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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.
Apollo Global Management (APO) and Caesars Entertainment (CZR) have made separate cash proposals for William Hill (WIMHY), according to the U.K.-based operator. William Hill confirmed media speculation about an imminent U.S. takeover just days after HG Vora Capital acquired a 5.1% stake in the company. The New York hedge fund's transaction was reportedly valued at 115 million pounds ($147.8 million). William Hill, which has been increasing its footprint across regulated wagering markets, recently completed a 225 million pounds private bookbuild to support its growth efforts. William Hill said it is having ongoing discussions with Apollo and Caesars, which is the bookmaker's current U.S. wagering strategic partner. Caesars owns 20% of its wagering division as part of their joint venture.
Cannae Holdings (CNNE) and Senator Investment Group, which jointly own about 15% of the outstanding shares of CoreLogic (CLGX), have sent a letter to the company's shareholders in connection with the filing of a proxy statement. The letter outlines the case for electing nine new independent directors to the CoreLogic Board to ensure that the company carries out a legitimate sales process aimed at maximizing value for all shareholders. Cannae and Senator say their offer to acquire CoreLogic represents a 39% premium to the unaffected share price, and they are open to raising the bid if granted diligence. They argue that CoreLogic's current board has overseen substantial value destruction, with the company underperforming peers by 145% over the past five years. Despite its attempts to use acquisitions to claim growth, the investors say CoreLogic has never organically grown revenue. Given the current board's unwillingness to engage, Cannae and Senator are calling for the appointment of the nine new independent directors.
The Securities and Exchange Commission (SEC) has approved new restrictions on shareholder activism. On Wednesday, the SEC voted 3-2 to raise the limit on the amount of stock investors must hold in order to propose a resolution that receives a shareholder vote during a company's annual proxy period. SEC Chairman Jay Clayton said reviewing shareholder proposals imposes costs on companies and other investors. There is a risk that "shareholder-proponents would use the proposal process in a way that does not benefit the company or its other shareholders," added Clayton. Business lobbyists have said the proposals represent the interests of small groups of activists who are not committed to long-term company goals. Small investors have used shareholder proposals to press companies on issues like climate change, social justice, and human rights. The SEC also voted to tighten requirements for resubmitting failed shareholder proposals the following year.
Although Aryzta (ARZTY) is officially still in talks to be acquired by Elliott Management, its share price suggests otherwise. Shares soared to 75 cents earlier this month on speculation that a deal could be likely, but a boardroom coup pushed out most members endorsing a takeover, and installed as chairman dissident shareholder candidate Urs Jordi. "It would certainly be the worst point in time to sell the company right now," he declared at last week's extraordinary general meeting. Since then shares have plunged 28% to 54 cents, implying that investors think the prospect of a deal may be dead. Shares were down 10% on Sept. 23. The new board will likely spend the next few weeks settling in, and while Aryzta has full-year results due Oct. 6, it may opt to use that juncture to update on negotiations, if they are still ongoing. Former Aryzta Chairman Gary McGann and CEO Kevin Toland had overseen an €800 million capital raise, almost €400 million of asset divestiture, and a €200 million cost-cutting program to slash debt and refocus on the company's central baked goods operations. But this did not stop further declines in share price or assuage shareholder anxiety over the company's strategic direction. Investor advisory group ISS said Aryzta's former board had been "tackling the company's challenges with too little urgency."
China's State Council has approved a range of measures to refine the corporate governance of its listed companies and improve transparency. China will work to strengthen the mechanism of diverse exit options for listed firms in an effort to enhance the quality of listed companies, protect the rights and interests of investors, and sustain capital market growth. The mechanism for institutional investors to participate in corporate governance will be enhanced, and guidelines on internal controls will be widely applied. Greater efforts will be made to enhance the performance of listed companies, and well-run firms will be supported in going public. Institutions for asset restructuring, acquisition, and equity carve-out will be developed and those for refinancing and bond issuance of listed companies improved. More eligible foreign investors will be allowed to make strategic investments in listed companies. The mechanism of diverse exit options for listed firms will be strengthened by refining standards and simplifying procedures. Inter-agency regulation and supervision will be stepped up. Issues relating to share-pledging risks, funds misappropriation, and against-regulation guarantees must be properly resolved. Heavier punishment will be imposed on any violation of laws and regulations, including market manipulation and insider trading.
The proxy advisory firm InGovern has recommended that shareholders of Sterling & Wilson Solar Ltd. (SWSL) oppose related party transactions (RPTs), the reappointment of Pallonji Mistry, billionaire construction tycoon and SWSL director, and the continuation of the term of Keki Elavia, independent director, at the company's Sept. 30 annual general meeting. InGovern has flagged concerns over disclosures on RPTs and loans to promoters and urges shareholders to vote against the RPTs. InGovern noted that when the board of directors changed the terms of the loan, the company did not seek shareholders' approval under Section 188 for RPTs. "Shareholders have a genuine reason to be concerned whether the board and independent directors are seeking to protect their interest," InGovern said.
CIAM, a minority shareholder in Suez (SZSAY), said in a letter to Suez' board chairman that the utility company is violating shareholders' rights by lodging its French water activities in a Dutch foundation as a defense against a takeover effort by sector competitor Veolia (VEOEY). "The Suez board, under the pretext of protecting the company and its staff, has adopted a poison pill that is designed to block all bids or changes of control," CIAM said in the letter. "The board is foremost trying to ensure its own survival and is taking other shareholders hostage to their detriment." CIAM wants market regulator AMF to intervene. CIAM says it has a stake of between 0.1% and 1% in Suez, but declined to give an exact figure.
