2/18/2019

Papa John's Founder Schnatter Says He Welcomes Starboard

Reuters (02/18/19) DiNapoli, Jessica

Papa John's International Inc. (PZZA) founder John Schnatter welcomes Starboard Value LP's investment in the pizza restaurant chain, according to his attorney, even as he filed an updated lawsuit on Feb. 18 against the company. Starboard's has invested up to $250 million in the pizza chain and named the fund's chief executive, Jeff Smith, as its chairman. Schnatter, who has approximately a 30% stake in the company, served as chairman until last summer. He stepped down following reports he had used a racial slur on a media training conference call. He had stepped down as CEO in December 2017. Schnatter remains on the board of directors, but his influence has been diluted because with the Starboard investment, the number of directors rose to nine from six. "Mr. Schnatter welcomes the comments that have come from Mr. Smith and the company in the past few days," Schnatter's lawyer Garland Kelley said in a statement. "Today's amended lawsuit reflects support for Mr. Smith and his plans to invigorate the company for the benefit of all shareholders." The lawsuit seeks to undo a new provision of a voting agreement between Papa John's and Starboard that requires the hedge fund vote its company shares in favor of Papa John's preferred directors. "Such a provision serves only one purpose, to further entrench the prior board, one that has repeatedly proven itself willing to place its own self-interest above that of shareholders," Schnatter said in a statement. Schnatter also continues to challenge the poison pill Papa John's adopted last year that he says prevents him from having talks about the pizza chain with other shareholders. The lawsuit was initially filed in August.

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2/17/2019

Cash-Hoarding Japanese Firms Please Investors as Share Buybacks Hit Record

Reuters (02/17/19) Tomisawa, Ayai; John, Alun

Japanese share buybacks hit a record this fiscal year, with companies like SoftBank Group Corp. (SFTBY), Sony (SNE), and Itochu Corp. (ITOCY) announcing plans in recent weeks to buy back shares worth more than 1.3 trillion yen. This brings the total value of buybacks flagged since April 1 to more than 6.5 trillion yen ($58.92 billion), which is the most for any fiscal year since 2003, according to I-N Information Systems. Investors have long criticized Japanese companies for hoarding cash rather than investing it or returning it to shareholders. Buying back shares reduces a company's equity base and increases its return on equity (ROE). "This past month has seen a lot of very positive shareholder-friendly activity from a wide array of Japanese companies," said Seth Fischer, founder and chief investment officer of Oasis Management. "To attract foreign investors, companies should continue this path of increasing shareholder returns, while continuing to improve their corporate governance." Oasis is among the investors that have been vocal in encouraging Japanese firms to boost returns. ROE at Japanese companies is expected to fall below 10% this fiscal year for the first decline in three years, according to Nomura Securities. Meanwhile, the brokerage CLSA says 56% of Japanese non-financial companies in the benchmark Topix index sit on net cash, compared with less than 20% in the United States or Europe.

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2/17/2019

Tiger Global Dumps Barclays Stake in Blow to Staley

Financial Times (02/17/19) Crow, David; Morris, Stephen

Sources say Tiger Global has sold its entire holding in Barclays (BCS), dealing a blow to the British bank's efforts to garner support for its turnaround strategy. The U.S. hedge fund was one of Barclays' biggest investors with a 2.5% stake and had been among the staunchest defenders of CEO Jes Staley's plan to revive the investment bank to improve its share price. Tiger began reducing its position last summer before offloading it entirely earlier this year, the sources said. Most of Tiger's position was held through swaps, meaning that the unwinding of its position did not show up on Barclays' share register. One source said Tiger's decision to exit Barclays likely was made because the fund saw more attractive investment opportunities elsewhere, not because it lost confidence in Staley. The news comes as Barclays is trying to keep Edward Bramson from obtaining a board seat and engineering a shift in strategy that would involve shrinking the investment bank. Bramson, who has built a 5.5% stake in Barclays via his Sherborne investment vehicle, earlier this month said he was seeking a board seat at the bank's annual meeting in May. However, one top-five shareholder said he expects Bramson to lose the proxy battle. "Everything I hear from investors is that there is a consensus to not vote in his favor," the investor said. "He wants to be elevated above other large shareholders like us, and he hasn't even revealed his grand brilliant plan."

