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Elliott’s Stake In Softbank
Cat Rock is turning its focus to Just Eat Takeaway (GRUB) finance director Brent Wissink after accusing the food group of “deeply flawed” communications. Alex Captain, founder of Cat Rock, is understood to hold Brent Wissink partly accountable for its alleged shortcomings in dealing with investors and the market. Cat Rock last week claimed the company was “vulnerable to takeover bids at far below intrinsic value.” Cat Rock said it had not been transparent enough in communicating the cost of its investments. Captain said he was “surprised” that the company had struggled to improve its communication. “The concerns ... aren’t new. I’ve made recommendations privately, and they haven’t moved quickly enough or aggressively enough to solve the problems,” he said. “Takeaway.com was a roughly €1 billion company ... at [the time of its stock market listing] and it is [now] worth €14 billion with global operations,” said Captain. “The scale of the task on investor relations and financial planning has increased dramatically, but the resources are the same.” Cat Rock has also grown frustrated about the fall in Just Eat Takeaway’s share price — down 23% over the past year, valuing it at €15.6 billion (£13.3 billion). Just Eat Takeaway said it held “regular dialogue with all shareholders.” It has also increased its finance team.
The private equity firm Clayton, Dubilier & Rice (CD&R) is poised to kick off a bidding war for Morrisons (MRWSY) amid mounting opposition to the £6.3 billion offer on the table for the grocer from a consortium led by American buyout rival Fortress. CD&R is understood to have been lining up equity and debt financing for a counterbid that could come as soon as this week. Should it win the auction, CD&R plans to open a chain of Morrisons convenience stores at the 900-plus petrol stations operated by Motor Fuel Group, which it has owned since 2015. CD&R, advised by former Tesco boss Sir Terry Leahy, is also understood to be focusing on how it can use excess space in Morrisons’ supermarkets more imaginatively. The firm intends to work alongside the chain’s executive team, led by chief executive David Potts. Silchester, Morrisons’ biggest shareholder with a 15.1% stake, last week criticized the board for not allowing more time for higher competing offers to emerge. Two other top 20 shareholders — JO Hambro and M&G — also said the 252p-a-share offer undervalued the supermarket chain. CD&R has until August 9 to table an offer. The stage is set for a bidding war. Fortress has enlisted investment giant GIC, Singapore’s sovereign wealth fund, to join its consortium, which is already backed by Canadian pension fund CPPIB and a division of the billionaire Koch family empire. Sources said other private equity firms and family offices had also been running the rule over Morrisons. A source close to one suitor said there were likely to be multiple incremental bids, with the potential for the eventual price to hit 290p a share. Morrisons shares closed at 264p on Friday.
A Japanese fund backed by veteran investor Yoshiaki Murakami will acquire a majority in Japan Asia Group (JAG) as a result of a deal that closed on Friday. Murakami's City Index Eleventh fund will raise its stake in JAG to 58.96% from 15.35%, bringing the total holdings to roughly 75% when combined with shares owned by related parties. City Index Eleventh began accumulating an interest in JAG while Carlyle Group (CG) partnered with JAG Chairman and CEO Tetsuo Yamashita in a proposed management buyout in November. Carlyle decamped in February after City Index Eleventh offered a higher bid to purchase the rest of the shares. Murakami's signature approach is to build up a stake in a company amid a takeover and demand that management increase its sale price.
European pension funds have joined asset managers to call on corporates to better explain how they plan to deliver on “net-zero” commitments and provide a routine shareholder vote on their transition plans. The expectations are set out in a statement coordinated by the Institutional Investors Group on Climate Change (IIGCC) and backed by 53 investors. In their statement, the investors acknowledged that the effectiveness of voting depended on the build-out of high-quality assessments of corporate net-zero transition plans and implementation, and said they would work with data providers and proxy advisers on this. “Overall, the process represents a drive to secure a step change in corporate governance on climate risk,” said the IIGCC. More than 10 companies, including Glencore (GLNCY), Nestlé (NSRGY), Shell (RDS.A), and Unilever (UL) have already implemented measures outlined in the investors’ expectation statement.
