THE WALL STREET
Activists Declare Truce in Boardroom Battles
Directors Find It Cheaper to Negotiate Than Fight
By David Benoit
Talisman Energy, which
agreed this month to grant two board seats to investor Carl
Icahn, explored for fossil fuel in central Poland, above.
Activist investors are
increasingly encountering an unusual reception when approaching
corporate targets: an open door.
Instead of pulling up the
drawbridge as activists approach, corporate executives and directors
more often are engaging, concluding that it is easier and cheaper to
negotiate rather than resist and risk a public fight, advisers and
Carl Icahn, long seen as the archenemy of chief executives, is
finding the path to the boardroom easier to tread. Mr. Icahn, among
the most relentless of activists, secured representatives on more
boards this year than he ever has, without resorting to
"I'm even surprised," Mr.
Icahn said in an interview. "Being admitted to all these boards
without a proxy fight would have been unthinkable only a year ago."
Mr. Icahn attributes his
streak to a new openness among companies to the notion that working
with him could be good business. "The thing that changed is people
understand that the thing I do is very often successful," he said.
Others point out that
companies are generally becoming more receptive because activists
increasingly enjoy the support of long-term institutional shareholders
that traditionally allied with management. That relationship means
companies who resist activists could risk alienating their broader
Activists have won or
settled for a board seat in 66% of all proxy contests this year, up
from 43% last year, according to proxy-advisory firm Institutional
Shareholder Services Inc.
Deals lawyer Phillip Mills,
who advises companies, said activists and corporate boards are finding
it better to settle because fights can be debilitating for both sides.
Also, companies typically extract something in return for concessions
to activists, for example, an agreement by an activist to limit the
size of a position they will build or refrain from waging a proxy
Mr. Icahn's firm,
Icahn Enterprises LP, has reached agreements this year with seven
companies to place at least one of his representatives on their
boards, including five pacts in the past two months. Each time, he
avoided a shareholder vote and, for the most part, critical comments
toward the companies.
Mr. Icahn's firm has never
before secured seats on more than six boards in one year, either
peacefully or through a proxy fight, according to FactSet SharkWatch.
Monday marked the latest pact. He placed two representatives on the
Hologic Inc., an imaging and diagnostics company, less than three
weeks after disclosing a stake.
Hologic said Monday that it
would look forward to working with Mr. Icahn's appointees. Mr. Icahn
agreed, among other things, to vote his shares in favor of the board's
recommendations at the next annual meeting.
Companies have also struck
deals with other activists.
Microsoft Corp. agreed in August to give activist ValueAct Capital
Management LP the right to a board seat, though ValueAct hadn't
launched a proxy fight.
Meanwhile, other activists
are finding companies acting on their recommendations, even without
the investor securing board seats. Jana Partners LLC attempts to avoid
fights, though will battle when needed. Five companies have made
strategic decisions this year similar to what Jana proposed in federal
filings, each time without Jana seeking board seats.
Not every approach is
Agrium Inc. rejected most of the advice from Jana Partners and in
April defeated the activist's attempt to install a slate of directors
on the board of the Calgary-based fertilizer company. And companies
increasingly are pitched by bankers on steps to take to avoid an
activist overture in the first place.
There has been an uptick in
U.S. proxy campaigns this year, with 35 fights through November, up
from 27 at that time last year, according to data from ISS. Both of
those figures are down from 43 at this point in 2009, according to
ISS. The amount of activist campaigns in general for both years is up
from 2009, according to FactSet, suggesting proxy fights are declining
as a percentage of overall activity.
Mr. Icahn has long been
seen as one of the feistiest fighters. That is what makes his 2013
record notable. "The best way to win the war is not to fight," he
He maintains it is his
performance that is doing the talking. Since 2008, if an investor had
bought stock in the 20 companies Icahn Enterprises joined and held for
as long as they were on that board, the investor would have earned a
28% annualized return, Mr. Icahn said. The publicly traded shares of
Icahn Enterprises have more than tripled this year. By comparison, the
Dow Jones Industrial Average's total annualized return is 16% since
the end of 2008 and about 25% this year.
Talisman Energy Inc., a Calgary-based oil and gas producer,
reached an agreement this month with Mr. Icahn, granting two board
Mr. Icahn reported a 6%
stake in Talisman in October and said in a filing he may have
conversations with management about strategic alternatives and board
seats. Other than a similar message to his nearly 120,000 followers on
Twitter, Mr. Icahn was silent on the matter afterward. Behind the
scenes, though, he had several meetings with Talisman, both sides
"Our conversations to date
have been constructive and open," a Talisman spokesman said. "He took
an interest in the company as he sees the company's potential, but
also recognizes some of the challenges."
People close to other
companies in which Mr. Icahn secured board seats this year echoed that
Herbalife Ltd. and
Nuance Communications Inc.
Even Mr. Icahn's tussle
Apple Inc. over its cash hoard has remained mostly cordial: Apple
Chief Executive Tim Cook dined at Mr. Icahn's New York apartment in
Mr. Icahn still won't back
away from a fight. He won a board seat in a proxy vote this year
though even there he later managed to add another representative
without a battle.
And he spent several months
dueling Dell Inc., in which founder
Michael Dell wanted to buy the company. Mr. Icahn accused the Dell
board of being the worst he had seen. He ultimately failed to stop the
buyout, but the price was bumped up.
Write to David
Copyright ©2013 Dow Jones & Company, Inc. All Rights Reserved.