ISS and Glass Lewis Recommend That Argo Shareholders Vote “FOR” All Seven of Argo’s Highly Qualified Director Nominees

Business Wire (12/05/22)

Argo Group International Holdings Ltd. (ARGO) has announced that Institutional Shareholder Services (ISS) and Glass Lewis & Co. have recommended that shareholders vote “FOR” all seven of Argo’s director nominees at the company’s upcoming Annual Meeting of Shareholders to be held on December 15, 2022. In addition, Voce Capital Management LLC, the owner of approximately 9.5% of the company’s common shares, has informed the company that it has voted all of its shares on the BLUE proxy card in support of the seven Argo nominees at the company’s upcoming 2022 annual meeting. In making its recommendations, ISS stated in its December 2, 2022 report: “The dissident has not made a compelling case for change. The highest priority for ARGO is the ongoing strategic review. There is no reason to believe that the process is not being conducted to advance the best interests of shareholders, and there is no indication that a key competency or perspective is absent from the strategic review committee.” Further, “the addition of Dan Plants in early August only bolstered the board's credibility, particularly because he was appointed to chair the strategic review committee.” In making its recommendations, Glass Lewis stated in its December 2, 2022 report: “Overall, we recognize that steps taken by the incumbent board and management have significantly transformed Argo into a focused U.S. specialty commercial insurance business and the resulting company appears stronger, more efficient, and better positioned to generate value for shareholders than the legacy structure, in our view.” Further, “Shareholders should note that Capital Returns has not offered alternative suggestions to improve the business beyond pursuing a sale of the whole Company. Given that the board is already considering a sale and has solicited a large range of potential counterparties as part of the strategic review, we do not believe the Dissident Nominees would be clearly additive to the strategic review process or likely to improve the outcome for all shareholders, if appointed to the board.”

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U.K. Social Housing Landlord Faces Call for New Leaders

Bloomberg (12/05/22) Louch, Will

A shareholder is urging Home REIT Plc to replace its leadership team following a short seller attack in November. The Boatman Capital Research published an open letter addressed to Home REIT director Simon Moore calling for the resignation of the U.K. social housing landlord's board. Boatman cited issues including claims that the landlord failed to conduct suitable due diligence on some of its tenants and make appropriate disclosures, as well as inflated the value of its property portfolio. Home REIT held back publication of its earnings and its shares have dropped more than 30% since a Viceroy Research report last month sharing concerns about the financial health and governance of some of the landlord's key tenants. The short seller also rebuked Home REIT's accounting practices and the fee structure of its outside management team. Home REIT called the report baseless and misleading. The Boatman Capital said Home REIT's rebuttal to that report exposed “substantive areas” where the landlord had been withholding in its disclosure, and a change in leadership was necessary. The shareholder said it is not affiliated with Viceroy, but that entities related to Boatman own shares in Home REIT and it may consider making a bigger investment. Boatman would also consider engaging with other investors to force change if it is not forthcoming. Home REIT claims it intends to mitigate homelessness in Britain while also producing inflation-protected income and capital returns. Its modus operandi is to purchase property which is then rented out on leases of more than two decades to charities and other organizations.

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Coupa Investor HMI Says Co. Should Fetch $95 Per Share in Sale

Bloomberg (12/05/22) Deveau, Scott

HMI Capital Management, the leading shareholder in Coupa Software Inc. (COUP), said the company should fetch at least $95 per share in a sale after getting interest from at least one possible purchaser. HMI Capital owns a 4.8% stake in Coupa. HMI Capital stated in a letter to Coupa's board on Monday that the company is an excellent business with a great management team. HMI Capital said it would not back any transaction unless it was at the right price and came after a proper sales process. The shareholder said it may be a difficult time to realize the full value of the business in the current market. “Timing is everything when it comes to successful M&A, and the standalone option simply may make more sense right now than a transaction, and certainly makes more sense than a deal at the wrong price,” said RK Mahendran, HMI Capital partner, in the letter seen by Bloomberg News. Vista Equity Partners is weighing a potential acquisition of Coupa, sources said last month. HMI Capital, which noted it has never written a public letter to a company before, argues that Coupa is undervalued and says it would spurn any offer that failed to capture the potential upside. Shares in the company closed at $64.67 in New York Friday, giving it a market value of $4.9 billion. “Our worry is that now is a difficult time to realize the full value of Coupa’s long-term potential as a market-leader, given that Coupa’s share price is currently trading at a significantly depressed level and there are near-term sector-wide challenges in the software industry,” Mahendran said. Coupa’s shares are down approximately 63% from a year ago amid a wider selloff in the technology sector. HMI Capital said that, based on other deals in the sector, Coupa should yield more than $95 per share in a sale. Last week, another Coupa shareholder, Meritage Group, said in a regulatory filing it had conveyed its own views on what it thought would be a fair price for the company without disclosing additional details. “The future for Coupa is an exciting one, and any sale price or process that fails to appropriately value Coupa’s long-term potential at the expense of seeking to rush into a deal would not be tolerated by HMI,” Mahendran said.