ExxonMobil (XOM) CEO Darren Woods said the company does not plan to institute any "huge shifts in strategy" after losing a hard-fought shareholder vote. The hedge fund Engine No. 1, claiming Exxon's focus on fossil fuels put the company at "existential risk," defeated Exxon in the vote and won three seats on the board. Woods, speaking to analysts, said the shareholder vote defeat is unlikely to spark drastic change, though he did concede Exxon could put "additional emphasis" on carbon capture, hydrogen, and other clean-energy techniques it has already explored. His comments came as the company reported a net profit of $4.7 billion in the second quarter. Woods attributed the positive financial results to a sharp rebound in demand amid the global economic recovery from the COVID-19 pandemic.
GameStop Corp. (GME) is changing the name of the 4,000 stores it operates across Canada. The video game retailer will change the name of its EB Games stores in Canada and the online store to the GameStop brand by the end of 2021. The rebranding comes as GameStop continues its efforts to turn around its business and focus on e-commerce. In June, the company shored up its top leadership with the appointment of two former Amazon executives, naming Matt Furlong as CEO and Mike Recupero as CFO. Shareholder Ryan Cohen, co-founder of Chewy, was named chairman. Cohen has led GameStop's digital push.
More than 50 large investors are demanding companies publish details of efforts to tackle climate change and give shareholders a vote on their plans. The investors, which together manage more than $14 trillion in assets, have called on companies to make a board director responsible for their efforts and allow investors to vote annually on progress on the plan where it is permissible in local law. Stephanie Pfeifer, chief executive of the Institutional Investors Group on Climate Change, which brought the investors together, said companies need to outline how they plan to slash their emissions rather than just making pledges.
GlaxoSmithKline (GSK) has signaled for years plans to spin off the consumer-healthcare joint venture it created with Pfizer (PFE). That is set to happen in the middle of next year, but what is new this time is the involvement of hedge fund Elliott Management. Investors are paying attention, having pushed Glaxo's stock up about 10% since Elliott's involvement emerged in April. So is Glaxo management. The price of a share of the British drugmaker has not changed much over the past decade. But Glaxo now has an opportunity to break out of its slump. Investors have made out better than the 7.2% decrease in share price suggests due to Glaxo's hefty dividend, though their 58% return still leaves them far behind their peers. Glaxo has articulated aggressive goals for the biopharma firm that will remain after the spinoff.
Corporate directors from non-traditional backgrounds now account for nearly 20% of all appointments, according to a Diligent report. According to the research, the number of newly appointed directors with traditional backgrounds has dipped from 59.4% in 2019 to 56% currently. Traditional backgrounds mean people obtaining a board seat with experience as a CEO, COO, or CFO. Diligent looked at director appointments at companies in the United States, the United Kingdom, and Australia for its results. The largest decline in new directors coming from traditional backgrounds was found in Australia — a 17 percentage-point drop. The drop has been less stark in the United States, from 61.1% in 2019 to 58% this year. The Diligent report addresses the increase of new directors in companies coming from a non-traditional background such as technology, marketing, sales, legal, human resources, and ESG.
Superintendent of Financial Services Linda A. Lacewell on Thursday announced new action by the New York State Department of Financial Services (DFS) to promote diversity, equity, and inclusion in the banking and non-depository financial industries. In the industry letter to New York-regulated banking institutions and New York-regulated non-depository financial institutions, DFS outlined its expectation that these organizations make the diversity of their boards and senior leadership a business priority and a key part of their corporate governance, including creating and maintaining a diverse pipeline of future leaders. This action follows DFS’s circular letter to New York insurers to promote diversity, equity, and inclusion in the insurance industry. In that letter, DFS outlined its expectation that insurers make the diversity of their boards and senior management a business priority and key element of their corporate governance. As a first step, DFS will collect data from all New York-regulated Banking Institutions with more than $100 million in assets, and all Regulated Non-Depository Financial Institutions with more than $100 million in gross revenue, and from all entities authorized to engage in virtual currency business activity, including virtual currency licensees and virtual currency trust companies, related to the gender, racial, and ethnic composition of their boards or equivalent body and senior management as of Dec. 31, 2019, and 2020, including information about board tenure and key board and senior management roles. The data will be collected in the fall of 2021 and published on an aggregate basis in the first quarter of 2022.
