of comments on its share voting rules, which were due Feb. 3. The proposal would make it harder for small shareholders to put their own proposals up for a vote on company elections and add oversight for proxy firms. Hedge funds Elliott Management and Third Point have objected to the rules. At times, Elliott and Third Point have gotten proxy adviser's endorsement of their campaigns to take over corporate board seats. "Holding corporate managers accountable through shareholder democracy is hard enough as it is," Third Point told the SEC. Amazon worker-shareholders, who are engaging the tech giant on climate change, sided with the hedge funds. Proxy firms such as Institutional Shareholder Services and Glass Lewis also pushed back on the proposal. The SEC is expected to finalize its rules in the coming months.
On Feb. 6, Forescout Technologies Inc. (FSCT) said it has agreed to be acquired by Advent International in an all-cash deal valued at $1.9 billion. The private equity group will acquire all outstanding shares of Forescout common stock for $33 per share, with the purchase price amounting to a nearly 30% premium over the company's closing share price of $25.45 on Oct. 18, 2019—the last full trading day before the release of 13D filings by Corvex Management LP and Jericho Capital Asset Management LP. When the transaction is finalized, Forescout will become a private company that can continue investing in the development of cybersecurity products and solutions for enterprise customers. The agreement includes a 30-day "go-shop" period expiring on March 8, which allows the company's board of directors and advisors to solicit alternative acquisition proposals from third parties.
An increasing number of institutional investors are requiring their hedge fund managers to incorporate environmental, social and governance (ESG) factors in the course of their investment activities, according to a report released at the Cayman Alternative Investment Summit in Grand Cayman. Some 45% of institutional investors now base their investments in ESG-based hedge funds on the view that they offer opportunities to generate alpha, while also offering a more defensive portfolio that looks beyond the blind spots in markets that are slow to price in ESG risks. The survey of 135 institutional investors, hedge fund managers and long-only managers with total assets of $6.25 trillion in 13 countries was published by KPMG, the Alternative Investment Management Association, Chartered Alternative Investment Analyst Association and CREATE-Research. Better engagement with investee companies is bolstering available data with a better picture of the reality on the ground and providing an information edge. Investors and managers have increasingly collaborated with their peers and external advocacy groups in promoting ESG-related goals. Some managers now explore other options, including divestment, when their efforts appear to bear no fruit. A pragmatic engagement approach is part of a broad thrust that aims to minimize greenwashing by demanding better data, complying with industry codes of practices, improving reporting and enhancing transparency.
Elliott Management Corp. has quietly built up a more than $2.5 billion stake in Japan’s SoftBank Group Corp. (ADR) and is reportedly pushing the technology giant to make changes that would boost its share price. SoftBank is one of Elliott’s largest bets, according to people familiar with the matter. At current prices, the investment would be equivalent to around 3% of SoftBank’s market value. Top Elliott staff have met with SoftBank founder Masayoshi Son. They also have reportedly met with his deputies including Yoshimitsu Goto, the chief financial officer, and Vision Fund head Rajeev Misra, including in late January. So far, discussions between the two companies have been cooperative, according to people familiar with the situation. The discussions with the company’s leadership have focused on ways to improve its corporate governance. This includes a call for more transparency and better management of investment decisions at its $100 billion Vision Fund, according to the people. Elliott has pushed for SoftBank to buy back $10 billion to $20 billion in shares and help close gap between the company’s market value and the value of stakes in companies in which it has invested.
The parent company of the New York Stock Exchange abandoned its pursuit of eBay Inc. (EBAY) just days after its interest in a deal became public, triggering a backlash from investors. Intercontinental Exchange Inc. (ICE) said in a statement released after markets closed Thursday that it was giving up on its consideration of “strategic opportunities” with eBay based on conversations with investors after its morning earnings call. The move followed a sharp decline in ICE shares after reports Tuesday that the company had made an overture to eBay that could result in a takeover worth more than $30 billion. ICE shares dropped 7.5% that day and almost another 3% Thursday as investors voted against the idea by selling their shares. The drop in the exchange operator’s stock has wiped out more than $5 billion in market value. The shares rallied approximately 3% in Thursday’s after-hours trading following the company’s statement.
Cigna (CI) CEO David Cordani is touting the recent success the company has seen after acquiring Express Scripts (ESRX). When that deal was originally announced in 2018, Cigna shareholders did not approve, and the stock sold off over 11%. Investor Carl Icahn criticized the move saying it gave Express Scripts a “ridiculous valuation” and could “rival the worst acquisitions in corporate history." After completing the deal, Cigna stock fell below $145 per share. The stock has since climbed more than 45% to $211.86 as of Feb. 5. The company's stock is now less than $15 away from an all-time closing high. Cordani is confident the company will continue to see success into 2020. "Then we’re stepping into 2020 with a 10% revenue growth outlook and another double-digit earnings outlook in front of us," said Cordani.
Bankwell Financial Group in New Canaan, Conn., has agreed to put Lawrence Seidman on its board. He will join the board of the $1.9 billion-asset company at its 2020 annual meeting, according to a filing with the Securities and Exchange Commission. Seidman will act as a nonvoting observer on Bankwell’s board until the meeting takes place. Seidman will remain on the board as long as he holds at least 5% of Bankwell’s shares. The investor and affiliated entities control 8.9% of Bankwell’s stock.
On Feb. 5, Peabody (BTU) announced that it will appoint several new members to the company's board, including Elliott Management equity partner Dave Miller, Elliott Management portfolio manager Samantha Algaze, and tenured coal industry executive Darren Yeates. Under the agreement between Peabody and Elliott, the company's biggest shareholder, a fourth independent director with extensive mining operations experience will be jointly identified by Peabody and Elliott and added to the board. Peabody will nominate each of the new directors, along with all current directors, for a full one-year term at the company's upcoming annual meeting in May. Further, Peabody and Elliott have entered into a cooperation agreement outlining the relationship between the two companies, with Elliott agreeing to certain customary standstill, voting, and other provisions. "We are convinced that Peabody has significant unrealized potential," said Miller. "Elliott has built a strong relationship with the team at Peabody in recent years, and we look forward to helping the company create substantial long-term value for all investors."
Intercontinental Exchange Inc. (ICE), which owns the New York Stock exchange, recently made an offer for eBay's (EBAY) marketplace business to general confusion from observers. Analysts at Citigroup Inc. (C) wrote in a note to clients that "news of the eBay approach strikes us as outside the box of typical exchange M&A and ICE playbooks," saying it questions "both potential expense and revenue synergies." These concerns were echoed by others including Oppenheimer & Co. (OPY) and Piper Sandler Cos. (PIPR), and shares in ICE slumped 7.5% on the news. Despite these skeptics, the deal talks show ICE is taking a wider view of potential combinations as CEO Jeffrey Sprecher keeps up with acquisitive rivals such as London Stock Exchange Group Inc. and CME Group Inc. (CME). EBay, meanwhile, has seen years of stagnant sales growth stifle its position in an online commerce market dominated in the United States by Amazon.com Inc. (AMZN). Investors Elliott Management Corp. and Starboard Value began pushing for changes at eBay last year, including the ousting of CEO Devin Wenig in September and the November sale of ticket-resale site StubHub. On Tuesday, Starboard ramped up pressure on eBay to separate its classifieds business and implement more aggressive operational targets.