LVMH (LVMUY) owner Bernard Arnault disclosed that he has accrued a direct stake in embattled publisher Lagardere (MMB), which is the center of a proxy battle between some of France's leading businessmen. The battle ensued when the company's managers sought aid in warding off a board shake-up attempt by Amber Capital. Lagardere has subsequently on-boarded new investors, including Vivendi (VIVHY) owner Vincent Bollore. But they clash with Lagardere's strategy, driving speculation that Bollore and Arnault will want to compete for some of its holdings. According to Arnault, his family holding company now controls more than 5% of Lagardere, and he is committed to the integrity of the group's main operations. He also has invested in the vehicle through which Lagardere CEO Arnaud Lagardere controls the firm, and said the two of them, with a collective 12.8% stake, would act in concert. Although Vivendi has recently built up a 23% stake in Lagardere and has partnered with Amber in a bid to gain seats, Arnaud Lagardere exerts significant influence over the company, as his share is held through a "commandite" scheme that empowers him to veto many decisions. A Vivendi spokesperson on Sept. 24 said the firm was "very happy" with Arnault becoming a direct Lagardere shareholder. Sources say Bollore initially was in Arnaud Lagardere's corner earlier this year in fighting off Amber, but the relationship soured after Arnault's involvement was revealed. Vivendi and Amber have now gone to court to attempt to induce an expedited shareholder meeting to change Lagardere's governance. Its supervisory board unexpectedly renewed Arnaud Lagardere's status as CEO months ahead of schedule in August. "It's a company that's managed only in the interest of one person and those close to him," said Amber's managing partner Joseph Oughourlian. Lagardere's attorneys Florian Bouaziz and Didier Malka refuted allegations of a lack of independence of the board, claiming Vivendi had initially voted for the renewal of the current one and against Amber. The court will rule on the shareholder meeting request on Oct. 14.
On Sept. 23, Bank of East Asia Ltd. (BKEAF) announced that it would initiate a sale of its insurance business and seek a strategic partner for its mainland China business following a review of its portfolios and assets. The review paused four-year-old legal proceedings brought by Elliott Management, which owns 7.5% of the Hong Kong-based lender and supports the move. BEA, whose shares rose as much as 4.7% following the announcement after having lost about 20% over the last 12 months, said it would seek to enter into a long-term exclusive distribution agreement with the buyer of BEA Life. Such an agreement would be a new source of revenue for the bank, it said. Elliott had urged the bank to explore putting itself up for sale in an open letter to shareholders, arguing that it was poorly run. In a BEA news release, Jonathan Pollock, co-CEO and chief investment officer at Elliott, said, "The sale of BEA Life will be a good first step and we look forward to continuing our engagement while the company follows through on this and the other important conclusions of the review."
Nam Tai Property Inc. (NTP) has issued a press release in response to numerous statements made by IsZo Capital Management LP in its recent communications to Nam Tai shareholders. The company also noted that it is working with its advisors and legal counsel to evaluate IsZo's request to call a special meeting of shareholders and will respond in due course. Nam Tai says IsZo has made numerous false claims regarding Nam Tai's relationship with Kaisa, and that the strategic relationship with Kaisa will support long-term development. Nam Tai also says IsZo has made numerous false claims about Nam Tai's stock performance, and that Nam Tai's stock performance has outperformed since Kaisa's investment. Further, Nam Tai says it is financially and strategically allocating capital to high-quality land resources and its actions are fully aligned with its shareholders' interests. Nam Tai also says IsZo falsely claims that Nam Tai board members lack independence and are unqualified, but the Nam Tai board and new leadership team actually are made up of individuals who have broad and diverse experience and are committed to effective, independent oversight to lead the company as it grows. Finally, Nam Tai says IsZo and its candidates have presented no credible path for how they will create value and lack the experience and qualifications to lead Nam Tai or any real estate company.
The Securities and Exchange Commission has voted to adopt amendments to modernize its shareholder proposal rule, changing the criteria stockholders must meet in order to submit, or resubmit, proposals that investors vote on at companies' annual meetings. This follows the SEC's July approval of a related rule that curbed the power of so-called proxy advisory firms. SEC officials said the new rule will require new shareholders who have only held stock for one year to have $25,000 worth to submit a plan for the first time. The previous threshold of $2,000 would apply to investors who have had their positions for at least three years. In addition, the support level needed to resubmit a plan within five years of it failing to pass would rise to 5% from 3% currently, with the amount of backing needed increasing in additional attempts. Vanguard Group Inc., the Business Roundtable, and the U.S. Chamber of Commerce wrote letters in support of the plan, while the Council of Institutional Investors, the Presbyterian Church (U.S.A.), and Neuberger Berman were among those voicing opposition.
The Securities and Exchange Commission (SEC) on Wednesday raised the bar for investors to submit proposals for a vote at companies' annual meetings, a win for executives who have bristled at shareholder efforts to influence corporate policies on social and political issues. Commissioners voted 3-2 to pass a final rule requiring shareholders to hold $25,000 of stock for a year, up from $2,000 currently, in order to submit such proposals. That threshold will fall to $15,000 after two years of ownership and to $2,000 after three years, setting a sliding scale that gives priority to longer-term shareholders. The new rule also raised the percentage of votes that proposals must receive to be resubmitted—and prohibits multiple shareholders who don't individually meet the minimum thresholds from joining together to submit a proposal. The changes address one of SEC Chairman Jay Clayton's top priorities to overhaul proxy rules—along with a rule passed in July to more heavily regulate the firms that institutional investors pay for proxy-voting advice.
Qatar's sovereign wealth fund is urging fair board representation for all major investors in French media and publishing group Lagardere (MMB), echoing demands from shareholders like Amber Capital for a corporate shake-up. Qatar Holding, Lagardere's third largest investor with a 13% stake, said on Sept. 22 that it considered it "legitimate that all significant shareholders be fairly represented." This statement follows demands by Amber and Vivendi (VIVHY), now Lagardere's two top investors, for board seats. Qatar Holding said it remained committed to Lagardere as a long-term investor, and it had acknowledged the request "by two core shareholders," while also reserving the right for representation. The Qataris and other shareholders are currently not explicitly represented on Lagardere's supervisory board, which this year accepted new members including former French President Nicolas Sarkozy. Vivendi invested in Lagardere earlier this year when the company's leading managers sought aid to fend off Amber at a shareholder meeting. However, Lagardere CEO Arnaud Lagardere has also brought in LVMH (LVMUY) boss Bernard Arnault as an investor in his family holding company, while Vivendi owner Vincent Bollore has switched sides. Vivendi partnered with Amber to request board seats, and the two have gone to court in France in an attempt to trigger another shareholder meeting.