Procter & Gamble Co. (PG) said David Taylor would step down as chief executive after a six-year run atop the consumer-products company, where he battled with investor Nelson Peltz, revived sales, and navigated through a pandemic. Taylor will be succeeded on Nov. 1 by his top deputy Jon Moeller, who has been P&G’s chief operating officer for the past two years and was previously its finance chief. Taylor will serve as executive chairman. The leadership change comes at a delicate moment for company. While the Covid-19 pandemic spurred demand for household products last year, it has strained supply chains and pushed up costs in a sector that operates on thin profit margins. “When I came into this role, we were not delivering what we knew we were capable of,” Taylor said on Thursday. Sales slowed even more in Taylor's first years, drawing ire from Wall Street and landing the company in a proxy fight with Peltz. P&G narrowly won a shareholder vote in 2017 but gave a seat on the board to Peltz, CEO of Trian Fund Management LP. Critics said P&G needed to invest in e-commerce startups and lessen its reliance on bricks-and-mortar retailers and mass-market brands like Tide and Gillette. Instead, Taylor doubled down on P&G's big names while eschewing deal making as rivals snapped up new brands. The strategy proved to be especially prescient amid the pandemic, when shoppers flocked to known names and, largely unable to travel or dine out, were willing to pay top dollar for diapers, soap, and detergent.
An Illinois judge granted preliminary approval on Tuesday of a deal where TreeHouse Foods Inc. (THS) agreed to pay $27 million as part of a class-action lawsuit first filed in 2016 claiming the company overstated how its business was doing following the $2.7 billion purchase of Conagra Brands' (CAG) private label business earlier that year. A hearing for final approval of the class-action settlement is scheduled for Nov. 16. The deal, reached in February following 11 months of negotiations between TreeHouse and the lead plaintiff, the Mississippi Public Employees Retirement System, was reached through the use of a mediator. The plaintiffs claimed TreeHouse, between Feb. 1, 2016, (the day the Conagra deal closed) and Nov. 2, 2016, "made false and/or misleading statements and/or failed to disclose" that its private label business was struggling; its acquisitions strategy was underperforming; and it had overstated its financial guidance. Despite a healthier business internally, TreeHouse has continued to face challenges outside its corporate walls. The maker of private label bars, dressings, oatmeal, and other offerings failed to benefit from the demand for food during the pandemic as much as other brand-name competitors because of capacity constraints and supply chain problems. Its stock price, languishing in the $40 range, caught the attention of Jana Partners, which took a 7.5% a stake in TreeHouse in February and appointed two independent directors to its board as part of an agreement. In its filing, Jana said it believes TreeHouse shares are "undervalued and represent an attractive investment opportunity," and that the company should consider a sale of its business. The company is now one step closer to ending what was a volatile period in its history with the preliminary approval of the settlement this week.
Fluidigm (FLDM) lost some momentum on a report that there was muted interest in the Covid-19 test maker. The company is considering a sale and is working with an adviser. Caligan Partners has built an 11% stake in Fluidigm. Reuters reported in May that Caligan may ask Fluidigm to consider a sale of one of its businesses. Caligan believes Fluidigm is materially undervalued, and said the company's microfluidics business was slowing down. Health care providers and private equity firms could show some interest in Fluidigm, according to a report from Bloomberg. A sale makes sense at this time now that Covid-19 is winding down, said a CTFN report. Fluidigm's stock was up 0.9% on the latest report from CTFN.
