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Elliott’s Stake In Softbank
A group of long-time stockholders of CytoDyn Inc. (CYDY) that has nominated five experienced director candidates to serve on the company's board of directors has announced its comprehensive strategic plan to obtain cancer therapy approval for Leronlimab. If implemented, the group believes this plan would begin to generate much-needed revenue for CYDY and position the company to earn U.S. Food and Drug Administration (FDA) approval for the drug while enhancing the value of all stockholders' shares. The group's strategy is designed to overcome current CYDY management's failures to implement a coherent, effective plan to generate revenue and obtain FDA approval for Leronlimab. While the group has tried to discuss the enormous potential of its oncological strategy to reinvigorate CYDY with the board and management team, they have refused to meaningfully engage. The group's approach to cancer therapy will be scientifically valid and extremely efficient and will be critical to unleashing the potential value of Leronlimab and the investments of all stockholders. The plan will utilize real data based on precision medicine determination of Leronlimab binding cancers; apply both combination therapy with complementary immune-oncology blockbuster drugs and adjuvant monotherapy in CCR5+ tumors; prioritize cancer targets based on CCR5 expression; and partner with leading oncology companies that lack a CCR5 asset like Leronlimab. Shareholders are urged to vote for the group's director nominees on the white proxy card today.
General counsel are under pressure to boost their firms' commitment to environmental, social, and governance (ESG) initiatives, and in many cases support them, but they are worried those efforts could escalate legal and regulatory risks, according to a survey by the Rock Center for Corporate Governance at Stanford University. The survey included responses from 69 general counsel and senior legal officers. Half of the respondents said CEO activism can produce benefits for the organization, and 35% said CEO activism exposes the company to reputational, legal, or regulatory harm. Much of the pressure to embrace an ESG agenda is coming from their own employees, who want companies to be socially conscious regarding how they operate and how they screen potential investments. ESG advocates also want firms to be accountable for how they're governed, assessing issues such as executive compensation and management diversity. Many GCs aren't part of the movement, according to Professor Charles Elson at the University of Delaware. "I think the vast majority [of GCs] are really agnostic on the issue," he said. "Any time a board or company hears objections, they respond to it, even if it's from a small or smaller group. And so, I think that those who are passionately committed to this cause are obviously honest in their passion, but I don't think they represent a majority of investors who share their passion. So, the louder the voice, the more attention it gets." He said there already is agreement on the importance of governance, but the sticking points for many GCs are social and environmental initiatives. More than 75% of respondents said that in the past three years they have faced greater pressure to grow ESG, with the most pressure coming from employees (48%), followed by investors (44%) and customers (41%). There was less pressure from third-party advocacy groups (33%) and ESG ratings companies (24%).
Coast Capital has changed tack and is prepared to back a possible private equity takeover of U.K. automation software maker Blue Prism Group Plc (BPRMF). The investment firm’s founder James Rasteh, who had called for Blue Prism to seek an alternative to a potential acquisition by TPG or Vista Equity Partners, said the company’s management had now earned his trust. “Coast will be supportive of whatever deal gives the company the best opportunity to improve its prospects,” Rasteh said Thursday. “We have full confidence in the company’s ability to accelerate growth and reassert its leading role in the sector.” Blue Prism said in August that it had entered talks with TPG and Vista about potential takeover bids for the company. Coast, which owns just under 3% of Blue Prism, responded to the announcement by saying there was a “large valuation chasm to cross.” Shares in Blue Prism have fallen 13% over the last 12 months, giving it a market value of about 1.1 billion pounds ($1.5 billion). The software company's depressed valuation reflects concerns about gaps in its product portfolio and its distance from key clients and investors in the U.S., Rasteh said in August. He said his firm had spent five months drawing up potential operational improvements that would accelerate Blue Prism's sales growth.
Generali’s (ARZGY) biggest investor Mediobanca said on Thursday it had borrowed shares in Italy's top insurer to secure 17.2% of voting rights, upping the ante in a shareholder tussle over the choice of the next chief executive. With its 12.9% stake Mediobanca is the single largest shareholder in Generali, followed by Italian billionaires Francesco Gaetano Caltagirone and Leonardo Del Vecchio. The two tycoons have reportedly struck a pact to consult over decisions concerning Generali and will back a different CEO candidate if Generali's board proposes appointing current boss Philippe Donnet for another mandate. Generali's board meets on Monday to discuss whether to submit its own slate of nominees, including Donnet, ahead of a general meeting next spring to name new directors. Caltagirone and Del Vecchio have come to control a combined 12.5% stake in Generali after another investor, Fondazione CRT, last week agreed to join their pact. Mediobanca said it had borrowed shares equivalent to 4.4% of Generali until at least next year's general meeting.
Two stockholders in Cytodyn Inc. (CYDY) have sued the company in Delaware Chancery Court in a challenge to the company’s “for cause only" restriction on director removals, the latest in a run of bitter litigation over company control. The suit noted that the provision violates the state's general corporation law. There has been a recent flurry of lawsuits contesting alleged company efforts to stifle dissident stockholder objections to director remuneration, board nominating requirements, and overall management.
Bluebell Capital Partners turned up the pressure on GlaxoSmithKline Plc (GSK) Chief Executive Officer Emma Walmsley, questioning her leadership of the U.K. drugmaker after following Elliott Investment Management in buying a stake. Bluebell called on Glaxo to run an internal and external search for a candidate to lead Glaxo after a spinoff of its consumer health division next year. The stake is reportedly about 10 million pounds ($13.7 million). While the holding is a tiny fraction of the company’s 72 billion-pound market value, it adds a small but vocal critic of the drugmaker’s strategy. Bluebell, which manages 90 million euros of assets, recently participated in a campaign with other investors that prompted an overhaul of yogurt maker Danone SA’s (DANOY) management. At Glaxo, it is targeting the pace of change being led by Walmsley and the board. “Unfortunately, there’s no sense of urgency,” said Giuseppe Bivona, Bluebell's chief investment officer. Elliott earlier this year revealed an investment in Glaxo, putting Walmsley's leadership under a spotlight. The company has struggled to develop blockbuster new treatments and has failed to create a Covid-19 shot despite being the world's largest vaccine producer. Bluebell took more direct aim at Walmsley, citing her performance during a recent investor presentation where the company set new targets. The letter highlighted what it characterized as her lack of pharma experience. Bivona co-founded London-based Bluebell in 2019 with fellow finance industry veteran Marco Taricco and Francesco Trapani. Prior to that, the three spent years helping Elliott, Jana Partners and other activists execute campaigns in Europe and the United States.
The Securities and Exchange Commission (SEC) will take up a plan that would mandate institutional investors reveal how they voted on executive compensation on proxy ballots. The SEC will vote Sept. 29 on whether to propose "say-on-pay" reporting rules, according to an agency notice published Sept. 22. The SEC previously proposed the disclosures required by the Dodd-Frank Act in 2010, but never finalized them. The 2010 proposal would have mandated that investment managers report their proxy votes on executive remuneration annually, including how they voted on "golden parachutes" for departing executives.
William Ackman's 10% bet on Universal Music Group (UMG) helped nearly double returns at his own portfolio to 15.3% this week after shares in the world's biggest music label rocketed in their first hours as a publicly traded company. Ackman told investors that his Pershing Square Holdings portfolio returned 15.3% after fees since January. The fund was up 7.7.% a week ago. He raised $1.1 billion in fresh capital for the UMG stake through a co-investment vehicle, a structure he has previously used for investments in Automatic Data Processing (ADP) and Air Products & Chemicals (APD). All in all, Ackman's funds invested $4 billion in UMG. In the first eight months of the year Ackman's best performing stocks included Chipotle Mexican Grill (CMG), Agilent Technologies (A), and Domino’s Pizza (DPZ). He sold Agilent to help fund his commitment to UMG.
The India entertainment unit of Sony (SONY) will buy local rival Zee Entertainment (ZEEL), merging TV channels, film assets, and streaming platforms to become the largest broadcaster in the country and better compete with companies like Netflix (NFLX) and Disney (DIS). The combined entity, nearly 53% owned by Sony Pictures Networks India, a unit of Japan's Sony Group Corp, will own popular channels such as Sony MAX and Zee TV and over-the-top platforms ZEE5 and SonyLIV, dominating the Indian TV and streaming market with over 50% market share, analysts said. The deal will also ease the pressure that Zee Entertainment Enterprises Ltd was facing from top shareholders who called for a management reshuffle last week — including the removal of CEO Punit Goenka from the board — amid corporate governance concerns. Sony Pictures Networks India will invest $1.575 billion in the new entity, which will be publicly listed, the companies said in a statement, without disclosing other financial terms. The two companies have signed an exclusive, non-binding term sheet to combine their assets, and will conduct due diligence and finalize definitive agreements in 90 days and then present the merger proposal to shareholders, they said. The majority of directors of the merged entity will be named by Sony Group and Goenka will become the merged entity's managing director and CEO. A merger should improve management at Zee, said Hetal Dalal, chief operating officer at proxy advisory firm IiAS that had raised governance concerns. Dalal said, however, that investors would need more details about the deal before their concerns are quelled.