The Massachusetts Pension Reserves Investment Management Board (PRIM) will be the founding member of MIT's new Aggregate Confusion Project, which seeks to better define environmental, social, and corporate governance (ESG) investing. Boston is home to some of ESG's earliest pioneers, such as Trillium Asset Management, and in recent years its largest asset managers have devoted significant resources to ESG. The problems in measuring ESG have to do with quantifying something as personalized as what constitutes a social good. Moreover, it is not clear how investors should respond when ratings companies score ESG performance. The Aggregate Confusion Project is led by Sloan Sustainability Initiative director Jason Jay and MIT Sloan professor Roberto Rigobon. Rigobon is known for the Billion Prices Project, which determines inflation in real time by using online retail prices. Rigobon is also part of a team that published another paper last year that examined how rating agencies score ESG differently. The Aggregate Confusion Project is seeking large asset owners and managers as partners, to fund a bigger research team at MIT and to bring their own expertise to the table. The investors can help MIT's researchers to prioritize which aspects of ESG measurement to fix first.
Jonathan Litt opposes Apartment Investment & Management Co.'s (AIV) plan to split into two public entities. In a letter to Aimco's board, Litt threatened to call a special meeting if the real estate company does not let shareholders vote on the move. His firm, Land & Buildings Investment Management, owns about a 1.4% stake in Aimco. Litt questioned whether Aimco had explored a sale, and called the plan a "thinly veiled attempt by management and the board to rid themselves of a decades-long poor track record rather than address the fundamental issues facing the company." He faces a hurdle, considering Aimco's bylaws only allow a special meeting to be called with the support of investors representing at least 25% of all the eligible votes that could be cast at the meeting. Aimco plans to split the company into a new publicly traded real estate investment trust and a new publicly traded development company. The spinoff is expected to close before Aimco's annual general meeting.
The leaders of the Big Four accounting firms have come together in an unusual joint initiative to unveil a reporting framework for environmental, social, and governance (ESG) standards. Punit Renjen, the global chief executive of Deloitte, said the framework could help promote ESG across the board. "It is important for us to have a common set of standards, and if there is widespread adoption, it will lead to change in behavior," Renjen said. The move was spearheaded by the International Business Council, and aims to encourage the organization's 130 large global companies to adopt the standards for their 2021 accounts. If the initiative is successful, it would mark the first truly coordinated approach to ESG reporting—and could prompt investors to move more money into the sector.
CoreLogic (CLGX) has filed its definitive proxy statement with the Securities and Exchange Commission in connection with its upcoming Special Meeting of Shareholders on Nov. 17, 2020. The CoreLogic board recommends shareholders vote against the removal of CoreLogic's directors. CoreLogic says it is "delivering outstanding financial and operational performance. Our strong financial results in 2020 are supported by increasing organic growth and recurring revenues as well as record profitability, margins, and free cash flow. We have just raised financial guidance for 2020 and 2021, which underscores our high confidence in CoreLogic's future and the value-creation opportunities inherent in continued execution of our strategic plan. The Company believes it is poised for significant valuation upside, which shareholders will not benefit from under Senator/Cannae's inadequate acquisition proposal. The Board remains open to all paths to create value, but we are confident in our view that we will produce value for shareholders far in excess of $66.00 per share. CoreLogic has provided significant transparency and detailed information to all shareholders, including Senator and Cannae, through multi-year projections, margin targets, planned divestitures and capital allocation plans, that we believe clearly demonstrates that CoreLogic is worth substantially more than $66.00 per share. Our Board of Directors is comprised of highly qualified independent directors with track records of shareholder value creation and taking decisive actions to ensure continuing success in an evolving industry landscape. We believe the Senator/Cannae nominees are inherently conflicted and lack the breadth and depth of experience that CoreLogic's current directors possess and is necessary to provide effective oversight of CoreLogic."
IsZo Capital has issued a statement condemning Nam Tai Property Inc.'s (NTP) decision to appoint three individuals with ties to Hong Kong-based firm Kaisa Group Holdings Ltd. to the roles of CEO, CFO, and executive chairman. IsZo, which has a 10% stake in Nam Tai, had recently delivered a request for a special meeting from holders of more than 40% of the company's stock. The meeting would provide shareholders an opportunity to remove a majority of the incumbent directors and install six alternate nominees. IsZo contends that Nam Tai's "insulting and tone deaf responses" to its demand for the special meeting prove the need for urgent leadership changes. It urges Nam Tai to promptly schedule the special meeting, which was requested by more than half of shareholders unaffiliated with Kaisa.
More than 300 public companies signed on to a comment letter that NASDAQ sent to the Securities and Exchange Commission Tuesday asking regulators to withdraw a proposal to raise the reporting threshold for institutional investment managers. Regulators proposed in July to increase the reporting threshold to $3.5 billion in holdings from $100 million in order to file Form 13F, a quarterly report on holdings required from investment managers. If finalized, the proposal would substantially raise the dollar value of equity assets an institutional investment manager can hold without having to file quarterly reports. Raising the threshold to $3.5 billion "puts transparency at risk for both issuers and investors and undermines a disclosure system that already works well," the companies said in the letter.
Indian construction firm Shapoorji Pallonji (SP) group, the largest minority shareholder in Tata Group with an 18% stake, said Tuesday it believes it is necessary to separate interests from the autos to steel conglomerate. The SP Group and Tata Group have been embroiled in a legal battle since 2016 when Cyrus Mistry, scion of the family that controls the SP Group, was sacked as chairman of Tata Sons. Mistry was sacked from the top job at the helm of the holding company after he fell out with group patriarch Ratan Tata over corporate governance issues at Tata group companies. On Tuesday, India's Supreme Court restrained the SP Group and Mistry from pledging or transferring shares of Tata Sons owned by them. The SP Group had said the Mistry family was looking to pledge the shares to raise funds to "meet the crisis arising from the global pandemic," but this was challenged by the Tata Group.