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2/13/2019

Small Companies Face Added Pressure to Put Women on Boards

Wall Street Journal (02/13/19) Broughton, Kristin

There are fewer large public companies with all-male boards as investors in recent years have demanded boardroom diversity. Now, proxy advisors are encouraging community banks, regional energy companies, and other small and midsize enterprises to increase gender diversity on their boards or risk losing shareholder support. Under a policy taking effect this year, Glass Lewis & Co. will recommend that investors vote against re-electing directors who chair nominating committees at companies with all-male boards. The proxy advisory firm said it would target companies in the Russell 3000 Index during annual meeting season. "Companies that don't have women on their boards are outliers," said Courteney Keatinge, senior director of environmental, social, and governance research at Glass Lewis. "And we want to make sure those outliers are called out." Institutional Shareholder Services Inc. plans to implement a similar policy in 2020. According to Glass Lewis, only four companies in the S&P 500 had all-male boards at the end of last year, down from 31 five years earlier. Further, there were 509 companies in the Russell 3000 with male-only boards at the end of the year, down from 708 companies over the same period. Glass Lewis said it will take into account existing efforts at companies to recruit women directors, as well as any agreements companies have in place with significant investors.

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2/13/2019

The Road Ahead for Shareholder Activism

Harvard Law School Forum on Corporate Governance and Financial Regulation (02/13/19) Weinstein, Gail; de Wied, Warren S.; Richter, Philip

Last year was a record year for activism in terms of number of campaigns, capital deployed, number of activists involved, first-time activists, and board seats obtained. While statistically activism continues to grow, the activist investing market in the United States is mature, with the number of repeat activism targets exceeding the number of first time targets, according to research from Fried, Frank, Harris, Shriver & Jacobson. Activism is concentrated among a small number of leading activists, the significance of board seats won is overstated, non-U.S. activism has slowed, super-cap companies remain infrequently engaged, and returns for activist funds have been low and highly volatile. In response to the expansion of activism in recent years, corporate boards and senior executives now think like activists, institutional investors have become more involved and vocal, and merger and acquisition activity has changed, with the majority of transactions now initiated by a bidder rather than by an engaged company's decision to initiate a sale process. Fried, Frank, Harris, Shriver & Jacobson sees the road ahead containing many pitfalls for activists, including political uncertainty that will drive market volatility and more challenging financing conditions. A significant market disruption or tightening of liquidity could lead to a shakeout among activists and the return of distressed activism. Moreover, M&A-related activism may become more aggressive; activity in environmental, social, and governance is likely to increase; and growth could pick up in Europe and Asia.

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2/13/2019

Want a Better Board? Look to Private Equity

Institutional Investor (02/13/19) McElhaney, Alicia

Companies that are looking to better align their board with their institutional shareholders and better handle shareholder activism should look to the private-equity model of boards, according to new research from Columbia Law School professors Ronald Gilson and Jeffrey Gordon. In a paper entitled "Board 3.0—An Introduction," the researchers explain that private equity sponsors offer robust incentives, adding that this has resulted in a different mode of board and director engagement that seems associated with high value creation. Gilson and Gordon describe the current board structure of publicly traded companies as Board 2.0, and call for a model that combines these directors with those that follow a new model of corporate governance—Board 3.0. Under the 3.0 model, the 2.0 directors would serve on compliance and special committees, while the new directors would serve on a "strategic review" committee that would monitor the strategy and performance of the company. The 3.0 directors, which would serve a limited time in their role, would be compensated through stocks in a long-term manner. The Board 2.0 is "dominated by part-time independent directors who are dependent on company management for information and are otherwise heavily influenced by stock market prices as the measure of managerial performance," says the paper. The authors express concern that institutions may back up activist hedge funds, which may not be acting in the best interest of shareholders, via proxy votes in the hopes of dissolving a dispute.

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