In January, eBay (EBAY) cut costs by discontinuing its employee shuttle service and laying off 102 employees in the San Francisco Bay Area. The company is under pressure from investors Elliott Management and Starboard Value following the ousting of Devin Wenig as CEO last September. Shares of eBay surged 8% on Tuesday after reports that Intercontinental Exchange (ICE), which owns the New York Stock Exchange, made a bid to acquire eBay's marketplace business.
Investor Bill Ackman has sold his stake in Starbucks Corp. (SBUX). Ackman says the company is "firing on all cylinders" after improving its financial results. During an investor presentation, he said Pershing Square Capital Management's investment in Starbucks returned 73% over 19 months. He said returns in the near future could "become more modest," but Starbucks should continue to produce strong earnings growth. Ackman notes that Starbucks' same-store sales have averaged 5% growth over the course of Pershing Square's investment. Discussing his investment in Agilent Technologies Inc. (A) for the first time, Ackman said the company is undervalued. In November, he said his stake in the life sciences equipment maker amounted to about 8% to 9.5% of Pershing Square's portfolio. "We believe Agilent's current valuation represents a discount to intrinsic value and does not fully reflect the company's high-quality business model, increasing mix of recurring revenue, strong long-term growth potential, and significant margin expansion opportunity," the presentation says. Pershing Square finished 2019 with its most robust performance on record, reporting a 58% return on its investments. Big gains were made on its investments in Chipotle Mexican Grill Inc. (CMG), Hilton Worldwide Holdings Inc., Fannie Mae (FNMA), and others. The first month of 2020 hasn't been as favorable, with the firm reporting a 1.3% drop on investments through Jan. 31, according to its website.
South Korea's National Pension Service (NPS) is getting ready for new committees to step up the shareholder engagement push for its portfolio firms at an unprecedented level. However, the NPS' Fund Management Committee will face a challenge in trying to form a comprehensive decision-making system ahead of the March proxy season in Korea. Cho Heung-seek, vice president of NPS' Fund Management Committee, has told reporters that NPS shareholder proposals for March are unlikely given that a shareholder must come up with proposals six weeks prior to a meeting under the Commercial Act. According to its revised internal regulation, implemented on Wednesday, NPS will form three nine-member subcommittees under the Fund Management Committee, dedicated separately to investment policy, fiduciary duties, and risk management, in order to bolster independence in the funds' decision-making in shareholder engagement. Three standing members representing business circles, labor unions, and insured people will take part in all three subcommittees. The revision coincides with changes passed in January that eased regulations for disclosures in pension funds' stock holdings. Institutional investors with at least 5% of voting rights will no longer need to disclose their actions within five trading days when proposing to revise a company's articles of association, dividend payouts, and/or executive salaries.
The Malaysian Securities Commission (SC), in conjunction with the Institutional Investors Council Malaysia and the Minority Shareholders Watch Group, recently released the Annual General Meeting Corporate Governance Checklist for shareholders, which aims to promote meaningful dialogue between shareholders and boards at annual general meetings (AGM). According to the SC, "Shareholders play an important role in driving responsible corporate behavior and the AGM is one of the platforms where they can raise material issues for discussion or seek explanation from the board and management." SC Chairman Datuk Syed Zaid Albar said the checklist is intended to guide shareholders on key issues they may need to consider or raise at an AGM before they exercise their voting rights. Other stakeholders including consumers and potential investors can use the checklist to understand and evaluate a company's performance, policies, and practices.
Investor Carl Icahn has called on the Delaware Supreme Court to rescind a ruling that prevents his inspection of Occidental Petroleum Corp.'s (OXY) merger records, claiming that his proxy fight gives sufficient reason to allow him access to the information. Icahn is preparing a legal skirmish to replace certain directors on Occidental's board after charging the company with overpaying to close its $37 billion acquisition of Anadarko Petroleum Corp. The Chancery Court ruled that Icahn did not demonstrate proper purpose in demanding Occidental's records.
Under a new law in New York, all domestic and foreign business corporations authorized to do business in the state will be required to report the number of women who serve on their board of directors on their Biennial Statement filed with the New York Department of State. By Feb. 1, 2022, the department will publish a report on the findings of this study on its website, and continue doing so every four years thereafter. The study will include the number of women directors and the total number of directors that constitute the board of each corporation, an analysis of the change in number of women directors from previous years, and the aggregate percentage of women directors on all such boards of directors. This follows a law passed in California in 2018 that required all publicly-held domestic or foreign corporations whose principal executive offices are located in California to have at least one female director on their boards by Dec. 31, 2019. Similar legislation has been proposed or enacted in other states, including Illinois, Maryland, Michigan, New Jersey, and Pennsylvania.
Feb. 3 was the deadline for investors to submit feedback on a Securities and Exchange Commission proposal to require proxy advisors to allow companies to vet their voting advice before publication. While companies—supported by many Republican lawmakers—have lobbied hard for the proposal, according to public records, many influential hedge fund managers, some of whom have donated to Republicans and support President Donald Trump's business agenda, oppose the rule. In its comment letter, Paul Singer's Elliott Management said the changes "would hamper the firms' ability to offer efficient and impartial advice...amplifying the views of issuers and chilling valid criticisms. By distorting the information available to investors, the proposal threatens the integrity of the markets." This follows a letter to clients from Third Point's Daniel Loeb arguing that the rules would allow "an end run around shareholder rights." The pushback against the proposal emerged publicly in November when Carl Icahn criticized it in an op-ed, contending that it would have "disastrous repercussions for the U.S. economy." Meanwhile, Aneliya Crawford, a partner at law firm Schulte Roth & Zabel, said her activist hedge fund clients were "united" against the proposal and "universally feel that they have been given no preferred treatment" by proxy advisors.
According to CEO Score, Korea's National Pension Service (NPS) has exercised its shareholder rights more actively since it adopted the stewardship code in 2018. In its survey of 577 companies in which the NPS held shares and exercised its voting rights at shareholders meetings last year, CEO Score found that the NPS voted against initiatives proposed by companies 16.48% of the time, up from 11.85% a year earlier. Meanwhile, the rate at which it approved proposals decreased from 87.34% to 83.11% over the same period. The survey also found that NPS opposed proposals dealing with compensation for directors and auditors 28.98% of the time. Further, NPS opposed proposals to grant stock options, appoint members to audit committees, change the companies' corporate articles, and reduce capital at least 10% of the time.