Hedge fund Bluebell Capital Partners has taken a small stake in pharma group GlaxoSmithKline (GSK) to lobby CEO Emma Walmsley to reapply for her job, supporting proposals from Elliott Management. Bluebell oversees just €100 million, versus $48 billion in assets at Elliott Management; it owns about €10 million in GSK stock. Bluebell sent a letter to GSK Chair Sir Jonathan Symonds demanding that the firm immediately launch a "thorough and robust process" to find a leader following the 2022 spin-off of its consumer health unit. Another demand is to strengthen the board's scientific background. Bluebell chief investment officers Marco Taricco and Giuseppe Bivona said during Walmsley's tenure GSK saw far lower shareholder earnings than rivals, and cited her lack of experience in the pharma industry compared to peers. "New GSK deserves the right leadership, able to review and potentially adjust the strategy outlined in June, ensure high quality execution, and rebuild trust with employees, customers, suppliers, and shareholders," they wrote. Taricco and Bivona continued that if Walmsley was re-elected by a board with greater scientific experience, she would have "renewed credibility both internally and externally." Before Bluebell's inception in 2019, Taricco and his partners ran an advisory firm, working closely with funds including Elliott. Yet Taricco insisted in the letter that they were not collaborating with Elliott on the campaign. The hedge fund also called on GSK's board to move from a "reactive" to a "proactive" position in soliciting buyers for the consumer health division, noting it must act quickly to pursue an "alternative transaction." GSK plans to list the company in London, but some investors think it would see higher returns through a sale. "We believe that consumer healthcare's leading position and growth prospects should attract interest from selected strategic buyers and, potentially, private equity," Bluebell said. GSK said the board was confident it had the right strategy and team to realize its goals with Walmsley leading, while its investors have expressed "widespread and strong support" for the plan. "The points set out in the letter from Bluebell Capital Partners are not new, and in fact are ones we have already made clear we are addressing," the company stated. In June, Walmsley debuted ambitious goals for GSK, including reaching £33 billion in sales by 2031. However, Bluebell said this did not "dispel investor concerns" or "create overwhelming enthusiasm," as echoed by a tepid share price response. The fund also cited worries that one of Walmsley's prized assets, a potential vaccine for respiratory illness RSV, could be beaten by a rival product from Pfizer (PFE).
Deutsche Bank Chair Paul Achleitner warned in a speech on Wednesday that German companies cannot comply with both international regulators and local securities laws. Germany's two-tier board system has the executive board fully oversee the day-to-day business and the corporate strategy, and managers must not take orders from the supervisory board. "[International] regulators and watchdogs do not accept when [a German] chair points out that is just their duty to monitor the company's control system," Achleitner said. "Instead, they expect detailed control measures that are outside the scope of German securities law." Achleitner will exit the bank in May 2022, when his second five-year term expires. During his tenure, the lender's share price collapsed nearly 70% as it incurred losses of €12 billion, raised €19.5 billion in new capital, and paid billions to settle misconduct allegations. Deutsche's relationship with foreign regulators, including the U.S. Federal Reserve, has been fraught over much of the last 20 years, with frequent complaints about its governance. It has stabilized since Christian Sewing's 2018 appointment as CEO, and a dramatic reorganization. Early this year, the bank posted its highest quarterly profit since 2014, and its share price is up more than 45% over the past year. Achleitner claimed German supervisory boards had become much more professional over the past decade, yet they still lacked the legal authority that non-executive directors have on U.S. or U.K. boards, and struggled to fulfill non-German regulators' expectations. "At least in the banking sector, not only the chair but also individual members of the supervisory board are invited to conversations [by regulators]," he said. "It is of little help [in such conversations] to point at German corporate governance." Achleitner contended that foreign regulators make the supervisory boards accountable for certain issues regardless of their actual legal competencies under German law. Although he did not advocate for eliminating Germany's two-tier board system, Achleitner proposed reforms including a shrinkage of supervisory boards. Having 20 members as they currently do makes "productive discussions and quick decisions harder," he said. Achleitner also urged the companies to make more efforts to professionalize supervisory boards. "Since the turn of the millennium, we surely have seen improvements with regard to recruitment. We need to build on them in order to meet the rising expectations from investors and regulators," he said. Sewing recently had to tender an apology after Deutsche published, then rescinded, a research report charging German financial regulators and the country's outgoing conservative-led government with serious failures.
The International Organization for Standardization has released its first framework for good governance, going beyond the traditional ideas of good governance to include more environmentally and socially conscious models. The standard, which is meant to provide a common language that will transcend national borders, arrives amid growing concerns about climate change and an investor focus on sustainability. The standard lays out guidelines for internal controls, which include a company’s risk management system, compliance program, and financial controls. "I think [the ISO standard] is going to make a surprising contribution to the discussion of not just corporate purpose and ESG but to the broader discussion of corporate governance," said Michael Peregrine, a corporate-governance expert and partner at law firm McDermott Will & Emery LLP.
A number of institutional investors in Zee Entertainment Enterprises (ZEEL) are likely to support the call to remove the company’s directors at its extraordinary general meeting (EGM), according to sources. A report by brokerage firm Edelweiss said that while the prospects for the company are improving, it is still a volatile story. With promoters holding only 3.99% in ZEE, it is only a matter of time before the board is revamped, Edelweiss said. On Sept. 13, ZEEL informed the stock exchanges that top investors in the company, Invesco Developing Markets Fund and OFI Global China Fund, have sought the removal of managing director Punit Goenka and two directors. Institutional investors have sought the appointment of six of their own nominees.
Elliott Investment Management and Veritas Capital are reportedly exploring options for Athenahealth Inc. (ATHN), including a sale or initial public offering. Elliott and Veritas are aiming for the health information technology company to be valued at more than $20 billion in a transaction, according to people familiar with the situation. The firms are working with Goldman Sachs Group Inc. (GS) and Evercore Inc. (EVR) to help explore options for the company, the people said. The bankers have reached out to about a half dozen potential buyers to gauge their interest. The two firms hope to complete a deal by the end of the first quarter, one of the people said. A final decision has not been made, though, and Elliott and Veritas could decide to keep Athenahealth, the people said. Elliott and Veritas agreed to buy Athenahealth for about $5.7 billion in 2018. After the deal closed, the company was combined with Virence Health, a health-care services company Veritas had acquired from General Electric Co. (GE). Athenahealth helps doctors and hospitals collect money from health insurers and the government for services they provide. It processes $230 billion in bills a year, according to its website. It also has an electronic health records service that helps providers manage workflow and document patient visits, among other services.
The head of Quebec’s largest fund manager is backing the board and management of Canadian National Railway Co. (CNI) in their fight against an unhappy shareholder, saying they were right to attempt a takeover of Kansas City Southern even though the bid failed. Charles Emond, the chief executive officer of the Caisse de Depot et Placement du Quebec, said Canadian National’s top managers “actually did their homework” on the $30 billion offer and that criticism of the railroad’s strategy by Christopher Hohn’s TCI Fund Management Ltd. is not justified. “We thought it was a good deal. These kind of opportunities happen very rarely,” Emond said. “The outcome was different than expected, but they were rigorous in the process.” The pact failed when the U.S. Surface Transportation Board blocked Canadian National’s proposal to use a voting trust to ensure that Kansas City shareholders got paid before regulatory approvals were completed. Emond questioned TCI’s motivation in opposing the proposed merger, noting that the investment firm is also a large shareholder in Canadian National’s rival, Canadian Pacific Railway Ltd. (CP), which agreed to buy Kansas City Southern (KSU) for about $27 billion. “It’s pretty rare you actually see an activist sitting on both sides of the trade with two potential buyers. So one has to understand or question what are the real motivations here,” Emond said. TCI owns a 8.3% stake in Canadian Pacific valued at $3.6 billion, according to data compiled by Bloomberg. It owns 5.2% of Canadian National, a stake valued around $4.2 billion. Hohn’s firm argued that Canadian National was exposing itself to excessive financial and regulatory risk in pursuing Kansas City Southern. The fund manager has launched a proxy contest to put several new directors on the Canadian National board and oust CEO Jean-Jacques Ruest.