The Securities and Exchange Commission has filed securities-fraud charges against Nikola (NKLA) founder and former executive chairman Trevor Milton for allegedly lying to shareholders about its business making commercial trucks powered by alternative fuel. Milton faces two counts of securities fraud and one count of wire fraud, with conviction on the first charge carrying a maximum 25-year prison sentence. "In order to drive investor demand for Nikola stock, Milton lied about nearly every aspect of his business," declared Manhattan U.S. Attorney Audrey Strauss. Milton, who resigned from Nikola in September, pleaded not guilty and was released on a $100 million bond. A spokesman for his attorneys said, "Mr. Milton has been wrongfully accused following a faulty and incomplete investigation in which the government ignored critical evidence and failed to interview important witnesses." Nikola stated that Milton has not been involved in its operations or communications since he resigned, adding that they have "cooperated with the government throughout the course of its inquiry." The company's stock closed down 15%. Milton promoted Nikola to small investors when it went public with a special-purpose acquisition company (SPAC). The indictment pointed out that, unlike when shares are first issued through an initial public offering, executives following a SPAC merger have no restrictions on speaking about a company. Strauss said Milton declared on a podcast that an advantage of a blank-check company was that he could talk to the market, which he did with the intent to drive retail investors to buy Nikola stock. Prosecutors refuted some of his claims as false, amounting to a scheme to defraud individual, nonprofessional shareholders. They said as the company's stock price appreciated, Milton's shares were once valued for at least $8.5 billion. Nikola in September was shaken by assertions cited by short seller Hindenburg Research, charging the company and Milton of making deceitful statements and distorting the progress on some of its key technology, including the hydrogen-powered semis. The company's stock fell in the wake of this news. Meanwhile, FactSet says Milton still owns about 20% of Nikola. Jeffrey Ubben, the founder of ValueAct Capital Management LP and a member of Nikola's board, couldn't immediately be reached for comment, but last year he told Bloomberg that the company went public too early.
The COVID-19 pandemic began at a point during which the urgency of corporate governance had already been escalating. Many boards adjusted to governance during the crisis and continued to improve their approach to corporate governance even while focusing on the immediate governance issues involved with keeping their businesses afloat during a global pandemic. The emerging corporate governance environment is characterized by a complex set of pressures and demands from a variety of stakeholder groups. Many are concerned with board composition, executive pay, online trends, dividends, and the impact on society and the environment.
Proponents of a mandatory retirement age for senior executives say mandatory retirement policies can protect shareholders from poor leaders. They view mandatory retirement age for CEOs and other top executives as an effective way to address managerial entrenchment and underperformance. An important governance tool for shareholders, mandatory retirement policies are designed to prevent executives from having undue influence over boards while protecting shareholders from older leaders who are no longer able to maximize their wealth. A study of U.S. banks in 2018 revealed corporate misconduct is more likely when the CEO is older. However, opponents say a mandatory retirement age would solve a problem that does not exist. They argue that there is no evidence that C-suites are suffering because juniors haven't been able to move up the ladder. Statistics show that the age, tenure, and succession rate of executives remain dynamic. The correlation between CEO succession and firm performance also has strengthened in the past two decades, according to research by the Conference Board and ESGauge.
The Elliott Advisor letter that publicly launched its campaign at GlaxoSmithKline (GSK) is strikingly similar to the letter that Engine No. 1 wrote to Exxon Mobil (XOM) in December, although there are stylistic differences. Investors and climate-change advocates embraced Engine No. 1's hard-hitting campaign, but Elliott has been more subtle in its approach, which has been too soft for some observers. However, like Engine No. 1, Elliott stressed that Glaxo is an important company, but it has not adapted to capture business opportunities that would fit with what the world needs. Similarly, Elliott said poor strategy has resulted in bad capital allocation decisions. Both investors provided a robust analysis of the poor financial performance of the companies, and leaders of the companies come under fire in their letters. Elliott and Engine No. 1 also called for an overhaul of incentive compensation. The letters point to an emerging model of engagement stewardship that is focused on long-term returns and an appreciation of the close relationship between financial performance and sustainability.
Companies are increasingly focused on environmental, social, and governance (ESG) factors, but this focus is not necessarily helping them stand out from their peers. The Wall Street Journal's latest analysis of the Management Top 250, an annual ranking it produces in partnership with the Drucker Institute, found that companies find more success using other methods to stand out instead of ESG. When measuring the highest and lowest-ranking companies in terms of social responsibility, the Wall Street Journal discovered a gap of only 50 points—by far the narrowest distribution in the rankings. This same narrow gap has existed in every ranking going back to 2012, the earliest year for which metrics exist.
