Forum Home Page [see Broadridge note below]

 The Shareholder ForumTM`

Fair Investor Access

See related case examples of

Dell Inc.

appraisal rights for intrinsic value realization

and

Walgreen Co.

stock buyback policies

"Fair Access" Home Page

"Fair Access" Program Reference

For graphs of specific company and related industry returns, see

Returns on Corporate Capital

For graphs of specific company voting for the past 5 years, see

Shareholder Support Rankings

 

 

 

Forum distribution:

Evolving trends in corporate accommodation of activist interests

 

Source: Financial Times, December 23, 2013 article

ft.com > companies > financials >

Financial Services

 

Activist hedge fund managers get board welcome

By Stephen Foley in New York


 

 

Activist hedge fund managers are sitting on a record amount of money to deploy against underperforming companies. They are targeting larger businesses than ever before, and they have never had so much success in securing what they want.

But if this year marks the triumph of activism, what do the activists do next?

The very presence of this particular breed of hedge fund managers on a share register used to prompt a company to put up the barricades. Now they are finding more directors receptive to the traditional activist ideas of returning capital, spinning off businesses and are even inviting activists’ representatives on to the board.

Jana Partners, the $8bn fund run by Barry Rosenstein, launched five activist campaigns against US companies this year, all of which have resulted in change without so far resorting to a proxy fight for board seats. Safeway, the grocery chain, agreed to Jana’s suggestion that it jettison underperforming stores, for example, and QEP Resources, an oil and gas explorer, acceded to demands to split itself in two.

“Good ideas usually win out over the long run,” Mr Rosenstein says. “What is changing is that more and more boards are seeing the inevitable outcome and skipping the perfunctory battle, and we benefited from that.”

Institutional Shareholder Services calculates that 68 per cent of proxy fights for board representatives resulted in success for activists this year, and that does not include cases where the agitators were invited on to the board before launching a fight. The number was 43 per cent last year.

Activists have an easier path to victory, now. Years of corporate governance campaigners chipping away have paid off and American companies maintain fewer of the staggered board elections that blocked change and fewer of the poison pill defences that blocked activist stakebuilding. Activists also have the ear of the traditional large fund management groups, which are themselves pressing management to be more responsive to shareholder concerns.

For their part, and with notable exceptions, activists have been toning down the invective against existing managers and working harder to present credible plans and to propose serious board candidates.

“Activism in general has become more serious,” says David Rosewater, partner at Schulte Roth & Zabel, who has advised several activist hedge funds. “Many activist situations never see the light of day or settle shortly after it becomes clear that the activist is serious about pursuing it. Settlements far outnumber proxy fights.”

Bill Ackman’s Pershing Square took its biggest ever activist position in July when it paid $2.2bn for a stake in industrial gases group Air Products. Within three months Mr Ackman had persuaded the board to retire its chairman John McGlade and give Pershing Square control over two directorships – all without uttering a negative word about the company.

Carl Icahn, whose lieutenants were invited this month on to the board of medical testing company Hologic, says: “People sometimes say that I’m not mellow, but we really try to get friendly when we are on boards.

“Boards are starting to conclude, mostly because of the success companies have had when we got on the board, that we really help and ask, ‘Why go through the fight?’ Their attitude is changing.”

Assets managed by activist hedge funds surpassed $90bn in the fourth quarter, according to HFR, almost triple the total five years ago, giving these investors more firepower than ever. Returns, however, have been prosaic, even while global stock markets went on a tear, raising the possibility that improved governance across corporate America might have reduced the rich pickings once on offer.

Companies and their investment bank advisers are increasingly conducting “fire drills” for an activist attack, and in the process identifying strategic weaknesses that they fix even before a hedge fund shows up.

Mr Ackman, in a speech while visiting the UK in the autumn, tipped Europe as a more lucrative ground for activism in the coming years.

Japan is also attracting attention thanks to the climate of reform ushered in by Prime Minister Shinzo Abe. Dan Loeb’s Third Point took $1bn-plus stakes in Sony and SoftBank in 2013, though his overture to Sony suggesting it partially spin off its entertainment business was rebuffed.

Some smaller activist funds are focusing on smaller companies, where the reduction in Wall Street research coverage has been most acute. Cliff Robbins, founder and chief executive of Blue Harbour, which manages just under $2bn, pitches his fund as a free advisory service to the companies in which it invests.

“Investment bankers don’t wake up in the morning thinking, ‘How can I help this $2bn company?’” Mr Robbins says.

Others, however, see plenty of opportunity still in shaking up the largest corporations in the world. They cite the example of Apple, where a demand by David Einhorn’s Greenlight Capital that the iPhone maker issue preference shares to investors was defeated in February but was quickly followed by the company announcing an extra $55bn return of cash.


“There are very high levels of cash on corporate balance sheets, which plays to the activists’ theme of optimising capital structure,” says Doug Braunstein, vice-chairman at JPMorgan Chase, adding that the rising stock market is also separating the wheat from the chaff and making underperforming companies more visible.

“We are actually at the beginning of a long-term sustainable level of activity. It is an attractive environment for picking potential targets,” he says.

 

Copyright The Financial Times Limited 2013.

 

 

 

This Forum program is open, free of charge, to anyone concerned with investor interests in the development of marketplace standards for expanded access to information for securities valuation and shareholder voting decisions. As stated in the posted Conditions of Participation, the Forum's purpose is to provide decision-makers with access to information and a free exchange of views on the issues presented in the program's Forum Summary. Each participant is expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

This Forum program was initiated to address issues and objectives defined by participants in the 2010 "E-Meetings" program relevant to broad public interests in marketplace practices, rather than investor decisions relating to only a single company. The Forum may therefore invite program support of several companies that can provide both expertise and examples of leadership relating to the issues being addressed.

Inquiries about this Forum program and requests to be included in its distribution list may be addressed to access@shareholderforum.com.

The information provided to Forum participants is intended for their private reference, and permission has not been granted for the republishing of any copyrighted material. The material presented on this web site is the responsibility of Gary Lutin, as chairman of the Shareholder Forum.

Shareholder Forum™ is a trademark owned by The Shareholder Forum, Inc., for the programs conducted since 1999 to support investor access to decision-making information. It should be noted that we have no responsibility for the services that Broadridge Financial Solutions, Inc., introduced for review in the Forum's 2010 "E-Meetings" program and has since been offering with the “Shareholder Forum” name, and we have asked Broadridge to use a different name that does not suggest our support or endorsement.