Investors are allocating a higher percentage of their portfolios to environmental, social, and governance-related (ESG) investments, according to a poll by BNP Paribas. Nearly half of investors (47%) predict that ESG will be at the center of everything within two years. Sixty-six percent of investors currently incorporate ESG into less than half of their portfolios, while more than two-fifths are incorporating a quarter or less into ESG. Net-zero has also become an important part of the ESG trend, with investors committing to achieving global net-zero emissions by 2050 by syncing their investment strategy with that goal. Social goals have been a challenge for investors, with more than half saying that social is the most challenging component to assess and incorporate into investment analysis.
Shares in Universal Music Group (UMG) surged on its stock market debut Tuesday, giving the company a valuation exceeding $50 billion. With shares leaping from 18.50 euros to over 25 euros ($29), the U.S.-based music giant found itself valued at €46.3 billion ($54.3 billion) in early trading, well above the $39 billion valuation it was given the night before its listing on the Euronext Amsterdam index. Universal Music Group, with its catalogue of four million titles, was floated by its owner, the French media conglomerate Vivendi (VIVHY). With Vivendi shedding a majority stake in its crown jewel, its own shares sank by more than 15% on the Paris CAC 40 stock exchange. Vivendi is keeping a chunk of Universal Music Group, but has already sold off a 10% stake to Bill Ackman and 20% to Chinese tech firm Tencent (TCEHY). Aware that shedding its number one asset might be a risky move, Vivendi has taken steps to protect its own share price. It secured agreement from its investors for a massive buyback of up to half its shares following the Universal Music Group flotation, a move designed to give the group cash reserves to fight off any hostile takeover bids.
Verso Corp. (VRS) has announced that it would consider selling to private equity group Atlas Holdings, provided the firm's $650 million cash offer is "meaningfully increased." In a filing Tuesday with the Securities and Exchange Commission, the Dayton, Ohio-based paper manufacturer said it has entered into a confidentiality agreement with Atlas, which owns 2.7 million Verso shares and controls 9.12% of the company's aggregate voting power. Verso said its special committee deemed Atlas's $20-per-share buyout offer "insufficient," but both parties have agreed to share more information "to facilitate ongoing discussions regarding a potential transaction...on mutually acceptable terms." Verso stated in the filing, "The Special Committee would only consider a potential transaction if Atlas meaningfully increased its offer from $20.00." The company's stock is up more than 4% to $20.24 as of 2:50 p.m. Tuesday. Atlas already owns a number of pulp and paper providers, and previously said it would fund the Verso acquisition with 100% equity, meaning the proposal is not dependent on any third-party financing. Atlas, along with affiliates Lapetus Capital and Blue Wolf Capital Advisors, first purchased Verso shares in November 2017, less than a year after the company emerged from Chapter 11 bankruptcy. The three firms have since been active shareholders, recently engaging in a protracted proxy challenge that ended in January 2020 after Verso agreed to appoint three Atlas candidates to its board of directors. This allowed the company to sell two of its mills for $400 million. Verso said there is no guarantee of any negotiations or transactions between itself and Atlas transpiring, and restated that it will not comment further on its special committee's evaluation "unless and until it deems further disclosure is appropriate or required."
Facebook (FB) conditioned its $5 billion payment to the Federal Trade Commission (FTC) to resolve the Cambridge Analytica data leak probe on the agency dropping plans to sue Facebook CEO Mark Zuckerberg individually, shareholders allege in a lawsuit. In suits made public Tuesday, two groups of shareholders claimed that members of Facebook’s board allowed the company to overpay on its fine in order to protect Zuckerberg, the company’s founder and largest shareholder. The FTC investigated Facebook for allegedly failing to protect users’ data from being collected by the company Cambridge Analytica, which used the data to target voters for Donald Trump’s 2016 presidential campaign. The company paid the agency $5 billion to settle the complaint—about 50 times more than the roughly $107 million that Facebook’s lawyers estimate the FTC could have fined them, according to two lawsuits led by pension funds that were filed in August. In exchange, shareholders allege, the agency agreed to keep Zuckerberg—who they say had been personally named in a draft complaint the FTC sent to Facebook—out of the final settlement, protecting him from being personal liable for “failing to oversee privacy at Facebook.” “Zuckerberg, (Sheryl) Sandberg, and other Facebook directors agreed to authorize a multi-billion settlement with the FTC as an express quid pro quo to protect Zuckerberg from being named in the FTC’s complaint, made subject to personal liability, or even required to sit for a deposition,” the shareholders alleged in one lawsuit.
CytoDyn's (CYDY) board has announced the resolution of a federal lawsuit filed in U.S. District Court for the district of Delaware against a group led by Paul Rosenbaum and Bruce Patterson. The group issued over 30 pages of corrective and new disclosures, including disclosures previously made in association with the court's Stipulated Order. The new disclosures show that the group was not forthcoming with investors about its conflicts of interest, funding sources, and agenda. CytoDyn believes there remain numerous unresolved questions about the disclosures, but decided further legal action on those issues is not worth pursuing, now that the plaintiffs' lack of truthfulness has been revealed. With respect to the suit's resolution, the group took several actions which were communicated in its public filings made after the close of the market on Sept. 17. To wit: the group dissolved its Schedule 13D group and filed an "exit" Schedule 13D, reducing the formal coalition from 28 members to seven, now including only Rosenbaum and Patterson, their other three purported nominees, and two other individuals. Their total CytoDyn share ownership has shrunk from 7.67% to 0.96%. New disclosures on its funding sources revealed, among other things, that the number and identity of so-called "Gifting Persons" keeps fluctuating, and the group has now established a new category of financial supporters called "Contributing Persons" who did not "gift" money, implying they expect something in return. Among the corrective disclosures the group had to make regarding conflicts of interest was that IncellDx had indeed submitted a written proposal to be bought by CytoDyn for up to $350 million—not $150 million as previously claimed. The group also admitted that Patterson and Beaty, and their families, collectively own 35.3% of IncellDx, which means they stood to receive approximately $115 million and $8 million, respectively, pursuant to the $350 million proposal. In view of these and other revelations, CytoDyn advises shareholders to ignore any further emails or mailings from the group, and they should not have to take any action at this time.
Twitter (TWTR) on Monday disclosed a binding agreement to settle a class-action lawsuit, under which the social media giant will pay $809.5 million to resolve claims it provided misleading user-engagement information to investors. The original lawsuit was filed five years ago by a Twitter shareholder. It alleged current CEO Jack Dorsey and others, including former CEO Dick Costolo, hid facts about Twitter's slowing user growth while they sold their personal stock holdings "for hundreds of millions of dollars in insider profits." The accord still requires court approval. Twitter plans to use cash on hand to pay the settlement amount in this year's fourth quarter. The company is expected to record a charge for the settlement during the third quarter.
Companies are increasingly tying the interest rates on their corporate loans to environmental and sustainability targets as they face pressure from investors and regulators to go green. Sustainability-linked loans carry interest rates that adjust based on whether a company meets a predetermined environmental, social, or governance (ESG) goal, such as reducing carbon emissions. U.S. companies took out $83.8 billion in such loans through Sept. 16, up from $2.5 billion during the same period in 2020. Total U.S. corporate loan volume, including sustainability-linked loans, hovered at $1.7 trillion as of Sept. 16. The sustainability targets are typically based on internal ESG goals or external sustainability ratings. Executives say these targets are both financially significant and achievable at the same time.
Elliott Management has reduced its stake in SoftBank Group (SFTBY), reaping as much as $500 million in profit, according to knowledgeable sources. The profit comes even as other shareholders have likely been disappointed, as SoftBank's Vision Fund posted an $18 billion loss in 2020. SoftBank is currently mired in Chinese tech investments that have provoked the displeasure of China's government, yet Elliott is retaining some of its interest, though its holdings are down "significantly" from the $2.5 billion position the fund previously held. Elliott, which disclosed its stake in February 2020 and pressured SoftBank to implement share buybacks, is still in discussion with CEO Masa Son, but has moved on to focus more on recent investments, like software company Citrix (CTXS). SoftBank shares have posted a 33% decrease in the last six months, while in the last year they have gained around 4.5%. Elliott's investment was bookended by two major SoftBank losses, starting with a WeWork investment that went bad in 2019 and the more recent Chinese crackdown on Big Tech-related stocks that depleted $1 trillion in market value. SoftBank reported a net profit of $6.9 billion in July, but it faces considerable challenges, given Chinese companies comprise 23% of the Vision Fund's investments. Yet sources say Elliott has no clear plan to completely sell its stake. The hedge fund's typical playbook involves building up big stakes in companies, listing demands for change, and then looking to leave with a profit. Elliott has been less aggressive with SoftBank, holding daily calls and suggesting changes, some of which Son was willing to undertake. In March 2020, about a month after Elliott reported its position, SoftBank declared a $20 billion-plus buyback plan, which upped its share price 20% on the next trading day. In its latest earnings call, SoftBank did not announce any buybacks. Although it said it was weighing future buybacks, Citigroup Global Capital markets analysts reported to clients that they saw "little possibility" of a share buyback anytime soon.