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Fuji Soft Proxy Fight the Latest Test of Japan Inc. Board Independence

Reuters (12/04/22) Yamazaki, Makiko

Singapore-based hedge fund 3D Investment Partners scored a win in its proxy fight with Fuji Soft Inc. by gaining board seats for two of its candidates. This is the latest incident to raise doubts about the independence of outside board members from Japanese corporate management following expansion of independent directors after nearly 10 years of governance reform. Governance experts say outside directors only have nominal independence if they are closely associated with management or do not provide proper oversight. 3D, which controls more than 20% of Fuji Soft, nominated four additional candidates for the company's nine-member board at Sunday's extraordinary general meeting (EGM), citing current outside directors' inability to resolve longstanding capital allocation deficiency. Fuji came to the defense of its current board, telling Reuters that the independence of its outside directors "has been ensured with no conflict of interests with shareholders. They have given objective opinions and have contributed to fostering active debate." 3D also pursued an EGM at Toshiba Corp. (TOSYY) this year to renew the push for a strategic review to consider going private and other options. Meanwhile, Oasis Management of Hong Kong requested an EGM from Fujitec Co. Ltd. (FJTCY) to oust all six incumbent outside directors and appoint seven nominees backed by the fund. According to the Tokyo Stock Exchange, 92% of the approximately 1,800 firms on its prime section classify at least 33% of their directors as independent, although measuring their independence from management beyond a set of written criteria is difficult. Governance experts say having a committee to nominate directors would help guarantee independence, yet just 3.9% of top-tier companies have a statutory nomination committee, where most of its members must be outside directors. The practice of senior government officials obtaining post-retirement private-sector positions has also been criticized as a corrupting element in Japanese bureaucracy.

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Opinion: An Uphill Battle Could Await Trian as the Firm Snaps Up a Stake in Disney

CNBC (12/03/22) Squire, Kenneth

Ken Squire, founder and president of 13D Monitor, writes that Trian Fund Management could face an uphill battle in its efforts to engage Walt Disney (DIS). According to recent reports Trian took an approximately $800 million stake in Disney and may be interested in growing this stake. Trian is reportedly seeking a board seat, advocating for the company to make operational improvements and reduce costs, and it has expressed its opposition to Robert Iger’s reappointment as CEO. The calls for changes at Disney are very similar to what Dan Loeb and Third Point were advocating for at Disney earlier this year. On Sept. 30, Disney reached a deal with Third Point, including adding former Meta executive Carolyn Everson to its board of directors. On Nov. 11, Disney announced companywide cost-cutting measures and told division leaders that layoffs are likely. "So, a lot of what Trian is looking for – board change (particularly with former CEO Bob Chapek now off the board) and cost reduction – has either already happened or is in the process of happening," says Squire. Another thing about Trian, says Squire, is that it’s a very thoughtful investor, known for its detailed, comprehensive white papers. "The firm did not go into this without a plan and that plan was far from spontaneous or reactive. It was a plan that Trian has likely developed over many months. And it was presumably thrown for a loop when Disney announced that it replaced Chapek with former CEO, Bob Iger," writes Squire. "The fact that Trian had not yet built its full position when its holding was reported is more evidence that the firm felt it had to go public about its investment earlier than it wanted to in reaction to Disney’s announcement." Iger was an extremely respected and value-adding CEO at Disney for many years and the stock has reacted favorably to news of his return. So, it is interesting that Trian is reportedly opposing Iger’s appointment. Nor is the firm throwing its support behind outgoing CEO Bob Chapek. "Knowing Trian and knowing activists as we do, this could mean only one thing: Trian’s plan includes its own idea for a new CEO, something that would have been a lot easier to implement last week before Chapek was replaced by Iger," says Squire. "This is going to be an uphill battle for Trian. Disney recently reached a deal with activist investor Third Point and is not likely to settle with another activist for a board seat, particularly in light of all of the changes it has already made. Moreover, Trian would likely want Nelson Peltz or Ed Garden to be the firm’s representative on the board and Nelson is already on three public company boards and Ed is on two. Disney is definitely in need of serious change, but in the past three months the company has announced a cost-cutting plan, refreshed the board, and changed its CEO. It is not unreasonable to see if these initiatives work before considering additional changes. If Disney does not offer a seat to Trian, the firm would have to resort to a proxy fight to gain a seat, which it is unlikely to win on a platform of more change and opposing Bob Iger as CEO." More will soon be revealed, as Trian has until Dec. 9 to nominate directors for the 2023 annual meeting of shareholders.

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Investment Giants Call on Chemicals Industry to Phase Out 'Forever Chemicals'

BusinessGreen (12/02/22) Murray, James

Investors with $8 trillion of assets under management and advice this week called on the world's biggest chemical producers to commit to phasing out persistent chemicals that pose a long-term threat to environmental and human health. A group of 47 asset managers have written to the CEOs of the world's largest chemicals producers to warn that growing awareness of the dangers posed by "forever chemicals" means they now present a significant legal risk, following an increasing number of lawsuits against firms and a tightening of legislation around the world. "We encourage you to lead, not be led, by phasing out and substituting these chemicals," the letter states. "In addition to the financial risks associated with litigation, producers of persistent chemicals face the risk of increased costs associated with reformulating products and modifying processes, which can have significant implications for company performance." The letter was co-ordinated by Aviva Investors and Storebrand Asset Management, and is backed by a host of leading asset managers including Axa Investment Managers, Credit Suisse Asset Management (Switzerland) AG, Resona Asset Management, and Robeco. Eugenie Mathieu, earth pillar lead at Aviva Investors, said chemical manufacturers were "lagging behind expectations when it comes to transparency and accountability. Investors are rightly pushing for better disclosure on the volume of substances being produced globally, which can inform better investment decisions and identify the corporations leading the transition towards a more sustainable and responsible future."

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