Elliott Management Corp. has engaged Evergy Inc. (EVRG), a Kansas City-based utility company that is smaller than other companies it has engaged. Elliott manages funds that own 11.3 million shares, or about 5%, of Evergy and is pushing the company to invest more in renewable energy and reduce reliance on its coal fired plants. In a Jan. 21 letter, Elliott cited Evergy's stock performance in calling on it to restructure or merge with a partner. Edward Jones senior analyst Andy Smith said he was surprised that the hedge fund decided to engage Evergy. "We've seen it with a few other utility companies in the past, so it's not completely out of left field. In Evergy's case, I don't think there's necessarily a great reason for them to come in and do this, though," Smith said. "Yes, their rate base growth and their capital spending plans are lower than peers, but it's been well-reasoned and well-disclosed to investors. So for them to come in and come up with alternate plans is a little unusual." However, Smith added, "This is similar to what they did with Sempra (SRE), where Elliott basically wanted Sempra to divest businesses in its portfolio and concentrate its spending on core utilities. Elliott wants Evergy to concentrate its spending on the utility operations and all the upgrades that need to be made and grow at a faster rate."
Sources are reporting that Intercontinental Exchange Inc. (ICE), owner of the New York Stock Exchange, has made a takeover offer for eBay Inc. (EBAY) that could value the world-famous online marketplace specialist at more than $30 billion. According to the sources, the two sides have yet to enter into formal talks, and there remains no guarantee that eBay would ultimately agree to a deal. If one were reached, it would be large, given eBay's market value of more than $28 billion and the premium ICE would likely have to pay. ICE is mainly interested in owning eBay's core marketplace business and not its classified unit, which eBay has considered selling. Market watchers say the classified unit could fetch around $10 billion in a sale. As the luster it enjoyed in the dot-com era has worn off, eBay has attracted the attention of multiple investors in recent years including Carl Icahn, who pushed for its 2015 spinoff of the payment platform PayPal Holdings Inc. (PYPL). Approximately one year ago, Elliott Management Corp. and Starboard Value LP called for eBay to weigh selling both its StubHub ticketing and classified-ads businesses. EBay later reached settlement deals handing the hedge funds board representation and late last year agreed to sell StubHub to Geneva-based Viagogo Entertainment Inc. for $4.05 billion. On Feb. 4, Starboard published another letter to eBay management, saying the company hasn't made enough progress and calling on it to commit to a separation of its classifieds business.
Bloomin' Brands (BLMN), owner of the Outback restaurant chain, has selected three bidders as potential buyers for its Brazil business, which has about 100 restaurants and could be worth about $472 million. The bidders are private equity firm Advent International, local investor Vinci Partners, and local QSR chain Madero. Bloomin' Brands first announced it would pursue strategic alternatives in November, encouraged by pressure from investor Jana Partners to sell or break up the company. In 2017, Outback yielded a 13% increase in sales in Brazil—which was a relatively new market at the time—and thus continued to pour time and resources into the market. However, sales dropped 3% in 2018 and profit margin before EBITDA was about 7.9%, pressured by high operational costs. Outback's challenges in Brazil could have something to do with the country's shaky economy, which continued to shrink in 2018. Outback Brazil had a stronger 2019, with comparative sales rising 11.2% in the third quarter and 6.1% overall in the first nine months of the year compared to a 3.3% decline in the year-ago quarter and a 2.8% decline in the first nine months of 2018. Divesting Outback Brazil to a local operator familiar with the environment could be a solid strategic plan to recapture optimism for the brand.
Dan Loeb's Third Point offshore fund posted a 1.2% gain in January, compared to flat growth for the S&P 500 index. Third Point earned most of its gains in its equity long book, which kicked in one percentage point to gross performance, and a smaller amount from its short book. Within the equity book, fundamental and event-driven positions (which are grouped together) gained 0.7% while activist positions kicked in 0.3% to the gains. Both the activist/fundamental and event-driven positions account for all of the equity book and have similar long exposures, though activism has a larger net exposure and primarily generated Third Point's gains last year, when it gained 17% overall. The credit book posted a 0.4% gross gain in January, all on the long side. Third Point's biggest winners were Baxter International (BAX), Sony (SNE), Salesforce.com (CRM), Far Point Acquisition Corp. (FPAC), and Danaher Corp. (DHR). Far Point, a special-purpose acquisition company co-sponsored by Third Point and former NYSE president Thomas Farley, announced in mid-January that it would merge with technology and payments company Global Blue for $1 billion. Elsewhere in its fourth quarter letter, Third Point told clients 2020 was starting with "friendly monetary conditions and a benign economic backdrop" that drove stocks higher. The letter also articulated the fund's case against the Securities and Exchange Commission's proposal to regulate proxy advisory firms such as ISS and Glass-Lewis, which it says would "undermine corporate democracy...by diminishing unbiased informational flow within the annual electoral process."
Nasdaq has submitted two comment letters backing the Securities and Exchange Commission's (SEC's) efforts to improve the proxy process. The first comment letter is in regards to an SEC proposal that would revise the procedures and resubmission thresholds for shareholder proposals under Exchange Act Rule 14a-8. Nasdaq has long sought an update of Rule 14a-8. Nasdaq also requested that the SEC reevaluate the use of representatives altogether in the shareholder proposal process to make sure that the proponent has a genuine and meaningful interest in the relevant proposal. The second letter is in regards to an SEC proposal that would mandate transparency about the methodologies and conflicts of proxy advisory firms, as well as a mechanism for companies to address errors by the firms. Over the past decade, Nasdaq has called for reforms to increase transparency, accuracy, and accountability in the proxy advisory industry. To provide meaningful feedback to the SEC, Nasdaq spoke with public companies to understand their real-world problems and concerns.
EY's Center for Board Matters (EY CBM) recently conducted a series of interviews with governance specialists at more than 60 institutional investors representing a combined $35 trillion in assets under management. Asked which factors are critical to their issuers' fate over the next three to five years, 64% of investors point to talent management, 56% cite environmental issues, and 38% point to corporate culture and board composition and diversity. Sixty-six percent of respondents in the EY CBM survey say workforce diversity is the human capital component they are most focused on, followed by human capital management, and workforce compensation. The report's authors note that several investors "commented on their dissatisfaction with issuers' current human capital disclosures." The poll finds that the top three investor engagement priorities for 2020 are environmental issues/climate change (cited by 59% of respondents), board diversity (54%), and talent management (32%). According to the report, some of the key factors investors use in assessing board oversight risk include, but are not limited to, board-level structure and process for oversight; the strength of company reporting on how risks are managed and measured; and directors' understanding of the business' social impacts. EY CBM Americas leader Stephen Klemash says he expects companies will need to field questions from buy-side analysts on talent management and related issues amid an economic shift that has greatly increased the value of intangible assets such as human capital. Klemash expects to see increasing disclosures regarding culture in shareholder reports, with metrics such as workforce turnover rates, engagement scores, or external awards presented in comparison to peers.