Citrix (CTXS) Chief Customer Officer Hector Lima announced that Mark Palomba will replace Bronwyn Hastings as channel chief in October amid speculation that the company is again putting itself up for sale. Citrix has not commented on a Bloomberg report suggesting that, which also mentioned that Elliott Management has enlarged its stake to 10%. "We can't comment on any rumors or speculations that are out there," Lima said. "But what I would say is we continue to make the right moves, both from a leadership standpoint, from an engagement standpoint, to make sure that we make our business the best line of business for our partners in the marketplace." Those priorities include improving opportunities with Citrix partners and boosting revenues, after falling short of sales targets in recent quarters. After Hastings left Citrix for Google Cloud in May, Lima said the company decided not to replace her then, but instead picked Palomba to oversee the Citrix partner organization as COO for sales and services. Lima said he has since decided to have Palomba commit himself to the channel because "I just think we needed to give it much more focus." Palomba will report to Lima, who said in a letter to partners that he has already focused on improving channel operations. "For the past year-and-a-half under Mark's leadership as chief operating officer, sales and services, we have been able to drive strategic sales aligned for growth and operational effectiveness and consistency, including selling with many of you, our partners, while driving excellence in operations," the letter states. "Mark understands that Citrix partners are critical to our success, and with his decades of global sales experience, including selling with partners, he is uniquely positioned to take our partner organization to the next level." Palomba's appointment is one of three leadership changes announced by Lima. Kurt Heusner, global VP for commercial and public sector services, has been tapped to lead global emerging sales, while Sherif Seddik, now VP of sales and services covering EMEA, will head commercial strategy and go-to-market. Lima said these changes are effective Oct. 1.
Elliott Management has underperformed both the S&P 500 and a 60-40 blend of stock and bond investments over five years, and investors that hold onto a stock for three years after an Elliott campaign will lose money, according to a new report by the Communications Workers of America and the SOC Investment Group. Looking at several measurements and comparing Elliott's engagements to similar companies, the study found that engaged companies grew more slowly, were less profitable, and took on more debt. They invested less in the business while allocating more resources to share buybacks. And while other companies added jobs, companies engaged by Elliott had a decrease in employment. The study by the two union groups concluded that the underperformance by companies engaged by Elliott is "linked to a combination of increased debt, reduced employment and wages, reduced investment, and increased share buybacks." Elliott declined to comment on the report, but has described criticisms by researchers who use the same methodology to assess engagement as flawed. In its second quarter letter to investors, Elliott said it has a 13.1% annualized return since inception, compared with an 11.8% annualized return for the S&P 500.
A lawsuit brought by a shareholder of Twitter (TWTR) claiming that Elliott Management is so feared that its mere arrival at a company can immediately trigger misconduct by the leadership of its prey gained traction in a Delaware court earlier this month. In January, a Florida pension fund sued the social network alleging that a settlement that the company struck with Paul Singer’s hedge fund in March 2020 resulted from the Twitter board breaching its fiduciary duty. Elliott, in late February of that year, had threatened the board with a proxy contest to replace four Twitter directors. Elliott, among other things, was open to replacing Twitter chief executive Jack Dorsey, whom it believed was too distracted to guide the company. The compromise struck saw three new board members added while Dorsey survived. Additionally, Twitter sold $1bn of bonds that can convert into equity to Silver Lake, another tech investor with whom Elliott had a strong relationship. The dissident shareholder claimed in its court filings that the convertible bond was a gift — 3% of Twitter’s equity at a cheap premium — when the company already was awash in billions of cash. According to its theory, the Twitter board quickly caved in to Elliott after its advisers explained that the hedge fund’s record of ruthlessness portended an ugly fight that would culminate in a rout by the fund. By settling within days, the board, according to the lawsuit, had breached its duties to shareholders in order to keep its jobs and avoid humiliation. Delaware judge Travis Laster said on Sept. 10, that theory, however sensational, is “a story that hangs together.” Elliott when asked to comment about its reputation for personally targeting directors denied that “it operates in this way or that it employs any dirty or illicit tactics.”
Britain's SSE Plc (SSE) has not made a decision to break itself up, the renewable power and networks group said on Monday, after a Sept. 17 report said it was close to splitting up following months of pressure from Elliott Management. The company said it would update investors on growth plans in due course. It is scheduled to report interim results in mid-November. FTSE 100-listed SSE, which has been sharpening its focus on renewable power generation and electricity networks after the sale of its retail division to OVO Energy, plans to invest 7.5 billion pounds ($10.3 billion) in low-carbon projects up to 2025. The Sept. 17 report stated that SSE was close to splitting into two separate blue-chip companies. "The Board remains fully focused on strategic choices which will drive shareholder value from the wealth of net zero opportunities the company is creating," the company said. "SSE is currently building more offshore wind than any company in the world, expanding internationally, and investing in the low-carbon electricity infrastructure." SSE shares have gained 9% this year, outperforming the FTSE-100's 7% rise over the same period. Elliott has reportedly been in talks with SSE's board to separate the company's wholesale networks business from its renewables operations for more than a year.
13D Monitor CEO Kenneth Squire writes that Elliott Management reportedly has built a stake in Citrix (CTXS) exceeding $1 billion. "Elliott knows this company well as they previously filed a 13D here on June 11, 2015, and Elliott partner Jesse Cohn served on the board from July 28, 2015 to June 3, 2020," he notes. "This situation is not that dissimilar from Elliott's 2015 engagement." When the fund exited its 13D in November 2019, it had a 102.5% return compared to 49.5% for the S&P 500, and Cohn left the board in the spring of 2020. "However, since then the company seems to have lost its way with a lot of the progress Elliott had made being reversed," Squire writes. "Margins are back down to 22.6%, and the company recently made its most expensive acquisition ever—buying Wrike for $2.25 billion. Further, there have been execution and guidance issues again: the company missed in the first quarter and guided down. Despite the lower guidance, it missed in the second quarter and guided down again, sending the stock in a freefall down to a low of $94.66 on July 29, 2021, from a high of $146.94 as recent as Oct. 12, 2020." Squire suggests two value-generating strategies: Elliott can follow its 2015 approach, put a director on the board, hold management accountable, and enhance profit margins and impose strategic discipline; or, strategically sell Citrix. Squire notes that Bain, Carlyle, and Thoma Bravo each submitted takeover bids in 2017, while in 2019 it was reported that Citrix hired Goldman Sachs (GS) to explore a potential sale. Its appeal toward acquisition stems from becoming a much more strategic asset in a remote working or hybrid environment due to the pandemic. Moreover, Citrix currently enjoys better fundamentals and higher revenue, while private equity companies are eager for big transactions. "While most likely too large for Elliott's private equity arm, Evergreen Coast Capital, at least on its own, there is no reason why they cannot team up with other private equity companies to acquire the company," Squire reasons. He points out that Elliott has not filed a 13D in this latest round despite having a 10% position. "Based on their history and philosophy, that is likely because Elliott is using swaps and other derivatives to build their position and those types of securities are not required to be included in 'beneficial ownership' for the purposes of 13D filings," he writes. "The potential downside to this is that if it comes to a proxy fight, Elliott will have to convert its derivatives to common and become a 13D filer if it wants to have the voting rights that go along with its economic ownership."
Consumer goods giant Unilever (UL) could be forced into a radical shake-up by investors encouraging a revival of the company’s fortunes. A drop in Unilever’s shares of almost 10% in the past two months has heightened talk that it will become the next catch for Nelson Peltz. Peltz recently made more than €750 million after triggering a campaign against Unilever rival Proctor & Gamble (PG). Private equity firms are preparing bids for the group's tea brands, including PG Tips and Lipton Ice Tea, which are up for sale at €4 billion. Meanwhile, last week Scottish energy supplier SSE came under pressure to break up its business after Elliott Management took a stake.
