Preparing for Shareholder Activism

Transcription

1 Preparing for Shareholder Activism December 16, 2014 Tom Johnson President and head of M&A, Abernathy MacGregor Robert B. Lamm Co-Chair, Securities and Corporate Governance Practice, of Counsel to Gunster, Yoakley & Stewart, P.A. Tonia Pankopf Managing Partner, Pareto Advisors, LLC. Board member of TICC Capital Corp. and Landec Corp. Waheed Hassan, CFA Senior Managing Director M&A/Proxy Contest Group, Alliance Advisors LLC. Copyright 2014 by Alliance Advisors, LLC. ALL RIGHTS RESERVED.

2 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, Stock Surveillance, Compensation and general Corporate Governance consulting services. Over 400 clients including several Fortune 500 companies Starbucks, Walgreens, Exelon Corp, AGL Resources, Southern Company. 2

3 Types of Proxy Contests Minority Representation Target, Office Depot, Barnes & Noble, AOL, Mentor Graphics, Forest Labs Majority Representation Darden, Asure Networks, LCA Vision M&A driven Airgas/Air Products; IPC Holdings/Validus, Casey s/couche-tard Written Consents (for board seats) Zoran, Vitacost, Adaptec Written Consents (merger related) Cephalon/Valeant Pharmaceuticals, Dynegy/Seneca + Icahn, Emulex/Broadcom, Anheuser/InBev Vote no campaign + exempt solicitation 3

4 Activist investing is becoming an asset class 4 Source: FactSet Shark Repellent. Data as of 24 October 2014

5 Most activist campaigns DO NOT go to a shareholder vote 140 Total Proxy Fights (Settled + Voted-on + Withdrawn) YTD (Dec'14) Settled Voted-on Withdrawn 5 Source: FactSet Shark Repellent. Data as of 15 December 2014

6 If voted, activists have a higher chance of winning 60 Management vs. Dissident Track Record in Proxy Fights YTD (Dec'14) Management won Dissident won Split 6 Source: FactSet Shark Repellent. Data as of 15 December 2014

7 Activist win-rate is the highest in a decade Dissident success rate in Proxy Fights (%) Source: FactSet Shark Repellent. Data as of 15 December

8 Activists typically seek minority representation Vote/Activism against a Merger 3% 2013 Vote for Stockholder Proposal 3% Board Control 36% Minority Board Representation 57% Vote/Activism against a Merger 4% Vote for Stockholder Proposal 5% Board Control 32% YTD (Oct'14) Minority Board Representation 57% Source: FactSet Shark Repellent. Data as of 24 October

9 A typical proxy fight timeline Typically 3-4 months before annual meeting Activist states intent for proxy action. Company responds with press release to defend and contacts its stakeholders Both parties build up their case, research, compile materials and release public communications for more support Activist files proxy materials and proxy card with the SEC formally starting the proxy fight 1 month before annual meeting Activist and Company send letters to shareholders, with proxy materials and the proxy card for voting Company board and activist will try to meet with investors and make the case for their plans an investor road show Third party proxy advisors are used. ISS is the biggest (their decision will determine 30-40% of votes). Activist meets first and presents, then Company 1-2 weeks before annual meeting Final Stretch some weeks before the meeting, both activist and company try and secure votes Shareholders lock in their votes a couple of days before the annual meeting Annual Shareholder Meeting votes are counted and the winner is announced 9

10 Preparing for a Potential Activist Situation Evaluate Assess vulnerabilities and weaknesses Conduct investor vulnerability study including investor perception study and analysis of shareholder base Identify legal defenses Know your activists different activists employ different tactics; therefore, knowing who the activists are will help to inform our defense Activate Reach out to and organize third parties, positioning them to speak positively about the company Appoint the defense team including internal representatives from Legal, PR, IR, Gov t Relations, Employee Communications and external legal, financial and communications advisors and proxy solicitors Develop a regular cadence of communication with the Board of Directors Create detailed plans for various scenarios and contingencies Engage Create the written record of good governance that can be cited Position the company for a potential dialogue with ISS, putting in place the indications of good governance that can support a positive recommendation 10

11 Elements of an Activist Defense Campaign Messaging Planning Develop messaging alongside the company and its advisors using the company s stated strategy and business goals as the core argument Draft/review investor-focused materials from news releases to presentations Plan and develop communications to employees and customers Draft proxy-specific fight letters and call scripts and provide communications and PR advice to help shape solicitation and proxy filings. Develop communications strategies to advance the company s business objectives Provide guidance to internal PR and IR resources, executive team, and Board in launching outreach and communications initiatives to further the proxy goals Plan and prepare for and help respond to leaks and unexpected disclosures Create a calendar of key dates and a timetable for logistics Execution Engage media, both on- and/or off-the-record, to shape coverage Launch direct communications to those with the influence to create the margin for victory for example, letters that appeal to non-activist investors Sharpen investor communications: earnings releases and scripts; investor non-deal presentations and analyst days; annual reports; web site materials 11

12 Outlook Activism likely to continue Fundamentals likely to support activist campaigns Balance sheet activism: stock buybacks, special dividends (U.S. companies estimated to have approx. $1.7 trillion in cash) Operational activism: sale/spin-off of business segments New activist investors Engaged Capital (formerly from Relational Investors) Privet Funds (J. Alexander s, PFSweb, Inc.) Jeffrey Eberwein and group (former PM at Soros Fund) Potomac Capital (Sigma Designs) Traditional activists getting bigger and more sophisticated Starboard (Darden, AOL, Office Depot) Long only funds willing to work with hedge funds/activist investors The Timken Company (Relational + CalSTRS) McGraw-Hill Companies (JANA Partners + Ontario Teachers Pension Fund) 12

13 13 ISS Framework for Contested Meetings

14 ISS Framework Proxy Contests ISS proxy contest framework for board representation: Prong 1: Have the dissidents met the burden of proving that board change is warranted? And, if so; Prong 2: Will the dissident nominees be more likely to affect positive change (i.e., increase shareholder value) versus the incumbent nominees? For majority board representation the dissidents is required to provide a well-reasoned and detailed business plan (including the dissidents' strategic initiatives), a transition plan that describes how the change in control of the company will be effected, and if applicable, identify a qualified and credible new management team For minority board representation the dissident is required to prove that board change is preferable to the status quo; & the dissident director slate will add value to board deliberations including by, among other factors, considering issues from a different viewpoint than the current board members 14

15 ISS Framework M&A Proxy Contests In M&A related proxy contests, ISS focuses on the following: Did the acquirer make a reasonable offer? How did the target board respond to acquirer s offer? Does the target have anti-takeover mechanisms in place? What options do target shareholders have to realize value for themselves? Are acquirer nominees conflicted? Would acquirer nominees likely maximize value for target shareholders? 15

16 ISS Framework Contested M&A Transactions In contested M&A transaction, ISS focuses on the following: Economics of and market response to the offer; The governance and strength of the sales process; The strategic reasons for the merger; and The relative attractiveness of the available alternatives. In the context of one or more competing bids, ISS will look in particular at the desirability of the agreed transaction relative to the other bids, mindful that competing bids must demonstrate not only more favorable economic terms, but also a reasonable certainty target shareholders can realize that value, or a higher value, if they take the risk of voting down the deal in hand. 16

17 Contact Information Waheed Hassan, CFA Senior Managing Director