At many companies, executive chairmen function as the real CEOs of a company, while the CEO is more like a COO. It is not unusual for CEOs to become executive chairs after leaving the CEO job, which happened at Constellation Brands (STZ), Intuit (INTU), Kimberly-Clark (KMB), Pfizer (PFE), and other major companies last year. Getting the transition right is increasingly important as CEO turnover rises to unprecedented levels, with January setting a new record at 1,600 CEO departures. The trending opinion regarding the practice is generally negative, with experts saying it restricts the new CEO's ability to depart from older protocols. Researchers at Georgetown University and the University of Pittsburgh find that—unless the departing CEO is a founder—companies whose ex-CEOs stay on the board suffer lower stock returns than other companies in the two years after the turnover. The cause is unclear; it could be awkward board room dynamics, or that the aging CEO may steer the succession process toward a less experienced candidate to play up their own worth to the board. The Conference Board's latest report on CEO succession practices finds that "while common in the past, this practice [keeping the departing CEO on the board] has become less prevalent," as 60% of the biggest manufacturing and nonfinancial companies require the exiting CEO to resign from the board on departure. The toughest calls tend to involve departing founder CEOs, where results range from great to terrible. The Georgetown and University of Pittsburgh researchers found that company stock returns on average were no worse for companies whose founder-CEOs departed the board than for other companies.
According to data from the Investment Association (IA), the number of U.K. companies that saw "no" votes from shareholders for egregious executive pay and other governance offenses rose in 2019, and more of the same could be seen this year. IA, the trade body for the fund management sector, put 158 companies—or a quarter of all businesses in the FTSE All Share—on its corporate governance watchlist last year, up from 155 in 2018 and 144 in 2017. The figures track companies that receive "no" votes of more than 20% at their annual general meetings. Andrew Ninian, director of stewardship and corporate governance at the IA, said, "With a quarter of FTSE All Share companies ending up on the register in 2019, investment managers will be paying close attention this year when companies bring their pay policies to the table to see whether they've heeded the high levels of dissent." Most of the "no" votes last year were cast to approve individual company directors, followed by pay as the second-biggest source of dissent. IA found that nearly a third of the FTSE 100 received a "no" vote on pay of at least 20% last year, noting, "As the public register reaches its third year, companies are doing more to acknowledge shareholder dissent, with over 80% of firms now making a public statement acknowledging the concerns and outlining how they plan to engage with shareholders—an increase from 55% in the public register's first year." Another 16 companies have been added to the IA's register already this year, up from 10 at this point in 2019 and eight in 2018.
Current research to determine the financial benefits of board diversity is incomplete, so it is best for companies to accept, on a common-sense basis, that groups with a variety of business expertise and social diversity qualities will improve decision quality and financial results. Board turnover needs to take place to diversify membership without increasing a size above a reasonable threshold. To increase turnover without abandoning the continuity of governance, boards should first establish both age and length of service as the basis of retirement. Companies should create a two-year post-retirement director role, such as an appointed advisory committee, where recently retired directors convey a thoughtful and objective history to their successors. In addition, candidate age and years of experience requirements bog down board diversity by restricting the pool of qualified candidates in ways that are not as valid as they once were. Retention concerns around age are less prominent because governance is now an attractive career, and avoiding top candidates because of the retention risk is a path to mediocrity. Years of required experience need to be recalibrated for the type of experience, because most fields have changed rapidly enough that domain proficiency acquired through decades-old work has limited value. These measures should allow boards to set aggressive timetables for minimum parity, so it is critical to establish goals and accelerate board diversity accordingly. Finally, companies should recognize the emerging value of innovation and social responsibility experience in director candidates as shareholders, rating agencies, regulators, and major trade organizations continue to demand more by way of corporate social responsibility. Executives should respond to this by pursuing mentoring and advisory opportunities, and governance committees that have not done so should add direct experience with innovation and social responsibility to their selection criteria.
According to a survey of 172 North American CFOs by Deloitte, nearly 45% said their companies experienced activism in the last three years, mainly through direct communication to management. Just over half said they have considered, taken, or expect to take action specifically because of activism, even if their company did not recently experience activism. Meanwhile, 80% of CFOs said they provide an activist's view presentation to leaders at least yearly, and 90% said they review analysts' comments and talk with key analysts and shareholders on a quarterly basis. Chris Ruggeri, national managing principal of Deloitte Transactions and Business Analytics, says, "Now, investors and other stakeholders, including activist shareholders, can communicate with millions of people at the click of a mouse rather than waiting for reports to be delivered by mail or other pre-digital methods. CFOs and their IR teams might want to take the new landscape into consideration as they plan their outreach to the investment community."
According to an analysis of the U.K.'s Investment Association public register, 158 FTSE 350 companies saw significant shareholder opposition over the annual general meeting season in 2019. That number of companies is up from 2018, when 151 companies saw shareholder opposition. The analysis also discovered that the number of resolutions at FTSE 350 companies totaled 298 last year, an increase from 294 in 2018. However, the number of resolutions fell for FTSE small-cap companies to 132 in 2019 from 149 in 2018. The number of resolutions facing opposition from investors increased to 35 last year.
Goldman Sachs (GS) recently became the first Wall Street investment bank to say it would refuse to take companies public in the United States or Europe unless they have at least one diverse board member, with an emphasis on gender diversity. A recent Goldman Sachs analysis reveals that 60 companies went public in Europe and the United States over the last two years with all-male boards, and another 100 went public with just one female director. Meanwhile, according to 2020 Women on Boards, 41% of Russell 3000 companies either have one or no women on the board. "The whole concept behind a board of directors is you are seeking advice and guidance and a sounding board for your own decision making that might not reflect your own," says Aureus Asset Management President and CEO Karen Firestone. "It's fantastic when you get CEOs who make these kinds of pledges because we need people to keep pushing for this kind of change." Although Firestone stresses that true diversity goes beyond the board, companies are not required to disclose gender breakdowns among their employees. "We still don't see as many female CEOs, but you're starting to see more women in the executive offices," she adds. An analysis of more than 1,600 publicly traded companies around the world by Morgan Stanley (MS) shows that gender diversity is linked to better recruiting, employee engagement and innovation, and less reputational risk, which results in higher relative returns. Between 2010 and 2015, companies that ranked in the top third for gender diversity had 2% higher average relative returns than other companies in their regions, with companies in the bottom third lagging by 1.8% annually.