Despite pressure to improve their companies' commitment to environmental, social, and governance (ESG) matters, general counsel are still wary of disclosure risks and CEO and employee-driven activism that could come with ESG, according to a new report. More than 75% of the participants in the survey by the Rock Center for Corporate Governance at Stanford University said that they faced pressure, especially from employees, to grow ESG efforts in the past three years. The survey completed earlier this year drew responses from nearly 70 general counsel and senior legal officers. General counsel respondents said their companies are most frequently pressured to increase their financial commitments to the diversity, equity, and inclusion portion of ESG. They also face lesser but considerable pressures around their companies' social impact, wages paid to lower-level employees, and environment and sustainability practices. The report showed 72% of general counsel either somewhat or significantly believed that ESG investment would improve their companies' long-term financial performance. Yet some legal chiefs are worried that disclosing their environmental, diversity, and social impact data would increase legal and regulatory risk. Only 27% of the respondents, for instance, said they make Equal Employment Opportunity data that they report to the government publicly available on their websites. Despite the general trend toward ESG, stakeholder capitalism, and corporate activism, the report concluded that general counsel are wary of the uncertain long-term impact. "It is notable that over half of the people who are responsible for balancing the risk and reward of corporate actions advocate dialing back some of these efforts and recommitting to the central strategic and profit-making purpose," it said.
SSE Plc (SSE) is combining the Berwick Bank and Marr Bank offshore wind farms off the east coast of Scotland to create the Berwick Bank Wind Farm. The potential output of this singular windfarm could reach 4.1GW, which would more than double the size of the current offshore wind project pipeline in Scotland. The farm would increase the country’s overall renewable energy capacity by nearly 30%. The Berwick Bank Wind Farm has a planning application that is expected to go to the Scottish Government in Spring 2022. If consented, the farm could start generating electricity in the second half of this decade. It will also assist with Scotland’s net-zero target for 2045 and a wider plan to generate up to 11GW of new offshore wind by 2030. Earlier this year, SSE unveiled plans to invest £2bn in low-carbon projects and supporting infrastructure this financial year, after posting a rise in profits led by renewable energy. SSE is aiming to deliver on a commitment to invest £7.5 billion in decarbonization by 2025. The firm first announced this ambition last year, alongside a 2050 net-zero target. The announcement comes as SSE faces continued pressure to separate its renewables businesses from its electricity arm. Elliott Management has taken a stake in the firm and is encouraging it to split its energy arms in order to raise more finance for its renewables outputs.
Some of the nation's most influential companies have been able to disregard shareholder proposals and demands amid the growing trend of socially responsible investing because insiders or family members have majority or near majority control. At Facebook (FB), the proposal that received the most outside votes this year was the one calling for it to dump its dual-class stock structure. "If there was a one-vote-per-share structure in place when Facebook went public, then the company would've already made big changes," says Richard Clayton, research director at CtW Investment Group. Frustrated institutional investors and shareholder advocacy groups say both internal and external pressure will need to be applied on companies to see change. But Jay Ritter, a finance professor at the University of Florida, says investors have been relatively complacent because dual-class initial public offerings have done well. Some observers do not view dual-class structures as always bad for a company or society, especially when activist shareholders are engaging for the short term or for hostile takeovers.
Canadian National Railway (CNI) has released a plan to boost profits following its loss of an acquisition of Kansas City Southern (KSU) to Canadian Pacific Railway (CP). Early today, CN said it intends to raise operating income by $700 million and strategically review its non-rail businesses, and also undertake an "optimization of labor productivity" to meet that goal in 2022. Its plan includes boosting earnings per share by about 20% and its operating ratio to 57%. CN's latest quarterly earnings report estimated a 61.6% operating ratio. Scotia Capital analyst Konark Gupta told clients that CN's adjusted earnings per share could "reach or exceed" $8.00 per share by 2023, and he upgraded his price target on CN from $147.00 per share to $160.00 and held his Sector Outperform rating. "I am confident that CN's senior management, a team of world-class railroaders who are focused on redefining the rail industry, have the skills and determination to lead the company into this exciting next phase," declared CN Chair Robert Pace. CN also intimated that it will be closely watching how CP's takeover of KCS unfolds. "CN will continue to engage with market participants, railroads, and shippers to ensure that all regulatory rules are enforced fairly, and customers do not suffer anti-competitive effects arising from a combination between Canadian Pacific and KCS," the company promised. CN also is contending with dissenting shareholder TCI Fund Management's push to revamp its board and replace the CEO. TCI owns 5.2% of the company, and confirmed in a regulatory filing Friday that it has formally requested a shareholders meeting to vote on its proposals no later than Dec. 1. "We are not impressed, why hasn't this been done before?" asked TCI Partner Ben Walker about CN's strategy update. "Management lacks the credibility to execute the plan." CN also verified that Pace's term as chair will expire next year, and he will not stand for re-election. The company also announced that it plans to expand the board with two directors this year. "You've got an activist kind of getting up in their grill, so to speak. So, not surprisingly, [CN] management is digging in a bit and trying to entrench themselves," said Brian Madden at Goodreid Investment Counsel, which has a stake in CN. "I think this speaks to the value that activist shareholders can add."
Foxtons Group (FXTGY) has recruited City grandee Nigel Rich as the estate agent seeks to quell a shareholder rebellion over pay and poor share price performance. Rich will replace current chair Ian Barlow, who quit in June following pressure from the group’s biggest shareholder, Hosking Partners, and Catalist Partners. A month earlier nearly 40% of Foxtons shareholders had voted against the company’s remuneration report, which awarded chief executive Nic Budden a cash bonus of £389,000 and shares worth £569,000 in spite of the company claiming £6.9 million from government Covid support schemes. Having spent 20 years at Jardine Matheson in Asia, Rich went on to chair rival estate agent Hampton's International between 1997 and 2005 and has held the same role at companies including Segro and Xchanging. He said: “As the UK, including London, recovers from the economic effects of the pandemic Foxtons is well placed to take advantage of the resurgent activity in the residential market.”
Shareholder returns are more important for Chevron Corp. (CVX) than investing in wind and solar energy, chief executive Mike Wirth said Thursday. "These [wind and solar] are technologies that are relatively mature. There is plenty of capital that's available. The returns in wind and solar are actually being bid down, and we've concluded that management in our company can't create value for shareholders by going into wind and solar." Instead of directly investing in this mature field, then, Chevron would rather return cash to its shareholders, and they can then "plant trees, go invest in a wind and solar developer and have the right to do that with a growing dividend that comes out of our company." Wirth's comments come days after the company made a $10-billion commitment to low-carbon energy over the next seven years, with the CEO saying that "Chevron intends to be a leader in advancing a lower carbon future. Our planned actions target sectors of the economy that are harder to abate and leverage our capabilities, assets, and customer relationships." Emission-reduction activism is bearing fruit in the energy industry, particularly combined with the news that Chevron is bracing for a proxy fight in the boardroom with Engine No. 1, according to a Wall Street Journal report from last week. Engine No. 1 won three seats on the board of Exxon (XOM) earlier this year. Chevron has said it is prepared for activist shareholder activity.
Lagardere SA has welcomed plans from Vivendi SE to buy a stake held by Amber Capital for about 609.86 euros. Vivendi's investment to buy Amber's 17.93% stake will take Vivendi's total holdings in Lagardere to 45.1%. The deal will bind Vivendi with the media conglomerate run by the family of French billionaire Vincent Bollore to pursue a full takeover of Lagardere. The transaction is expected to be completed by Dec. 15, 2022, and would mark the exit of Amber Capital from Lagardere. Lagardere and Amber Capital have been at loggerheads since the investor sought to oust Arnaud Lagardere as chief executive and overhaul the company's former legal structure, which gave Arnaud Lagardere veto powers on most decisions made by shareholders.
Fancamp (FNC) has announced that it has entered into an agreement with Greg Ferron, Frank Hoegel, and certain other shareholders who, together, hold in aggregate approximately 12 million shares. As a group, they have agreed to reverse their previous votes and will vote for Fancamp's director nominees. Ferron will be appointed to Fancamp's board of directors. The proposed business combination between Fancamp and ScoZinc Mining Ltd. has been terminated. Instead, Fancamp will purchase 1,969,697 common shares of ScoZinc at $0.66 per share for $1,300,000. The $300,000 termination fee payable by Fancamp to ScoZinc will be credited toward the private placement purchase price. Once the private placement has closed, ScoZinc will appoint one nominee of Fancamp to its board of directors. With the court decision in favor of Fancamp, shareholders have shown a desire to move onward with a strong corporate strategy and avoid any further costs and delays. Shareholders are encouraged to continue voting on the gold proxy for Fancamp's director nominees.