Nelson Peltz's Trian Fund Management has amassed a $900 million stake in Comcast Corp. (CMCSA). It is not yet clear what Peltz intends to accomplish with this investment, which represents less than 1% of the company's common shares. In a recent statement, Trian said it believes Comcast's shares are undervalued and it's started "constructive discussions" with the media giant's management team. Analysts including Moffett Nathaanson's Craig Moffett and Sanford C. Bernstein & Co.'s Peter Supino have argued that Comcast is undervalued. As the pandemic has amplified the differences between Comcast's businesses, analysts have again raised the idea of spinning out its struggling media operations, NBCU and Sky. Speaking on CNBC on Tuesday morning, IAC Chairman Barry Diller said there's no obvious need for an activist investor at Comcast, calling it a "superbly managed and superbly hedged" company. He said the fact Comcast owns both production and distribution assets is a strength, compounded by the fact it also owns a broadband network that's increasingly in demand. Whatever Trian intends, Comcast will not be controlled easily by an outside investor. Chairman and CEO Brian Roberts holds about one-third of voting shares. Trian's recent proxy battle with Procter & Gamble (PG) shows Peltz and his firm are capable of working with management productively, even after a contentious fight.
Cubic Corp. (CUB) has adopted a poison pill after Elliott Management Corp. approached it about a potential takeover. Cubic said Elliott has disclosed a 15% stake in the company and expressed interest in acquiring the rest of the company along with a private equity partner, subject to certain conditions. Cubic's board has not initiated a sales process and believes its standalone prospects are excellent, it said. Elliott has engaged in talks with the company over the past several weeks about a potential takeover, the firm said in a statement Monday. While the firm was disappointed the company made those discussions public, it said it was pleased it acknowledged its fiduciary duty to engage. The poison pill is meant to prevent any third party from obtaining control of the company at an unfair discount. The poison pill would prevent any new investors from building a position greater than 15% in the company, and would prevent any holders that own 15% or more from building on their position. Cubic said it doesn't prevent the board from considering any fair offers for the company, and that it would do so if one was presented.
Shares of Nikola (NKLA) have fallen by as much as 30% since founder Trevor Milton decided to step down from the company as executive chairman. The value of Milton's holding in the company is now $2.8 billion, down about $1 billion compared with Friday's close, according to the Bloomberg Billionaires Index. Early investors in Nikola include Jeff Ubben of ValueAct Capital Management and CNH Industrial (CNHI), which makes Iveco trucks and is part of the billionaire Agnelli family's empire. Milton agreed to give up stock units worth about $166 million as of the end of last week as well as his board seat at the company. He owns about a third of Nikola, which accounts for most of his wealth. Milton previously founded a storage-technology company for natural gas that was acquired by metals manufacturer Worthington Industries (WOR).
Special purpose acquisition companies (SPACs), electronic vehicles, and trading apps are coming under scrutiny due to the turmoil at Nikola (NKLA). Blank check companies are on track for a record year, with Pershing Square's Bill Ackman and Starboard Value's Jeffrey Smith leading the way. SPACs already have raised more than $40 billion this year, compared to 2019's $13.6 billion total. On Wall Street, their reputation has been mixed because the terms can tilt in favor of the sponsor, and the unknown end target also makes them risky. Electronic vehicle start-ups are trying to capitalize on the success of Tesla and the hype surrounding Nikola. However, it remains to be seen whether they can execute on their bold promises. Meanwhile, many market observers speculate that novice retail investors are behind the wild swings in Nikola and other speculative stocks. The public market is more accessible to novice investors because of trading apps like Robinhood, but there have been reports of heavy losses on the platform.
Data from ISS ESG, a branch of Institutional Shareholder Services, found that 29% of U.S. companies across the Russell 3000 have two or more ethnically diverse directors. That is a jump of seven points from 2016, when 22% of these companies had two or more ethnically diverse directors. Compared to female directors, that is a small gain, as 66% of the companies had two or more women on their boards, a rise from 39% in 2016, the research found. Brett Miller, who heads data solutions for ISS ESG, said that the results show that company boards usually recruit directors who have already served as top executives at other firms. This causes the limited number of minority directors to stay in demand, as 30% of the 817 Black directors have served on more than one board. Among the 17,810 white directors in the study, 19% were on more than one board.
Hundreds of U.S.-listed companies have come out against a proposal from the Securities and Exchange Commission (SEC) that would shield the vast majority of hedge funds from disclosing their stock market holdings. A total of 381 companies on Monday signed a letter, organized by the New York Stock Exchange (NYSE), saying the proposal would deal a "debilitating blow" to investor relations. The proposed rules governing 13F filings would relieve all but the world’s largest 550 investment managers from disclosing their public equity holdings. This would allow most hedge funds to keep their portfolios secret. Smaller companies in particular would be hurt by the proposal because they would lose visibility to a higher proportion of their investor base than larger groups, making them more vulnerable to activism, the letter argued. Under the SEC plan, only investors with assets of more than $3.5 billion will have to submit quarterly 13F filings, raising a threshold that is currently set at $100 million. Jay Clayton, SEC chairman, said the aim was to reduce "unnecessary burdens" on smaller fund managers. The NYSE suggested that the SEC form a working group of public companies, investors, and academics to recommend alternative changes to the 13F filing. The group arguing against the changes included many major companies including Cigna (CI), FedEx (FDX), Home Depot (HD), BP (BP), and Alibaba (BABA). The proposal has attracted other detractors, including Allison Herren Lee, the SEC's only Democratic commissioner.