Activist investors likely will benefit from a Federal Reserve rule, slated to go into effect April 1, which sets clearer standards for what would force investors that own less than a quarter of a bank's voting stock to apply to become a bank holding company (BHC). Industry experts say the move would allow shareholders to build voting stakes of up to 24.99% without filing for BHC status, which many investors avoid due to increased regulatory supervision. Some believe the rule also will create new challenges for smaller banks. Keefe, Bruyette & Woods analyst Damon DelMonte notes that "by owning more shares, activist investors are likely to have more leverage over management once they actually file their position." Driver Management managing member Abbott Cooper adds that the rule "really opens the door for people to go and replace entire boards. It's an opportunity that was not there previously that could really make a big difference for activist investors." Private investor Phil Timyan says several community banks have activist investors standing pat at less than 10% ownership, and they could increase their holdings when the new rule goes into effect. He cites Malvern Bancorp (MLVF), Bankwell Financial Group (BWFG), Wayne Savings Bancshares (WAYN), Bank of the James Financial Group (BOTJ), and FFBW (FFBW) as banks where activists likely will buy more shares. "It will be interesting," he remarks. "Activists are going to have much more power—that's for sure." However, Steven Sugarman, founder of Capital Corps—which is embroiled in a battle with Broadway Financial (BYFC) over its strategic direction and a shareholder rights plan that makes it harder for investors to boost their stakes—does not think the new rule will threaten small banks' leadership. He notes, "Bank holding company rules tend to protect banks from outside control pretty well." Meanwhile, JWTT President Tom Thiel believes the rule could benefit smaller banks by encouraging more investment by institutional investors and company insiders.
In 2019 the Business Roundtable released a statement on the purpose of a corporation that reflects a shift from shareholder primacy to a commitment to all stakeholders. While the statement seemed radical to some, it is consistent with recent Canadian corporate law, and Canadian boards have had to make decisions incorporating stakeholder concepts for a decade. Those concerned about moving away from shareholder primacy say that it undercuts managerial accountability, leading to increased agency costs and less effective corporations, but the experience in Canada suggests that these concerns are overstated. The 2008 Supreme Court of Canada decision in BCE Inc. v. 1976 Debentureholders rejected Revlon duties to maximize shareholder value in connection with a change of control transaction. In its decision, the court stated that directors' fiduciary duty is "a duty to act in the best interests of the corporation," and that "often the interests of shareholders and stakeholders are co-extensive with the interests of the corporation," though it noted that when they conflict, the directors' duty is to the corporation. Canada's federal corporate statute provides that, when acting with a view to the best interests of the corporation, directors may consider without limitation the interests of a broad variety of stakeholders. In Canada, a stakeholder model allows directors to exercise their business judgment to consider the interests of stakeholders as long as they have an informed belief that doing so will promote the long-term value of the corporation. The market for corporate control remains healthy in Canada, and shareholders retain their most basic and powerful right in the stakeholder model, which is the right to elect and change the board of directors.
A recent report from Deloitte finds that in the past five years, nearly one in twenty public European firms has been engaged by an activist investor. Jason Caulfield, the author of the recent report, notes that activist funds "have been part of the furniture" for U.S. capital markets for "quite a long time." Of 3,800 public U.S. companies, about 19% have been the primary or partial focus of an activist investor, while in Europe the rate is only slightly lower at 15%. A previous Deloitte report noted that the rise of activist investors has to do with low interest rates, leading to large pools of private capital for investment, while liquidity has dragged down equity and debt returns. Activists achieve their goals by cooperating with other long-term investors, Caulfield notes, so they can have an outsized voice with a relatively small share. On a sector level, the report also found that activist investors preferred firms in consumer and services sectors or in life sciences and healthcare, which is true in both the United States and in Europe. More than 51% of activist investor demands in the United States are for short-term goals like share buybacks and merger and acquisition activity, while such demands sit at 31% for the rest of the world. While the data suggests most activist investors continue to operate in high value, high market cap companies, trends in the United States are showing greater interest in the mid-tier firms.
In October, proxy advisory firm Institutional Shareholder Services (ISS) filed suit against the Securities and Exchange Commission (SEC) in connection with the interpretation and guidance directed at proxy advisory firms issued by the SEC in August, which confirmed that proxy advisory recommendations are "solicitations" under the proxy rules and subject to the anti-fraud provisions of Rule 14a-9. In its complaint, ISS charged that, by making proxy adviser advice subject to the separate regulatory regime for proxy solicitation under Section 14(a), the guidance exceeds the SEC's statutory authority under Section 14(a) of the Exchange Act. In November, the SEC proposed amendments to the proxy rules to add new disclosure and engagement requirements for proxy advisory firms, calling for, among other things, "an explanation of the methodology used to formulate its voting advice" and "disclosure about material conflicts of interest that arise in connection with providing the proxy voting advice." The SEC has now filed an Unopposed Motion to Hold Case in Abeyance, which would stay the litigation until the earlier of Jan. 1, 2021, or the promulgation of final rules in the SEC's proxy adviser rulemaking. The motion confirmed that the SEC would not enforce the interpretation and guidance during the stay, so companies should not expect proxy advisers to comply with the SEC interpretation and guidance during the 2020 proxy season. In its motion, the SEC observed that the new rulemaking may narrow or substantially affect the issues in the case, and the rulemaking process would allow some of ISS' comments and concerns to be expressed and considered as part of the process. While many have raised concerns about proxy advisory firms' concentrated power and significant influence over corporate elections, the SEC's rulemaking and guidance have both been the subject of significant pushback, including from the SEC's own Investor Advisory Committee.
Backing for environmental, social, and governance (ESG)-related resolutions has risen steadily in recent years among asset managers, but some of the largest managers vote against ESG resolutions more often than not, according to a report from Morningstar (MORN). Average support for ESG-related resolutions across large fund families rose to 46% in 2019 from 27% in 2015, the report found. Funds offered by Allianz Global Investors (ALIZY), Blackstone Group (BX), Eaton Vance Corp. (EV), and Pacific Investment Management Co. were the most likely to back shareholder-proposed ESG resolutions in 2019, voting for these resolutions more than 87% of the time. The ESG issues to win the most support in 2019 included diversity and gender pay equity, with an average of 57% support, and political spending resolutions, with an average of 53% support. But five of the 10 largest asset managers—Vanguard Group, BlackRock (BLK), Capital Group's American Funds, T. Rowe Price Group (TROW), and DFA Funds offered by Dimensional Fund Advisors—voted against more than 88% of ESG-related shareholder resolutions. Vanguard and BlackRock voted for only 7% of ESG proposals in 2019. Morningstar noted in a footnote that the resolutions covered in its analysis focused exclusively on environmental and social resolutions. "We have not included in this analysis resolutions that address shareholder rights or corporate governance arrangements without reference to social and environmental risks," Morningstar said.
SoftBank (SFTBF) this week reported historically bad results. Elliott Management, which has acquired 3% of SoftBank, has made a veiled demand to break up the company. SoftBank's shares jumped this week, like those of two other major Japanese conglomerates in response to well-known foreign funds calling for them to be broken up. Third Point has demanded that Sony (SNE) divest its image sensor business, and Franchise Partners has called on Kirin Holdings (KNBWF) to abandon its plans to diversity into pharma and skin care businesses. Conglomerates are near extinction outside of Japan, and the market thinks SoftBank, Sony, and Kirin are worth more broken up than kept together. SoftBank, Sony, and Kirin have a high percentage of foreign shareholders, almost all who can be counted on to favor breaking up the companies. Japanese listed companies continue to buy or increase stakes in other listed companies, but they are facing more criticism. The response of the management of SoftBank, Sony, and Kirin will reveal much about the soul and mind of corporate Japan itself.