Sources report that Invesco (IVZ) is discussing a merger with State Street's (STT) asset-management unit, although a deal is not looming and possible terms are uncertain. A merger will still likely constitute one of the largest in recent memory, as the asset-management business oversees almost $4 trillion. State Street Global Advisors remains a leading seller of exchange-traded funds (ETFs), while Invesco manages $1.5 trillion in assets and a large ETF business. Its market value is roughly $11 billion, versus about $32 billion for State Street. Invesco shares climbed over 8% in after-hours trading Thursday after the Wall Street Journal reported on the negotiations, while State Street shares rose more than 1%. Firms are under mounting pressure to cut expenses and investment management fees, which can be achieved through mergers. Consolidation has accelerated sharply in recent years, and both Invesco and State Street have been dynamic deal makers. Invesco has acquired other asset managers, including OppenheimerFund Inc. and Guggenheim Partners' ETF business, while State Street expanded its asset-servicing unit with the attainment of financial-data firm Charles River Systems. State Street also agreed to purchase Brown Brothers Harriman & Co.'s investor-services unit in a $3.5 billion cash deal, while the Journal reported in December that the bank hired Goldman Sachs Group (GS) to review options for its money-management unit. Executives determined that merging the asset-management business with a competitor was the best strategy, and among its intended suitors was UBS Group (UBS). A deal appeared likely for a time, with the firms even agreeing on roles for some of the combined company's top executives, but it did not pan out. Meanwhile, Trian Fund Management built major stakes in Invesco and Janus Henderson Group (JHG) last fall, in a bid to nudge the companies to expand through deal making to better vie with the largest asset managers. Trian later reached a settlement with Invesco, gaining board seats for founders Nelson Peltz and Ed Garden. FactSet said Trian owns a roughly 8% interest in Invesco exceeding $900 million. Trian also took a position in State Street in 2010, after seeing it was trading poorly following the financial crisis. The investor urged the bank to improve its margins, then sold its interest in 2013 after such improvements occurred.
Bluebell Capital Partners has urged Belgian chemicals company Solvay (SLVYY) to replace Chief Executive Ilham Kadri because it said she had failed to stop the discharge of “chemical waste” from an Italian plant into the sea. The move is part of Bluebell’s ‘One-Share’ campaign aimed at creating change at companies it says are falling short on environmental, social, and governance-related issues. Unlike with Bluebell’s recent successful attempt to remove the boss of French food group Danone (DANOY), which it profited from, the Solvay campaign is effectively being done pro bono in the hope other sustainability focused investors join in. Bluebell began engaging with Solvay in September 2020 over the damage it says is being caused by the dumping of soda-ash from Solvay’s Rosignano factory into the sea, but said Kadri had been in “total denial” over the environmental and social impact. In response, Solvay’s Chairman Nicolas Boël said in a statement that Kadri had the board’s “full support”. “Since her appointment in 2019, she has taken decisive action to shape the company’s strategy and align its portfolio with powerful sustainability trends, while also implementing an ambitious new sustainability program, Solvay One Planet. As a result, Solvay is delivering on its commitment to create value for shareholders, customers and all stakeholders.”
Climate-risk disclosure in the U.S. will focus on the companies that investment managers invest in and the executives who run them. European officials target investment managers. Securities and Exchange Commission Chairman Gary Gensler is expected to propose new disclosure requirements for companies by the end of 2021, says Sonia Barros, a partner at the law firm Sidley Austin and a veteran of the agency's Division of Corporation Finance. "It all starts at the corporate issuer level," Barros says, adding that Gensler "will want to do something now rather than wait for the perfect moment" since investors are already pressing companies for more details. Gensler provided some insight into the SEC's deliberations in July, she says. Barros also says there will likely be requirements for industry-specific metrics.
Kansas City Southern (KSU) has ditched plans to merge with Canadian railway CN (CNI) and will merge instead with rival suitor Canadian Pacific (CP). CP and KCS have verified a merger agreement, in which CP will acquire KCS in a $31 billion stock and cash transaction that values KCS at $300 a share. The partners expect the U.S. Surface Transportation Board will complete its review of the deal sometime in the second half of 2022, while the merger itself will take about three years. KCS will pay CN a $700 million termination fee, and $700 million more for the fee that CN paid when KCS ended a previous merger agreement with CP. "Our path to this historic agreement only reinforces our conviction in this once-in-a-lifetime partnership," said CP President and CEO Keith Creel. "We are excited to get to work bringing these two railroads together. By combining, we will unlock the full potential of our networks and our people while providing industry-best service for our customers. This perfect end-to-end combination creates the first U.S.-Mexico-Canada rail network with new single-line offerings that will deliver dramatically expanded market reach for CP and KCS customers, provide new competitive transportation options, and support North American economic growth." KCS President and CEO Pat Ottensmeyer concurred that his company is "glad to be partnering with CP to create a railroad that is able to compete by providing the best value for the transportation dollar. The CP-KCS combination will not only benefit customers, labor partners, and shareholders through new, single-line transportation services, attractive synergies, and complementary routes, it will also benefit KCS and our employees by enabling us to become part of a growing and truly North American continental enterprise." CN said it still thinks a merger with KCS would have augmented competition, but that "significant changes to the U.S. regulatory landscape since CN launched its initial proposal [in April and May]...have made completing any Class I merger much less certain." The railway continued that it "will continue to pursue profitable growth and opportunities for excellence as a leading Class I railroad, and we look forward to outlining more details on our strategic, operational, and financial priorities in the near future." CN's failed effort to acquire KCS prompted TCI Fund Management to call for CN President and CEO JJ Ruest's removal, saying that CN needs to concentrate on improving operations. TCI also urged the replacement of four CN board members.
Ortelius Advisors L.P., which owns approximately 12.7% of the outstanding common stock of Capital Senior Living Corp. (CSU), has released a detailed presentation regarding its opposition to the company's proposed financing transactions with Conversant Capital LLC. Ortelius urges Capital Senior Living's stockholders to vote against all of the company's proposals on the gold proxy card at the upcoming meeting of stockholders on Oct. 12, 2021. "Our detailed presentation demonstrates that Capital Senior Living's Board of Directors ran a deeply-flawed process for assessing the Company's capital needs and financing options," states Peter DeSorcy, managing member of Ortelius. "Our analysis indicates that over the course of the first half of 2021, the Board of Directors overlooked the industry's recovery, the Company's improving fundamentals, and a world awash in trillions of dollars in liquidity at historically low interest rates and credit spreads. This is why stockholders are now being asked to vote on a series of costly, dilutive, and unnecessary transactions that would effectively hand control of the business to Conversant at a material discount. Fortunately, stockholders can reject the Proposed Transactions at the upcoming Special Meeting and put the Company in a position to evaluate what we believe are readily available and viable financing alternatives. As outlined in our presentation, Ortelius believes there are superior alternatives for the Company to consider if the Proposed Transactions are voted down. We are prepared to participate as a backstop and subscribe well beyond our pro rata share in a new equity rights offering, provided that such an offering is decoupled from the Proposed Transactions. Ortelius views this as a clear path to raising up to $70 million in capital — a sum that we believe can more than satisfy Capital Senior Living's near-term needs."
TCI Fund Management Ltd. will continue its campaign to replace the chief executive officer and several directors of Canadian National Railway Co. (CNI) despite the railway’s decision to drop its $30 billion bid for Kansas City Southern (KSU). “While CN ultimately made the right decision to not continue its ill-fated pursuit of Kansas City Southern, the fact the company made such an ill-advised bid in the first place exposed a basic misunderstanding of the railroad industry,” said TCI, managed by Chris Hohn. Kansas City Southern said Wednesday it had terminated a deal with Montreal-based Canadian National that had run aground after U.S. regulators rejected a key provision. The U.S. railway instead agreed to be acquired by Canadian Pacific Railway Ltd. (CP) for $27 billion, ending a monthslong battle. TCI is in the unusual position of being a significant investor on both sides of the takeover battle: it owns 8.4% of Canadian Pacific, according to data compiled by Bloomberg. TCI, which owns more than 5% of Canadian National, is planning a proxy fight with a goal of ejecting four board members and CEO Jean-Jacques Ruest, potentially replacing him with former Union Pacific Corp. executive Jim Vena. “Without much needed change on the board and in management, TCI believes the company's operational and financial performance will continue to suffer to the detriment of CN shareholders,” the fund said. Canadian National will get a $700 million break fee because of the collapse of its Kansas City Southern agreement, and will also get a refund of $700 million it had already paid to the U.S. railroad.