Trian Fund Management has launched a campaign against Comcast (CMCSA), wagering that its stock is undervalued. A source says Trian has accrued some 20 million shares in Comcast, owning approximately $900 million or about 0.4% of the company. Comcast's market value is roughly $200 billion. Executives at the hedge fund recently initiated discussions with Comcast management, although Trian's interest is unclear, apart from its conviction of Comcast's share undervaluation. Trian is reputed for promoting changes at companies it engages with, like breakups, sale of underperforming units, or moves to boost efficiency and better use capital. The fund frequently pursues board representation and attempts to avoid public feuds, and it often goes after large businesses, like Procter & Gamble (PG), DuPont de Nemours, and General Electric (GE). Yet driving change at Comcast could be daunting, as the family of chairman and CEO Brian Roberts controls a significant voting stake. Company stock also has performed relatively well, peaking before the onset of the coronavirus pandemic, while Comcast's broadband business has remained resilient. Trian verified its Comcast stake in a securities filing, disclosing ownership of roughly 7.2 million company shares as of the end of the second quarter, which currently stands at about 20 million. "We have recently begun what we believe are constructive discussions with Comcast's management team and look forward to continuing those discussions," the fund announced. Comcast's stock rose more than 2% on the news, although on Sept. 21 it closed down 1.3% at $44.68.
Institutional Investment Advisory Services is advising shareholders of Eveready Industries India, Suzlon Energy, and Zee Entertainment Enterprises to vote against resolutions seeking to reappoint directors. The proxy advisory firm cited governance issues. A report by Institutional Investment Advisory Services raised auditing concerns for voting down Eveready's resolutions. A year ago, Price Waterhouse & Co. resigned as auditor of the consumer electronics and electrical products maker, citing its inability to analyze the impact of the company's financial support to directors. Debt-laden Suzlon has struggled over an extended period of time. Stakeholder Empowerment Services also has recommended that shareholders vote against the reappointment of Suzlon's chairman and chief operating officer as directors. The chief executive and managing director of Zee is the son of founder Subhash Chandra, who lost control of the company after pledging shares to fund private businesses and then had to sell them to pay off lenders.
HG Vora Capital Management, a New York hedge fund founded by Parag Vora, has built a 5.1% stake worth £115 million in British gambling company William Hill (WIMHY). There is speculation that HG Vora could push for a sale of William Hill, having done the same at other casino groups. In 2018, HG Vora took a 5% stake in Caesars Entertainment (CZR) and pushed for the company to explore options including a sale; a year later, it was sold to Eldorado Resorts for £13.6 billion. The enlarged company, renamed Caesars Entertainment (CZR), is William Hill's U.S. partner. News of the stake emerged on the day it was revealed that William Hill's sports betting apps and odds would feature on U.S. cable giant ESPN after it struck a deal with Caesars. HG Vora previously invested in both Penn National Gaming and Pinnacle Entertainment before they agreed to merge. HG Vora has a 10% stake in Gamesys, the U.K.-listed owner of various online gambling brands.
Two-thirds of Pearson shareholders have voted to approve the pay package of new CEO Andy Bird, clearing the way for him to join the struggling publishing company next month. Pearson's board had warned that Bird would only replace John Fallon if shareholders backed the pay proposal. Cevian Capital, Pearson's biggest investor, built a 5.4% stake this summer, betting that new management will turn things around. Bird's compensation has been the subject of significant criticism, with three top-20 shareholders expressing serious concern about the matter. Pearson acknowledged that "a significant minority" of investors had voted against the "highly competitive remuneration package," but added that it was necessary to "secure" Bird. The pay package includes a $3.75 million co-investment opportunity in company shares and a $9.38 million stock award tied to company performance.
IsZo Capital Management, a long-term shareholder of Nam Tai Property Inc. (NTP) with a 10% stake, has issued a letter to shareholders regarding its efforts to convene a special meeting of the company's shareholders. IsZo says it delivered special meeting requests from holders of more than 40% of the company's shares. In the new letter, IsZo asserts that Nam Tai's "contradictory and reactionary response" to this message is further evidence of the need for wholesale change at the company. IsZo reviews its proposed strategy for improving governance, installing quality local management, maintaining a disciplined capital allocation approach, and focusing on existing projects. It reiterates that the right leadership and planning could unlock the value of Nam Tai's current assets, which the company's valuations suggest could be worth up to $40/share. IsZo urges Nam Tai to promptly schedule the special meeting and stop trying to convince shareholders that the current board is acting in their interests.
The Securities and Exchange Commission (SEC) favored corporate interests over investors' interests in adopting requirements for proxy advisory firms, according to a court filing by Institutional Shareholder Services Inc., which wants to overturn the rules. The SEC neglected to show the need for the new rules issued in July, ISS said in an amended complaint filed Friday in the U.S. District Court for the District of Columbia. ISS sued the SEC in 2019 over previous agency guidance targeting proxy advisers, but put its lawsuit on hold as the commission crafted regulations.
Nikola (NKLA) is fundamentally misunderstood, according to Jeff Ubben, founder of ValueAct. The longtime investor and board member of Nikola said critics of the company view it more as a truck producer rather than as a hydrogen supplier. Ubben came to the defense of Nikola after a report by a short-seller described the company as an "intricate fraud." Nikola has become a darling of the stock market even though the company has not sold one vehicle. Investors worldwide are now questioning Nikola founder and Executive Chairman Trevor Milton's claims about the company's operations. Several investors said they were swayed by the track record of Nikola's team, which includes executive vice president Jesse Schneider, formerly of BMW, while others cited the company's partners and shareholders, such as Ubben. However, the company has been vague about its technology, drawing comparisons to Theranos, which collapsed amid claims of a multibillion-dollar fraud. The Securities and Exchange Commission and the Justice Department are now looking into the company.
Uncertainty surrounds a possible sale of Aryzta (ARZTY) to a unit of Elliott Management now that shareholders have voted for Urs Jordi as board chairman during the company's extraordinary general meeting. Elliott and other parties made unsolicited bids for Aryzta this year after the company conducted a strategic review of its business. Aryzta is in advanced talks with Elliott. However, Jordi opposes a sale. "It would certainly be the worst point in time to sell the company right now," Jordi said during the meeting. Jordi said he wants to focus on streamlining Aryzta and being more innovative. Swiss investor Veraison and Spain-based Cobas Asset Management secured 96.6% backing from voters for their candidate for chairman. Shareholders also voted CEO Kevin Toland off the board, which no longer has any Irish directors.