Elliott Management late last week disclosed a $2.5 billion stake in SoftBank (SFTBY) and called for governance changes and a $20 billion share buyback. On Feb. 11, SoftBank's share price rose significantly following U.S. approval of the merger of its Sprint subsidiary with T-Mobile (TMUS). Further, founder and CEO Masayoshi Son announced new governance measures and indicated an openness to buybacks. However, the Financial Times editorial board predicts that this is likely the first skirmish between Elliott and Son. "Whether and how the two sides clash has wider significance because SoftBank and Elliott will be a high-profile test case for shareholder activism in Japan," says the editorial. "With the following wind of Prime Minister Shinzo Abe's push for better corporate governance, activists have begun to make a difference in the Japanese market, bringing about change or better returns for shareholders at companies such as Olympus (OCPNY), TBS, and Lixil (JSGRY). A good outcome for both SoftBank and Elliott will lead to more such campaigns; an ugly fight could set back the cause of activism by many years." The editorial adds that "SoftBank is also a poor place to illustrate the virtues of governance because it is so tied to Mr. Son. He controls the company via a 25% stake. Its main purpose—and the reason many investors buy SoftBank shares—is to back his investments in new technology. An activist campaign risks being either irrelevant, if Mr. Son ignores it, or pointless, if it imposes governance window-dressing on a company where one man still holds total sway...Elliott's involvement at SoftBank is good news: somebody needs to look out for minority shareholders at the group. As a symbol of shareholder driven change in Japan, however, it leaves something to be desired."
According to a new report from the Korea Economic Research Institute, hedge fund activism has negatively impacted corporate sustainability and shareholder interest by focusing on short-term business performance instead of contributing to shareholder value enhancement and agent cost reduction for shareholders and executives. Sungkyunkwan University Law School honorary professor Choi Joon-seon said the duty to report applied to those with large shareholdings should be lowered to 3% or more from 5% or more to reduce these adverse effects. In addition, the reporting time limit should be changed to within 24 hours. "Joint exercise of voting rights must be prohibited at the same time so that hedge funds not subject to the duty to report cannot make a surprise joint attack, which affected no less than 113 listed U.S. companies in the first half of 2016 alone," the report said. He added that "the frequency of hedge funds' intervention in the business of Asian companies increased more than 10-fold from 2011 to 2018," and "19 out of the 55 listed companies owned by South Korea's top four conglomerates, including Samsung Electronics and Hyundai Motors (HYMTF), are vulnerable to hedge fund attacks with foreigners' shareholding exceeding that of major shareholders...In the absence of dual-class stocks, shareholder rights plans, and the like, their share repurchase volume amounted to 8.1 trillion won in 2017 and 3.6 trillion won in the first half of 2018 alone."
Funds that market themselves as sustainable investments aren't necessarily focused on companies that fight climate change, develop wind turbines, or promote diverse boards but instead look like a portfolio of big technology stocks. An analysis by RBC Capital Markets shows that the five most commonly held S&P 500 stocks in actively managed sustainable equity funds last fall were Microsoft Corp. (MSFT), Alphabet Inc. (GOOGL), Visa Inc. (V), Apple Inc. (AAPL), and Cisco Systems Inc. (CSCO). Companies focused on issues like renewable energy, clean water, and racial and gender diversity are relatively underrepresented among such funds. The data underscore the fact that there is no industrywide rulebook to determine what should go into environmental, social, and governance (ESG) funds. "What's considered a good ESG stock is in the eyes of the index provider," said Todd Rosenbluth, head of ETF and mutual-fund research at investment research firm CFRA. The Securities and Exchange Commission sent letters last year to companies asking advisers how and what they determine are socially responsible investments.
FTSE 350 companies in Britain have been slow to craft succession pipelines to boost the number of women on their boards, and should establish how they plan to do so, according to a corporate governance watchdog. "Successful and sustainable businesses should reflect the views of shareholders and wider society, with an understanding of the value greater diversity brings at both board level and throughout the business," stated Jon Thompson, chief executive of the Financial Reporting Council (FRC). "Given the clear benefits greater diversity brings we expect to see improved reporting going forward." The FRC is responsible for establishing the U.K. Corporate Governance and Stewardship Codes and U.K. standards for accounting and actuarial work.
As activist investing becomes more commonplace and more successful in Japan, Elliott Management Corp. likely will benefit in its push for change at SoftBank Group Corp. (SFTBY), in which the hedge fund has built a stake of more than $2.5 billion. "Shareholders are much more actively voting their shares, and voting against management if they are doing a poor job," said Seth Fischer, chief investment officer of Oasis Management Co. Elliott is calling for a share buyback of $10 billion to $20 billion at SoftBank, which said it agreed with the hedge fund that its shares were deeply undervalued and welcomed the feedback. Foreign investors have been attracted to SoftBank because the value of its stakes in companies including Alibaba Group Holding Ltd. (BABA) and Yahoo Japan (YAHOY) parent Z Holdings Corp. far exceeds the market capitalization of SoftBank itself. Japanese Prime Minister Shinzo Abe views corporate governance improvements as a way to revitalize the economy, which has made campaigns by foreign investors more successful in recent years. ValueAct Capital, for instance, took a 5.5% stake in Olympus Corp. (OCPNY) and successfully pushed to get a partner on the company's board. Meanwhile, Elliott has taken a 13.1% stake in Unizo Holdings Co., which is in the midst of a bidding war, and called on the company's directors to ensure that shareholders are treated properly in the takeover battle. Nicholas Smith, an equity analyst with CLSA, says activist-related activities hit a high of 75 in Japan last year, and there already have been nine this year.
According to a new analysis, one in 20 European companies with a market capitalization of more than $250 million (£193 million) has been engaged by activist investors in the past five years, half the rate for U.S. companies of a similar size. That number has doubled over the last five years in Europe, but given the gap in activity levels compared with the United States, experts believe there could still be some way to go. Mega corporations (over $50 billion) were engaged by activists at similar levels to those in the United States, but Deloitte M&A partner Jason Caulfield notes there was a significant decline in the percentage of European companies valued between $250 million and $50 billion being engaged by activists. "They have been systematically going through the bigger companies but so far haven't really got stuck into the FTSE 250 and below and equivalent markets [in Europe]," he says. "Those companies are probably less well equipped to deal with an activist campaign. The bigger companies will have an activist defense in the drawer ready to go, where some of these smaller companies aren't going to know what has hit them." The study found that 4.2% of London Stock Exchange businesses have seen an activist campaign, compared to 6.7% of companies on Euronext Amsterdam, 5.3% on Deutsche Boerse, and 6.2% on Euronext Paris. Elliott Management, Blue Harbour, and Third Point have turned their attention toward Europe in recent years, with Caulfield noting that they "write checks that are twice as high and probably go for more aggressive strategies."