In one of the stormiest AGM seasons in living memory, companies found out exactly what investors thought about excessive pay during the pandemic. Research this month by Deloitte found 12% pf FTSE 100-listed boards attracted low votes of less than 80% in support of their remuneration reports, compared with 5% the year before. The reasons for the year's spate of low votes reflected concerns over executive pay salary being increased above the wider workforce rate, the scale of packages for newly-hired CEOS, and the use of discretion to deliver higher bonus payouts. The accountancy firm's vice chairman, Stephen Cahill, said, "Shareholders were clear at the outset of the pandemic that decisions on executive pay should reflect the wider workforce, investor and societal impact of the COVID-19 pandemic." This month's research by Deloitte also revealed how far the pandemic impacted boardroom pay packages in 2021, with one-third of executive directors receiving no annual bonus for 2020.
Companies are increasingly focused on environmental, social, and governance (ESG) factors, but this focus is not necessarily helping them stand out from their peers. The Wall Street Journal's latest analysis of the Management Top 250, an annual ranking it produces in partnership with the Drucker Institute, found that companies find more success using other methods to stand out instead of ESG. When measuring the highest and lowest-ranking companies in terms of social responsibility, the newspaper discovered a gap of only 50 points — by far the narrowest distribution in the rankings. This same narrow gap has existed in every ranking going back to 2012, the earliest year for which metrics exist.
The Delaware Supreme Court recently sent a case back to the Court of Chancery for giving the Blasius corporate law doctrine short shrift. Blasius articulates the rule that directors who act with the primary purpose of interfering with a stockholder vote must have a compelling justification for their conduct. Coster v. UIP Cos. arose out of a dispute over a proposed dilutive stock sale to one of the incumbent directors. The Court of Chancery subjected the transaction to rigorous entire fairness review, but upheld the sale. The Delaware Supreme Court reversed, explaining that the entire fairness review does "not substitute for further equitable review" under Blasius. The decision marks the first meaningful examination of Blasius in nearly two decades. Among the takeaways, Blasius cannot be dismissed as a lesser form of review that slots in below entire fairness, and structuring a transaction used to interfere with a stockholder's franchise rights at an entirely fair price will not save it.
Environmental, social, and governance (ESG) matters are playing an increasingly prominent role in mergers and acquisitions. This rise of shareholder activism gives companies a delicate line to walk. They understand that they still need to deliver returns for shareholders, but at the same time, they have to ensure that whenever they do achieve these returns it is consistent with the ESG agenda. Andrew Probert, London-based MD of sustainability accounting advisory services at global consultancy Duff & Phelps says, “ESG considerations are absolutely critical in M&A. There is a growing appreciation for how such factors can lead to the creation of enterprise value and also help to mitigate the potential destruction of value. If ESG isn’t already integral to a firm’s decision-making process, then it should be considered.”
Directors must act in the interests of all their stakeholders and if the owners of a company’s shares aren’t happy and have a significant slice of the equity, they have recourse to action. The extraordinary general meeting (EGM) can be the high-noon showdown between management and activist shareholders. July saw a number of EGMs, although perhaps the most caustic was averted when a truce of sorts was reached between Hurricane Energy (HUR) and 25% shareholder Crystal Amber Fund. The fund was unhappy with an offer management made to bondholders that would have left the lenders owning 95% of the company. The High Court ruled against the company, agreeing with Crystal Amber that the board had been way too pessimistic and premature in trying to push through a deal with holders of $230 million of bonds which are due for payment in July 2022. What then put a stop to the EGM motions was the resignation of non-executive directors and the election of Crystal Amber nominees. Now, with the oil price back around $74 a barrel, there is some credence to Crystal Amber’s argument that Hurricane’s $145 million unrestricted cash position will improve over the next 12 months before the redemption of bonds falls due. The market seems to agree, as Hurricane’s market capitalization is back up to £58 million. Huge challenges remain in the era of decarbonization, but the episode does suggest the newsflow around EGMs may be worth following for real contrarian value investors.