The percentage of females on corporate boards is on the rise, with women gaining seats at a faster rate than men. Women of color, meanwhile, are advancing faster than any other group or gender. The nonprofit 2020 Women on Boards has determined that women now hold 22.6% of the board seats among the country's biggest publicly traded companies in the Russell 3000 Index, a 2.2 percentage point gain from 20.4% last year and a 6.5 percentage point increase over the last four years. Sixty percent of those boardroom seats were newly created and not gained by women replacing men, the group said. However, even though Black and Asian/Pacific Islander women are gaining seats in the Fortune 500 more quickly than any other group or gender, women of color still hold the fewest board seats. The 2020WOB Gender Diversity Index shows that women hold 6,034 board seats of 26,711 among the 2,982 companies on the 2020 Russell 3000 list. Of the 2,966 companies that were on the list in both 2019 and 2020 years, 785 added women directors in the last year. One-third have just one or zero women on their boards. Among the 25 states that have more than 20 companies on the Russell 3000, all but two (Florida and Utah) surpassed the 20% aim for women on their boards in 2020, up from 17 states in 2019. The states that surpassed more than 20% for the first time are Alabama, Colorado, Indiana, Pennsylvania, Tennessee, and Texas.
New Refinitiv data show that Goldman Sachs (GS) ranked as the top adviser to companies engaged by activist investors during the first half of 2020, while Morgan Stanley (MS) dropped into fourth position. During the first six months of 2020, Goldman advised on 21 campaigns, including eBay (EBAY), Twitter (TWTR), and Harley Davidson (HOG), down from 23 in the first half of 2019. Morgan Stanley, which had long held the top spot, advised on eight campaigns compared with nine a year ago. Spotlight Advisors jumped into the No. 2 spot with 17 campaigns, including Tegna (TGNA), Synalloy (SYNL), and GameStop (GME), compared with 21 a year ago. Spotlight works for both companies and activists, while most banks work only for corporations. Evercore Partners worked on 10 campaigns, the same as a year ago, to take the No. 3 spot. During the first half activist investors launched 243 campaigns, marking a 2% increase from a year earlier, Refinitiv data show. Starboard Value was the busiest with seven campaigns launched.
An increase in engagement was one of the benefits of virtual shareholder meetings this year, according to Dorothy Flynn, Broadridge's president of corporate issuer solutions. Broadridge reports that attendance at online meetings was three times greater this year than a year ago, attendees stayed longer, voted more often, and asked more questions. The firm facilitated 193 meetings with shareholder proposals and 1,301 meetings without shareholder proposals in the first half of the year. Virtual meetings that drew shareholder proposals had an average attendance of 146 people, lasted an average of 34 minutes (nearly twice as long as meetings without proposals), and had an average of 14 shareholders casting "live" votes during the meeting. Shareholders asked an average of 19 questions at virtual meetings that drew shareholder proposals. In 2019, virtual meetings with shareholder proposals had an average attendance of 68, ran for an average of 31 minutes, and shareholders asked an average of eight questions. Questions were often submitted ahead of time, which gave companies more insight into what topics to discuss in-depth during meetings, notes Flynn.
Sumitomo Mitsui Trust Bank failed to count some shareholder votes ahead of the annual meetings of about 1,000 companies. Sumitomo Mitsui acknowledged the mistake after Effissimo complained that its 5 million votes (1.1% of outstanding shares) has not been counted at Toshiba's (TOSYY) annual meeting at the end of July. Effissimo, the largest shareholder in Toshiba, tried to use the annual meeting to elect new independent directors. Toshiba later confirmed that 1,139 voting forms were invalidated by Sumitomo Mitsui, the registry administrator. Investors are demanding an investigation. Japan has a problem with antiquated voting and custody processes. Foreign investors are at a major disadvantage in receiving proxy statements and exercising their voting rights. Investors like Symphony Financial Partners have warned that Japan needs to do more to improve its shareholder voting process.
Concerns are growing among domestic Korean businesses as lawmakers push to introduce a set of new regulations on corporations that restrict the largest stakeholder's control of corporate boards. Companies claim the regulations, dubbed "the fair economy act," will limit their capability to prevent activist funds' attempts to place outside directors of their choice on the board. Korea Chamber of Commerce and Industry (KCCI) Chairman Park Yong-maan recently accused lawmakers of ignoring businesses' opinions regarding the fair economy act. Park's comments came as the government attempts to revise the Commercial Act and the Fair Trade Acts. In the revision of the Commercial Act, companies are required to appoint more than one audit committee member from outside the board through a shareholder vote. In this process, the combined voting right of a company's owner and its affiliated persons and organizations is limited to 3% no matter how big a stake they possess in the company. The current Commercial Act allows a company to appoint board members without limits in voting rights, and places a 3% voting right cap only on the largest shareholders when the company is appointing audit committee members from board members through a shareholders meeting. When the revision comes into effect, however, a company has to appoint at least one audit committee member from outside of the board, while the largest shareholders face the same 3% limit. In this case, general shareholders can form a coalition between shareholders to increase their voting power. As companies detest the revision, the Federation of Korean Industries, Korea Federation of SMEs, and four other business lobby groups in the country issued a joint statement expressing worries about the fair economy acts' adverse effects on the economy. Along with the revision to the Commercial Act, businesses have raised concerns about the revision to the Fair Trade Act, which will enhance the regulations on trading between affiliates. Currently, the country's Fair Trade Commission regulates intra-group trade toward a listed affiliate when the owner family's stake in the company surpasses 30%; the revision will lower this to 20%, making more conglomerate units subject to the regulation.