Paul Singer's Elliott Management has had another run-in with French regulators regarding declarations it made as it was building a derivatives position in transport company Norbert Dentressangle. French investigators say Elliott's filings indicated it had acquired contracts for difference when it had actually bought equity swaps. Elliott, which subsequently acquired about 9% of Norbert Dentressangle shares, was also accused of failing to quickly flag its intention to tender into XPO's (XPO) 2015 offer. Investigators say Elliott "knowingly tried to conceal its strategy" and accuse Elliott of obstructing the probe, but observers note that concealing strategy seems strange for Singer, who tends to be very public and direct in his approach to pushing for change at companies. France is relatively distrusting of shareholder activism, so its issues with Elliott are not surprising, though Japan remains the most hostile country for investors.
The International Business Council (IBC) of the World Economic Forum has identified a core set of material environmental, social, and governance (ESG) metrics and recommended disclosures with the objective that companies would begin reporting collectively on an aligned basis. An IBC task force, which included experts from each of the Big Four accounting firms, has released a consultation draft proposing the ESG metrics and disclosures, which draw from several existing standards and disclosure frameworks, including the Global Reporting Initiative, the Sustainability Accounting Standards Board, and the Task Force on Climate-related Financial Disclosures. Entitled "Toward Common Metrics and Consistent Reporting of Sustainable Value Creation," the draft framework proposes a set of 22 "core" primarily quantitative metrics and disclosures believed to be readily reportable by companies and an additional set of "expanded" metrics and disclosures that serve as "a more advanced way of measuring and communicating sustainable value creation." Companies would provide the material metrics and disclosures in their mainstream investment disclosures, such as annual reports and proxy statements, in addition to supplemental sustainability or social impact reports. IBC will seek further consultation and feedback from companies, investors, and other stakeholders; finalize the proposal in the coming months; and look to implement the metrics and disclosures in 2021.
Corporate directors discussed how boards can be more effective in their oversight of strategy and innovation amid rapidly evolving technology and market disruption during the EY Center for Board Matters' Strategy and Innovation Board Summit in New York City. Leading boards are taking a closer look at what they are doing—from asking better questions to helping management see pivot points when signals emerge. They are having healthy discussions about the tensions between new investments and innovation while continuing to deliver short-term results and achieving long-term sustainable growth. The new roadmap for oversight should include considering the Business Roundtable's recent Statement on the Purpose of a Corporation. Directors discussed how board members can keep up with new technologies, business models, and process innovations by opening the doors of their boardrooms to new perspectives, new directors, and new data. Companies will need to consider forming a technology subcommittee of the board; designing with human experience as the focus and human needs as the driving force; and keep talking, stay curious, and remain open to the outside. Directors agreed they can do more to shape the long-term strategy, particularly by becoming more collaborative, turning the board into a catalyst for conversation, a center of culture, and a closer partner.
The board self-evaluation process can help boards assess their capabilities and readiness to meet the growing expectations of investors and other corporate stakeholders. About 40% of Fortune 100 companies conduct individual director self-evaluations, up from 25% in 2018, and 25% conduct peer evaluations, up from 10% in 2018, according to research from EY Center for Board Matters. There is little guidance on the board evaluation framework, but boards and their internal and external advisors can establish a self-assessment process by defining their evaluation objectives; determining who will be evaluated; determining the role of board leaders and management in the process; establishing an evaluation methodology; conducting evaluations, analyzing evaluation results, reporting to the board and developing an action plan; and disclosing the board evaluation process and outcome. Disclosing the nature and positive outcome of the board's evaluation process can signal the board's commitment to its governance responsibilities. An overwhelming majority (93%) of Fortune 100 companies provided some disclosure about their board evaluation process in their 2019 proxy statements. About 50% of these companies identified general topics covered in their evaluations and 25% disclosed actions taken by the board in response to the evaluation results.
A range of investors have pushed back against plans by the Securities and Exchange Commission (SEC) to regulate proxy advisory firms, making it harder for investors to hold corporate decision-makers accountable. Filing public comments with the SEC, many groups focused on the proposals' implications for environmental, social, and governance (ESG) issues such as climate change and income inequality. The SEC's rule change would substantially increase the levels of support needed to put a shareholder resolution back on the corporate ballot for a second or third year in a row, and it would also block any resolution that experiences a 10% or more decline in support from the previous submissions. This is problematic because shareholders rely on resolutions to engage corporate leaders on a wide range of issues, including ESG issues, as 35% of climate-related shareholder resolutions submitted to U.S. companies between 2009 and 2017 led the company in question to take specific actions. The Principles for Responsible Investment (PRI) finds that nearly 400 of the resolutions resubmitted between 2006 and 2018 would be denied under the new rules, including 180 proposals that received support from at least 20% of shareholders and 90 resolutions that received 30% support. The new rules would severely undercut shareholders' ability to hold management accountable on ESG issues—including having a disproportionate effect on small and midsized investors—whom it would effectively lock out of the proxy process.
Directors over the next 12 months are most concerned about the impact of growing business-model disruptions, the slowing global economy, increased competition for talent, changing cybersecurity threats, and rapid technology changes, according to the most recent Public Company Governance Survey from the National Association of Corporate Directors (NACD). What is unique about these changes is that they are happening concurrently, interacting with and amplifying each other. As a result, companies can no longer rely on their historical strategies. According to the Public Company Governance Survey, 68% of directors indicate that over the next five years their existing strategies will become completely irrelevant, while 61% identify effective board engagement in strategy as the most important improvement priority for their boards in 2020. Similarly, the accumulated experience of both executives and board members in strategy setting, technology, and industry may be less relevant in the near future. These challenges suggest that boards will need to consider a new mind-set and a different modus operandi in order to become fit for a much different and more turbulent future. These shifts can help transform how the board is composed, how it operates and interacts with the business and stakeholders, and how it holds itself accountable, according to NACD's recent Blue Ribbon Commission Report, Fit for the Future. The board leader will need to act as a change agent to help the board evolve rapidly.
Paul Singer's Elliott Management has amassed a stake worth more than $2.5 billion in SoftBank (SFTBY) and reportedly is pushing for corporate governance changes to drive up the stock's price. The hedge fund is calling for greater transparency into SoftBank's investing decisions and for the company to buy back $10 billion to $20 billion in shares to "help close a yawning gap between the company's market value and the value of stakes in companies in which it has invested," according to reports by The Wall Street Journal. Elliott saw an opportunity as investors backed away from SoftBank after the public markets rejected WeWork, pushing its valuation to $89 billion on Feb. 6—a fraction of the $210 billion valuation of its stakes in Alibaba (BABA), Sprint (S), and its Japanese telecom business alone. So far, talks between the two companies have been cooperative. According to an Elliott representative, "Elliott's substantial investment in SoftBank Group reflects its strong conviction that the market significantly undervalues SoftBank's portfolio of assets. Elliott has engaged privately with SoftBank's leadership and is working constructively on solutions to help SoftBank materially and sustainably reduce its discount to intrinsic value." Meanwhile, SoftBank said it "always maintains constructive discussions with shareholders regarding their views on the company and we are in complete agreement that our shares are deeply undervalued by public investors. SoftBank welcomes feedback from fellow shareholders." Elliott's stake comes at a time of rapid growth in activist investing in Japan, with Third Point engaging Sony (SNE), Oasis Management engaging Tokyo Dome, and Elliott also engaging Unizo.
