TPG-Axon Capital launched a proxy campaign against energy
company SandRidge Energy Corp., it choreographed an attack worthy of a
seasoned activist, even though it was the 8-year-old hedge fund's only
second such public fight.
TPG-Axon hired private investigators at
Kroll to unearth alleged governance lapses at SandRidge. It found several
candidates to nominate on the company's board. It even put up a website
for a months-long campaign that eventually led to the
ouster of CEO
Tom Ward earlier this year.
The hedge fund had experienced help. Even
before it launched the campaign, it hired Schulte Roth & Zabel LLP lawyer
Marc Weingarten, a 30-year veteran of activist campaigns, and his partner
David Rosewater, for advice.
Mr. Weingarten, Olshan Frome Wolosky LLP's
Steve Wolosky, and a handful of other lawyers are the go-to advisers for
activist investors, dominating a field that is often shunned by large law
firms that are loathed to upset their corporate clients.
These lawyers help activist investors
devise campaign strategies, broker introductions with other investors to
find common cause, and help find candidates to replace corporate boards.
Their analysis includes background checks on the board members, studying
the shareholder composition, and proxy advisory reports. Overall, they
help an investor determine if it is worthwhile to stage a campaign.
"It's generally about finding out where are
the vulnerabilities and assessing their risk profile," Mr. Wolosky said.
"If a lot of shareholders are retail investors, for example, it's going to
be a harder proxy contest because they don't vote as much."
Messrs. Wolosky and Weingarten stand out
because they have dedicated their decades-long practices largely to
advising activist investors. They are joined by a handful of lawyers at
the largest law firms that have made exceptions for some big-name activist
Bill Ackman of
Pershing Square Capital Management, for example, often turns to
Kirkland & Ellis LLP's Stephen Fraidin and Sullivan & Cromwell LLP's Alan
Daniel Loeb has relied on Tariq Mundiya and Michael Schwartz at
Willkie Farr & Gallagher LLP, as well as Dennis Friedman from Gibson Dunn
& Crutcher LLP.
Paul, Weiss, Rifkind, Wharton & Garrison
LLP attorneys Robert Schumer and Steven Williams have
Elliott Management as a major client, recently advising the
investor on its proxy contest with Hess Corp.
Third Point declined to comment, while the
other investors did not respond to requests for a comment.
"Just as the best activists are good
strategists, the same can be said of activist lawyers," Mr. Schwartz said.
Still, many large law firms — including
Wachtell, Lipton, Rosen & Katz and Skadden, Arps, Slate, Meagher & Flom
LLP — have made a policy of not working with activist investors. Wachtell
did not respond to requests for a comment. Skadden confirmed its policy of
only working with corporate management.
As a result, Schulte Roth, best known as
the long-time firm for hedge fund manager
Cerberus Capital Management, and Olshan Frome, a New York-based
firm with only 85 attorneys, have come to dominate the activism market.
Of the 75 proxy fights launched this year,
the Olshan Frome team has advised on 21, according to FactSet SharkWatch
data. The team has also been involved in such high-profile fights as
Starboard Value LP's
effort to break up the proposed $4.7 billion takeover of Smithfield
Foods Inc. by Shuanghui International Holdings.
The Schulte Roth team, co-headed by Messrs.
Weingarten and Rosewater, meanwhile, has worked on at least 15 fights this
year, according to the data.
Many activist situations are resolved
before they ever become public and are not counted in the data.
Of the 75 proxy fights so far this year,
activist investors have scored partial or full victories with 42,
according to SharkWatch data. Management won 20 cases and results are
pending for the remaining 13. In 2012, activists scored partial or full
victories at half of the 74 proxy fights.
For activists, the importance of a
carefully planned strategy is only increasing as companies become more
aggressive about defense, bringing in their own advisers at the first
signs of trouble.
Nuance Communications Inc., for example,
enlisted investment bank Goldman Sachs Group Inc. after billionaire
Carl Icahn revealed a stake in the company as a passive
investor, according to people familiar with the matter. Nuance and Goldman
declined to comment.
After the financial crisis put an end to
the buyout boom, it became harder for activists to agitate for the sale of
a company, in part because private equity firms and corporate buyers are
more careful about their purchases.
"It was low-hanging fruit — try to force a
company to be acquired and there were enough private equity firms eager to
buy them," Mr. Fraidin said. "Now, private equity firms are not quite so
eager to step up and acquire the company, requiring sophisticated strategy
Lawyer as Matchmaker
Mr. Rosewater said they help analyze the
governance structures of potential targets to understand what can be done.
But their services go far beyond the basics. They work alongside executive
search firms, and use their personal connections to find candidates for
dissident board slates.
Sometimes, they even introduce activists to
other investors who may have similar views on a company. That is
particularly valuable to "accidental activists," or funds that agitate
only occasionally, the lawyers said.
Mr. Wolosky, who is advising
Coppersmith Capital Management in its
proxy battle against healthcare company Alere Inc., for example,
introduced Scopia Capital Management to the investor. The two funds
are now working together against Alere. A shareholder vote is scheduled on
Wednesday [Aug. 7].
"Sometimes I pair up investors to work
together since one investor might not have the capital to do it on their
own," Mr. Wolosky said. "It's a little bit of matchmaking."
Jessica Toonkel and