Annually since 2018, the EY Center for Board Matters (CBM) has reviewed proxy statements filed by Fortune 100 companies to identify trends in board evaluation practices. This year, it finds that a vast majority (95%) of 2020 Fortune 100 proxy filers provide at least some disclosure about their evaluation process, up slightly from 2019 and 2018. Since 2018, the most significant change EY has observed is that more boards are expanding their evaluation process to include individual director evaluations. Almost half of 2020 Fortune 100 proxy filers disclosed that they performed individual director evaluations along with board and committee evaluations, up from 24% in 2018. Twenty-nine percent made clear that the individual director evaluation component includes director peer evaluations, up from 10% in 2018, and 11% made clear that it involves self-evaluation, up from 5% in 2018. The use of both questionnaires and interviews continues to increase, as does the use of third-party facilitators. Fifty-three percent of 2020 Fortune 100 proxy filers disclosed the general topics covered in their board evaluation program, up from 49% in 2019 and 40% in 2018. More companies are also making disclosures about changes made in response to evaluations. This increase is responsive to increasing investor interest in the results of a board's evaluation process. Finally, in 2020, 21% of proxy filers in the Fortune 100 disclosed that they address certain evaluation matters and proactively seek feedback on an ongoing basis, beyond the formal annual evaluation, more than double the 9% that did so in 2018.
The Federal Trade Commission (FTC) has proposed a rule that would make it easier for activist funds to build stakes in companies without first alerting management of their plans and waiting for antitrust approval to proceed. Under current rules, hedge funds that want to buy 10% or less of a company's voting securities are exempt from filing for antitrust approval only if the purchase is made "solely for the purpose of investment" with no intention of participating in the direction of the issuer's business decisions. The new proposal would exempt those investments from reporting requirements as long as the investor doesn't already own a stake in the company and the new purchase would not put it over a 10% holding. The investor also cannot own more than 1% of the shares of a company that competes with the issuer. The FTC voted to advance the proposal and gather public comment before it becomes final. Republican Commissioner Noah Phillips wrote in a statement that exempting reporting requirements for investments of 10% or less of a company would reduce regulatory burdens on investment activity that doesn't harm competition. Investors have to notify the engaged company, wait as long as a month, and pay up to $280,000 in fees, according to Phillips. During the review period, the engaged company can publicize the investor's plan, which can drive up the share price, and management can take defensive measures, Phillips wrote. Out of the 1,800 filings made between fiscal year 2001 and 2017 for share purchases of 10% or less, none were challenged by the FTC or the Justice Department, according to the FTC.
In an interview with Institutional Investor, Bill Ackman discusses the recent debut of his $4 billion special-purpose acquisition company (SPAC) Pershing Square Tontine Holdings. SPACs have a checkered history and generally poor perfomance, with an average loss of 18.8% since 2015, but Ackman's SPAC has been wildly successful and the structure is experiencing a resurgence in popularity. SPACs are increasingly seen as a valid asset management strategy. Hedge funds Third Point, Glenview Capital Management, and Starboard Value, as well as private-equity funds Apollo Global Management, TPG Capital, and Fortress Investment Group, have all launched SPACs in the past five years. Ackman's Pershing Square Tontine Holdings got rid of the premier feature of SPACs, so-called founder shares that typically give their sponsors 20% of the new company. Ackman also got rid of other common SPAC features that create a clustered net of competing interests that drag down performance. He changed the terms of the warrants investors receive along with stock in the IPO and also promised to invest at least $1 billion of Pershing Square's capital to help complete a merger. Both moves should make a costly secondary offering in the form of a private investment in public equity (PIPE) unnecessary. Ackman designed the Pershing Square SPAC to have the smallest upfront warrant ever, thus minimizing the risk of shareholder redemptions and the need to raise expensive PIPE capital. Investors in Pershing Square Tontine get one-ninth of a warrant per share upfront but can only get the other two-ninths of a warrant—comprising a third—if they hold onto their shares after the redemption date. Another hedge fund sponsor, Starboard Value, has already taken a shine to the warrant structure, recently filing for a SPAC IPO with warrant terms designed to work like those of Pershing Square. Some recent SPAC mergers are doing better than in the past, and many SPAC players argue that returns will continue to improve because the market has matured, yet demand was waning in the last few weeks of the summer, and short-sellers have already started attacking recent examples of the structure. While Ackman has shined a spotlight on the flaws of SPACs, he still argues that "the basic construct is a good idea."
In the space of three weeks in March 2020, Bill Ackman turned a $27 million premium paid to buy credit default swaps into a profit of $2.6 billion. He then reinvested a chunk of that windfall in the long positions he wanted to protect by buying the insurance in the first place. Ackman's $27 million bet has netted him and Pershing Square Capital $3.6 billion, and on an internal rate-of-return basis, the article argues, this ranks as one of Wall Street's greatest trades ever. Ackman had some significant losses between 2015 and 2018, but his fortunes turned in 2019, when Pershing Square was up 58.1% compared to 31.5% for the S&P 500. The firm is up an additional 50%, net of fees, through Sept. 15, and his assets under management are back to $11 billion. In July, Ackman raised $4 billion for a special purpose acquisition company (SPAC), the largest SPAC initial public offering of 2020 and one of the largest IPOs of the year. Though he sees opportunities in the market, Ackman predicts another spike of Covid-19 cases as colder weather sets in. Ackman is more worried about volatility in the financial markets related to the outcome of a close presidential election. Toward the end of January, Ackman says he was getting "increasingly bearish" and considered locking in some gains by selling big holdings, but decided instead to hedge his long exposure by buying insurance. After a week of buying protection, Ackman had accumulated $51 billion of notional protection on the U.S. investment-grade bond index, $18 billion of protection on the European investment-grade bond index, and $2.5 billion of protection on the U.S. high-yield bond index.
While the Department of Labor (DOL) is "rapidly" moving to finalize before year-end—and perhaps before the election—its fiduciary prohibited transaction exemption to align with the Securities and Exchange Commission's (SEC's) Regulation Best Interest, a Biden administration will likely seek to overturn both rules, according to Morningstar analysts. Jasmine Sethi, associate director of policy research, said at Morningstar's annual conference, held online, that DOL's rule "has been criticized from all sides." The problem, according to Sethi, is that "the proposal is vague…particularly with rollovers." The plan "brought back the five part test but reinterpreted it to cover rollovers. It does not include all rollovers, just those that meet the five-part test. The tricky prong is the regular basis prong." Aron Szapiro, policy research head at Morningstar, predicted that SEC Chairman Jay Clayton would leave "in early 2021," and if former Vice President Joe Biden won the White House, the new SEC chair would likely withdraw Reg BI. If President Donald Trump is re-elected, he will "maintain the status quo in terms of regulation," Szapiro said. If Biden wins, there will be "support for enhancing standards of conduct above Reg BI," which could be done through a Democratic chair and a 3-2 vote at the commission.