Paul Singer's Elliott Management Corp. recently took a stake of nearly $3 billion in Japanese conglomerate SoftBank Group Corp. (SFTBY), saying the company's shares are extremely undervalued compared with its assets. Softbank founder Masayoshi Son has been making a similar argument for years and has found himself doing so more frequently in recent months after a series of stumbling bets on WeWork and Uber Technologies (UBER). SoftBank has taken to posting a daily calculation of what its shares are worth compared with their price, based on holdings in Alibaba Group Holding Ltd. (BABA), Sprint Corp. (S), and others. The company's own sum-of-parts calculation puts its total value at 12,259 yen a share ($111), while Elliott thinks SoftBank's net asset value could be about $230 billion. The hedge fund has held cordial discussions with SoftBank's leadership, perhaps because some of their interests are aligned. Elliott wants SoftBank to buy back shares because of their discount, which Son seems likely to accommodate to some degree. While Elliott is not seeking board seats at SoftBank, it does want the company to boost independence and diversity on its board. It also wants SoftBank to set up a special committee to review the investment process at its $100 billion Vision Fund, which it thinks has dragged on the share price despite making up a small portion of assets under management. Elliott wants greater transparency around the Vision Fund, which currently discloses the names of its investments but not the size of the stakes or the valuation at which they were made. SoftBank itself had recognized the need for more oversight as early as 2018 when it charged COO Marcelo Claure with improving operations across portfolio companies, but Claure was eventually forced to cede control of the so-called SoftBank Operating Group to the head of the Vision Fund.
In a letter to the Securities and Exchange Commission (SEC) regarding its proposed rulemaking on proxy advisers, the author identifies shortcomings in the economic analysis described in the commission's release ("the Economic Analysis"). The Economic Analysis fails to account for the overall effect of the amendments, which would make it costlier for proxy advisers to express conclusions that would displease an issuer, thus incentivizing proxy advisers to draft reports that would be more favorable to issuers than otherwise. The Economic Analysis furthers to engage with the fact that complying with new disclosure requirements would involve substantial costs, which would be passed on to clients. Moreover, the requirement would provide an issuer that is dissatisfied with the proxy adviser's report with more opportunities to challenge text in proxy adviser reports as incomplete or misleading, which would provide further incentives for proxy advisers to tilt their conclusions in favor of issuers. The Economic Analysis concludes that the proposed amendments would benefit institutional investors by improving the accuracy and transparency of proxy adviser reports, but if this were the case, institutional investors, who are sophisticated and informed players, would have at least expressed widespread support for these regulations in the SEC roundtable. The lack of such support conflicts with the view that the proposed amendments would benefit the clients of institutional investors, and the Economic Analysis does not engage with this evidence. The Economic Analysis also fails to give weight to a variety of issues on the effects of the proposed amendments on efficiency, competition, and capital formation.
Intercontinental Exchange (ICE) was in discussions to acquire eBay (EBAY) earlier this week, before abruptly pulling out of negotiations. ICE's in eBay confounded analysts as well as ICE shareholders, as ICE was started to run a commodity-futures exchange. The firm now operates 12 exchanges globally and six clearing-houses with significant liquidity, high transaction volumes, and low transaction costs. Meanwhile, the used-goods market is fraught with uncertainty about quality, price, and authenticity. EBay is having its own difficulties, lagging behind rival online retailers like Amazon (AMZN) and Walmart (WMT), and spinning off PayPal (PYPL) in 2015 under pressure from investor Carl Icahn. EBay also spun off its classified business and the StubHub ticket reseller at Elliott Management and Starboard Value's urging, and has been missing a permanent CEO to replace Devin Wenig. ICE's interest in eBay invited curiosity, and the fact that some retail platforms are exhibiting financial-market traits like dynamic pricing thanks to better data and more advanced algorithms could be a motivator.
Companies that have diverse boards are less prone to financial restatements and fraud, according to research from the University of Toronto. The university studied more than 6,000 companies listed in the United States. The researchers were specifically studying gender-diverse boards. Aida Sijamic Wahid, the author of the report, said that more diversity on boards correlated with better decision-making. Wahid said the optimal results came when three members of a nine-person board were women. Beyond three, according to Wahid, "there doesn't seem to be correlation between adding additional women and likelihood of (financial) restatement." The study found that a company with one or more female directors had a 6.7% probability of financial misconduct, as opposed to a probability of 8.4% for a firm with a non-diverse board. Wahid said the results of her study should apply beyond just gender diversity. Different perspectives "could be coming from people of different ages, from different racial backgrounds," Wahid concluded.
More hedge funds are taking action on environmental, social, and governance (ESG) factors. Though only four in 10 hedge funds felt ESG factors were becoming more important as little as a year ago, many are changing their stance, spurred by investor demand and record inflows for rivals who have embraced ESG. Leading the pack is Chris Hohn, head of TCI Fund Management, who is pushing his portfolio firms to cut emissions or face material consequences. French firm Lyxor Asset Management has divested about 350 million euros in pulling out of firms that are heavily exposed to thermal coal, and Cliff Asness' AQR Capital Management runs $10 billion in low-carbon portfolios. Hedge fund Man Group PLC has a policy to power its buildings with renewable energy where possible, and David Harding's quant firm Winton is helping to back early stage companies developing cutting-edge renewable technologies. As these and other funds put together ESG plans, some have warned about the prospect of "greenwashing," or using misleading labels or advertising to create an image of environmental responsibility without actually becoming more responsible. David Serra of Algebris Investments compares the potential effect of greenwashing to the AAA ratings that gave banks license to devour securities backed by subprime mortgages.
A report by the U.K. Financial Reporting Council (FRC) and a government-backed committee found that the largest companies seldom set targets for ethnic diversity on boards and do not report on the issue. This is prompting the audit and accounting regulator to demand more aggressive corporate initiatives to promote ethnic diversity. Most respondents to the FRC survey lacked goals for ethnic diversity in the boardroom during the 2019 financial year, and 52% did not mention ethnicity in their board diversity policy. Meanwhile, 14% of firms listed on the FTSE 100 had quantifiable objectives for ethnic diversity on boards. None of the 256 companies that responded to the survey noted progress on board diversity, and most respondents had no plans with specific measures to increase ethnic diversity in the boardroom. Roughly 150 respondents lacked a director of minority background on their boards, missing a target set by the Parker Review Committee to have at least one director of color for FTSE 100 companies by 2021 and by 2024 for businesses in the FTSE 250. The FRC said it would ramp up its oversight of companies' diversity disclosure, and called for quality improvements in future financial reports and filings. "The U.K.'s record on boardroom ethnicity is poor," said FRC CEO Jon Thompson. "We will monitor closely how companies report on their policies or explain their lack of progress."