In accordance with the agreements concluded on Aug. 10, 2020, Amber Capital has informed Vivendi (VIVHY) of its intention to sell all its shares in Lagardère and has invited Vivendi to make an acquisition offer. The Vivendi Management Board has accepted to offer €24.10 per share for the 25,305,448 shares held by Amber Capital, representing 17.93% of the share capital and 14.34% of the theoretical number of voting rights in Lagardère. The Vivendi Supervisory Board has approved the Management Board’s decision regarding this offer. Amber Capital has accepted this offer, leading to the conclusion of a conditional sales contract. The transaction will be completed by Dec. 15, 2022, after gaining the approvals required by the current regulations in light of the takeover that could result from the mandatory public offer following this acquisition. If these authorizations are not obtained by Dec. 15, 2022, the acquisition will have to be completed at the same price by a third party in place of Vivendi. Should the acquisition by Vivendi be completed, Vivendi will hold 45.1% of the share capital and 36.1% of the voting rights of Lagardère, going above the 30% share capital and voting right thresholds in Lagardère. As a result, a mandatory proposal for a public offer at the same price for all Lagardère shares not yet owned by Vivendi will be filed with the French market authority (Autorité des Marchés financiers) in accordance with current regulation. The contract signature does not affect the shareholder agreements concluded by the main shareholders to transform Lagardère into a limited company, as announced on April 28.
Support for climate-related shareholder resolutions at U.S. companies rose significantly this year, according to a report released on Wednesday, as investors focused on economic threats posed by global warming. The paper, from Institutional Shareholder Services, the largest proxy adviser, found median support for the proposals was 48.9% during the proxy season ended June 30, up from 37.6% in 2020 and 27.5% in 2019. The total number of resolutions filed rose to 84, also an increase from the prior two years, the report found. Popular themes for shareholder climate resolutions this year included aligning emissions with the goals of the Paris Agreement, company greenhouse gas emissions and disclosures, and resolutions aimed at company lobbying activities, ISS said. "The 2021 U.S. proxy voting season marked an escalation of shareholder engagement on climate-related issues and an expansion of investor voting approaches," said Georgina Marshall, global head of research at ISS. Driving the increase in support are more aggressive proxy vote patterns from large fund firms including BlackRock Inc. (BLK), as investors channel more money into funds using environmental, social and governance criteria to pick stocks. BlackRock had said in July it voted against 10% of company directors this year, up from 8.5% the year before.
The Securities and Exchange Commission recently approved a Nasdaq principles-based proposal intended to enhance board diversity, which calls for firms to have at least one director who self-identifies as female and another who self-identifies as an underrepresented minority or LGBTQ+. To avoid forced delisting, firms must either have the required number of diverse directors or explain why they do not. Fried (2021) contends that Nasdaq's proposal will create significant risks for investors because research has shown that increasing board diversity can lead to lower share prices. Researchers conducted a study to examine the effects of "diversify or explain" legislation that has been in place in Canada since 2014. The Ontario Securities Commission introduced female representation policy disclosure requirements that took effect in December 2014. The researchers found that firms most likely to be affected by the amendment—those without a disclosed voluntary female representation policy and those with all-male boards—exhibited positive and statistically significant cumulative abnormal returns around the announcement. These results are in contrast to negative abnormal announcement returns observed for California's SB 826 law mandating gender diversity for firms headquartered there, according to Hwang, Shivdasani, and Simintzi (2020) and Greene, Intintoli, and Kahle (2020). For the mandatory regulation in California, announcement returns were more negative for firms for which the quotas are more binding, such as those with no female directors, precisely the firms for which the researchers observed significantly positive returns. The researchers also found that firms that are less susceptible to pressure from outside investors were less likely to indicate they employ a target quota for female directors and use less welcoming language regarding board diversity. Firms also seemed to explain their lack of compliance when faced with higher costs to improve female representation in their boardroom, such as a limited supply of qualified female directors.
Charlie Penner, head of Active Engagement at Engine No. 1, says his firm's Total Value Framework "is a data-driven approach to investing that puts a tangible value on a company’s environmental, social, and governance (ESG) impacts and ties those impacts to long-term value creation." He notes the inability to tie data to actual outcomes has supported shareholders divesting rather than holding a company and engaging when a problem arises. "Through the Total Value Framework, we seek to measure the value that companies create or destroy for all their stakeholders," says Penner. "We seek to quantify, where possible, the impact in dollars instead of using ESG scores and ranks, the latter of which, in our view, constitute little more than emojis and are quite difficult to incorporate into valuation models. Instead, we use independent sources and estimates to assess the firm-level cost of emissions, resource use, waste, social practices, and a number of other ESG factors. We then calculate the societal impact of these estimates in dollars—for instance, the social cost of carbon—through the use of science-based conversion factors." Armed with these new metrics, Engine No. 1 can proceed to focus on how the value delivered to stakeholders affects the value a company can deliver to shareholders. "This forces us to examine drivers like potential regulation, changes in customer or employee preferences, technological disruption, and other relevant contributors to a company's risk or growth," says Penner. The Total Value Framework can show changes in the pattern of value creation or destruction over time—strongly predicting future shifts in the company’s financial value, including in revenues, worker productivity, earnings, net income, market capitalization, and earnings multiples. "Our analysis also shows the association between stakeholder value and these financial outcomes is far stronger than the correlations observed between traditional ESG metrics and these same outcomes," he adds.
Privately held Sony Pictures Networks India is merging with publicly traded Zee Entertainment Enterprises Ltd. (ZEEL). Sony Group Corp. will control the larger empire, and infuse an additional $1.4 billion of cash into it. But the combined entity will be presided over by Punit Goenka, the current Zee chief executive and founder Subhash Chandra’s elder son. The family also gets an option to raise its near-4% stake to 20%. This commentary suggests that while Chandra, who will also get extra shares as a non-compete fee, should be thrilled, "the almost-32% jump in the stock suggests that minority shareholders aren’t exactly grumpy, either, even though the merger is unlikely to trigger an open offer." The business, which has more cash than debt, could perhaps have commanded a better valuation than what the Japanese are paying: three times annual sales, which works out to a multiple of 13 on 18 billion rupees ($241 million) earnings before interest, taxes, depreciation and amortization, according to B&K Securities. But Zee’s problem was founder Chandra’s ill-conceived foray into infrastructure. Where does the merger leave Invesco? To the extent that its activism precipitated the announcement, the investor can give itself a pat on the back for unlocking value. The shareholders’ meeting it had called to oust the CEO may no longer be necessary. Although Goenka would continue in the top job, Sony would control the majority of the board. From a corporate governance standpoint, that’s not a bad outcome. Besides, the deal is nonbinding for now. Other suitors could emerge, offer Invesco an even better deal for its shares, and give minority owners an exit option. The U.S. shareholder didn’t exactly lose anything by speaking up, the commentary concludes, and might score an even bigger win.
Investors are moving up wagers that a global push to lower carbon emissions will hamper commodity production, making prices higher for everything including natural gas. With big names like Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) under pressure from investors to minimize environmental damage, many are limiting spending on new output. And a climate-focused activist investor's successful campaign to win board seats at Exxon with a very small stake in the company earlier in 2021 was a wake-up call to all commodity producers, forcing them to accelerate their climate goals, investors say. Chevron has prepared for a similar investor challenge. The push comes after years of declining investments in production that were driven by dull commodity prices and a focus on returning money to shareholders. Even with prices for metals like copper at their highest levels in years, annual spending by mining companies is projected to remain about 30% or more below a 2012 peak each of the next five years. While environmental concerns aren't new for companies that consume large amounts of power and water and often contribute to local pollution, commodity investors say that the global scope of the recent push is unprecedented. "It now matters everywhere," said Chris LaFemina, a metals and mining analyst at Jefferies who expects constrained supply to lift prices. "Most of the limiting factors on supply are now related to environmental issues."
The Conference Board convened a working group of more than 300 executives from more than 150 companies to focus on how companies can tell their sustainability stories better to multiple constituencies. Among the key insights, companies will need to determine what to include in their sustainability story, and must tell their sustainability story authentically and effectively. Companies must engage stakeholders and tell their sustainability story reliably, and will need to deal with regulations, reporting frameworks, and rating agencies. In a poll of working group members, most companies identified up to 20 sustainability-related issues as significant, but only a handful of issues "truly move the needle." Seventy-nine percent believe regulation will be at least somewhat beneficial. Only 32% said their companies have a strong agreed-upon definition of sustainability internally across the business.
The insurance industry is being engaged by activist investors betting that the Covid-19 pandemic's impact on valuations, as well as years of overexpansions, have left its members vulnerable. Earlier this year, Cevian jumped on the shareholder register at Aviva (AVVIY), pushing for bigger capital returns and extra cuts to costs following a string of disposals. Prudential (PRU) has completed a carve-up under pressure from Dan Loeb’s Third Point. Finland’s Sampo (SAXPY) is busy selling down its stake in Nordea (NRDBY) in order to focus on its core insurance business, under pressure from Elliott Management. NN Group (NNGRY), also under pressure from Elliott, took another step to streamline last month, agreeing to the sale of its asset management arm. Activists and corporate advisers say European insurers, in particular, have grown vulnerable during the pandemic because their stocks have been trading at deep discounts to the wider index, and some have built hefty cash piles after dividends were held back last year. Overarching that is a rethink of the conglomerate model that had long held sway in the sector. “It looks like today the opportunities in the sector overtake the difficulties,” said Catherine Berjal, chief executive of CIAM. Heavily regulated and complex businesses such as insurance companies are not typically engaged, activists say. But Berjal expects more campaigns “at the insurers where the market price is not high.” Cevian senior partner Harlan Zimmerman said that over the past few years the UK and European insurance sector has become more attractively valued, citing factors “such as a legacy of poor performance, historically low interest rates, the market’s preference for growth companies and, most recently, regulators forcing capital accumulation due to Covid.” Corporate advisers that specialize in activist campaigns say a sector-wide retrenchment from the international ambitions of previous decades has also given activists an opportunity to press for cash returns and cuts to costs.
