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 professional defense combining tactical process management and appeasement

 

Source: Financial Times, September 14, 2014 article

ft.com > companies > financials >

 

Financial Services

 

 

September 14, 2014 3:02 pm

US companies devise tactics to limit activists’ advances

By Stephen Foley


 

©Bloomberg

 

 

US companies are devising new tactics to limit the advance of activist investors, as hedge funds wage an increasing number of campaigns to unseat entire corporate boards.

The number of occasions on which activists have put forward a full slate of new board members has more than doubled in the past two years, reflecting the growing confidence and financial firepower of this sector of the hedge fund industry.

 In response, companies are appealing directly to shareholders to cap activists’ influence to a minority of board seats, in what corporate governance lawyers describe as a “cat and mouse game” between the two sides.

Darden Restaurants, which owns the US chain Olive Garden, is the latest in a string of companies to concede a minority of seats to an activist and argue that handing full control of the board to a hedge fund would hurt shareholders’ interests.

“Companies are using a new tactic in the face of the risk of majority-slate contests,” said David Rosewater, partner at Schulte Roth & Zabel, which advises activists.

“It is a cat-and-mouse game. When they gift seats to the activist, it gives companies an argument that it doesn’t represent the same kind of mandate for change.”

Darden has put up only eight nominees for 12 board seats at next month’s annual meeting, leaving four free for nominees from Starboard Value, the activist fund run by Jeff Smith, which is running 12 candidates.

Darden is locked in a battle with Starboard over how it is running Olive Garden and other chains. Darden warned last week of “the risks and destabilisation that would result from full board turnover and giving control to a single shareholder’s nominees”.

Assailed by activists, many companies are entering settlement talks and agreeing to give them board seats, as Hertz did last week with corporate raider Carl Icahn.

Darden’s plan to leave seats vacant even though a settlement cannot be reached comes on the heels of similar concessions at Cliffs Natural Resources, an iron ore miner, and Bob Evans Farms, a restaurant chain. In both cases, activists were attempting to take a majority of board seats.

In the US, where shareholders are handed two competing voting cards and allowed to vote on only one, the aim is to encourage them to use the management ballot, even if they would like activists to receive some board representation. That maximises the chances of management keeping control.

At Bob Evans Farms, the manoeuvre kept Sandell Asset Management to a minority of the seats, but at Cliffs, Casablanca Capital did win control and replaced the chief executive.

According to global data from research group Activist Insight, there have been 21 contests in the past two years in which activist hedge funds have proposed nominees to completely replace a corporate board. All but two are US companies. That compares with eight contests globally in the two years before that.

 

 

© The Financial Times Ltd 2014

 

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.