ValueAct was "very disappointed" in Citigroup's (C) performance under Michael Corbat and his deputies since it established a stake in 2018, and that was a key factor in Corbat's retirement announcement last week, according to sources. ValueAct was disappointed that the bank missed important performance goals for returns and expenses that it had set for itself in 2017, and that eroded the lender's credibility, the sources said. ValueAct never urged the ouster of Corbat, according to the sources. Rather, the firm, led by partner Dylan Haggart, was vocal with the bank's board and management about the company's shortcomings, fostering tension inside the company. ValueAct owns approximately 27 million shares of Citigroup and is underwater on the investment as of this week, according to the sources. Last week, Citigroup said that Corbat would leave the company in February, and that Jane Fraser would become the first female head of a large Wall Street bank. CNBC reported Thursday that Corbat had moved up his retirement date because of pressure from regulators over the company's internal controls and as investors including ValueAct became impatient. Since ValueAct established its stake in 2018, Citigroup has replaced most of its leading executives. ValueAct wants to "create accountability, and with that boards tend to be sharper, more on their game," a source said. "If it works, that extra urgency drives performance. The CEO becomes lauded and everything works out great. If it doesn't, it helps you arrive at decisions earlier." ValueAct spokesperson Drew Stroud said that the investment firm has "provided our perspectives on strategic priorities, budgeting, and performance expectations" to Citigroup. He said Citigroup "appreciated our open and constructive dialog with Mike, the entire Citi management team, and the board." Citigroup spokesperson Jennifer Lowney said that the bank had a "constructive relationship" with ValueAct and "they continue to be an important partner. We have benefited from their expertise and value their perspective." She said that "as far is Mike is concerned, his decision to retire was entirely his own and he always planned to do so in 2021."
There is increasing collaboration among investors and the convergence of strategies between activist investors and private equity (PE) firms. Today's crossover activist-PE investors combine the value-enhancing plan element of traditional activists with the buyout capital characteristic of private equity firms, partly driven by activists' large cash piles. Such crossover activist-PE strategies may take several forms. For example, Elliott Management several years ago created a PE arm called Evergreen Coast Capital to participate in buyouts of entire companies. Conversely, the private equity firm KKR built a 10.7% stake in Dave & Buster's Entertainment (PLAY) earlier this year and signaled a desire to seek board or management changes. Cannae Holdings and hedge fund Senator Investment Group LP recently joined forces to launch a bid for the property data company CoreLogic Inc. (CLGX). Meanwhile, Third Point sponsored a special purpose acquisition company (SPAC) called Far Point Acquisition Corp. and teamed with PE firm Silver Lake Partners to acquire Global Blue Group AG (GB). Activists generally own significant minority stakes in the companies they engage, unlocking value for the benefit of all public shareholders, while PE firms have generally unlocked value outside of public markets. While the tension between public and private market models will continue to exist, crossover strategies will likely continue to be more commonplace. In order for an activist-PE campaign to win over investors, it needs to combine a solid strategic and operational plan with the capital to acquire and invest in the business.
As investors, executives, and politicians demand greater racial and ethnic diversity in Western corporate boardrooms, they say the lack of ethnicity data is slowing progress on efforts to improve diversity in the top echelons of global corporations. "We would like to see the makeup of all directors," said Benjamin Colton, co-head of stewardship efforts at State Street Corp. "We understand there may be directors who don't want to self-identify, and in those cases we might engage on that a little more." Among the top 200 companies in the S&P 500, African Americans hold only about 10% of board seats and Hispanic or Latino people hold only 4% of board seats. That representation falls below their shares of the U.S. population of 13% and 19%, respectively. Factors including insular social and professional networks have kept boardrooms largely white for years. The concern about underrepresentation of minority groups is leading to new data-gathering efforts and legislation. In addition, several researchers have each launched new efforts to gather more diversity data, both drawing on information from groups such as the Latino Corporate Directors Association. These efforts are in early stages, however, and the data are patchy. Researcher Just Capital says 21% of 931 companies in the Russell 1000 index now offer at least some information about their boards' racial diversity, but it is often narrow or vague. More corporate disclosures are likely, but some directors might not want certain characterizations publicly listed, or might recall how such information has been used to exclude minorities. Recently, California legislators passed a bill mandating boards have one director from an underrepresented community by the end of next year, and requiring the state to publish a report on companies' compliance.
In June, Jeff Ubben stepped down from ValueAct Capital, the hedge fund he founded, and launched Inclusive Capital Partners, which backs companies tackling problems that address environmental, social, and governance (ESG) issues. Ubben is reckoning with the investment philosophy that guided his success during the ValueAct years, especially the relentless focus on shareholder primacy. Company owners now have too much power, he said, expressing regret about his time at ValueAct, where he carved out a reputation as a thoughtful, long-term investor who would work with the companies his firm engaged. Today, Ubben says this distinction was mostly false. "We had plenty of business plans built on buying companies and firing the workforce of the acquired company, and then buying the next one," he said. Ubben worries that company directors spend too much time on questions like whether they should raise prices. He believes the same dislocation between valuation and opportunity exists today as it did at the start of his investing career. Shareholder-first capitalism has, he says, made businesses so good at maximizing profit that there is little left to squeeze and left them ill-equipped to react to other issues investors care about. Ubben is also contemptuous of much of the ESG world's tendency toward corporate spin, which "may be a great way to grow your asset management business" but will do little to improve the world. Instead, Ubben hopes that by partnering, as investor or board member, he can help oil majors resist shareholder pressure to repurchase shares or undertake other methods for short-term gain. The investor now envisions a future where bosses are paid based on "total societal impact."