Companies use 13F disclosures to find out who their own shareholders are, according to new research by Alexander Platt, an associate professor at the University of Kansas School of Law. They then use this information to make decisions about competing with other firms and with their activist investors. Platt's research exploring how 13F disclosures impact market transparency was recently published in the Stanford Law Review. He analyzed a series of 13F academic studies and comment letters on a Securities and Exchange Commission 13F reform proposal, as well as performed his own legal analysis. Hundreds of comment letters on the 2020 proposal indicated that companies could not easily find out who their shareholders are. "It is subsidizing management's ability to lobby shareholders ahead of these closely contested shareholder contests," Platt says. He notes his research may also lend credence to concerns over universal ownership and how it affects competition among companies. "I think if you're an antitrust person, this is kind of a smoking gun," says Platt.
Toshiba is under pressure from its largest investors to pull off a radical restructuring or a private equity deal and deliver the 50% share price increase that activists believe will correctly value the company. Toshiba’s boardroom torment is focused on the need for a credible plan to lift the stock’s value to the ¥7000 ($64) mark that at least five of its 10 largest investors believe it is worth. Already this year, Toshiba has endured defeat at an extraordinary general meeting after an explosive independent report — forced on the company by shareholders — alleged collusion between management and Japan’s government to suppress activist investors. The revolt, led by Singapore-based fund Effissimo and backed by U.S.-based Fallaron, ejected both Toshiba’s chief executive and chair. In the aftermath, Toshiba agreed to complete a strategic review by the end of October. Now, after several months of board deliberations and talks with the world’s largest private equity firms, including Bain Capital, KKR, and Brookfield, the options for the 146-year-old company have reportedly narrowed to just three. The first would be to restructure and sell billions of dollars worth of non-core assets of a group with operations spanning air conditioning and lifts to defence and nuclear power. The second would be to secure a bid from private equity and delist the whole of the technology conglomerate for as much as the $30 billion some investors believe it is worth. A third option under discussion by the board would be a hybrid version of those, with a private equity buyer acquiring a stake large enough to give activist shareholders the option of a swift profitable exit. In a sign of the extraordinary nature of the process, talks over what could be a historic private equity deal are unfolding without any mention of valuation and in the absence of a chief executive and board chair who will execute the plan.
Discussions of environmental, social, and governance (ESG) issues are occurring at various levels—from the boardroom to investors to employees—and governments, regulators, and companies are all being encouraged to take these matters into consideration. This year, activists pressed companies aggressively on ESG issues. Globally there have been 169 ESG shareholder proposals in the 2021 annual general meeting season. ESG challenges to "Big Oil" gained the most traction. Engine No. 1 elected three directors to the board of Exxon Mobil (XOM) and sponsored two shareholder proposals that won majority support, all against the board's recommendation. The past six months have shown a shift in favor of ESG activism and Big Oil is unlikely to be the only focus as other investors and campaigners focus on ESG issues.
Catherine Berjal, co-founder of asset manager CIAM, writes in this commentary that shareholders at French companies "can protest vehemently against the boss’s remuneration and the vote is simply dismissed by the company or presented as though everything is fine." She notes that while in the U.S. and U.K. no company is safe from the attentions of activist investors, in France, and many other continental European jurisdictions, "the business elite feels relatively secure; public company directors are more dismissive towards activists and engaged shareholders. Too many board members are old school friends or belong to the same clubs, and are therefore reluctant to side with activists against their pals." Berjal suggests the best way to combat this attitude is to pursue change at annual meetings — shareholders should not systematically vote in favor of directors’ appointments. "It is time that institutional shareholders understood that they are on the same side as activists on ESG issues," she states. One thing that might be done to improve things is to scrap the so-called Florange Law, which automatically assigns double voting rights to French shares after two years of holding. This law disproportionately benefits traditional, long-only institutional investors. While Florange prevails, it counters reform efforts.
BlackRock Inc. (BLK) is losing patience with companies that are slow to disclose the details of their adherence to environmental, social, and governance (ESG) principles, according to Jessica McDougall, a director for investment stewardship at BlackRock. “We don’t have patience much longer for these disclosures to be forthcoming,” McDougall said in a webcast sponsored by Diligent, adding “we are increasingly seeing the impacts of climate change not only across our portfolios but also across the global economy.” BlackRock has pressed for more disclosure in recent years, “but this was the year that we really started to take more concerted action based on what companies were providing us” before the 2021 proxy season, McDougall said. “Where we felt that companies were falling short for a variety of ESG issues, we were more inclined to support those [shareholder] proposals this year.” Like investors, regulators including the Securities and Exchange Commission (SEC) are pressing for more detailed ESG disclosure. SEC Chair Gary Gensler in July noted increasing investor concerns about climate risk and said he has asked agency staff to submit a proposal for mandatory disclosures for agency consideration by the end of 2021. Such reports may be required in an expanded Form 10-K and describe a company’s direct and indirect carbon emissions, including those by suppliers and partners in its “value chain,” he said. Companies may be required to disclose both qualitative and quantitative details, including how they manage climate-related risks and opportunities day-to-day operations and in broad strategy, Gensler said, noting rising investor pressure for consistent ESG standards.
Christopher Hohn has two horses in the race for Kansas City Southern (KSU), and one is his favorite, which means his goals differ from those of other investors in Canadian National Railway (CNI). Hohn's TCI Fund Management holds an 8% stake in Canadian Pacific Railway (CP) and a 5.2% stake in Canadian National. His argument about Canadian National's lagging performance is correct, but his argument about its bid is self-serving, writes Andrew Willis in an opinion piece. Failure to take a shot at Kansas City Southern would have been a good reason to fire Canadian National's management. Canadian National CEO Jean-Jacques Ruest will walk away with a hefty termination fee and the satisfaction of forcing a rival to pay more for a deal. That's not the outcome Ruest wanted, but it's no reason to replace Canadian National's CEO and four directors.
A global survey from the corporate governance advocacy nonprofit OCEG reports that more than 50% of 530 corporate executives have little or no confidence in the reliability and maturity of their environmental, social, and governance (ESG) programs. The global report provides insight into the corporate world's perception of ESG initiatives, which vary greatly in ambition, disclosures, and standards across companies. Additionally, ESG initiatives have come under scrutiny by regulators over "greenwashing" concerns. According to the survey, 78% of the executives believe ESG efforts have an impact on a corporation's brand and reputation. At the same time, however, just 48% believe ESG efforts impact a company's financial outcomes. The survey respondents were largely based in the United States and Europe.
Universal Music, being spun off by Vivendi (VIVHY), could be a major windfall for stakeholder Bill Ackman, as the label's profitability makes a valuation of 47 billion euros including debt plausible. Last year the group owned by Vincent Bolloré sold a 20% share to a consortium led by Tencent (TCEHY), and this year sold a further 10% to Pershing Square, which valued the group at 35 billion euros including debt, and its equity at approximately 33 billion euros. Refinitiv says rival Warner Music (WMG) is valued at 24 times this year's EBITDA including debt, which translates into 42.3 billion euros for Universal, based on company EBITDA projections. Likely adding further value is Universal's back catalog, while its 20% EBITDA margin last year beat Warner's by 19%. All this could grant Universal an enterprise value of 47 billion euros, or equity of almost 45 billion euros, which would suggest a 36% stock boost for Ackman and a 60% gain for Tencent. Universal's shareholders will need to acclimate themselves to an intricate ownership framework. Following the spinoff, Bolloré will control 18% of Universal, along with another 10% through the rump retained by Vivendi. However, they may be willing to put aside reservations in order to reap profit from the music streaming explosion. CEO Lucian Grainge is pledging to keep expanding the top line by just less than 10% annually and raise the EBITDA margin to the mid-20% range. While locked-down music fans downloading songs undoubtedly helped, there is plenty of room to grow, as UBS (UBS) estimates that global streaming penetration was roughly 6% in 2020. Ackman may opt to retain his stake rather than cash it out.