Shareholder Activism Webinar. Dealing with Evolving Activist Investor Strategies. March 12, Moderator: Shirley Westcott

Transcription

1 Shareholder Activism Webinar Dealing with Evolving Activist Investor Strategies March 12, 2014 Moderator: Shirley Westcott Senior Vice President Alliance Advisors LLC. Copyright 2012 by Alliance Advisors, LLC. ALL RIGHTS RESERVED.

2 Today s Agenda Overview: Evolution of activist campaigns and proxy fights Key factors driving increased shareholder activism Activist investor strategies for forcing fundamental corporate change Best practices for boards for dealing with hedge fund activists Preparing for an activist intrusion Conflict of interest considerations: golden leashes and director qualifications Engaging with shareholders Role of proxy advisory firms What s next? 2

3 Panelists Harvey L. Pitt Former SEC Chairman CEO and Managing Director Kalorama Partners, LLC and Kalorama Legal Services, PLLC Janet Wright Vice President, Corporate, Securities & Finance Counsel & Assistant Secretary Dell Inc. Zach Oleksiuk, CFA Head, Americas Corporate Governance & Responsible Investment BlackRock 3

4 Activist campaigns are on the rise again All Proxy Fights (Voted + Settled + Withdrawn) YTD (Mar'14) Source: FactSet Shark Repellent. Data as of 7 March

5 Key Issues in Activist Campaigns Poor total shareholder returns ( TSR ) Over-priced acquisitions (related unsustainable levels of leverage) Deteriorating operating metrics (profit margins, ROE and ROIC) Capital allocation (share buybacks and special dividends) Restructuring (spin-off or sale of underperforming segment or non-core business) 5

6 Activism Outlook Fundamentals support activist campaigns Balance sheet activism: stock buybacks, special dividends (U.S. companies estimated to have approx. $1.7 trillion in cash) Scale: Technology and biotech companies, regional banks Operational activism: Issuers with underperforming business segments. Stock market return: Targets likely to have relative TSR underperformance Pension funds faced with funding gaps have become more receptive to joining forces with activist investors Traditional activists getting bigger and bolder Targets are getting bigger no company is immune 6

7 Board representation is the most prevalent type of activist campaign Vote/Activism against a Merger 3% 2013 Vote for Stockholder Proposal 3% Board Control 37% Minority Board Representation 57% Source: FactSet Shark Repellent. Data as of 7 March

8 Activist investors are becoming better at making a compelling case for change 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% Dissident Success Rate Source: FactSet Shark Repellent. Data as of 7 March 2014 Note: Success is defined as the number of outright victories, partial victories or settlements by the dissident as a percentage of all proxy fights where an outcome has been reached. 8

9 Operational Shareholder Proposals Timken (CalSTRS and Relational Investors): Proposal to spin off the steel business was approved by shareholders and adopted by the board. Apple (Carl Icahn): Proposal to expand the capital return program was withdrawn after encountering dissent from ISS and several investors. Ongoing campaigns ebay (Carl Icahn): Proposal to spin off the PayPal business Darden Restaurants (Starboard): Proposal opposing the company s planned break-up into two operating companies and a REIT 9

10 Golden Leashes Dissident compensation schemes raise conflict-of-interest concerns in 2013 proxy fights Hess (Elliott Management): Incentive payment tied to three-year TSR outperformance Agrium (Jana Partners): Incentive payment tied to Jana s net profit on the stock 35+ companies adopted tougher director qualification bylaws last year Prohibit board nominees from receiving third-party payments in connection with their service or candidacy as directors ISS and Glass Lewis oppose as overly broad will recommend against boards/governance committee members if unilaterally adopted Most are being repealed ahead of 2014 annual meetings 10

11 The Role of Proxy Advisors Two major players Institutional Shareholder Services (ISS) Owned by MSCI, but up for sale Founded in 1985; 1,700+ clients Provides global proxy voting, research and recommendations; governance ratings Glass Lewis & Co. Owned by Ontario Teachers Pension Plan Board Founded in 2003; 900+ clients Provides global proxy voting, research and recommendations Concerns and criticisms Outsized influence Control 97% of the proxy services market Affect 38% of votes at U.S. public company shareholder meetings Conflicts of interest Transparency Generic one-size-fits-all voting recommendations Over-reliance by institutional investors, particularly smaller ones 11

12 About Alliance Advisors LLC Founded in 2005, Alliance is a multi-faceted shareholder communications firm specializing in proxy solicitation, governance consulting, information agent services and proxy management. Four former senior ISS/Proxy Governance team members on staff with topic expertise in executive compensation, corporate governance and M&A/proxy fights. Offer specialized year-round activist monitoring, compensation and general corporate governance consulting services. Over 400 clients including several Fortune 500 companies. 12

13 Q&A Contact Us: Waheed Hassan, CFA Managing Director M&A/Proxy Contest Group For more information, please visit our website: 13